Cams 6 Study Questions Chap 1

What describes the "alternative remittance system"

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.

Administrators or Exchangers of virtual currency cannot be categorized as MSBs, and therefore need not comply with the registration, reporting, record keeping and other regulations applicable to money transmitters.

According to the guidance issued by FinCEN in March, 2013. Administrators or Exchanger of virtual currency are identified as MSBs engaging in money transmission. They must therefore comply with the registration, reporting, record keeping and other regulations applicable to money transmitters, such as maintaining a compliant AML/CFT program.

Politically Exposed Persons (PEPs)

Appropriate steps must be taken to identify PEPs, including obtaining senior management approval of such business relationships, taking measures to establish the sources of wealth and funds, and conducting ongoing monitoring.

Cross-Border Correspondence Banking

Appropriate steps must be taken to understand respondent institution's business, reputation, supervision and AML controls.

Transparency and Beneficial Ownership of Legal Persons and Arrangements:

Countries should take appropriate measures to prevent the misuse of legal persons for money laundering or terrorist financing, including ensuring information about the beneficial ownership and control of such legal persons is available to competent authorities, particularly with regard to legal persons that can issue bearer shares or have nominee shareholders or directors.

New Technologies

Countries and financial institutions should assess the risks associated with the development of the new products, business practices, delivery mechanisms and technology.

Money or Value Transfer Services (MVTS)

Countries should ensure that MVTS are licensed or registered, and subject to appropriate AML requirements.

Wire Transfers

Countries should require financial institutions to obtain and send required and accurate originator, intermediary and beneficiary information with wires. Financial institutions should monitor wires for incomplete information and take appropriate measures. They should also monitor wires for those involving parties designated by the United Nations Security Council and take freezing actions or otherwise prohibit the transactions from occurring

In general, the three phases of money laundering are said to be:

Methods and Stages of Money Laundering. There are three stages involved in money laundering; placement, layering and integration. Placement �This is the movement of cash from its source. On occasion the source can be easily disguised or misrepresented

Since trusts may be formed in order to conceal the identity of the true owner or beneficiary, payments made to the beneficiaries of a trust can also be used in the money laundering process. a. True b. False

a. True - In some jurisdictions trusts may be formed to take advantage of strict secrecy rules in order to conceal the identity of the true owner or beneficiary of the trust property.

One of the reasons for the continued popularity of hawala as an alternative remittance system (ARS) is the ability to legitimately transfer money cheaper and faster than through a formal banking system. a. True b. False

a. True - Legit hawala include: 1. Cheaper and faster money transmission. 2. Lack of banking access in the remittance receiving country. 3. Cultural preference and lack of trust in the formal banking system.

An inherent risk of prepaid cards in non face-to-face relationships and anonymity, a. True b. False

a. True. - Fore prepaid cards anonymity can occur when the card is purchased registered, loaded, reloaded or used.

Jennifer wants to send a $5,000 money transfer, but knowing that in her country there is a threshold of $3,000 for the recording funds transfers, she sends a $2,500 money transfer and asks her friend to send another $2,500 money transfer, This practice is known as"layering". a. false b. true

a. false. This is an example of 'structuring', which is the money laundering practice designing a financial transaction to evade triggering a reporting or record keeping requirement.

The practice of issuing numerous invoices for the same shipment of goods, thus allowing the money launderer the opportunity to make numerous payments and justify then with the invoices, is known as 'ghost-shipping.' a. false b. true

a. false. This practice is known as 'multiple invoicing.' Ghost-shipping involves fictitious trades where a buyer and seller collude to prepare all the documentation indicating goods were sold, shipped and payments were made, but no goods were actually shipped.

In the "reverse flip" money laundering method, a criminal provides an associate with a specific amount of illegitimate money. The associate then provides a "mortgage" back to the trafficker for the same amount with all the necessary documentation. This creates an illusion that the trafficker's funds are legitimate. a. false b. true

a. false. This real estate money laundering practice is known as 'loan back.' In the 'reverse flip', a money launderer might find a cooperative property seller who agrees to a reported purchase price well below the actual value of the property and then accepts the difference under the table.

A corporation that at the time of incorporation has no significant assets or operations is known as a shelf company a. True b. False

b. False - A corporation that at the time of incorporation has no significant assets or operations is known as a SHELL company. A corporation that has no activity is called a shelf corporation.

A virtual or digital currency is a medium of exchange that operates only in the digital space. It cannot be converted into or used as a substitute for real currency. a. True b. False

b. False. - A virtual or digital currency can be converted into either a fiat(e.g.., a government-issued currency) or it can be a substitute for real currency.

Limited Liability Companies (LLCs) are entities formed outside of a person or businesses' country of residence, typically in offshore jurisdictions, for confidentially or asset protection purposes. a. True b. False

b. False. - International business corporations (IBCs) are entities formed outside of a person or businesses' country of residence, typically in offshore jurisdictions, for confidentially or asset protection purposes.

Due to the cash-intensive and humanitarian nature of their operations, charities that use formal bank accounts to store and transfer funds are subjected to less stringent know-your-customer rules and reduced compliance requirements for reporting their financial activities. a. True b. False

b. False. FATF recommends that charities use formal bank accounts to store and transfer funds so that they are subject to the bank's regulations and controls. In turn, the banks where the accounts are established can treat NPOs like other customers, apply their know-your-customer rules and report suspicious activities.

Terrorist financing always uses funds derived from illegal activities for achieving an illegal political purpose. a. True b. False

b. False. Terrorist financing uses funds from illegal political purposes the money is not necessarily derived from illicit proceeds. On the other hand, money laundering always involves the proceeds of illegal activity.

Which of the following statements related to money laundering via non-bank financial institutions is FALSE?

casinos

All of the following characteristics of charities or non-profit organizations (NPOs) make them particular vulnerable to misuse for terrorist financing, EXCEPT

• Enjoying the public trust, • Having access to considerable sources of funds, • Being cash‐intensive, • Frequently having a global presence, often in or next to those areas that are exposed to terrorist activity, and • Often being subject to little or no regulation and/or having few obstacles to their creation. DONOT use formal bank accounts to store and transfer funds.

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.

Which of the following activities are typically associated with the black market peso exchange 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