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1

NEGOTIABLE INSTRUMENTS
What are bearer negotiable
instruments?

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.

2

MEMORANDUM OF
UNDERSTANDING
What is a Memorandum of
Understanding (MOU)?

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 their respective duties in anti-money
laundering initiatives.
Financial Intelligence Units (FIUs), with the task of
receiving and analyzing 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.

3

COMMISSION ROGATOIRE
What is a commission 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.

4

EXTRATERRITORIAL REACH
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)).

5

FINANCIAL INTELLIGENCE UNIT
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 anti-money 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.

6

FRONT COMPANY
Describe a Financial Intelligence
Unit (FIU).

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.

7

INTERNATIONAL
BUSINESS COMPANY
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.

8

KNOW YOUR CUSTOMER
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.

9

MUTUAL LEGAL
ASSISTANCE TREATY
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.

10

PHYSICAL CROSS-BORDER
TRANSPORTATION OF CURRENCY
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:
(1) physical transportation by a natural person, or in that
person’s accompanying luggage or vehicle;
(2) shipment of currency through cargo containers; and
(3) the mailing of currency or bearer negotiable
instruments.

11

RED FLAG
Define a red flag.

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

12

REMITTANCE SERVICES
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.

13

PONZI SCHEME
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.

14

SAFE HARBOR
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.

15

SMURFING
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.

16

TAX HAVEN
Describe a tax haven.

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

17

TIPPING OFF
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.

18

TRUSTEE
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.

19

HAWALA
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 third
parties. 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.

20

WILLFUL BLINDNESS
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.

21

BASEL COMMITTEE
According to the Basel Committee
on Banking Supervision’s paper
entitled “Compliance and the
compliance function in banks,” what
are the responsibilities of the board of
directors for compliance?

According to the Basel Committee on Banking
Supervision’s paper entitled “Compliance and the
compliance function in banks,” the bank’s board of
directors is responsible for overseeing the management
of the bank’s compliance risk. The board should approve
the bank’s compliance policy, including a formal
document establishing a permanent and effective
compliance function. At least once a year, the board or a
committee of the board should assess the extent to which
the bank is managing its compliance risk effectively.

22

BASEL COMMITTEE
According to the Basel Committee on
Banking Supervision’s paper entitled
“Customer Due Diligence for Banks,”
how are sound KYC procedures
relevant to the safety and soundness
of banks?

• They help to protect banks’ reputation and the
integrity of banking systems by reducing the likelihood
of banks becoming a vehicle for or a victim of financial
crime and suffering consequential reputational
damage, and
• They constitute an essential part of sound risk
management (e.g. by providing the basis for
identifying, limiting and controlling risk exposures
in assets and liabilities, including assets under
management).