Flashcards in Chapter 1 Deck (51)
MONEY LAUNDERING - What is the concept of willful blindness?
The concept of willful blindness is the "deliberate avoidance of knowledge of the facts" or "purposeful indifference," and is the equivalent of actual knowledge.
VIRTUAL CURRENCY - What is one of the primary concerns with regard to the use of virtual currencies?
One of the primary concerns with regard to the use of virtual currencies is the fact that beneficial ownership information may be difficult to obtain.
BLACK MARKET PESO EXCHANGE - In summary form, how does the black market peso exchange (BMPE) work in laundering money?
As an example, the drug trafficker sells drugs for US dollars in the US and -- in order to avoid smuggling the US dollars back to Mexico -- the trafficker gives the proceeds to a "peso broker." The broker finds businesses in Mexico that want to buy goods in the US. Then the broker buys the US goods with US dollars and has the goods shipped to Mexico. The businesses in Mexico pays the broker in Mexico in pesos and the broker gives the pesos -- minus a fee -- to the drug traffickers.
REAL ESTATE - List reasons why real estate can be an attractive method of money laundering, according to the 2015 report by the Australian Transaction Reports and Analysis Centre (AUSTRAC).
It can be purchased with cash; the ultimate beneficial owner can be disguised; it is a relatively stable and reliable investment; and the value can be increased through renovations and improvements.
GATEKEEPERS - Name various ways that a gatekeeper -- an attorney, notary, accountant or auditor -- could assist in a money laundering scheme.
Creating and managing corporate vehicles or other complex legal arrangements; buying or selling property as a cover for transfers of illegal funds; performing financial transactions, including making deposits, withdrawing funds, engaging in foreign exchange operations, buying or selling stock and sending international wires; and setting up or managing a charity.
STRUCTURING - Describe microstructuring.
Designing a transaction to evade triggering a reporting or recordkeeping requirement is called "structuring." Microstructuring is essentially the same as structuring, except that it is done at a much smaller level. Instead of taking $18,000 and breaking it into two deposits, the microstructurer might break it into 20 deposits of approximately $900 each. This level of structuring makes it extremely difficult to detect.
SHELL COMPANIES - According to a 2001 report, "Money Laundering in Canada: An Analysis of RCMP Cases," what are the four related reasons to establish or control a shell company for money laundering purposes?
1. Shell companies accomplish the objective of converting the cash proceeds of crime into alternative assets,
2. Through the sale of shell companies, the launderer can create the perception that illicit funds have been generated from a legitimate source,
3. Once a shell company is established, a wide range of legitimate and/or bogus business transactions can be used to further the laundering process, and
4. Shell companies can also be effective in concealing criminal ownership. Nominees can be used as owners, directors, officers, or shareholders.
CREDIT CARDS - Which money laundering stage(s) are credit cards most likely to be used and what is an example of money laundering through the use of credit cards?
Credit cards are not likely to be used in the initial placement of money laundering. They are more likely to be used in the layering or integration stages of money laundering. One example of using credit cards for money laundering purposes is overpaying a credit card balance and then asking for a refund. Receiving a check from the reputable credit card company makes it look like the funds received are legitimate.
PEPs - What is a PEP and what is the primary risk in dealing with a PEP?
A PEP is a "politically exposed person," meaning a person who has or has had a prominent government or quasi-public position in a country. The primary risk in dealing with a PEP is that the source of funds from a PEP may be from corruption.
INVESTMENT AND COMMODITY ADVISERS - Describe several ways commodity futures and options accounts may be susceptible to money laundering.
There are several ways commodity and futures accounts are susceptible to money laundering, including:
1. Withdrawal of assets through transfers to unrelated accounts or to high-risk countries.
2. Frequent additions to or withdrawals from accounts.
3. Checks drawn on, or wire transfers from, accounts of third parties with no relation to the client.
4. Clients who request custodial arrangements that allow them to remain anonymous.
5. Transfers of funds to the adviser for management followed by transfers to accounts at other institutions in a layering scheme.
6. Investing illegal proceeds for a client.
7. Movement of funds to disguise their origin.
INSURANCE - How can the early redemption method on insurance policies be used to launder money?
One indicator of possible money laundering is when a potential policyholder is more interested in the cancellation terms of a policy than the benefits of the policy. The launderer buys a policy with illicit money and then tells the insurance company that he has changed his mind and does not need the policy. After paying a penalty, the launderer redeems the policy and receives a clean check from a respected insurer.
PAYABLE THROUGH ACCOUNTS - What are some of the money laundering risks pertaining to the use of payable through accounts (PTAs)
PTAs with foreign institutions licensed in offshore centers with each bank supervision; PTAs where the respondent bank (the foreign bank) fails to conduct adequate customer due diligence; and PTAs where the sub-account holders have currency deposit and withdrawal privileges.
INDIVIDUAL ACCOUNTABILITY - What does the Yates memo say?
The Yates memo, issued by then-Deputy Attorney General Sally Yates of the Department of Justice, reminds prosecutors that criminal and civil investigations into corporate misconduct should also focus on individuals who perpetrated the wrongdoing.
THREE STAGES IN THE MONEY LAUNDERING CYCLE - Give an example of the third stage of money laundering.
Purchasing luxury assets like property, artwork, jewelry or high-end automobiles; and investing in business enterprises.
MONEY LAUNDERING - What is money laundering?
Money laundering is the taking of criminal proceeds and disguising their illegal sources in order to use the funds to perform legal or illegal acts.
ELECTRONIC TRANSFERS OF MONEY - What are some indicators of money laundering using electronic transfers of funds?
Funds transfers to or from a financial secrecy haven; large, incoming fund transfers from a foreign client with little or no explanation or apparent reason; and fund transfers that have no apparent link to legitimate business.
THREE STAGES IN THE MONEY LAUNDERING CYCLE - Give an example of the first stage of money laundering.
Co-mingling illegitimate funds with legitimate ones; making foreign exchange transactions with illegal funds; and depositing small amounts of cash into various accounts.
THIRD-PARTY PAYMENTS PROCESSORS - What are some of the risks posed by Third-Party Payment Processors (TPPPs)?
Multiple financial institution relationships whereby the TPPP's suspicious activity cannot be seen in its entirety by one institution; engaging in ACH transactions from overseas whereby the suspicious transactions get hidden by the large number of other transactions the TPPP engages in; and the possibility of the return rates stemming from unauthorized transactions are higher than average.
TRAVEL AGENCIES - List ways in which a travel agency could be used to launder money.
Purchasing an expensive airline ticket and then asking for a refund; paying for travel tours with multiple wires just under the reporting threshold; and creating false bookings through tour operator networks to justify significant payments from foreign travel groups.
CASINOS - What are some red flags associated with casinos and gambling?
Paying off gambling debts in cash just under the reporting requirements; purchasing chips, but engaging in minimal gambling and then cashing the chips back in; using the gambling house for banking-like financial services, including wiring funds overseas; betting on both "red" and "black" spaces in roulette; and purchasing chips with cash just under the reporting requirements.
MONEY SERVICES BUSINESSES - What are some ways Money Services Businesses can be used for money laundering?
Cashing checks without obtaining adequate proof of identity; failing to file Currency Transaction Reports when required; and transmitting funds overseas without sufficient due diligence.
CORRESPONDENT BANKING - What are the two main reasons correspondent banking is vulnerable to money laundering?
By their nature, correspondent banking relationships create a situation in which a financial institution carries out financial transactions on behalf of customers of another institution. This indirect relationship means that the correspondent bank provides services for individuals or entities for which it has neither verified the identities nor obtained any first-hand knowledge.
The amount of money that flows through correspondent accounts can pos a significant threat to financial institutions, as they process large volumes of transactions for their customers' customers. This makes it more difficult to identify the suspect transactions, as the financial institution generally does not have the information on the actual parties conducting the transaction to know whether they are unusual.
TERRORIST FINANCING - What are some emerging risk for Terrorist Financing?
Self-funding by foreign terrorist fighters; terrorists raising funds through the use of social media; new payment products and services; and exploitation of natural resources.
CONCENTRATION ACCOUNTS - What is a money laundering risk pertaining to the use of concentration accounts?
The primary money laundering risk pertaining to the use of concentration accounts is the fact that the customer identifying information may not be included, making the audit trail difficult or impossible to follow.
REMOTE DEPOSIT CAPTURE - What is remote deposit capture and what risk is associated with it?
Remote deposit capture is a product offered by banks allowing customers to scan a check and transmit an electronic image to the bank for deposit. The risk associated with it is that it enables a money launderer to deposit checks without having to visit the bank and risk detection.
TERRORIST FINANCING - What is the most basic difference between terrorist financing and money laundering?
The most basic difference between terrorist financing and money laundering involves the origin of the funds. Terrorist financing uses funds for an illegal political purpose, but the money is not necessarily derived from illicit proceeds. On the other hand, money laundering always involves the proceeds of illegal activity. The purpose of money laundering is to enable the money to be used legally.
TRUSTS - What is the significance of a trust account, whether offshore or onshore, in the context of money laundering?
The significance of a trust account -- whether onshore or offshore -- in the context of money laundering cannot be understated. It can be used as part of the first step in converting illicit cash into less suspicious assets; it can help hide criminal ownership of funds or other assets; and it is often an essential link between different money laundering vehicles and techniques, such as real estate, shell and active companies, nominees and the deposit and transfer of criminal proceeds.
THREE STAGES IN THE MONEY LAUNDERING CYCLE - Describe the three phases of money laundering.
PLACEMENT is the physical disposal of cash or other assets derived from criminal activity.
LAYERING is the separation of illicit proceeds from their source by layers of financial transactions intended to conceal the origin of the proceeds.
INTEGRATION is the supplying of apparent legitimacy to illicit wealth through the re-entry of the funds into the economy in what appears to be normal business or personal transactions.
SECURITIES BROKER-DEALERS - What are some of the aspects associated with securities broker-dealers that increase the risk of money laundering?
The international nature; the speed of their transactions; the ease of converting holding into cash without significant loss of principal; the large volume of wires used; the competitive, commission-driven environment; the practice of maintaining securities accounts in the name of nominees or trusts; and weak AML programs.