Chapter 1 (Introduction) & Chapter 2 (Risk And Methods) Flashcards Preview

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Flashcards in Chapter 1 (Introduction) & Chapter 2 (Risk And Methods) Deck (129):



What are the four main competency areas of the ACAMS exam?


  1. Risk and methods of ML and terrorist financing

  2. Compliance standards for AML and combating terrorist financing

  3. AML compliance program

  4. Conducting and supporting the investigation process



What is money laundering?



Taking criminal proceeds and disguising their illegal source in anticipation of ultimately using the criminal proceeds to perform legal and illegal activities Making dirty money look clean.




What is the United Nations 2000 Convention Against Transnational Crime also known as?


The Palermo Convention
(Click here for the entire document). It defines ML:

The conversion or transfer of property, knowing it is derived
from a criminal offense, for the purpose of concealing or
disguising its illicit origin or of assisting any person who is
involved in the commission of the crime to evade the legal
consequences of his actions.
The concealment or disguising of the true nature, source,
location, disposition, movement, rights with respect to, or
ownership of property knowing that it is derived from a criminal
The acquisition, possession or use of property, knowing at the
time of its receipt that it was derived from a criminal offense or
from participation in a crime.



What is willful blindness?



The deliberate avoidance of knowledge of the facts.




Name and describe step one of the three stages of money laundering.




The physical disposal of cash or other assets derived from criminal activity.

Or, the introduction of illegal funds into the financial system.



Name and describe step two of the three stages of money laundering.




Separation of illicit proceeds from their source by layers of financial transactions intended to conceal the true origin of the proceeds.

Designed to disguise the audit trail (e.g. wire transfers to and from related accounts and from different banks; cash converting to money instruments; reselling high valued goods; real estate or business investing).




Name and describe step three of the three stages of money laundering.




Supplying apparent legitimacy to illicit wealth through the re-entry of funds into the economy in what appears to be normal business or personal transactions.




Why are the economic consequences of Money Laundering worse in developing countries, emerging markets, and countries with fragile financial systems?



Developing countries, emerging markets, and countries with fragile financial systems tend to have

  • less stable financial systems
  • a lack of banking regulations
  • lack of effective law enforcement



Name three economic consequences of money laundering.


  1. Increased crime & corruption (ML havens attract criminals and bribery).
  2. Undermining the legitimate private sector (front companies can subsidize products & services below legitimate market value). 
  3. Weakening financial institutions (criminal activity is associated with bank failures like European Union Bank first internet bank and Riggs Bank).



List four adverse consequences of ML to Financial Institutions (i.e. risks).


  1. Reputational
  2. Operational
  3. Legal
  4. Concentration risks



Describe three "Operational Risks" of ML to Financial Institutions.


1. Potential loss resulting from inadequate:

  • internal processes
  • personnel
  • systems
  • or for external events

2. Loss of inter-bank or correspondent banking services or increased cost

3. Increased borrowing cost




Describe five "Legal Risks" of ML to Financial Institutions


three things they result from.


Potential for:

  • law suits
  • adverse judgements
  • un-enforceable contracts
  • fine and penalties generating losses
  • closure of organization

...resulting from

  • clients being victimized by financial crime & suing
  • investigation by regulators/authorities
  • fraudulent clients 



Describe "Concentration Risk" of ML to Financial Institutions.



Potential loss from too much credit or loan exposure to one borrower or group of borrowers.

No knowing who the true loan borrower is may result in losses, unenforceable contracts with fictitious persons.




Name and describe six economic effects of ML on governments.


  1. Loss of control of economic policy (dwarfed government budgets=errors in statistics; currency & interest rates from unanticipated cross border transfers; misallocation of resources)
  2. Economic distortion & instability (criminals 'invest' in activities not beneficial to the country, e.g. hotels & construction then abandonned)
  3. Loss of tax revenue (higher tax rates, deficits)
  4. Risks to privatization efforts (criminals outbid legitimate purchasers)
  5. Reputational risk (loss of access to world market)
  6. Social costs (drives up cost of law enforcement).



Describe how electronic fund transfers can be used as a method of Money Laundering.



Includes ACH, ATM, online, mobile, phone and magnetic tape transfers.

  • fast conduits between accounts and across borders
  • used in layering to make it difficult to trace the true origin of the funds
  • to avoid detection may vary amounts sent, make small transactions, and use reputable organizations.




Name six indicators of Money Laundering using electronic transfers of funds.


  1. Transfers to or from financial secrecy haven or high risk country with no business reason.
  2. Large incoming funds on behalf of foreign client with unknown purpose.
  3. Many small incoming transfers iquickly moved out of the bank or country, inconsistent with history.
  4. Fund activity that is unexplained or unusual.
  5. Payments with no apparent link to legitimate contracts, goods, or services.
  6. Transfers sent or received from same person with different accounts.




What is the Bank of New York scandal?



A scandal from August 1999 that exposed money laundering through Russian correspondent accounts at the Bank of New York. It was an early instance of laundering abuses through correspondent banking relationships.



What are two reasons correspondent banking is vulnerable to Money Laundering?

  1. It creates an indirect relationship. (FI carries out financial transactions for customers it hasn't identified & doesn't know).
  2. The amount of money flowing through correspondent accounts. (Volume makes it difficult to identify suspect transactions, especially with the lack of information on the parties involved).


Name three risks incurred by correspondent banking.

It may be difficult to determine: 

  1. the effectiveness the regulatory supervision of the respondent.
  2. the effectiveness of the respondent bank's AML controls (it must trust the due diligence completed on its clients).
  3. the extent of nesting (how much service they offer to other FI's or sub-respondents).



Describe what Section 312 of the USA Patriot Act is for, and list four requirements it makes.



Control standards to mitigate the risk of ML through correspondent account maintained in foreign countries by:

  1. setting up a risk based due diligence on the foreign bank
  2. taking reasonable steps to identify the owner of a foreign bank
  3. conduct enhanced scrutiny of the correspondent account to identify nesting sub-respondents and
  4. conducting due diligence on sub-respondents.



Describe what USA Patriot Act Section 313 prohibits what requirement it makes.


USA Patriot Act Section 313:

Prohibits opening accounts for foreign shell banks, and requires reasonable steps to ensure a correspondent account for a foreign bank is not being used indirectly by a shell bank (which has no physical presence in any country & no regulatory oversight).




Describe what USA Patriot Act Section 319 requires.


USA Patriot Act Section 319 requires US FI's to maintain records with the

names and
contact information of the 
owners of foreign banks

that have correspondent accts




What basic question need to be answered before opening an FI opens a foreign correspondent account?



  1. Who the owners are
  2. What is the nature of regulatory oversight




What are Payable Through accounts?



A type of foreign correspondent relationship where customers are permitted to conduct their own transactions through the correspondent account without clearing it through the respondent. 

The foreign bank's customers have direct control over funds at the correspondent bank. (As opposed to the respondent taking orders and passing them to the correspondent).

E.g. at RBC: Manulife, Citibank, JP Morgan (serialized deposit slips & cheques)



Name four ways Payable Through Account relationships can pose money laundering risks.


  1. PTAs with foreign FI's licensed in sectors with weak or absent supervision and licensing laws.
  2. Failure to apply due diligence to customers of respondent bank (considering repondent the only customer).
  3. PTAs allowing sub acct holders with deposit and withdrawal privileges.
  4. A subsidiary of the respondent having access and thus offering the same services as a branch without supervision.




What are Concentration Accounts?


Also called "omnibus", "clearing", or "suspense" accounts. Used primarily for internal administrative or bank-to-bank transactions. Funds are commingled without personally identifying the originators. The USA Patriot Act prohibits the use of such accounts for customer transactions.




What is the Money Laundering risk of Concentration Accounts?



The loss of an audit trail when customer identification information is separated from the transaction.



Name eight preventative practices against ML through Concentration Accounts.

  1. Require two signatures on GL tickets
  2. Prohibit direct customer access to concentration accounts
  3. Capture customer transactions in customer account statements.
  4. Prohibit customer knowledge of concentration accounts
  5. Retain customer identifying information with transactions
  6. Reconcile Concentration accounts frequently by independent individuals
  7. Establish a timely resolution process
  8. Identify and monitoring recurring customer names



Name eight factors that may contribute to Money Laundering vulnerabilities in Private Banking relationships.

  1. Perceived high profitability
  2. Intense competition
  3. Powerful clientele
  4. High level of confidentiality
  5. Deep trust developed relationship managers & clients
  6. Commission-based compensation 
  7. Culture of secrecy
  8. Relationship managers become advocates to protect clients.




Name two ways in which Private Banking residency can impact Money Laundering risk.



  • Clients can be non resident aliens, conducting majority of banking outside of their country of residence. 
  • Assets may move overseas in the name of corporations in secrecy havens.




What are Private Investment Companies (PICs) in relation to Private Banking clients?

Describe ownership implications.


  • Private Investment Companies are established in offshore jurisdictions to hold assets as shell companies.
  • Shells maintain confidentiality, often concealing the true identity of beneficial owners for tax or trust reasons.
  • Sometimes established with nominal owners for the benefit of undisclosed individuals. 
  • Especially vulnerable to corrupt Politically Exposed Persons.



What is Structuring?



Designing a transaction to evade triggering a reporting or record keeping requirement.

 Runners may go from bank to bank depositing cash and purchasing monetary instruments under reporting threshold.




Give two Structuring examples.



  1. Breaking a large transaction into two or more smaller ones by one individual.
  2. Breaking a large transaction broken into two or more smaller transactions conducted by two or more people.




Describe how a Money Broker conducts structuring.


  1. Structurer opens numerous chequing accounts in Country A using real & fake names.
  2. With money received from money broker funds accounts, often in low 4-figure.
  3. Structurer signs blank cheques on accounts and couriers to money broker in country B.
  4. Funds are cleared out by cheques to pay for exports from Country A to Country B.
  5. Structurer may have more than 20 accounts at a time.



Give a high level description of what  Cuckoo Smurfing is.



Linked to alternative remittance systems in which criminal funds are transferred through the accounts of unwitting persons who are expecting genuine funds or payments from overseas.

Described as a typology in the FATF's 2005 Typologies Report.

It's a significant technique in the UK.



What is the main difference between Cuckoo Smurfing and traditional structuring?


In structuring the parties are fully aware the funds are illicit.

In Cuckoo Smurfing the third parties who hold the bank accounts being used are not aware illicit money is being deposited into their accounts. This requires work of an insider within a financial service provider.




Describe the four-step Cuckoo Smurfing process.


  1. A customer provides funds to an alternative remitter for transfer to a beneficiary in another country.
  2. A bank insider provides beneficiary name, account, and amount to an associate in the destination country. The associate also has money that needs to be placed into the financial system.
  3. The associate in the other country deposits funds into the beneficiary's account. 
  4. The associate in the foreign country arranges to get the funds from the alternate remitter using one of their methods.



Name two controls the FATF recommends to combat Cuckoo Smurfing.



  1. Identify cash depositors into third party accts.
  2. Monitor for unusual cash deposits that are structured or placed in branches other than the customers.




What is microstructuring?

Give an example.


Similar to structuring but done in much smaller amounts.

For example, breaking a large amount into twenty deposits instead of two.

Accounts may have debit card access in a foreign country.




Outline five means of detecting Microstructuring.


  1. Use counter deposit slips instead of printed deposit slips.
  2. Identify frequent activity in newly opened accounts with incomplete documentation.
  3. Identify frequents cash deposits inconsisitent with typical personal or business banking.
  4. Identify cash deposits followed by ATM withdrawals, especially in high risk countries.
  5. Identify cash deposits into business accounts by third party accts with no connection with the company.



What is bank complicity and how do you avoid it?


Bank complicity is when an employee is corrupted to facilitate money laundering.

Institute "know your employee" programs alongside know your customer.




How vulnerable are Credit Unions or UK building societies to Money Laundering?



They are considered lower risk because their relatively smaller size makes it easier to see suspicious activity. 

The more financial services offered the higher the potential risk.

Credit Unions tend to contain higher levels of cash transactions.




Name four parties to the credit card industry.


(The credit cards industry is one type of Non Bank Financial Institution).


  1. Credit Card Associations (Amex, MC, Visa) who license banks to issue cards.
  2. Issuing banks who give clients cards
  3. Acquiring banks who process credit card transactions for merchants
  4. Third-Party processors which contract with banks to provide transaction processing,



How are credit cards likely to be used in Money Laundering?



  1. Most likely to be used in layering and integration stages.
  2. Money launderer might place illicit funds into cards in an offshore bank and access these funds through credit/ debit cards.




What are Money Remitters?



(Non Bank Financial Institutions)



They receive cash from their customer which is transferred to designated beneficiaries against payment of a commission. These are legitimate services. 

They are popular for individuals who don't have access to formal banking services, often in the least developed regions of the world.



Describe four different forms of operations Money Remitters might take.


  1. Companies possessing separate networks - Western Union & Money Gram.
  2. Systems connected with informal or underground banking channels.
  3. Collection accounts of foreign banks.
  4. International money orders. (e.g. USPS)



What is a Collection Account?

Immigrants from foreign countries deposit many small amounts of currency into one account where they reside, and the collected sum is transferred to an account in their home country without documentation of the sources of the funds. Certain ethnic groups from Asia or Africa may use collection accounts to launder money.



How can Money Laundering risks be mitigated for Money Exchangers?



(Non Bank Financial Institutions)



  1. Complete due diligence and confirm client is properly licensed.
  2. Understand the nature of regulation on the industry.



What kinds of products pose an opportunity for Money Laundering in Insurance Companies



(Non Bank Financial Institutions)

Highest risk products are:

  1. Life insurance -- investment value can create a cash value if holder wants to cancel policy
  2. Annuity products -- allows exchange of illicit funds for an immediate or deferred income stream



Name three ways in which Insurance companies are vulnerable to money laundering.


  1. Lack of oversight/controls over intermediaries. Brokers have a great deal of freedom regarding policies.
  2. Decentralized oversight over the sales force. Outside sales people work with various insurance companies to find mix for clients. They may fall through cracks or be complicit.
  3. Sales-driven objectives. Brokers may overlook signs of money laundering in order to close a sale.




Give four examples of how money can be laundered through the
insurance industry.


All these examples would result in a cheque from the insurance company, lending legitimacy to funds:

  1. Over funding. Move funds out of policy with early withdrawal penalties.
  2. Single premium insurance bonds can be redeemed prior to maturity at a discount. 
  3. Free look period. Allows investor a time to back out of policy and get a full refund.
  4. Early redemption. An indicator of Money Laundering can be greater interest in cancellation terms than benefits.




Name three factors to consider when assessing ML/TF risks in Insurance companies.

Does the Insurance company permit customers to:

  1. Use cash or cash equivalent to purchase insurance products
  2. Purchase Insurance products with a single premium or lump sum.
  3. Borrow money against insurance product's value.




Why would Securities companies be attractive for Money Laundering?


(Non Bank Financial Institutions)



  1. There is usually little currency involved.
  2. It's an industry run by computer transfers and paper. 
  3. Acquiring additional profit from related securities fraud.
  4. Accounts can be used to hold funds and not trade, avoiding banking channels with stricter controls.



Name six aspects of the security broker-dealers industry which increase its exposure to laundering.



(Non Bank Financial Institutions)

  1. Its international nature
  2. The speed of transactions
  3. Ease of conversion of holdings to cash without significant loss to principal
  4. The routine use of wire transfers from, to, and through multiple jurisdictions.
  5. The competitive, commission-driven environment makes it easy to disregard source of client funds
  6. Ability to conceal identities of true beneficaries through accounts as nominees or as trustees.


How can illegal funds from outside the securities industry be laundered in the industry?


By using securities for layering.

Concealing or obscuring the  source of funds.



How can illegal funds from inside the securities industry be laundered in the industry?

  • Embezzlement
  • Insider trading
  • Securities fraud (misrepresenting information investors use to make decisions)
  • Market manipulation (artificial inflation/ deflation of stock prices).



What is Wash Trading in the securities industry?



(Non Bank Financial Institutions)



 The entry of matching buys and sells in particular securities through different companies, which creates the illusion of trading. 



Why are Casinos and other gambling businesses associated with Money Laundering?



(Non Bank Financial Institutions)



Because they are proficient cash generating businesses and can provide a ready made excuse for recently acquired wealth with no apparent legitimate source.




What stage of Money Laundering is common in Casinos?

How is it done?


(Non-Financial Businesses & Professions)
(Risks & Methods)


Placement stage -- converting from cash to cheques.

  • Launderer buys chips with illicit cash.
  • Requests repayment by cheque drawn on the casino's account.
  • Oftens says he'll be traveling to another country where they have an establishment and asks that credit be made available there.
  • Cheque would be drawn on a different jurisdiction.




Describe the horse racing technique of Money Laundering through a gambling business.



The launderer gambles illicit money in a way that's reasonably sure to recover his stake. Takes payment in cheques.

This makes it hard to prove Money Laundering as the funds are actually proceeds from gambling.




Why would Dealers in high value items (precious metals, jewelry, art, etc.) be vulnerable to Money Laundering?


(Non-Financial Businesses & Professions)
​(Risks & Methods)


Although the US patriot act requires certain dealers (like precious metals, stones and jewels) to establish an AML program, many jurisdictions still do not regulate the industry.



Name six ways gold is of benefit to Money Laundering.


  1. Has a high intrinsic value
  2. It's in compact form which makes it easy to transport
  3. Can be bought and sold easily, often with anonymity
  4. More accepted than precious stones because it can be melted down into many forms
  5. Holds its value regardless of form
  6. Religious & cultural significance adds to demand.



Describe the False Invoicing technique of Money Laundering for dealers of high value items.



Invoices are created for transactions that never took place, and the aperwork is used to justify transferring funds to pay for fake shipments.

Variations include over-billing or under-billing.




Describe the technique of making payments or returns to persons other than the owner by dealers of high value items.

How are these transactions vulnerable to Money Laundering?



  • One person asserts ownership of precious metals and delivers them for refining by a dealer.
  • He directs payment to be made to another person.
  • This converts the form of illicit funds.
  • And it transfers ownership of the illicit funds.




Describe what precious metal pool accounts are and how they are vulnerable to Money Laundering.

  • These are accounts maintained by world-scope precious metals dealers to hold precious metals for customers.
  • They are vulnerable because a customer in one country can deliver gold scrap for refining, establish a gold credit in the pool account and then instruct payment to a third party based on the credit.




How can fine art be used as a Money Laundering vehicle?


  • Anonymous agents at art auction bid millions on art.
  • Payment is wired to auction house from the agent's principals account in offshore havens.
  • Art can later be resold.




Name six preventative measures that art and antique dealers can take to lessen Money Laundering risks.


  1. Require vendors to provide names/addresses, sign form that says art was not stolen and can be resold.
  2. Verify the identities/addresses of new vendor & be suspicious of items with non-market prices.
  3. Check if item is believed stolen.
  4. Look critically at customers paying in cash. Avoid cash transactions.
  5. Be aware of Money Laundering regulations.
  6. Appoint a senior staff member to whom employees can report suspicious activities.




How can Travel Agencies be used as a means of Money Laundering?


(Non-Financial Businesses & Professions)
​(Risks & Methods)

  • Provides a reason to purchase high priced airline tickets, hotels and other vacation related expenses.
  • Launderer can transfer ownership of illicit funds by purchasing high priced airline ticket for third party who later asks for a refund.
  • Provides a structuring platform by wiring small amounts to avoid record keeping requirements, especially from foreign countries.



Name three ways vehicle sellers (autos, aircraft, boats) can be used for Money Laundering.


(Non-Financial Businesses & Professions)
​(Risks & Methods)

  1. Structuring cash deposits below reporting thresholds, purchasing vehicles with sequentially numbered checks/ money orders.
  2. Successive trading in vehicles to produce complex layers of transactions.
  3. Accepting third party payments especially from jurisdictions with weak ML controls.



Describe the "down trading" technique of Money Laundering in Vehicle Sellers.



Launderer trades in expensive cars for cheaper models and pays the difference in cheques, not cash.




Why are notaries, accountants, auditors, & lawyers called Gatekeepers when it comes to Money Laundering?


(Non-Financial Businesses & Professions)
​(Risks & Methods)



These professionals can either block
or facilitate the entry of illegitimate money
into the financial system.



What requirements should Gatekeepers have to prevent Money Laundering?



  • identify clients
  • conduct due diligence on their clients
  • maintain records
  • prohibit tipping off clients who are subjects of suspicious transaction reports




Name five functions performed by Gatekeepers like lawyers, notaries, accountants and legal professionals are most useful to the Money Launderer?


  1. Creating corporate vehicles or other complex legal arrangements, such as trusts to confuse the link between proceeds of crime and the perp.

  2. Buying or selling property for layering or for the final investment (integration).

  3. Performing financial transactions or operations on behalf of the client.

  4. Financial and tax advice to reduce tax & other liabilities.

  5. Provide introductions to financial institutions.




Why are Lawyers a controversial choice to fill the role of a gatekeeper?



Because they maintain confidential relationships with their clients.



Name four debated alternatives
to making lawyers Gatekeepers.

  • Deferring regulation until adequate education is conducted.
  • Require due controls & due diligence on non-priveleged communications.
  • Using a joint government-private sector body to regulate & register lawyers who engage in financial activities
  • Devising a hybrid approach like "guidance notes" or best practice standards.



What are investment & commodity trading advisors?


(Non-Financial Businesses & Professions)
​(Risks & Methods)



Advisors regarding the value of trading futures contracts or commodity options, or who issue reports about them. 

This gives them the ability to see activity that suggests money laundering. 




Name five types of Investment & Commodity Advisers.

  1. Commodity Trading Adviser (advises on buying/selling futures & options)
  2. Futures Commission Merchant (accepts orders for contracts & funds to execute them).
  3. Introducing broker-dealers in commodities (accepts orders but not funds)
  4. Guaranteed introducing broker (has exclusive agreement with a futures commision merchant obligating them to assume responsibility for the introducing broker's performance).
  5. Investment Adviser (advice on securities & investments, manages client assets).



Name five Investment and Commodity Advisors accounts that could be used to launder funds.


  1. Commodities (foods, metals, etc) traded in large quantities as futures contracts.
  2. Commodity pools which combines funds from various members to trade in futures or options contracts.
  3. Futures/ futures contracts: to buy or sell a quantity of a commodity at a future date & set price.
  4. Options/options contracts: the right, not the obligation, to buy or sell a set amount of something like a commodity at a set price after a set date.
  5. Omnibus accounts: accounts held by one futures commission merchant for another, combining transactions and disguising identities.



Name seven ways the
Investment and Commodity industry
is susceptible to Money Laundering.


  1. Withdrawal of assets thru transfers to unrelated accts or high risk counties.
  2. Frequent additions to or withdrawals from accounts.
  3. Cheques/wires from unrelated third parties.
  4. Custodial arrangement allowing clients to remain anonymous.
  5. Layering by transfers to advisers to accounts at other financial institutions.
  6. Investing illegal proceeds for a client.
  7. Movement of funds to disguise origin.




What are Trust and Company Service Providers?


(Non-Financial Businesses & Professions)
​(Risks & Methods)


Persons & entities that participate in the creation, administration, or management of corporate vehicles.



Name five services Trust and Company Service Providers offer to third parties,.

  1. Acting as formation agent of legal persons.

  2. Acting as or arranging a director or secretary of a company, partner of a partnership, or a similar.

  3. Providing a registered office, business address, or correspondence for a company, partnership, etc.

  4. Acting or arranging a trustee of an express trust.

  5. Acting or arranging a nominee shareholder for another person.



Why should focus be on Trust and Company Service Providers rather than on the company or trust itself?




Because they are the tools through which launderers operate. With diligence they can reduce the risk of abuse of corporate vehicles.


Regulations should stipulate how the service provider conducts its business, including how directors selected by the provider are to meet their obligations.



Name four general features make Real Estate a popular laundering technique.


Non-Financial Businesses & Professions)
​(Risks & Methods)

  • Investing illicit capital in real estate is a classic method, particularly in stable countries
  • Real property can provide housing for criminals, and rural areas ideal for growing drugs
  • Proceeds of crime can be funneled through property using deposits, down payments, mortgages, lawyer trust accts, etc.
  • Nominees hide beneficial owners



How can laundering be accomplished throuh Real Estate in the layering & integration phases?



  • Buying/ selling real estate during the layering phase
  • Investment in things like tourist/ holiday complexes during the integration phase




Name five feautres that make escrow accounts attractive to Money Launderers in the Real Estate industry.



  • They hold large amounts of funds in trust.
  • Contain many diverse transactions making it easy to hide & use to complicate paper trails.
  • Multiple deposits of cash under the threshold for fake closings don't look suspicious.
  • Disbursement of funds can look legitimate
  • FI's usually treat like any business account but with sometimes less strictly.




Describe the Reverse Flip method of laundering in the Real Estate industry.


  • Launderer finds a cooperative property seller
  • Purchases below the actual value of the property
  • Seller takes difference under the table
  • After holding property for a time, they can resell it at actual price




Describe the Loan Back method of laundering in the Real Estate industry.



  • Criminal provides associate with specific amount of illegitimate money.
  • Associate provides loan or mortgage back to criminal in the same amount with full documentation.
  • Scheduled payments are made on the loan.
  • Creates an illusion funds are legitimate.




What can manipulation of import/export prices signal?


(Non Financial Businesses & Professions)


Manipulated trade prices represent ML, tax evasion, or terrorist financing.




What pricing scheme is most popular for launderers when manipulating import/export prices?

  • Under valuing exports is the most popular because the government watches imports closely due revenues generated.
  • Little attention is paid paid to export pricing and so can be exploited



How did the FATF define trade-based money laundering in 2006?


  • Disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimize their illicit origins.
  • Achieved by misrepresentation of the price, quantity, or quality of imports/ exports




What is a simple structure for trade based money laundering?


  • Use illicit funds to purchase high valued products.
  • Export them at very low prices to a colluding foreign partner.
  • The partner sells in the open market for their true value.
  • To increase appearance of legitimacy, often uses FIs for Letters of Credit, etc.




Describe the Black Market Peso Exchange.


(Non Financial Businesses & Professions)


  • Illicit money is purchased by foreign country peso brokers.
  • Gets deposited in the brokers' western bank accounts in the country it was derived in.
  • Brokers sell checks and wire transfers drawn on these accts to legitimate businesses to purchase goods/ services.
  • Avoids cost of buying that country's currency, taxes, and duties.
  • Reduces the risk of money seizures, and is fast 




What must banks be aware of to detect activity of the Black Market Peso Exchange.



  • Watch for multiple chequing accounts opened at US banks by foreign nationals.
  • Be aware of increases in the movement of dollars through correspondent accounts at foreign banks.




Describe the typical six steps of Black Market Peso Exchange functioning.


  1. Columbian Cartel sells drugs to US for dollars.
  2. Contacts peso broker as an intermediary.
  3. Broker takes drug dollars in exchange for pesos.
  4. Broker's US employees deposit into banking system.
  5. Broker offers dollars to Columbia importer in exchange for pesos.
  6. Importer uses drug dollars to buy US goods which are shipped to Columbia.




Name four risks of Internet Banking.


(Money Laundering Risks Associated with New Technologies)

  1.  Greater difficulty matching customer with the provided identification documents.
  2. Elimination of face-to-face contact makes it more difficult to know who is actually controlling the account.
  3. Ease of access enables cross border movements of funds from any physical location.
  4. Enables execution of multiple complex transactions in a short time frame.



Name four practices to combat cyberlaundering in Online Banking.


  1. Establish ISP log files with traffic data that produces internet protocol numbers & phone numbers used for server connections.
  2. Info collected through servers shared with law enforcement.
  3. Info collected should be maintained for a year.
  4. ISPs should record identification info on those who transit through their servers.




Describe how cyber banking can be used in the placement stage.


Platforms for holding, reconciling, and transferring rights to assets in different forms around the world can be used by criminal organizations to create shadow systems to accept "deposits" as warehouses for cash or bulk commodities.



Describe how cyber banking  can be used in the layering stage.


Transfers of assets can take place around the world many times a day. 



Describe two ways in which cyber banking  can be used in the integration stage.


  1. Person-to-person electronic transfers bypass currency reporting regulations.
  2. ATM withdrawal transactions can effectively move cash around the world.



Why do Internet Casinos make an ideal service to cover money laundering schemes?


(Money Laundering Risks Associated with New Technologies)

  • Transactions are primarily performed through credit cards.
  • The offshore location of many internet gambling sites make locating & prosecuting difficult.
  • Offshore governments profit from licensing & sharing in profits.
  • Internet casinos use reputable correspondent banks which makes tracing money difficult.



What seven characteristics of Prepaid Payment Cards are  attractive to criminals?


(Money Laundering Risks Associated with New Technologies)

  1. Offers a potential cross-border transfer method.
  2. Portable
  3. Valuable
  4. Exchangeable
  5. Anonymous
  6. Can be purchased/loaded by one person and used by another person anywhere.
  7. Cards may utilize a pooled account by the issuer.



Name seven potential risk factors

of Prepaid Cards.



  1. Anonymous card holders
  2. Anonymous funding
  3. Anonymous access to funds
  4. High value limits or no limits on number of cards that can be acquired
  5. Global access to cash through ATMs
  6. Offshore card issuers may not observe laws in all jurisdictions
  7. Substitute for bulk- cash smuggling




How do E-purses differ

from Prepaid Payment Cards?



They actually store funds on integrated circuit chips, whereas payment cards store account information.




List five ways to mitigate risks associated with prepaid cards and e-purses.



  1. Limit the capacity and functions of smart cards  like maximum value, turnover limits, and number of cards.
  2. Link new payment technology to banks and bank accounts.
  3. Require standard documentation and record keeping procedures to facilitate examination.
  4. Allow examination & seizure of records by authorities
  5. Establish international standards for these measures.




What is the definition of a Shelf Company (related to Shell companies).



(Money Laundering Risks of Structures
Designed to Hide Beneficial Ownership)


  • A Shelf Company is a corporation that has no activity, but was created and put on the shelf.
  • It's later used and sold to someone who would prefer to have a previously registered corporation than a new one



What is the definition of a Shell Company?


(Money Laundering Risks of Structures
Designed to Hide Beneficial Ownership)


A Shell Company has no significant assets or operations at the time of incorporation.



What is the concern with the ease in which a corporate vehicle can be created and dissolved in less-well regulated jurisdictions?


  • Legitimate purposes would include business finance, mergers and acquisitions, estate and tax planning).
  • Illegitimate purpose is to conceal source of funds and ownership of the corporate vehicle.




Name four reasons a criminal might establish a shell company for money laundering purposes.



  1. Convert illicit cash to alternative assets.
  2. Create perception that illicit funds were generated from a legitimate source.
  3. Create an illusion of respectability from legitimate employment.-
  4. Conceal ownership with nominee owners & directors, or as a subsidiary of a corporate from a tax haven.


What types of businesses are especially attractive to money launderers as Shell Companies?


Those with a high volume of cash transactions like:

  • retail stores
  • restaurants
  • bars
  • video arcades
  • gas stations
  • food markets



What types of transactions can be used to launder money in a shell company?




  • Lending money between criminally controlled firms.
  • Paying fictitious expenses or salaries.
  • Paying for fictitious goods & services.
  • Purchasing real estate with proceeds of crime
  • Disguising payments as a mortgage issued by shell company.




Name seven laundering techniques used in criminally controlled companies.


  1. Nominees as owners/directors.
  2. Layering ownership & funds between multiple companies.
  3. Loans between related companies.
  4. False expenses/invoicing
  5. Sale of business to create legitimate capital.
  6. Buying/Selling related companies, especially in tax havens to repatriate money secreted out of country.
  7. Paying fictitious salaries for legitimacy of both money and people.




Describe the technique of Double Invoicing.



  • Offshore corporation orders goods from subsidiary in another country.
  • Payment sent in full to bank acct of subsidiary
  • Payment is actually repatriation of illicit money hidden out of country.
  • A high purchase price also shows a low level of profits for taxation purposes.



How does FATF typology define Trusts?


(Money Laundering Risks of Structures
Designed to Hide Beneficial Ownership)


A legal relationship set up by one person (the settlor) where assets have been placed under control of another (the trustee) for benefit of one or more persons (beneficiaries) or for a specific purpose.




Name five ways Trusts can be used by money launderers?


  • Can be first step in converting illicit cash to less suspicious assets.
  • Can hide criminal ownership of funds & assets.
  • Links vehicles & techniques like real estate, shell & active companies, nominees, deposit & transfer of criminal funds.
  • Hide assets from legitimate creditors or judicial seizure.
  • Payments to beneficiaries to bypass justification.



What role do lawyers often play in Trusts?



  • They serve as trustees holding money or assets for clients & administering affairs of a client
  • Sometimes placed in lawyer's general trust account in name of client, nominee, or company.
  • Used in the normal course of collecting and disbursing payments for real property on behalf of clients




Why are Bearer Bonds and Securities prime vehicles for Money Laundering?


(Money Laundering Risks of Structures
Designed to Hide Beneficial Ownership)


They belong to the bearer, there is no registry of ownership. Transfer done by physically handing over bonds. This disguises legitimate ownership including in tax optimization purposes. 




What does the FATF suggest Financial Institutions do to mitigate the risks of Bearer Bonds?



Ask questions about the identity of beneficial owners before issuing, accepting or creating bearer shares and trusts, and keep registries with this info and share it with law enforecement when appropriate.




What are Bearer Cheques?



Unconditional negotiable items that an institution must pay out to the holder rather than a payee on the order itself.  FI's are not obligated to verify identity of presenter unless it exceeds a threshold.

A non bearer cheque may become a bearer instrument to an individual who presents it when original payee has endorsed it.




What is the difference between Terrorist Financing and Money Laundering?



The origin of funds. In Terrorist Financing money is used for illegal political purposes but not necessarily derived from illicit proceeds.

Money Laundering always involves proceeds from illegal activity and attempts to enable funds to be used legally.




How are Terrorist Financing methods similar to Money Laundering?



Terrorists need to disguise its link between it and it's legitimate funding sources. Accomplished by similar methods:

  • cash smuggling
  • structuring
  • purchase of money instruments
  • wire transfers
  • debit/ credit cards - funds also used for mundane expenses



Name ten characteristics of the 9/11 Terrorists Account Profiles.



(Detecting Terrorist Financing)

  1. Accounts opened with cash or equivalents ($3-$5k)
  2. Identification to open accts were from visas issued by foreign governments.
  3. Accounts were opened within 30 days of entering US.
  4. All normal accounts with debit cards.
  5. Some were joint accounts.
  6. Addresses were not permanent, but mail boxeses & changed frequently.
  7. Often used the same addresses & phone numbers. 
  8. No savings or SDBs were opened.
  9. Opened accounts at branches of large well-known banks.
  10. Twelve hijackers opened accounts at the same bank.




Name eleven characteristics of the 9/11 Terrorists transaction profiles.


(Detecting Terrorist Financing)

  1. Small wires sent & received from/to foreign countries  (UAE, Saudi Arabia, Germany).
  2. Numerous attempts to withdraw cash in excess of debit card limit.
  3. High percentage of withdrawals were from debit cards.
  4. A low percentage of cheques were written.
  5. Numerous balance inquiries made.
  6. After a deposit withdrawals were made immediately.
  7. No pattern of timing deposits/disbursements.
  8. Transactions were below reporting thresholds.
  9. Funding of accounts was cash & overseas wire transfers.
  10. ATM transactions made with multiple hijackers at the same ATM.
  11. Debit cards used by hijackers who didn't own accounts.




Name eight characteristics of the 9/11 Terrorists international activity.


(Detecting Terrorist Financing)

  1. Three supplemented financing with accounts and credit cards from UAE bank.
  2. Two accounts had deposits made by unknown individuals.
  3. All had travelers cheques purchased overseas & brought into US.
  4. Three maintained bank accounts in Germany.
  5. Two maintained credit cards from German banks.
  6. One received substantial incoming wire transfers to his German account from an individual.
  7. Same person opened UAE account and gave POA to the person who wired money.
  8. >$100,000 wired from hijacker's UAE account to his German account in 15 months.




Name five factors the FATF says FI's can look at to avoid being conduits for terrorist financing.


Detecting terrorist financing Financial institution risk factors


  1. Use of an account as a front for a person with suspected terrorist links.
  2. Account holder's name on list of suspected terrorists.
  3. Frequent large cash deposits in accounts of non-profit organizations.
  4. High volume of transactions in the account
  5. Lack of a clear relationship between banking activity and the nature of the account holder's business




What does the FATF say classic signs of money laundering that may also signal terrorist financing?



  • Dormant, low sum accounts that suddenly receive wires followed by daily cash withdrawals that continue until the sum is removed.
  • Lack of cooperation by the client providing required information




What is Hawala and Hundi originally?


(Terrorist Financing)



  • Underground banking alternative remittance systems.
  • Involve international transfer of value outside the legitimate banking system (based on trust).
  • Works by depositing funds with a Hawala "banker" who for a small fee moves funds internationally and settles accounts through normal process of trade.




How does Hawala work today?



  • People in various parts of the world use their accounts to move money internationally for third parties.
  • It's used to avoid bank fees.
  • Often operated by immigrants or temporary workers. 
  • Operates without government supervision.
  • No paper trail exists and shorthand is used on faxes sent between representatives.
  • Can be used at any phase of ML cycle.




Name five characteristics that make Charities  and Nonprofit organizations vulnerable to misuse for terrorist financing.



  1. They enjoy the public trust
  2. Have access to considerable source of funds
  3. They are cash intensive
  4. They have a global presence, often near an area exposed to terrorist activity.
  5. They have little or no regulation with few obstacles to their creation.




What does the FATF recommend non profit organizations do as best practices?



  1. Maintain and be able to present full program budgets that account for all expenses.
  2. Conduct independent internal audits and external field audits to ensure funds are being used for intended purposes.
  3. Use formal bank accounts.