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Fraud Examination Final > Chapter 12 > Flashcards

Chapter 12 Flashcards

Complex Frauds and Fin Crime (56 cards)

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1
Q

Describe a Situational Fraudster

A

Characteristics: 1st time offendor, middle aged, male, damily, truste employee, good citizen

Issue: Nonshareable problem that can be solved with $

Others surprised when discovered

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2
Q

Describe a Predator

A

Starts as an accidental fraudster
Seeks org where they can start scheme almost immediately uppon being hired
* deliberately defraud org - little remorse
* Usually better organized
* advanced concealment
* ready to deal with auditors

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3
Q

What is Organized Crime?

,Operational Modus Operandi, when it occurs, who it involves

A

Operational Modus Operandi - complex fraud or fin crime is part of goals and objectives

Occur when
- Legit and law abiding orgs are involved in a pattern of criminal activities
- Organizational Criminal Activs: involve many indivs, shell comps, & cross juris border

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4
Q

Why collusion is so harmful?

A

Central element of complex frauds and fin crimes
- Effect is more devastating and pervasive
- Internal controls are ineffective in detecting

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5
Q

Challenges brought by Mixing legitimate and illegal activs

A

Common in complex frauds - Example is money laundering

Challenging to isolate illicit funds from the legitimate

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6
Q

Why use Asset forefeiture and Seizure when dismantling an Org?

A

Purpose:
- By sezing asetss, the perps are being punished and org is dismantled to make more difficult for another person in commnd chain to take over remaining ops

Investigation must show that perps or org involved received assets & what happened to those assets

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7
Q

Who is usually involved in FS Fraud?

A
  • Almost always involves the CFO, controller, or some other sophisticated participant within the fin rep structure
  • Exec Level Indivs work in concer to override the system of int controls
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8
Q

Organized Crime Control Act of 1970 Definition and Characteristics

A

Defined organized crime as unlawful activities of a highly organized, disciplined association

Professionally run
- opportunistic
- Diversified
- Require Political support
- Capital Investment

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9
Q

Annual Impact of Organized Crime Profits

A

One Trillion

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10
Q

Examples of Organized Crime Groups

A
  1. Russion mob
  2. Organized criminal in Africa who sell narcotics
  3. Asian crime Org - secret societies
  4. Italian Mafia
  5. La Cosa Nostra
  6. Balkan organized criminal enterprises
  7. Crime Groups in EAstern Bloc Countries
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11
Q

What do Organized Crime Orgs do?

A
  1. Manipulate and monopolize financial market
  2. Infiltrate labor unions
  3. Align itself w/ traditional businesses
  4. Purchase political support
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12
Q

How to create a case for organized crime?

A

Understand the story line and flow of money to provide a solid investigative approach for case

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13
Q

What is Terrorist Financing?

A

Main objective, designed to intimidate a population or to compel a gov to do or abstain from doing any act

Terror orgs need funds to operate, primary sources of financing
- State sponsorship
- Revenue generation from legitimate and illegitimate actives
- Charities to fund terrorism

Terrorist use less restrictive overseas banks

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14
Q

What is Terrorism Triangle

A

1. Opportunity - most important to investigators because without opportunity to gen, move, and control cash flows financing of terror cannot occur
2. Ideological Motivation (not pressure) - motivation to inflict terro
3. Ideological Rationalization - rationalize based on ideological beliefs

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15
Q

Lifestyle Symptoms of Terrorist Financing

A
  1. Movement of funds through certain countries
  2. Money flowing theough Persian Gulf States
  3. Use of wire transfer for bus activs not normally wire transferred
  4. Fin activs inconsistent w/ stated purpose of the business
  5. Fin activs not commersurate w/ the stated occupation of the individual
  6. Use of multiple accounts at a single bank w/ no apparent legitimate purpose
  7. Use of high-dollar currency & travelers checks not commensurate
  8. The structuring of deposits at multiple branches of the same bank to avoid CTR (currency transaction reporting) requirements
  9. The use of false identifies, document, or straw men
  10. Exploiting the privacy and secrecy benefits of sympathetic international jurisdiction
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16
Q

What is Money Laundering and what are the three stages?

A

The process of making dirty money appear clean

Three Stages:
1. Placement
2. layering
3. Integration

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17
Q

What is the placement step of Money Laundering and the 3 methodd

A

Initial stage of money laundering involves placing it into the financial system

Method
1. Cash based or cash heavy business integral to the placement stage of money laundering
2. Structuring of cash deposits fall under federal reporting guidelines can be a means of placing cash into the fin system
3. Carrying money offshore to a country w/ bank secrecy & privacy laws

Once in the fin system, an electronic trail of the money and its movement begins

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18
Q

What is the layering step in Money Laundering?

A

Layering is used to hide or disguise the source of the money
- Inherent goal is concealment of the true source and destination

May involve foreign countries w/ bank secrecy & privacy laws

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19
Q

What is the integration step of Money Laundering?

List the main issue and perp choices

A

Attempt to convert the placed and layered money back into the hands of the perop in form that the perp can use without risk of prosecution

Main issue:
- Ensuring the source of the money and transaction itself appears to be legitimate

Perp Choices
1. Spend money that they cannot show came from a legitimate source
2. Launder the ill gotten proceeds so it appears that the sources of the money are legit

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20
Q

How to prove Money Laundering in court

A
  1. Financial Transaction was attempted or conducted
  2. Defendent knew the proceeds derived from unlawful act
  3. Property derived from a specified unlawful act
  4. Defendent attempted to accomplish one of these objectives
    * Promote a specified unlawful act
    * Conceal the nature source location, ownership, or control the proceeds of an SUA
    * Attempted to avoid federal reporting requirements
    * Attempted to evade taxes
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21
Q

When will forfeiture occur?

A

Requires probable cause that connects the property to an illegal act
- The civil litigation threshhold is a direct association btw the criminal act and the property subject to seizure
- Courts will allow substitute property to be seized

All prop involved in money laundering are forfeitable

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22
Q

What is the RICO Act?

Racketeering Influence and Corrup Organizations Act

A

Addresses the orgs involved in making dirty money clean
- Allow investigators to after business involved in org crimed

Makes it illegal for any person who has received funds indirect or direct from racketeeing to invest or acquire any other busines involved in interstate or foreign commerce

Also provides forefeiture of assets and permits treble damages in civi cases

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23
Q

What does RICO Act Outlaw?

3 main things

Study These Flashcards
A
  1. Investing illegal funds in another business
  2. Acquisistion of a business through illegal acts
  3. Conduct of business affairs with illegac acts
24
Q

What do Racketeering Acts include?

Study These Flashcards
A
  1. Violent crimes - kidnap, murder, arson, & Robbery
  2. Other felonies: gambling, bribery, extortion, obsene material, controlled substance
  3. Violations of money laundering laws
  4. Violationgs of Bank Secrecy Act
  5. Mail & Wire Fraud
  6. Labor Offenses
  7. Securities Fraud
25
What is Conspiracy? | 3 elements
Targets the individuals involved in the illegal activity - Prohibited under Rico A conspiracy involves 3 elements 1. The co-conspirators must have an agreement bt them 2. The co-conspirators must act or demonstrate an inclanation to commit the crime 3. The participants must mentally commit to the act through their state of mind
26
What do prosecutor need to prove for conspiracy?
1. Existence of a Conspiracy 2. Willing participation in the conspiracy 3. Defendents knowledge of the conspiracy 4. At least one overt act was completed in carrying out the conspiracy
27
What is The USA Patriot Act?
United & Stengthening America by Providing Appropriate Tools required to **intercept and obstruct terrorism act** Identify new types of money laundering crimes and increased the penalties associated with them Set out procedure for the forefiture of bulk cash that had been smuggled Permits the confiscation of all prop of an indiv or entity who participates in the planning of a terrorist atack
28
The Patriot Act Outlaws Money Laundering
1. Funds gen from foreign crimes of violence or political corruption 2. Funds gen from cybercrime 3. Funds gen from offenses related to supporting terrorist orgs 4. Funds related to bulk cash smuggling
29
Bank Secrecy Act
**To assist the investigation of illegal acts associated w/ drug trafficking & tax evasion** - Attacks the placement stage of money laundering process Requires that fin institues maintain adequate records and fin institutes report certain types of transactions to fed gov Transactions involving **suspicious persons reported on Suspicious activity Report (SAR)**
30
Additional BSA Reporting Reqs
1. The movement of more than 10k into our out of US File FinCen Form 105 2. CTRC must be filed by casion when transaction >10k in currency 3. Eaxh US person w/ foreign bank account must report on treasury form 4. Any persons who owns or controls a money transmitting 5. BSA attacks the placement stage of the money laundering process
31
What is Mail Fraud?
Scheme to defraud someone by fraudulent pretenses & such fraud takes place in US post office, US mail, or through US postal
32
How to be found guilty of mail fraud?
Needs to only to cause the **mail service to be used to facilitate the fraud act** and the **item sent or delivered may be transported** by priv or commercial carrier Do not need to succeed or victims to suffer for statute to be applicable
33
What is wire fraud?
The use of wire, radio, or television to communicate false or fraudulent pretenses, representations, or promise - Must be associated with interstate or foreign commerce for statutes to apply
34
Benefit of the US Banking System
* Everything is written down * Most transactions and back up documents are some form of electronic imaging
35
What is the Check Clearing Act?
Act allows first bank to get a check to image the front and back of the check then shred the OG
36
What type of bank items are favorites for money launders
1. Cashiers check: documentation tied to bank check account not individual 2. Money Orders: typically limited dollar amounts 3. Travelers checks
37
What are the types of banks?
1. Commercial Banks 2. Savings and Loan Banks 3. Offshore banks 4. Private banks estblished by indiviualds and businisses to facilate transactions 5. Cental banks - responsible for maintaining and protecting the country's currency
38
Volume, Velocity, & Venue | Vo
**Volume** - the amount of money moving **Velocity** - the speed at which money moves **Venue** - who controls money - where does it exist?
39
International Money Movement
* Advanced cash payment: advantagoeu to provider * Documentary letter of credit: Both Buyer or Seller are protected * Documentary collection is similar to domestic cash on demancd (C.O.D) * Trillions of dollars move around the world every day * Open Account * Electronic Fund Transfers (EFT)
40
Bulk Cash Smuggling - Money Laundering
**Smuggling cash out of the US** for deposit elsewhere - well establish ML method associated w/ illegal narcotics It may be a crime to **transport cash or negotiable instruments over 10k** in and out of US, **if funds are both** - Concealed on the person, container, or conveyance - Transported w/ intent to avoid reporting reqs
41
What are some Bulk Cash Smuggling Methods?
1. Tunneling 2. Narco Subs 3. Stuffed Animal 4. Body Carry 5. Operation Meltdown
42
Trade Based Money Laundering
Process by which criminal use a legitimate trade to disguise their criminal proceeds from their illegal activities - # of schemes to complicate the documentation of legitimate trade transacs
43
Red Flags indicating Potential TBML
* Pmts for org products to a vendor by unrelated 3rd parties * False reporting of Transacs * Over valuation or undervaluation of product and service transaction * Repeated inportation and exportation of same high value product or service * Exchange of products and services that do not align w/ types of businesses involved in the transaction * Unusual Shipping routes * Incorrect or mislabeled packaging * Multiple invooices paid for the same products and services
44
What are shell companies and how are they used in ML?
Criminals hide their control of a comp or trust can disguise their money laundering activ as commercial transac **Shell comp:** LLV and other business w/ no signif assets or ongoing business activs
45
Casinos
* Cash intensive businesses provide fin services and money laundering opportunities * More money at indian reservation * Services you get at a bank: check cashing and wire transfers * Casino chips can be used to pay for drugs
46
Casino Money Laundering Techniques
* Holding chips and cashing them for check or wire transfer * Using chips to pay drugs * Gambling to fenerate certified winning * Exchanging counterfeit or marked mils * Use false ids to opern accounts or cash out * small bills into machine and cash out fo check * Colluding with Casino employees
47
What are trusts and Bearer securities
**Trusts:** vehicles where bad actors hide the true ownership **Bearer Securities:** Bearer Bond are owned and controlled by the person in possession iof financial instrument
48
Informational Value Transfer System | what is it and what is based on
Hawala is an Informal banking systems og created to support immigrants lacted around the world Transfers of money btw indivs with no record of transac Hawala system is based on trust and is fast efficient, unregulated, no paperwork
49
Virtual Money
Money is money as long as it has value and can be traded - Value is gen stored on compueter server of service provider - Server does not have to reside in the country of activity
50
Effect of electronic payment on Money Laundering Efforts
**Internet and electronic value storage** allows bad actors to select any form of pmt to transfer value anonymously tho the internet Anonymously move that value anywhere in the world Internationa cooperation & data sharing for analysis is needed tfor antimoney loaundering to be effective in the digi world
51
Who is responsible for taxes and what are the divisions?
IRS is responsible for determining, assessing and collecting taxes imposed by congress Major Division 1. Wages & investment 2. Small bus/ self employed 3. Large and Mid size Business division 4. Tax exempt and Gov entities
52
What is tax Evasion
Intentional wrongdoing to evade taxes believed to be owed - implies bad faith - one affirmative act to demonstrate intent
53
Common Tax Evasion Schemes
1. Understatement of taxes owed 2. omission of taxable transaction 3. Fictituous events and activs 4. Hidden events and activities 5. False statements to tax agents 6. False documentation
54
Taxpayer Defenses
* No taxes due * Scheme to avoid not to evade taxes * Claim unpaid taxes were based on objectively reasonable position under tax law * Taxpayer may claim that they did not have unrestricted accesss or rights to the funds * Mental Competance& capacity of the TP
55
What is bankruptcy fraud
Schemes to file false bankruptcy petition, or make false or fraudulent statements during proceeding, - Investigated by FB and US attorney prosecutes
56
Common Securities Fraud Schemes
1. Pyramid Schemes 2. Ponzi Scheme 3. Prime Bank Fraud 4. Churning 5. Unsuitable reccs 6. Parking 7. Front Running 8. Bucket Shops 9. Misuse of customer sex 10. Market Manipulation 11. Insider Trading

Fraud Examination Final (9 decks)

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