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Flashcards in Money laundering Deck (57)
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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 supplying apparently legitimacy to illicit wealth through the re-entry of the funds into the economy in what appears to be normal business or personal transaction.


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, and

-the amount of money that flows through correspondent accounts can pose 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.


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 of 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).


Describe four types of risk associated with money laundering faced by a financial institution

• Reputational risk is described as the potential that adverse publicity regarding an organization’s business practices and associations, whether accurate or not, will cause a loss of public confidence in the integrity of the
• Operational risk is described as the potential for loss resulting from inadequate internal processes, personnel or systems or from external events.
• Legal risk is the potential for lawsuits, adverse judgments, unenforceable contracts, fines and penalties generating losses, increased expenses for an
organization, or even the closure of the organization.
• Concentration risk is the potential for loss resulting from
too much credit or loan exposure to one borrower or
group of borrowers.


Describe a cross-border transfer.

A cross- border transfer is any wire transfer in which the originator and beneficiary institution are located in different jurisdictions. A cross-border transfer also refer to any chain of wire transfers that has at least one cross-border element.


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.


Define a red flag

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


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


Describe an intermediary financial institution

An intermediary financial institution received funds from a wire transfer transmitter's financial institution and relays or transmits the order of payment to the recipient's financial institution. In an international funds transmission, intermediary financial institutions are usually located in different countries


Deceive a nostro account

Nostro and vostro accounts are mirror correspondent accounts maintained by two banks in different jurisdictions to facilitate transactions in each other's local currency - essentially, clearing accounts that balance foreign currency transactions between the two institutions. For example, bank x from Brazil might open a U.S. Dollar account at bank Y in the U.S., called a "nostro" (literally "our") account; Bank Y might open a mirror account in Brazilian reals with Bank X in Brazil - a "vostro" ("your") account. Financial regulators have expressed concern over the transparency of nostro and vostro account relationships, especially when there are multiple layers of accounts within primary relationship


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.


What is the broad objective of the UNODC model legislation on money laundering and financing of terrorism?

The broad objective of the Global Programme is to strengthen the ability of Member States to implement measures against money-laundering and the financing of terrorism and to assist them in detecting, seizing and confiscating illicit proceeds, as required pursuant to United Nations instruments and other globally accepted standards, by providing relevant and appropriate technical assistance upon request.


What is an exempt account?

In some countries, a distinction is granted to certain customers of a financial institution permitting the institution to waive its responsibility to report certain transactions that are otherwise required. Exempt accounts must be documented and the financial institutions that secure the exemptions must still monitor their transactions.


Describe a lockbox

A service offered by banks to companies in which the company received payments by mail to a post office box and the bank picks up the payments several times a day, deposits them into the company's account, and notifies the company of the deposits. The service enables the company to put the money to work as soon as it is received, but the amounts must be large in order for the value obtained to exceed the cost of the service. In the insurance industry there is also widespread use of "lock boxes" for payment of life insurance and annuities products.


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.


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


According to FATF's paper called "Risk-Based Approach Guidance for Casinos", what are the potential transaction risks for land-based and Internet casinos?

According to FATF's paper called "Risked-Based Approach Guidance for Casinos," casinos should consider operational aspects (i.e. Products, services, games, and accounts/account activities) that can be used to facilitate money laundering and terrorist financing activities. In addition, land-based and Internet casinos have the following potential transaction risks:

- Proceeds of crime
- Cash
- Transfers between customers
- Loan sharking
- Use of casino deposit accounts, and
- Redemption of chips, tickets, or tokens for currency


Describe a typical suspicious or unusual transaction reporting process within a financial institution

While reporting procedures vary from country to country, a typical suspicious or unusual transaction reporting process within a financial institution includes:

- Procedures to identify potential suspicious transactions or activity

- A formal evaluation of each instance, and continuation of unusual transaction or activity

- documentation of the suspicious transaction reporting decision, whether or not filed with the authorities

- procedures to periodically notify senior management or the board of directors of suspicious transaction filings and

- employee training on detecting suspicious transactions or activities


ABC bank is served with a search warrant. What next steps should the Bank consider?

1. Call the financial institution's in-house or outside counsel

2. Review the warrant to understand its scope.

3. Ask for and obtain a copy of the warrant.

4. Ask for a copy of the affidavit that supports the search warrant (the agents are not obligated to provide a copy of the affidavit, but, if a financial institution is allowed to see the affidavit, the financial institution can learn more about the purpose of the investigation)

5. Remain present while the agents record an inventory of all items they seize and remove from the premises. Keep track of the records taken by the agents

6. Ask for a copy of law enforcement's inventory of what they have seized and

7. Write down the names and agency affiliations of the agents who conduct the search.


If an institution decides to file an STR, what should they do as soon as possible

Notify the investigator or prosecutors


Identify the three gateways that assist with the AML cooperation between countries

- mutual legal assistance treaties

- Financial Intelligence Unit and

- the supervisory channel


What factors may contribute to the vulnerabilities of private banking with regard to money laundering?

• Perceived high profitability,
• Intense competition,
• Powerful clientele,
• The high level of confidentiality associated with private banking,
• The close relationship of trust developed between relationship managers and their clients,
• Commission‐based compensation for relationship managers,
• A culture of secrecy and discretion developed by the relationship managers for their clients, and
• The relationship managers becoming client advocates to protect their clients.


What is one of the most important aspects of
due diligence for a bank when establishing a
relationship with a money remitter?

Ensuring the money remitter is properly licensed.


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.


How can the free‐look period be used to launder money?

A free‐look period is a feature that allows investors, for a short period of time after the policy is signed and the premium paid, to back out of a policy without penalty. This process allows the money launderer to get an insurance check, which represents cleaned
funds. However, as more insurance companies are subject to AML program requirements, this type of money laundering is more readily detected and reported.


According to FATF, what three circumstances should
be kept in mind when dealing with possible cuckoo smurfing activity?

• The existence of these deposits is not necessarily grounds to reconsider the relationship with a customer.
• It could be the indicator of laundering, therefore it should be examined carefully.
• Law enforcement will need information on the depositor, so banks should seek to identify cash deposits made by third parties and should retain surveillance footage.


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.


How can art and antiques dealers and auctioneers
mitigate their money laundering risks?

• Require all art vendors to provide names and addresses. Ask that they sign and date a form that states that the item was not stolen and that they are authorized to sell it.
• Verify the identities and addresses of new vendors and
• If there is reason to believe an item might be stolen, immediately contact the Art Loss Register (www., the world’s largest private database of stolen art.
• Look critically when a customer asks to pay in cash.
• Be aware of money laundering regulations.
• Appoint a senior staff member to whom employees can
report suspicious activities.


Describe the type of services to third parties that
any person or business provides on a professional basis
to participate in the creation, administration, or management of corporate vehicles.

Trust and company service providers (TCSP) include those persons and entities that, on a professional basis, participate in the creation, administration or management of corporate vehicles. They refer to
any person or business that provides any of the following services to third parties:
• Acting as a formation agent of legal persons,
• Acting as (or arranging for another person to act as) a director or secretary of a company, a partner of a partnership, or a similar position in relation to other legal persons,
• Providing a registered office, business address or correspondence for a company, a partnership or any other legal person or arrangement,
• Acting as (or arranging for another person to act as) a trustee of an express trust, and
• Acting as (or arranging for another person to act as) a nominee shareholder for another person.


Identify three ways money laundering can occur
through vehicle sellers.

The industry defined as "vehicle sellers" includes sellers and brokers of new vehicles, such as automobiles, trucks, and motorcycles; new aircraft, including fixed wing airplanes and helicopters; new boats and ships, and
used vehicles. Laundering risks and ways laundering can occur through vehicle sellers include:
• Structuring cash deposits below the reporting threshold, or purchasing vehicles with sequentially numbered checks or money orders,
• Trading in vehicles and conducting successive transactions of buying and selling new and used vehicles to produce complex layers of transactions,
• Accepting third‐party payments, particularly from jurisdictions with ineffective money laundering controls.