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Flashcards in CH 5 GLOSSARY Deck (20)
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Bearer negotiable instruments Include monetary instruments in bearer form such as: negotiable instruments (including checks, promissory notes and money orders) that are either in bearer form, are endorsed without restriction, are made out to a fictitious payee, or are otherwise in such form that title thereto passes upon delivery.


What is  Memorandum of Understanding?

An agreement between two parties establishing a set of principles that govern their relationship on a particular matter. An MOU is often used by countries to govern their sharing of assets in international asset-forfeiture cases or to set out theirrespective duties in anti-money laundering initiatives. Financial Intelligence Units (FIUs), with the task of receiving andanalyzing suspicious transaction reports on an ongoing basis and maintaining close links with police and customs authorities, share information among themselves informally in the context of investigations, usually on the basis of an MOU. The Egmont Group of FIUs has established a model for such MOUs. Unlike the Mutual Legal Assistance Treaty (see below), this gateway is ordinarily used not for obtaining evidence, but for obtaining intelligence that might lead to evidence.


What is a commision rogatoire?

Also known as letter rogatory, commission rogatoire is a written request for legal or judicial assistance sent by the central authority of one country to the central authority of another when seeking evidence from the foreign jurisdiction. The letter typically specifies the nature of the request, the relevant criminal charges in the requesting country, the legal provision under which the request is made, and the information sought.


What is a country's extraterritorial reach?

The extension of one country’s policies and laws to the citizens and institutions of another. U.S. money laundering laws contain several provisions that extend its prohibitions and sanctions into other countries. For example, the “extraterritorial jurisdiction” of the principal U.S. anti-money laundering law can apply to a non-U.S. citizen if the “conduct” occurs “in part” in the U.S. (Title 18, USC Sec. 1956(f)).


Describe a Financial Intelligence Unit (FIU).

A central governmental office that obtains information from financial reports, processes it and then discloses it to an appropriate government authority in support of a national antimoney laundering effort. The activities performed by an FIU include receiving, analyzing and disseminating information and, sometimes, investigating violations and prosecuting individuals indicated in the disclosures.


What is a front company?

A business that commingles illicit funds with revenue generated from the sale of legitimate products or services. Criminals use front companies to launder illicit money by giving the funds the appearance of legitimate origin. Organized crime has used pizza parlors to mask proceeds from heroin trafficking. Front companies may have access to substantial illicit funds, allowing them to subsidize front company products and services at levels well below market rates or even below manufacturing costs. Front companies have a competitive advantage over legitimate firms that must borrow from financial markets, making it difficult for legitimate businesses to compete with front companies.


What is an International Business Company (IBC)?

A variety of offshore corporate structures, alternately called “exempt companies,” which are dedicated to business use outside the incorporating jurisdiction, rapid formation, secrecy, broad powers, low cost, low to zero taxation, and minimal filing and reporting requirements.


Describe Know Your Customer (KYC).

Know Your Customer (KYC) refers to anti-money laundering policies and procedures used to determine the true identity of a customer and the type of activity that is “normal and expected,” and to detect activity that is “unusual” for a particular customer. Many experts believe that a sound KYC program is one of the best tools in an effective anti-money laundering program.


What is a Mutual Legal Assistance Treaty (MLAT)?

An agreement among countries allowing for mutual assistance in legal proceedings and access to documents and witnesses and other legal and judicial resources in the respective countries, in private and public sectors, for use in official investigations and prosecutions.


Define physical cross-border transportation of currency.

The physical cross-border transportation of currency is defined as any in-bound or out-bound transportation of currency or bearer negotiable instruments from one country to another. The term includes:

  • physical transportation by a natural person, or in that person’s accompanying luggage or vehicle;
  • shipment of currency through cargo containers; and
  • the mailing of currency or bearer negotiable instruments.


Define a red flag.

A warning signal that should bring attention to a potentially suspicious situation, transaction or activity.


What are remittance services?

Remittance services are also referred to as giro houses or casas de cambio. Remittance services are businesses that receive cash or other funds that they transfer through the banking system to another account. The account is held by an associated company in a foreign jurisdiction where the money is made available to the ultimate recipient.


Describe a Ponzi Scheme.

A money laundering system named after Charles Ponzi, an Italian immigrant who spent 10 years in jail in the U.S. for a scheme that defrauded 40,000 people out of $15,000,000. Ponzi’s name became synonymous with the use of new investors’ money to pay off prior investors. Ponzi schemes involve fake, non-existent investment schemes in which the investors are tricked into investing on the promise of unusually attractive returns. The operator of the scheme can keep the operation going by paying off early investors with the money from new investors until the scheme collapses under its own weight and/or the promoter vanishes with the remaining money. The scheme recently engaged in by Bernie Madoff is an example of a Ponzi scheme. The prime bank guaranty, roll program, bank debenture program and high yield promises are frequently used to entice investors into participating in Ponzi schemes.


What is a safe harbor for reporting suspicious activity?

Safe harbor is defined as legal protection for financial institutions, their directors, officers and employees from criminal and civil liability for breach of any restriction on disclosing information imposed by contract or by any legislative, regulatory or administrative prohibition, if they report their suspicions in good faith to the Financial Investigation Unit (FIU), even if they did not know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred.


Define smurfing.

A commonly used money laundering method, smurfing involves the use of multiple individuals and/or multiple transactions for making cash deposits, buying monetary instruments or bank drafts in amounts under the reporting threshold.


Describe a tax haven.

Countries that offer special tax incentives or tax avoidance to foreign investors and depositors.


What is tipping off?

The improper or illegal act of notifying a suspect that he or she is the subject of a Suspicious Transaction Report or is otherwise being investigated or pursued by the authorities.


Describe a trustee.

A trustee may be a paid professional or company or unpaid person that holds the assets in a trust fund separate from the trustee’s own assets. The trustee invests and disposes of the assets in accordance with the settlor’s trust deed, taking into consideration any letter of wishes.


What is hawala?

A funds exchange system in Indian and Chinese civilizations used to facilitate the secure and convenient cross-border movement of funds. Hawala was born centuries before Western financial systems. Merchant traders wishing to send funds to their homelands would deposit them with a hawala broker or hawaladar who normally owned a trading business. For a small fee,the banker would arrange for the funds to be available for withdrawal from another banker, normally also a trader, in another country. The two bankers would settle accounts through the normal process of trade. Today, the technique works much the same, with businesspersons in various parts of the world using their corporate accounts to move money internationally for thirdparties. Deposits and withdrawals are made through hawaladars, rather than traditional financial institutions. The practice is vulnerable to terrorist financing and money laundering—funds do not actually cross borders, and transactions tend to be confidential, as records are not stringently kept. In Pakistan, the system is called hundi. See Alternative Remittance System.


Describe willful blindness.

A legal principle that operates in money laundering cases in the U.S. and is defined by courts as the “deliberate avoidance of knowledge of the facts” or “purposeful indifference.” Courts have held that willful blindness is the equivalent of actual knowledge of the illegal source of funds or of the intentions of a customer in a money laundering transaction.