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Flashcards in Chapter 5/7 Deck (22)
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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.


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.


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 AML initiatives.

Financial Intelligence Units (FIUs), with the task of receiving or 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 Mutual Legal Assistance Treaty, this gateway is ordinarily used not for obtaining evidence, but for obtaining intelligence that might lead to evidence.


FINANCIAL INTELLIGENCE UNIT - Describe a Financial Intelligence Unit (FIU).

A central government office that obtains information from financial reports, processes it and then discloses it to an appropriate government authority in support of a national AML effort.

The activities performed by an FIU include receiving, analyzing and disseminating information and, sometimes, investigating violations and prosecuting individuals indicated in the disclosures.


INTERNATIONAL BUSINESS COMPANY - What is an Internation 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.


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.


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. AML 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)).


FRONT COMPANY - Describe 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 subsidze 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.


KNOW YOUR CUSTOMER - Describe Know Your Customer (KYC).

Know Your Customer (KYC) refers to AML 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 AML program.


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.


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 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.


RED FLAG - Define a red flag.

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


PHYSICAL CROSS-BORDER TRANSPORTATION OF CURRENCY - Define physical cross-border transportation of currency.

The physical cross-border transportation of currency is defined as any inbound or outbound 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.


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.


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 Intelligence Unit (FIU), even if they did not know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred.


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.


HAWALA - What is hawala?

A funds exchange system in Indian or 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.


TAX HAVEN - Describe a tax haven.

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


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.


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.


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 asses the extent to which the bank is managing its compliance risk effectively.


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?

1. 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

2. 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).