CAMS

Which two activities are typically associated with the black market peso exchange (BMPE) money laundering system?

- Converting illicit drug proceeds from dollars or euros to Colombian pesos - Facilitating purchases by Colombian importers of goods manufactured in the United States or Europe through peso brokers

United Kingdom's Joint ML Steering Group (JMLSG) suggests that..

1. Credit unions are still vulnerable to ML and TF 2. ML indicator is that there are transactions of larger than usual amounts and erratic member behavior.

Charities/NPOs are subject to misuse for TF b/c they have the following characteristics:

1. Enjoying the public trust 2. Having access to considerable sources of funds 3. cash-intensive 4. global presence exposed to terrorist activity 5. subject to little/no regulation

According to FATF's International Standards on Combating ML and the Financing of Terrorism and Proliferation (2012), there are 2 types of PEPs...

1. Foreign PEPs 2. Domestic PEPs

2 Key findings from FATF's report titled ML/TF Risk and Vulnerabilities Associated with Gold

1. Gold is extremely attractive vehicle - convert illicit cash into anonymous, transferable assets 2. Gold market is Lucrative

FATF's March 2010 Report on the ML Vulnerabilities in FTZs suggested that systemic weaknesses for FTZs include...

1. Inadequate AML/CFT safeguards 2. Minimal oversight by local authorities 3. Weak procedures to inspect goods and legal entities 4. Lack of cooperation between FTZs and local customs authorities

FATF issued Guidance for a Risk-Based Approach to Prepaid Cards, Mobile Payments and Internet-Based Payment Services that identified numerous inherent risks with what it called new payment methods (NPMs) - these risks are...

1. Non-face-to-face relationships and anonymity 2. Geographical reach 3. Methods of funding 4. Access to cash 5. Segmentation of services

The Guidance Paper on Combating TBML developed by Hong Kong Association of Banks referred to 6 ways to execute TBML...

1. Over invoicing or Underinvoicing 2. Overshipping or short-shipping 3. Ghost shipping 4. Shell companies 5. Multiple invoicing 6. Black Market Trades - Black Market Peso Exchange

Indicators of possible ML in Insurance Companies

1. Potential policyholder is more interested in a policy's cancellation terms than its benefits 2. Purchase and redemption of single premium insurance bonds. 3. Free-look period - back out of policy w/o penalty. 4. Operate in same manner as unit trusts or mutual funds - overfund policy, moving funds in and out.

Correspondent banking is vulnerable to ML for two main reasons

1. Provides services for individuals or entities for which it has neither verified the identities nor obtained any firsthand knowledge. 2. process large volumes of transactions for their customers' customers.

FinCEN issued interpretative guidance on virtual currency that categorized participants into 3 segments:

1. User - person who obtains VC 2. Exchanger - person engaged as a business in exchange of VC 3. Administrator - person engaged as a business in issuing VC and has authority to redeem VC

In 2010 report by FATF called ML using Trust and Company Service Providers (TCSP), identified the following vulnerabilities/red flags...

1. inconsistent record-keeping 2. potential for TCSPs to operate in unlicensed environment 3.Limited market restriction on practitioners to ensure adequate skills, competence and integrity 4. Potential for a TCSP's CDD to be performed by other financial institutions 5. Unknown or inconsistent application of regulatory guidelines regarding identification and report- ing requirements

Middle East and North Africa Financial Action Task Force (MENAFATF)

A FATF-style body established for the Middle Eastern and North African regions in 2004.

Caribbean Financial Action Task Force (CFATF)

A FATF-style regional body comprising Caribbean nations, including Aruba, the Bahamas, the British Virgin Islands, the Cayman Islands and Jamaica.

Eastern and Southern African Anti-Money Laundering Group (ESAAMLG)

A FATF-style regional body comprising countries from the Eastern region of Africa down to the Southern tip of Africa, established in 1999.

Financial Action Task Force on Money Laundering in Latin America (GAFILAT)

A FATF-style regional body for Latin America, established in 2000

Eurasian Group on Combating Money Laundering and Financing of Terrorism (EAG)

A FATF-style regional body formed in October 2004 in Moscow.

Asia/Pacific Group on Money Laundering (APG)

A Financial Action Task Force (FATF)-style regional body consisting of jurisdictions in the Asia/Pacific Region.

Respondent bank

A bank for which another financial institution establishes, maintains, administers or manages a correspondent account.

Custodian

A bank, financial institution, or other entity that is responsible for managing, administering, or safekeeping assets for other persons or institutions. A custodian holds assets to minimize risk of theft or loss, and does not actively trade or handle the assets.

Debit Card

A card that permits an account holder to draw funds from an existing account. Debit cards are used to pay obligations or make purchases. Debit cards can be used in a variety of places, including on the internet. Debit cards often allow for movement of cash via cash-back transactions or withdrawals at ATMs.

Cash Collateralized Loans

A cash collateralized loan has cash deposits as the loan's collateral. The cash deposits can sometimes reside in another jurisdiction.

Bill Stuffing

A casino customer goes to various slot machines putting cash in the bill acceptors and collects cash-out tickets with nominal gaming activity, then cashes out at the casino cage or asks for a check.

Financial Intelligence Unit (FIU)

A central national agency responsible for receiving, analyzing, and transmitting disclosures on suspicious transactions to appropriate authorities.

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. The individuals hired to conduct the transac- tions are referred to as smurfs. See structuring.

Anti-Money Laundering International Database (AMLID)

A compendium of analyses of anti-money laundering laws and regulations, including two general classes of money laundering control measures—domestic laws and international cooperation—as well as information on national contacts and authorities. A secure, multilingual database, AMLID is an important reference tool for law enforcement officers involved in cross-jurisdictional work.

Arrest Warrant

A court order directing a law enforcement officer to seize and detain a particular person and require them to provide an answer to a complaint or otherwise appear in court.

Letter of Credit

A credit instrument issued by a bank that guarantees payments on behalf of its customer to a third party when certain conditions are met.

Private banking

A department in a financial institution that provides high-end services to wealthy individuals. Private banking transactions tend to be marked with confidentiality, complex beneficial own- ership arrangements, offshore investment vehicles, tax shelters and credit extension services.

U.N. Security Council Resolution 1373 (2001)

Adopted in 2001, the resolution requires member nations to take a series of actions to combat terrorism through the adoption of laws and regulations and the establishment of administrative structures. The resolution also requires member nations to "afford one another the greatest measure of assistance for criminal investigations or criminal proceedings relating to the financ- ing or support of terrorist acts."

Mutual legal assistance treaty (MLAT)

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.

Memorandum of Understanding (MOU)

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.

Regulatory agency

A government entity responsible for supervising and overseeing one or more categories of financial institutions. The agency generally has authority to issue regulations, to conduct examinations, to impose fines and penalties, to curtail activities and, sometimes, to terminate charters of institutions under its jurisdiction. Most financial regulatory agencies play a major role in preventing and detecting money laundering and other financial crimes. Most regulators focus on domestic institutions, but some have the ability to regulate foreign branches and operations of institutions.

Suspicious transaction report (STR)

A government filing required by reporting entities that includes a financial institution's account of a questionable transaction. Many jurisdictions require financial institutions to report suspi- cious transactions to relevant government authorities such as its FIU on a suspicious transac- tion report (STR), also known as a suspicious activity report or SAR.

Hawaladar

A hawala broker.

Offshore banking license

A license that prohibits a bank from doing business with local citizens or in local currency as a condition of its license.

Casa de Cambio

Also called a "bureau de change" or an "exchange office," a casa de cambio offers a range of services that are attractive to money launderers: currency exchange and consolidation of small denomination bank notes into larger ones; exchange of financial instruments such as travelers checks, money orders and personal checks; and telegraphic transfer facilities.

Benami Account

Also called a nominee account. Held by one person or entity on behalf of another or others, Benami accounts are associated with the hawala underground banking system of the Indian subcontinent. A person in one jurisdiction seeking to move funds through a hawaladar to another jurisdiction may use a Benami account or Benami transaction to disguise his/her true identity or the identity of the recipient of the funds.

Virtual currency

A medium of exchange that operates in the digital space that can typically be converted into either a fiat (e.g., government-issued currency) or it can be a substitute for real currency. W

Concentration Account

Also called an "omnibus account." Held by a financial institution in its name, a clearing account is used primarily for internal administrative or bank-to-bank transactions in which funds are transmitted and commingled without personally identifying the originators

Money Order

A monetary instrument usually purchased with cash in small (generally under Euro/$500) denominations. It is commonly used by people without checking accounts to pay bills or to pay for purchases in which the vendor will not accept a personal check. Money orders may be used for laundering because they represent an instrument drawn on the issuing institution rather than on an individual's account.

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 million. Ponzi's name became synonymous with the use of new investors' money to pay off prior investors. Ponzi schemes involve fake, nonexistent 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.

Human Trafficking

Also known as Trafficking in Persons. The trade of humans, most commonly for the purpose of sexual slavery, forced labor or commercial sexual exploitation. Trafficking occurs in almost every country in the world, and is often cited as the second largest criminal enterprise in the world.

Private investment company (PIC)

Also known as a personal investment company, a PIC is a type of corporation that is often established in an offshore jurisdiction with tight secrecy laws to protect the privacy of its own- ers. In some jurisdictions, an international business company or exempt company is referred to as a private investment company.

Money Services Business (MSB)

A person (whether a natural or legal person) engaged in any of the following activities where it exceeds the applicable regulatory threshold, at which point the person is generally deemed to be a financial institution subject to AML obligations:Dealing in foreign exchangeCheck cashingIssuing or selling traveler's checks or money ordersProviding or selling prepaid accessMoney transmission

Credit Cards

A plastic card with a credit limit used to purchase goods and services and to obtain cash advances on credit. The cardholder is subsequently billed by the issuer for repayment of the credit extended. Credit cards may be used to launder money when payments of the amounts owed on the card are made with criminal money.

Asset Protection

A process that includes reorganizing how assets are held so as to make them less vulnerable should a claim be made against a person. Asset protection is also a term used by tax planners for measures taken to protect assets from taxation in other jurisdictions.

Commission Rogatoire

Also known as letters rogatory, a 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.

Bank Secrecy Act (BSA) Compliance Program

A program that U.S.-based financial institutions—as defined by the Bank Secrecy Act—are required to establish and implement in order to control money laundering and related financial crimes. The program's components include at a minimum: the development of internal policies, procedures and controls; the designation of a compliance officer; ongoing employee training; and an independent audit function to test the program.

Currency Transaction Report (CTR)

A report that documents a physical currency transaction that exceeds a certain monetary threshold. A CTR can also be filed on multiple currency transactions that occur in one day exceed the required reporting amount. Some countries, including the U.S., have requirements addressing when CTRs should be filed with government authorities.

Remittance services

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.

Asset Protection Trusts (APTs)

A special form of irrevocable trust usually created (i.e., settled) offshore for the principal purposes of preserving and protecting part of one's wealth from creditors. Title to the asset is transferred to a person named the trustee. APTs are generally used for asset protection and are usually tax neutral. Their ultimate function is to provide for the beneficiaries. Some proponents advertise APTs as allowing foreign trustees to ignore U.S. court orders and to simply transfer the trust to another jurisdiction in response to legal action threatening the trust's assets.

Money Laundering Reporting Officer (MLRO)

A term used in various international rules to refer to the person responsible for overseeing a firm's anti-money laundering activities and program and for filing reports of suspicious transactions with the national FIU. The MLRO is the key person in the implementation of anti-money laundering strategies and policies.

Express Trust

A trust created expressly by the settlor, usually in the form of a document such as a written deed of trust. An express trust differs from trusts that do not result from the specific intent or decision of a settlor to create a trust (e.g., constructive trust established by a court of law to address undeclared property).

Batch Processing

A type of data processing and data communications transmission in which related transactions are grouped together and transmitted for processing, usually by the same computer and under the same application.

International Business Company (IBC)

A variety of offshore corporate structures, which are dedicated to business use outside the incorporating jurisdiction and feature rapid formation, secrecy, broad powers, low cost, low to zero taxation and minimal filing and reporting requirements.

Red flag

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

Affidavit

A written statement given under oath before an officer of the court, notary public, or other authorized person. It is commonly used as the factual basis for an application for a search, arrest or seizure warrant.

Politically exposed person (PEP)

According to FATF's revised 40 Recommendations of 2012, a PEP is an individual who has been entrusted with prominent public functions in a foreign country, such as a head of state, senior politician, senior government official, judicial or military official, senior executive of a state-owned corporation or important political party official, as well as their families and close associates. The term PEP does not extend to middle- ranking individuals in the specified categories. Various country regulations will define the term PEP, which may include domestic as well as foreign persons.

Automated Clearing House (ACH)

An electronic banking network that processes large volumes of both credit and debit transactions that originate in batches. ACH credit transfers include direct deposit payroll payments and payments to contractors and vendors. ACH debit transfers include consumer payments on insurance premiums, mortgage loans and other kinds of expenses.

Automated Teller Machine (ATM)

An electronic banking outlet that allows customers to complete basic transactions without the assistance of a bank employee. ATMs generally dispense cash, allow check and cash deposits and transfers to be made, as well as balance inquiries.

Monitoring

An element of an institution's anti-money laundering program in which customer activity is reviewed for unusual or suspicious patterns, trends or outlying transactions that do not fit a normal pattern. Transactions are often monitored using software that weighs the activity against a threshold of what is deemed normal and expected for the customer.

Hawala

An informal value transfer system common in the Middle East, North Africa, and the Indian sub-continent. The system operates outside traditional banking systems. In a basic form, a customer contacts a hawaladar and gives him money to be transferred to another person. The hawaladar contacts his counterpart where the second person lives, who remits the funds to that person. A running tally is kept between the hawaladars of which owes the other a net sum. See Alternative Remittance System.

United Nations (U.N.)

An international organization that was established in 1945 by 51 countries committed to preserv- ing peace through cooperation and collective security. Today, nearly every nation in the world belongs to the U.N. See also Vienna Convention. The United Nations contributes to the fight against organized crime with initiatives such as the Global Program against Money Laundering (GPML), the key instrument of the U.N. Office of Drug Control and Crime Prevention in this task. Through the GPML, the U.N. helps member states to introduce legislation against money laundering and to develop mechanisms to combat this crime. The program encourages anti- money laundering policy development, monitors and analyzes the problems and responses, raises public awareness about money laundering and acts as a coordinator of joint anti-money laundering initiatives with other international organizations.

International Monetary Fund (IMF)

An organization of more than 180 member countries, the IMF works to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. The organization's objectives have remained unchanged since it was established. Its operations, which involve surveillance, financial assistance and technical support, have adjusted to meet the changing needs of member countries.

Know Your Employee (KYE)

Anti-money laundering policies and procedures for acquiring a better knowledge and understanding of the employees of an institution for the purpose of detecting conflicts of interests, money laundering, past criminal activity and suspicious activity.

Know Your Customer (KYC)

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.

Cash-Intensive Business

Any business in which customers usually pay with cash for the products or services provided, such as restaurants, pizza delivery services, taxi firms, coin-operated machines or car washes. Some money launderers run or use cash-based businesses to commingle illegally obtained funds with cash actually generated by the business.

Front Company

Any business set up and controlled by another organization. While not necessarily illicit, criminals use front companies to launder money by giving the funds the appearance of legitimate origin. Front companies may subsidize products and services at levels well below market rates or even below manufacturing costs

Criminal Proceeds

Any property derived from or obtained, directly or indirectly, through the commission of a crime.

Trust

Arrangement among the property owner (the grantor), a beneficiary and a manager of the prop- erty (the trustee), whereby the trustee manages the property for the benefit of the beneficiary in accordance with terms set by the grantor.

Examples of electronic transfers of funds are...

Automated Clearing House (ACH) computer, automated teller machine (ATM), electronic terminals, mobile telephones

Shell bank

Bank that exists on paper only and that has no physical presence in the country where it is incorporated or licensed, and which is unaffiliated with a regulated financial services group that is subject to effective consolidated supervision.

Currency

Banknotes and coins that are in circulation as a medium of exchange

Transparency International (TI)

Berlin-based, nongovernmental organization dedicated to increasing government accountabil- ity and curbing both international and national corruption. Established in 1993, TI is active in approximately 100 countries. It publishes corruption news on its website daily and offers an archive of corruption-related news articles and reports. Its Corruption Online Research and Information System, or CORIS, is perhaps the most comprehensive worldwide database on corruption. TI is best known for its annual Corruption Perceptions Index (CPI), which ranks countries by perceived levels of corruption among public officials; its Bribe Payers Index (BPI) ranks the leading exporting countries according to their propensity to bribe. TI's annual Global Corruption Report combines the CPI and the BPI and ranks each country by its overall level of corruption. The lists help financial institutions determine the risk associated with a particular jurisdiction.

CICAD (Comisión Interamericana para el Control del Abuso de Drogas or Inter-American Drug Abuse Control Commission

CICAD has issued several sets of anti-money laundering recommendations, including amend- ments to the Organization of American States (OAS) Model Regulations issued in 1992.

Cashier's Check

Common monetary instrument often purchased with cash. Can be used for laundering purposes, cashier's checks provide an instrument drawn on a financial institution.

Subpoena

Compulsory legal process issued by a court to compel the appearance of a witness at a judicial proceeding, sometimes requiring the witness to bring specified documents. The term can refer to either the process or the actual document that compels the recipient to act.

Concentration Risk

Concentration risk primarily applies to the asset side of the balance sheet. As a common practice, supervisory authorities not only require financial institutions to have information systems to identify credit concentrations, but also set limits to restrict bank exposure to single borrowers or groups of related borrowers. On the liability side, concentration risk is associated with funding risk, especially the risk of early and sudden withdrawal of funds by large depositors that could harm an institution's liquidity.

Vienna Convention

Convention in 1988 against the Illicit Trade in Narcotic Drugs and Psychotropic Substances. Countries that become parties to the Vienna Convention commit to criminalizing drug traf- ficking and associated money laundering, and enacting measures for the confiscation of the proceeds of drug trafficking. Article III of the Convention provides a comprehensive definition of money laundering, which has been the basis of much subsequent national legislation.

MONEYVAL

Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures. Formerly PC- R-EV, the committee was established in 1997 by the Committee of Ministers of the Council of Europe to conduct self and mutual assessments of anti-money laundering measures in place in Council of Europe countries that are not FATF members. MONEYVAL is a sub-committee of the European Committee on Crime Problems of the Council of Europe (CDPC).

Tax haven

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

Legal Risk

Defined by the 2001 Basel Customer Due Diligence for Banks Paper as the possibility that lawsuits, adverse judgments or contracts that cannot be enforced may disrupt or harm a financial institution. In addition, banks can suffer administrative or criminal penalties imposed by the government. A court case involving a bank may have graver implications for the institution than just the legal costs. Banks will be unable to protect themselves effectively from such legal risks if they do not practice due diligence in identifying customers and understanding and managing their exposure to money laundering.

Electronic Money (E-Money)

Electronic cash represents a series of monetary value units in some electronic format, such as being stored electronically online, on the hard drive of a device, or on the microchip of a plastic card.

Domestic Transfer

Electronic funds transfer in which the originator and beneficiary institutions are located in the same jurisdiction. A domestic transfer therefore refers to any chain of wire transfers that takes place entirely within the borders of a single jurisdiction, even though the actual system used to send the wire transfer may be located in another jurisdiction or online.

Wire transfer

Electronic transmission of funds among financial institutions on behalf of themselves or their customers. Wire transfers are financial vehicles covered by the regulatory requirements of many countries in the anti-money laundering effort.

Europol

Europol is the EU's law enforcement agency. Its main goal is to help achieve a safer Europe for the benefit of all EU citizens. In the area of anti-money laundering, Europol provides member states' law enforcement authorities with operational and analytical support via the ELOs (Europol Liaison Officers) and its analysts, as well as state of the art databases and communication channels.

Physical presence

Existence of an actual brick-and-mortar location with meaningful management of the institu- tion physically located within a country, where it maintains business records and is subject to supervision. The mere existence of a local agent or low level staff does not constitute physical presence.

Designated Non-Financial Businesses and Professions

FATF recommends certain standards apply to non-financial businesses and professions, including specifically:Casinos (including Internet casinos).Real estate agents.Dealers in precious metals and precious stones.Lawyers, notaries, other independent legal professionals and accountants. (Note that this refers to those who prepare or carry out certain duties on behalf of clients.)Trust and company service providers who prepare or carry out certain duties on behalf of their clients

Financial Action Task Force (FATF)

FATF was chartered in 1989 by the Group of Seven industrial nations to foster the establishment of national and global measures to combat money laundering. It is an international policy-making body that sets anti-money laundering standards and counter-terrorist financing measures worldwide. Its Recommendations do not have the force of law. Thirty-five countries and two international organizations are members. In 2012, FATF substantially revised its 40 + 9 Recommendations and reduced them to 40. FATF develops annual typology reports showcasing current money laundering and terrorist financing trends and methods.

Financial Action Task Force-Style Regional Body (FSRB)

FSRBs have forms and functions similar to those of FATF. However, their efforts are targeted to specific regions. In conjunction with FATF, FSRBs constitute an affiliated global network to combat money laundering and terrorist financing.

Money Transfer Service or Value Transfer Service

Financial service that accepts cash, checks and other monetary instruments that can store value in one location and pay a corresponding sum in cash or other form to a beneficiary in another location by means of a communication, message, transfer or through a clearing network to which the money/ value transfer service belongs. Transactions performed by such services can involve one or more intermediaries and a third-party final payment. A money or value transfer service may be provided by persons (natural or legal) formally through the regulated financial system (for example, bank accounts), informally through non-bank financial institutions and business entities or outside of the regulated system. In some jurisdictions, informal systems are referred to as alternative remittance services or underground (or parallel) banking systems.

European Union Directive on Prevention of the Use of the Financial System for the Purpose of Money Laundering and Terrorist Financing

First adopted by the European Union in June 1991 and updated in 1997, 2005, and 2015, the directive requires EU member states to ensure that money laundering and terrorist financing are prohibited. The Directive applies to a broad spectrum of entities, including financial institutions, accountants, notaries, trust companies, estate agents, and some providers of gambling services. Member states are expected to identify and mitigate risks appropriately. They are to oversee financial institutions and other obliged entities, including establishing standards for customer due diligence; prohibition of shell banking relationships; establishing FIUs; developing standards for document retention; and requiring consequences for failure to comply.

Gulf Cooperation Council (GCC)

Formed in 1981, the GCC promotes cooperation between its member states in the fields of economy and industry. Member states include Kuwait, Bahrain, Qatar, Saudi Arabia, Oman and the United Arab Emirates. The GCC is a member of FATF, although its individual members are not.

Based on 2004 report by Transparency International what jurisdiction was the first to bring TCSP under regulator control ...

Gibraltar

Human Smuggling

Human smuggling refers to the transport or illegal entry of a person across international borders in contravention of one or more countries' laws. Human smuggling differs from human trafficking in that it focuses on the entry or transport, rather than the exploitation of the person involved.

Structuring

Illegal act of splitting cash deposits or withdrawals into smaller amounts, or purchasing mon- etary instruments, to stay under a currency reporting threshold. The practice might involve dividing a sum of money into lesser quantities and making two or more deposits or withdrawals that add up to the original amount. Money launderers use structuring to avoid triggering a filing by a financial institution. The technique is common in jurisdictions that have compulsory currency reporting requirements. See smurfing.

Collection Accounts

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.

Tipping off

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.

Enhanced Due Diligence (EDD)

In conjunction with Customer Due Diligence, EDD calls for additional measures aimed at identifying and mitigating the risk posed by higher risk customers. It requires developing a more thorough knowledge of the nature of the customer, the customer's business and understanding of the transactions in the account than a standard or lower risk customer. A financial institution should ensure account profiles are current and monitoring should be risk-based.

Bearer Form

In relation to a certificate, share transfer or other document, a bearer form enables a designated investment or deposit to be sold, transferred, surrendered or addressed to a bearer without the need to obtain further written instructions.

Customer Due Diligence (CDD)

In terms of money laundering controls, CDD requires policies, practices and procedures that enable a financial institution to predict with relative certainty the types of transactions in which the customer is likely to engage. CDD includes not only establishing the identity of customers, but also establishing a baseline of account activity to identify those transactions that do not conform to normal or expected transactions.

Confiscation

Includes forfeiture where applicable, and means the permanent deprivation of funds or other assets by order of a competent authority or a court. Confiscation or forfeiture takes place through a judicial or administrative procedure that transfers the ownership of specified funds or other assets to the state. Upon transfer, the person(s) or entity (ies) that held an interest in the specified funds or other assets at the time of the confiscation or forfeiture lose all rights, in principle, to the confiscated or forfeited assets.

Bearer Negotiable Instruments

Includes 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 payee, or are otherwise in such form that title thereto passes upon delivery.

Offshore financial center (OFC)

Institutions that cater to or otherwise encourage banks, trading companies and other corporate or legal entities to physically or legally exist in a jurisdiction but limit their operations to off- shore, meaning outside the jurisdiction (see offshore). OFCs have historically been located in the Caribbean or on Mediterranean islands to be in reasonable proximity to the major financial centers of the U.S. and Europe.

Organization for Economic Cooperation and Development (OECD)

International organization that assists governments on economic development issues in the global economy. OECD houses the FATF Secretariat in Paris.

Sting operation

Investigative tactic in which undercover officers pose as criminals, sometimes through a front business, to win the confidence of suspected or known criminals to gather information and to obtain evidence of criminal conduct. It is an effective means of identifying criminals, pene- trating criminal organizations and identifying tainted property in money laundering and other cases.

Suspicious activity

Irregular or questionable customer behavior or activity that may be related to a money laun- dering or other criminal offense, or to the financing of a terrorist activity. May also refer to a transaction that is inconsistent with a customer's known legitimate business, personal activities or the normal level of activity for that kind of business or account.

Confidentiality

Keeping certain facts, data and information out of public or unauthorized view. In most jurisdictions, confidentiality is required when filing suspicious transaction or activity reports — the filing institution's employees cannot notify a customer that a report has been filed. In another context, a breach of confidentiality can occur when an institution discloses client information to enforcement agencies or a financial intelligence unit in violation of the jurisdiction's bank secrecy laws.

Credit cards are likely to be used in what stages of ML?

Layering or Integration Stages. Not likely to be used in initial as this industry restricts cash payments.

Willful blindness

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.

Safe harbor

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.

Offshore

Literally, away from one's own home country—if one lives in Europe, the United States is offshore. In the money laundering lexicon, the term refers to jurisdictions deemed favorable to foreign investments because of low or no taxation or strict bank secrecy regulations.

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 accor- dance with the settlor's trust deed, taking into consideration any letter of wishes.

Knowledge

Mental state accompanying a prohibited act. The Interpretive Notes to Recommendation 3 of the FATF 40 Recommendations of 2012 says that countries should ensure that the intent and knowledge required to prove the offense of money laundering is consistent with the standards set forth in the Vienna and Palermo Conventions, including the concept that such a mental state may be inferred from objective factual circumstances. The exact definition of knowledge that accompanies an anti-money laundering act varies by country. Knowledge can be deemed, under certain circumstances, to include willful blindness; that is "the deliberate avoidance of knowledge of the facts," as some courts have defined the term.

Wolfsberg Group

Named after the castle in Switzerland where its first working session was held, the Wolfsberg Group is an association of global financial institutions, including Banco Santander, Bank of America, Bank of Tokyo-Mitsubishi UFJ, Barclays, Citigroup, Credit Suisse Group, Deutsche Bank, Goldman Sachs, HSBC, J.P. Morgan Chase, Société Générale, Standard Chartered Bank and UBS. In 2000, along with Transparency International and experts worldwide, the institu- tions developed global anti-money laundering guidelines for international private banks. Since then, it has issued several other guidelines on correspondent banking and terrorist financing, among others.

Bearer Share

Negotiable instruments that accord ownership in a corporation to the person who is in physical possession of the bearer share certificate, a certificate made out to "Bearer" and not in the name of an individual or organization.

Nongovernmental organization (NGO)

Nonprofit organizations that are not directly linked to the governments of specific countries, and perform a variety of service and humanitarian functions, including bringing citizen con- cerns to governments, advocating for causes and encouraging political participation. Some countries' anti- money laundering regulations for NGOs still have loopholes that some worry could be exploited by terrorists or terrorist sympathizers trying to secretly move money.

Settlors

People or companies who transfer ownership of their assets to trustees by means of a trust deed. Where the trustees have some discretion as to the investment and distribution of the trust's assets, the deed may be accompanied by a nonlegally binding letter setting out what the settlor wishes done with the assets.

Cardholder

Person to whom a financial transaction card is issued, or an additional person authorized to use the card.

ML through casinos occurs at what stages?

Placement and layering stage

Gatekeepers

Professionals such as lawyers, notaries, accountants, investment advisors, and trust and company service providers who assist in transactions involving the movement of money, and are deemed to have a particular role in identifying, preventing and reporting money laundering. Some countries impose due diligence requirements on gatekeepers that are similar to those of financial institutions

Typology

Refers to a money laundering method and is a term used by FATF.

Bank Secrecy

Refers to laws and regulations in countries that prohibit banks from disclosing information about an account—or even revealing its existence—without the consent of the account holder. Impedes the flow of information across national borders among financial institutions and their supervisors. One of FATF's 40 Recommendations states that countries should ensure that secrecy laws do not inhibit the implementation of the FATF Recommendations.

The Yates Memo does...

Reminds prosecutors that criminal and civil investigations into corporate misconduct should also focus on individuals who perpetrated the wrongdoing. Resolution of a corporate case does not provide protection to individuals from criminal or civil liability

Microstructuring

Same as structuring, except that it is done at a much smaller level. ex. $18,000 broken into 20 deposits of approx. $900 each.

Informal Value Transfer System (IVTS)

See Alternative Remittance System.

Omnibus account

See Clearing Account.

Letter Rogatory

See Commission Rogatoire.

GAFISUD (Spanish: Grupo de Acción Financiera de Sudamérica)

See Financial Action Task Force on Money Laundering in Latin America.

Predicate crimes

Specified unlawful activities whose proceeds, if involved in the subject transaction, can give rise to prosecution for money laundering. Most anti-money laundering laws contain a wide definition or listing of such underlying crimes. Predicate crimes are sometimes defined as felonies or "all offenses in the criminal code."

Possibly the most commonly known ML method is....

Structuring

Cash Deposits

Sums of currency deposited in one or more accounts at a financial institution. Vulnerable to money laundering in the "placement phase," as criminals move their cash into the non-cash economy by making deposits into accounts at financial institutions.

Basel Committee on Banking Supervision (Basel Committee)

The Basel Committee was established by the G-10's central bank of governors in 1974 to promote sound supervisory standards worldwide. Its secretariat is appointed by the Bank for International Settlements in Basel, Switzerland. It has issued, among others, papers on customer due diligence for banks, consolidated KYC risk management, transparency in payment messages, due diligence and transparency regarding cover payment messages related to cross-border wire transfers, and sharing of financial records among jurisdictions in connection with the fight against terrorist financing. See www.bis.org/bcbs.

Black Market Peso Exchange (BMPE)

The Black Market Peso Exchange (BMPE) is an example of a complex method of trade-based money laundering. The BMPE originally was driven by Colombia's restrictive policies on currency exchange. To circumvent those policies, Colombian businesses bypassed the government levies by dealing with peso brokers that dealt in the black market or parallel financial market. Colombian drug traffickers took advantage of this method to receive Colombian pesos in Colombia in exchange for U.S. drug dollars located in the U.S.

Egmont Group of Financial Intelligence Units

The Egmont Group of consists of a numerous national of financial intelligence units (FIUs) that meet regularly to find ways to promote the development of FIUs and to cooperate, especially in the area of information exchange, training and the sharing of expertise. The goal of the group is to provide a forum for FIUs to improve cooperation in the fight against money laundering and the financing of terrorism, and to foster the implementation of domestic programs in this field.

USA PATRIOT Act

The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56). Enacted on October 26, 2001, the his- toric U.S. law brought about momentous changes in the anti-money laundering field, including more than 50 amendments to the Bank Secrecy Act. Title III of the Act, the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, contains most, but not all, of its anti- money laundering-related provisions.

World Bank

The World Bank is a vital source of financial and technical assistance to developing countries. It is not a bank in the usual sense, but is made up of two unique development institutions owned by 184 member countries—the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). Both organizations provide low-interest loans, interest-free credit and grants to developing countries. In 2002, the IMF and the World Bank launched a 12-month pilot program to assess countries' anti-money laundering and counter-terrorist financing measures. The World Bank and the IMF, in conjunction with FATF, developed a common methodology to conduct such assessments based on the FATF's 40 Recommendations.

Originator

The account holder or, where there is no account, the person (natural or legal) that places the order with the financial institution to perform the wire transfer.

Custody

The act of or authority to safeguard and administer clients' investments or assets.

Risk-based approach

The assessment of the varying risks associated with different types of businesses, clients, accounts and transactions in order to maximize the effectiveness of an anti-money laundering program.

Extraterritorial Reach

The extension of one country's policies and laws to the citizens and institutions of another. Depending on jurisdiction, money laundering laws may extend prohibitions and sanctions into other jurisdictions.

Placement

The first phase of the money laundering process: The physical disposal of proceeds derived from illegal activity.

Currency Smuggling

The illicit movement of large quantities of cash across borders, often into countries without strict banking secrecy, poor exchange controls or poor anti-money laundering legislation.

Integration

The integration phase, often referred to as the third and last stage of the classic money laundering process, places laundered funds back into the economy by re-entering the funds into the financial system and giving them the appearance of legitimacy.

Forfeiture

The involuntary loss of property or assets as a result of legal action. Generally, the owner of the property has failed to comply with the law or the property is linked to some sort of criminal activity.

Money launders utilize electronic transfer of funds in what stage of ML?

The layer stage (transfer of funds)

European Union (EU)

The modern EU was founded in the Treaty of Maastricht on European Union, signed in 1992 and effective in 1993. The EU is a politico-economic union of member states located primarily in Europe. Member states have set up three common institutions (the European Parliament, the European Commission, and the Council of the European Union) to which they delegate part of their sovereignty so that decisions on specific matters of collective interest can be made democratically at the European level. As a result, people, goods, services and money flow freely through the EU.

Electronic Funds Transfer (EFT)

The movement of funds between financial institutions electronically. The two most common electronic funds transfer systems in the U.S. are FedWire and CHIPS. (SWIFT is often referred to as the third EFT system, but in reality it is an international messaging system that carries instructions for wire transfers between institutions, rather than the wire transfer system itself.)

Grantor

The party who transfers title or ownership of property or assets. In a trust, typically the person who creates or funds the trust.

Reputational risk

The potential that adverse publicity regarding a financial institution's business practices and associations, whether accurate or not, will cause a loss of confidence in the integrity of the institution. Banks and other financial institutions are especially vulnerable to reputational risk because they can become a vehicle for, or a victim of, illegal activities perpetrated by customers. Such institutions may protect themselves through know-your-customer and know- your-employee programs.

Nesting

The practice where a respondent bank provides downstream correspondent services to other financial institutions and processes these transactions through its own correspondent account. The correspondent bank is thus processing transactions for financial institutions on which it has not conducted due diligence. Although this is a normal part of correspondent banking, it requires the correspondent bank to conduct enhanced due diligence on its respondent's AML program to adequately mitigate the risk of processing the customer's customers' transactions.

Bank Secrecy Act (BSA)

The primary U.S. anti-money laundering regulatory statute (Title 31, U.S. Code Sections 5311- 5355) enacted in 1970 and most notably amended by the USA PATRIOT Act in 2001. Among other measures, it imposes money laundering controls on financial institutions and many other businesses, including the requirement to report and to keep records of various financial transactions.

Terrorist financing

The process by which terrorists fund their operations in order to perform terrorist acts. There are two primary sources of financing for terrorist activities. The first involves financial support from countries, organizations or individuals. The other involves a wide variety of revenue-gen- erating activities, some illicit, including smuggling and credit card fraud.

Money Laundering

The process of concealing or disguising the existence, source, movement, destination or illegal application of illicitly- derived property or funds to make them appear legitimate. It usually involves a three part system: placement of funds into a financial system, layering of transactions to disguise the source, ownership and location of the funds, and integration of the funds into society in the form of holdings that appear legitimate. The definition of money laundering varies in each country where it is recognized as a crime.

Correspondent Banking

The provision of banking services by one bank (the "correspondent bank") to another bank (the "respondent bank"). Large international banks typically act as correspondents for hundreds of other banks around the world. Respondent banks may be provided with a wide range of services, including cash management (e.g., interest-bearing accounts in a variety of currencies), international wire transfers of funds, check clearing services, payable-through accounts and foreign exchange services.

Operational risk

The risk of direct or indirect loss of operations due to inadequate or failed internal processes, people or systems, or as a result of external events. Public perception that a bank is not able to manage its operational risk effectively can disrupt or harm the business of the bank.

Layering

The second phase of the classic three-step money laundering process between placement and integration, layering involves distancing illegal proceeds from their source by creating complex levels of financial transactions designed to disguise the audit trail and to provide anonymity.

Extradition

The surrender by one jurisdiction to another of an accused or convicted person under an agreement that specifies the terms of such exchanges.

Anti-Money Laundering Program

The system designed to assist institutions in their fight against money laundering and terrorist financing. In many jurisdictions, government regulations require financial institutions, including banks, securities dealers and money services businesses, to establish such programs. At a minimum, the anti-money laundering program should include:Written internal policies, procedures and controls;A designated AML compliance officer;On-going employee training; andIndependent review to test the program

Beneficial Owner

The term beneficial owner has two different definitions depending on the context:The natural person who ultimately owns or controls an account through which a transaction is being conducted.The natural persons who have significant ownership of, as well as those who exercise ultimate effective control over, a legal person or arrangement.

Beneficiary

The term beneficiary has two different definitions depending on the context:The person (natural or legal) who benefits from a transaction, such as the party receiving the proceeds of a wire, a payout on an insurance policy.In the trust context, all trusts (other than charitable or statutory-permitted non- charitable trusts) must have beneficiaries, which may include the settlor. Trusts must also include a maximum time frame, known as the "perpetuity period," which normally extends up to 100 years. While trusts must always have some ultimately ascertainable beneficiary, they may have no defined existing beneficiaries.

Nonprofit organizations (NPO)

These can take on a variety of forms, depending on the jurisdiction and legal system, including associations, foundations, fund-raising committees, community service organizations, cor- porations of public interest, limited companies and public benevolent institutions. FATF has suggested practices to help authorities protect organizations that raise or disburse funds for charitable, religious, cultural, educational, social or fraternal purposes from being misused or exploited by financiers of terrorism.

Designated Categories of Offense

Those crimes considered by FATF to be money-laundering predicate offenses. Each country can separately decide how it will define specific offenses and their elements under its own domestic laws. Many nations do not specify which crimes can serve as predicates for laundering prosecutions and merely state that all serious felonies may be predicates.

Freeze

To prevent or restrict the exchange, withdrawal, liquidation, or use of assets or bank accounts. Unlike forfeiture, frozen property, equipment, funds or other assets remain the property of the natural or legal person(s) that held an interest in them at the time of the freezing and may continue to be administered by third parties. The courts may decide to implement a freeze as a means to protect against flight.

Seize

To prohibit the transfer, conversion, disposition or movement of funds or other assets on the basis of an action initiated by a competent authority or a court under a freezing mechanism. However, unlike a freeze, a seizure allows the competent authority to take control of specified funds or other assets. The seized assets remain the property of the individual(s) or entity(ies) that held an interest in them at the time of the seizure, although the competent authority will often take over possession, administration or management of the seized assets.

Credit Union Central

Trade association for credit unions; owned by its member credit unions and helps to serve many of their financial needs.

Payable through account

Transaction account opened at a depository institution by a foreign financial institution through which the foreign institution's customers engage, either directly or through subaccounts, in banking activities and transactions in such a manner that the financial institution's customers have direct control over the funds in the account. These accounts pose risks to the depository institutions that hold them because it can be difficult to conduct due diligence on foreign institution customers who are ultimately using the PTA accounts.

Unusual transaction

Transaction that appears designed to circumvent reporting requirements, is inconsistent with the account's transaction patterns or deviates from the activity expected for that type of account.

Monetary Instruments

Travelers checks, negotiable instruments, including personal checks and business checks, official bank checks, cashier's checks, promissory notes, money orders, securities or stocks in bearer form. Monetary instruments are normally included, along with currency, in the antimoney laundering regulations of most countries, and financial institutions must file reports and maintain records of customer activities involving them.

Corporate Vehicles

Types of legal entities that may be subject to misuse such as private limited companies and public limited companies whose shares are not traded on a stock exchange, trusts, non-profit organizations, limited partnerships and limited liability partnerships, and private investment companies. Occasionally, it is difficult to identify the persons who are the ultimate beneficial owners and controllers of corporate vehicles, which makes the vehicles vulnerable to money laundering.

Senior foreign political figure

U.S. term for foreign politically exposed persons.

Alternative Remittance System (ARS)

Underground banking or Informal Value Transfer Systems (IVTS). Often associated with ethnic groups from the Middle East, Africa or Asia, and commonly involves the transfer of values among countries outside of the formal banking system. The remittance entity can be an ordinary shop selling goods that has an arrangement with a correspondent business in another country. There is usually no physical movement of currency and a lack of formality with regard to verification and record- keeping. The money transfer takes place by coded information that is passed through chits, couriers, letters, faxes, emails, text messages, or online chat systems, followed by some form of telecommunications confirmations.

Cross Border

Used in the context of activities that involve at least two countries, such as wiring money from one country to another or taking currency across a border.

Bank Draft

Vulnerable to money laundering because it represents a reputable international monetary instrument drawn on a reputable institution, and is often made payable—in cash— upon presentation and at the issuing institution's account in another country.

Testimony

Witness' oral presentation, usually under oath, that describes facts known to the witness.

Shell company or corporation is...

a company that at the time of incorporation has no significant assets or operations

Gatekeepers are...

accountants, lawyers, notaries, company formation agents, auditors, and other financial intermediaries

In FinCEN's Final Rule in 2012, it expanded the MSB definition to include what?

an entity qualifies as an MSB based on its activities within the US, even if none of its agents, agencies, branches or offices are physically located there

FinCEN defines a funnel account as...

an individual or business account in one geographic area that receives multiple cash deposits, often in amounts below the cash reporting threshold, and from which the funds are withdrawn in a different geographic area with little time elapsing between the deposits and withdrawals.

FATF recommendation 8 on NPOS helps ...

assist NPOS in mitigating terrorist-financing threats and financial institutions in proper implementation of risk-based approach Ensure NPOS are not abused by: 1. terrorist orgs. posing as legitimate entities 2. exploiting legitimate entities as conduits for TF 3. concealing/obscuring the clandestine diversion of funds intended for legitimate to terrorist orgs.

Correspondent Banking is the provision of...

banking services by one bank (correspondent bank) to another bank (respondent bank)

Shelf company is a ...

corporation that has had no activity

FATF recommendation 5 encourages...

country to criminalize TF and the financing of terrorist organizations and individual terrorists w/ or w/o link to a specific terrorist act, as well as ensuring these crimes are designated as ML predicate offenses

Loan back

criminal provides associate with a specific amount of illegitimate money. The associate provides a loan or mortgage back to the trafficker for the same amount with all necessary loan and/or mortgage documentation.

In 2006, the USA Patriot Act required certain dealers in covered and finished goods (precious metals, stones and jewels) to...

establish an AML program

PTAs differ from normal correspondent accounts in that...

foreign bank's customers have the ability to directly control funds at the correspondent bank.

Financial Conduct Authority (FCA) published final rules for Senior Managers Regime (2015) which is designed to...

improve individual accountability within the banking sector. It requires financial institution to give explicit responsibility to a senior manager.

In 2010 report by FATF called ML using Trust and Company Service Providers (TCSP) they found that...

in many jurisdictions the existence of TCSPs are not recognized.

In 2016, FinCEN began issuing a series of geographic targeting orders (GTOs) to help law enforcement identify what?

individuals acquiring luxury residential properties through LLCs or other opaque structures without the use of bank financing.

Domestic PEPs are...

individuals entrusted domestically with prominent public functions

Foreign PEPs are...

individuals entrusted with prominent public functions by a foreign country

An annuity is an...

investment that provides a defined series of payments in the future in exchange for an up-front sum of money.

Closed loop prepaid cards

limited to buying goods or services from the merchant issuing the card ex. Loft Giftcard.

Terrorists raise money through ....

oil trade, extortion, undetected cash couriers, kidnapping for ransom, trafficking of humans and arms and racketeering

In a June 2006 report, called Trade-Based Money Laundering, FATF defined trade-based money laundering (TBML) as the

process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimize their illicit origins; misrepresentation of the price, quantity or quality of imports or exports.

Per FATF Financial Institutions should exercise ------ ------ in evaluating potential suspicious activity

reasonable judgement

The adverse consequences of money laundering are...

reputational, operational, legal and concentration risks

Remote Deposit Capture (RDC) allows customers to what?

scan a check and transmit an electronic image to the bank for deposit.

Reverse Flip

seller who agrees to a reported purchase price well below the actual value of the property and then accepts the difference under the table.

Irrevocable (trust) means...

the grantor cannot terminate the trust once created

Revocable (trust) means...

the grantor/settlor can terminate the trust

ML cases dealing with vehicle dealers have one common element...

the unreported use of currency to pay for the automobiles

"All Cash"

transactions that do not involve traditional financing and does not necessarily reference the use of physical cash.

Open loop prepaid cards

used for purchases at any merchant that accepts cards issued for use on the payment network associate with the card. Ex. AMEX, Visa

As an alternative remittance system, Hawala operates...

without governmental supervision