ACAMS Flash Cards 5.30.2020

PEPS What is a PEP and what is the primary risk in dealing with a PEP?

A PEP is a person who has or has had a prominent government or quasi-public position in a country. The primary risk in dealing with a PEPis that the source of funds from a PEP may be from corruption.

ACCOUNT OPENING, CUSTOMER IDENTIFICATION AND VERIFICATION According to FATF, when should the identity of a customer be verified?

A bank should not establish a banking relationship, or carry out any transactions, until the identity of the customer has been satisfactorily established and verified in accordance with FATF Recommendation 10.

EDD FOR HIGHER RISK CUSTOMERS What are some examples of enhanced due diligence for higher risk customers?

A financial institution should consider obtaining additional information from high-risk customers such as: • Source of funds and wealth. • Identifying information on individuals with control over the account, such as signatories or guarantors. • Occupation or type of business. • Financial statements. • Banking references. • Domicile. • Proximity of the customer's residence, place of employment, or place of business to the bank. • Description of the customer's primary trade area and whether international transactions are expected to be routine. • Description of the business operations, the anticipated volume of currency and total sales, and a list of major customers andsuppliers. Explanations for changes in account activity.

INSURANCE 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.

AML/CFT TRAINING - WHEN TO TRAIN When should an institution conduct training?

An institution's training should be ongoing and on a regular schedule. Existing employees should at least attend an annual trainingsession. New employees should receive appropriate training with respect to their job function and within a reasonable period afterjoining or transferring to a new job. Situations may arise that demand an immediate session. For example, an emergency training session may be necessary right after an examination or audit that uncovers serious money laundering control deficiencies. A news story that names the institution or recent regulatory action, such as a Consent Order,might also prompt quick-response training. Changes in software, systems, procedures or regulations are additional triggers for training sessions.

THE WOLFSBERG GROUP In its "AML Principles for Correspondent Banking," what does the Wolfsberg Group indicate should be done for approval and ongoing review of higher risk correspondent bank relationships?

Approval of higher risk Correspondent Banking relationships at the time of on-boarding and periodic review shall be subject to a higher level of approvals by business and Compliance, or relevant control function. Periodic reviews shall be conducted of all high-risk Correspondent Banking relationships, at minimum on an annual basis.

ASSESSING THE DYNAMIC RISK OF CUSTOMERS What are some factors an institution should consider when assessing the dynamic risk of its customers?

As every financial institution develops transaction history with customers, it should consider modifying the risk rating of the customer, based on: • Unusual activity, such as alerts, cases and suspicious transaction report (STR) flings. • Receipt of law enforcement inquiries, such as subpoenas. • Transactions that violate economic sanctions programs. • Other considerations, such as significant volumes of activity where it would not be expected, such as a domestic charityengaging in large international transactions or businesses engaged in large volumes of cash where this would not normally be expected.

MONEY SERVICES BUSINESSES What are some ways Money Services Businesses can be used for money laundering?

Cashing checks without obtaining adequate proof of identity; failing to file Currency Transaction Reports when required; andtransmitting funds overseas without sufficient due diligence.

THREE STAGES IN THE MONEY LAUNDERING CYCLE Give an example of the first stage of money laundering.

Co-mingling illegitimate funds with legitimate ones; making foreign exchange transactions with illegal funds; and depositing small amounts of cash into various accounts.

CONCENTRATION ACCOUNTS What is a concentration account?

Concentration accounts are internal accounts established to facilitate the processing and settlement of multiple or individual customer transactions within the bank, usually on the same day. These accounts are also known as special-use,omnibus, settlement, suspense, intraday, sweep or collection accounts. Concentration accounts are frequently used to facilitate transactions for private banking, trust and custody accounts, funds transfers and international affiliates.

FATF Describe FATF's Recommendation 15 (2012) on new technologies.

Countries and financial institutions should assess the risks associated with developments of new products, business practices,delivery mechanisms and technology. Financial institutions should assess these risks prior to launching new products; they should also take appropriate measures to mitigate the risks identified.

FATF Describe FATF's Recommendation 1 (2012) on the risk-based approach.

Countries should start by identifying, assessing and understanding the money laundering and terrorist financing risks they face. Then they should take appropriate measures to mitigate the identified risks. The risk-based approach allows countries to allocate their limited resources in a targeted manner to their own particular circumstances, thereby increasing the efficiency of the preventative measures. Financial institutions should also use the risk-based approach to identify and mitigate the risks they face.

GATEKEEPERS Name various ways that a gatekeeper - an attorney, notary, accountant or auditor - could assist in a money laundering scheme.

Creating and managing corporate vehicles or other complex legal arrangements; buying or selling property as a cover for transfers of illegal funds; performing financial transactions, including making deposits, withdrawing funds, engaging in foreign exchange operations, buying or selling stock and sending international wires; and setting up or managing a charity.

CREDIT CARDS Which money laundering stage(s) are credit cards most likely to be used and what is an example of money laundering through the use of credit cards?

Credit cards are not likely to be used in the initial placement of money laundering. They are more likely to be used in the layering or integration stages of money laundering. One example of using credit cards for money laundering purposes is overpaying a credit card balance and then asking for a refund. Receiving a check from the reputable credit card company makes it look like the funds received are legitimate.

STRUCTURING Describe micro structuring.

Designing a transaction to evade triggering a reporting or recordkeeping requirement is called "structuring." Micro structuring 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 microstructure might break it into 20 deposits of approximately $900 each. This level of structuring makes it extremely difficult to detect.

EU DIRECTIVES ON MONEY LAUNDERING What must EU member countries do with the EU Directives?

EU members must transpose the Directives into law.

THREE STAGES IN THE MONEY LAUNDERING CYCLE Give an example of the second stage of money laundering.

Electronically moving funds from one country to another; moving funds from one fnancial institution to another; and converting the cash placed into the system into monetary instruments.

MONEY REMITTERS AND MONEY EXCHANGE HOUSES 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.

FATF According to FATF's Recommendations (2012), what are the designated thresholds for transactions under Recommendations 10, 22, and 23?

FATF also designated specific thresholds that trigger AML scrutiny. For example, the threshold that financial institutions shouldmonitor for occasional customers is €15,000 [Recommendation 10]; for casinos, including Internet casinos, it is €3,000 [Recommendation 22]; and for dealers inprecious metals, when engaged in any cash transaction, it is €15,000 [Recommendation 22-23].

EDD According to FATF, when should an institution conduct enhanced due diligence on a customer?

FATF indicates that when there are circumstances where the risk of money laundering or terrorist financing is higher, enhanced CDD measures should be taken.

KNOW YOUR CUSTOMER/CDD According to FATF, when should an institution conduct CDD?

FATF recommends that financial institutions should be required to undertake CDD measures when: • Establishing business relationships. • Carrying out occasional transactions under certain circumstances. • There is a suspicion of money laundering or terrorist financing. • The financial institution has doubts about the veracity or adequacy of previously obtained customer identification data.

TERRORIST FINANCING What general characteristics of terrorist financing can a financial institution look at to avoid becoming conduits for terrorist financing?

FATF's report entitled "Guidance for Financial Institutions in Detecting Terrorist Financing" published April 24, 2002 describes general characteristics of terrorist financing that a financial institution can look at to avoid becoming conduits for terrorist financing, including: (a) Use of an account as a front for a person with suspected terrorist links, (b) Appearance of an accountholder's name on a list of suspected terrorists, (c) Frequent large cash deposits in accounts of non-profit organizations, (d) High volume of transactions in the account, and (e) Lack of a clear relationship between the banking activity and the nature of the accountholder's business.

CONSOLIDATED CDD How should a global financial institution address the performance of CDD across its various operations?

Financial institutions should aim to apply their customer acceptance policy, procedures for customer identification, process for monitoring higher risk accounts and risk management framework on a global basis to all of their offices, branches andsubsidiaries. The firm should clearly communicate these policies and procedures through ongoing training and regular communications, as well as conduct monitoring and testing to ensure compliance with the policies and procedures.

ELECTRONIC TRANSFERS OF MONEY What are some indicators of money laundering using electronic transfers of funds?

Funds transfers to or from a financial secrecy haven; large, incoming fund transfers from a foreign client with little or no explanation or apparent reason; and fund transfers that have no apparent link to legitimate business.

THE BASEL COMMITTEE ON BANKING SUPERVISION What are six principles set forth in the Basel Committee's Statement of Principles called "Prevention of Criminal Use of the Banking System for the Purpose of Money Laundering"?

In 1988, the Basel Committee issued a Statement of Principles called "Prevention of Criminal Use of the Banking System for the Purpose of Money Laundering" in recognition of the vulnerability of the financial sector to misuse by criminals. This was a steptoward preventing the use of the banking sector for money laundering, and it set out principles with respect to: • Customer identification, • Compliance with laws, • Conformity with high ethical standards and local laws and regulations, • Full cooperation with national law enforcement to the extent permitted without breaching customer confidentiality, • Staff training, and Record keeping and audits.

OAS CICAD What international organization developed the first model legislation specifically designed to combat money laundering?

In May 1992, the Organization of American States (OAS), via the Inter-American Drug Abuse Control Commission, an OAS entitythat goes by the acronym CICAD (Comisión Interamericana para el Control del Abuso de Drogas), became the first permanent international body to reach an agreement on model legislation aimed specifically at dealing with money laundering.

REAL ESTATE List reasons why real estate can be an attractive method of money laundering, according to the 2015 report by the Australian Transaction Reports and Analysis Centre (AUSTRAC).

It can be purchased with cash; the ultimate beneficial owner can be disguised; it is a relatively stable and reliable investment; and the value can be increased through renovations and improvements.

SECURITIES BROKER-DEALERS What are some of the aspects associated with securities broker- dealers that increase the risk of money laundering?

Its international nature; the speed of their transactions; the ease of converting holdings into cash without significant loss of principal; the large volume of wires used; the competitive, commission-driven environment; the practice of maintaining securities accounts in the name of nominees or trusts; and weak AML programs.

TRUSTS How does having a lawyer as a trustee on an account at a financial institution create vulnerabilities to money laundering at an institution?

Lawyers often serve as trustees by holding money orassets "in trust" for clients. This enables lawyers to conduct transactions and to administer the affairs of a client. Sometimes, the illicit money is placed in a law firm's general trust account in a fle set up in the name of the client, a nominee, or a company controlled by the client.

MONEY LAUNDERING What is money laundering?

Money laundering is the taking of criminal proceeds and disguising their illegal sources in order to use the funds to perform legal or illegal acts.

THIRD-PARTY PAYMENT PROCESSORS What are some of the risks posed by Third-Party Payment Processors (TPPPs)?

Multiple financial institution relationships whereby the TPPP's suspicious activity cannot be seen in its entirety by one institution; engaging in ACH transactions from overseas whereby the suspicious transactions get hidden by the large number of other transactions the TPPP engages in; and the possibility of the return rates stemming from unauthorized transactions are higher than average.

HISTORY OF THE BASEL COMMITTEE Does the Basel Committee prohibit the use of numbered accounts?

No, numbered accounts should not be prohibited but be subjected to exactly the same KYC procedures as other customeraccounts. KYC tests may be carried out by select staff, but the identity of customers must be known to an adequate number of staff if the bank is to be sufficiently diligent. "Such accounts should in no circumstances be used to hide the customer identity from a bank's compliance function or from the supervisors."

OFAC What is OFAC?

OFAC, the Office of Foreign Assets Control, is the division of the U.S. Department of Treasury that administers and enforces economic and trade sanctions based on US foreign policyand national security goals against targeted foreign countries, terrorists, international narcotics traffickers and those engaged in activities related to the proliferation of weapons of mass destruction. OFAC acts under presidential wartime and national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and to freeze foreign assets under US jurisdiction. Many of the sanctions are based on United Nations and other international mandates that are multilateral in scope and involve close cooperation with allied governments. OFAC sanction programs prohibit transactions and require the blocking of assets of persons and organizations that appear on one of a series of lists that OFAC issues periodically. OFAC has the power to impose significant penalties on those who are found to be in violation of the blocking orders within each of the sanction programs.

INSURANCE 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, thelaunderer redeems the policy and receives a clean check from a respected insurer.

VIRTUAL CURRENCY What is one of the primary concerns with regard to the use of virtual currencies?

One of the primary concerns with regard to the use of virtual currencies is the fact that beneficial ownership information may be difficult to obtain.

TRADE-BASED MONEY LAUNDERING What are two of the most common money laundering techniques involved with trade-based money laundering?

Over and under invoicing.

PAYABLE THROUGH ACCOUNTS What are some of the money laundering risks pertaining to the use of payable through accounts(PTAs)?

PTAs with foreign institutions licensed in offshore centers with each bank supervision; PTAs where the respondent bank (the foreign bank) fails to conduct adequate customer due diligence; and PTAs where the sub-account holders have currency deposit and withdrawalprivileges

CASINOS What are some red flags associated with casinos and gambling?

Paying off gambling debts in cash just under the reporting requirements; purchasing chips, but engaging in minimal gambling and then cashing the chips back in; using the gambling house for banking-like financial services, including wiring funds overseas; betting on both "red" and "black" spaces in roulette; and purchasing chips with cash justunder the reporting requirements.

TRAVEL AGENCIES List ways in which a travel agency could be used to launder money.

Purchasing an expensive airline ticket and then asking for a refund; paying for travel tours with multiple wires just under the reporting threshold; and creating false bookings through tour operator networks to justify significant payments from foreign travel groups.

THREE STAGES IN THE MONEY LAUNDERING CYCLE Give an example of the third stage of money laundering.

Purchasing luxury assets like property, artwork, jewelry or high-end automobiles; and investing in business enterprises.

REMOTE DEPOSIT CAPTURE What is remote deposit capture and what risk is associated with it?

Remote deposit capture is a product offered by banks that allows customers to scan a check and transmit an electronic image to the bank for deposit. The risk associated with it is that it enables a money launderer to deposit checks without having to visit the bank and risk detection.

MAINTAINING AN AML/CFT RISK MODEL Why is it important to continue to update and revisit risk assessments?

Risk is dynamic and needs to be continuously managed. It should also be noted that the environment in which each organization operates is subject to continual change. Externally, the political changes of a jurisdiction or whether economic sanctions are imposed or removed may impact a country-risk rating. Internally, organizations respond to market and customer demands by introducing new products and services and implementing new delivery systems. The combination of these changes makes it critical that the ML/TF risk model is subject to regular review. In some countries, there is a legislative obligation for such reviews to be undertaken on a regular basis — usually annually or when new products, delivery channels or customer types are introduced.

ECONOMIC SANCTIONS What are the three primary categories of economic sanctions?

Sanctions can generally fall into one of the following categories: • Targeted Sanctions - aimed at specifically named individuals, such as key leaders in a country or territory, named terrorists, significant narcotics traffickers and proliferators of weapons of mass destruction. These sanctions often include the freezing of assets and travel bans where possible. • Sectoral Sanctions - aimed at key sectors of an economy to prohibit a very specific subset of financial dealings within those sectors to impede future growth. Comprehensive Sanctions- generally prohibitalldirect or indirect import/export, trade brokering,financing or facilitating against most goods, technology and services. These are often aimed at regimes responsible for gross human rights violations, and nuclear proliferation.

CORRESPONDENT BANKING Identify and describe the three sections of the USA Patriot Act concerning due diligence U.S. financial institutions need to perform for relationships with foreign correspondent banking customers.

Section 312, which requires institutions to set up risk based due diligence to mitigate the money laundering risks posed byforeign financial institutions. Section 313, which prohibits U.S. financial institutions from opening or maintaining correspondentaccounts for foreign shell banks and requires them to take "reasonable steps" to ensure that a correspondent account of a foreign bank is not being used indirectly to provide banking services to a shell bank. Section 319(b), which requires U.S. financial institutions to maintain records of the identity of the owners of foreign banks for which they maintain correspondentaccounts.

CRIMINAL MONEY LAUNDERING AND CIVIL FORFEITURE LAWS How does the USA PATRIOT Act impact non-U.S. banks that have an account with a U.S. financial institution?

Section 319(a) of the USA PATRIOT Act greatly strengthened the forfeiture powers over the funds of foreign persons and institutions. If the funds the United States pursues are deposited in a foreign bank that keeps an "interbank account" at a US bank, the United States may bring a case to forfeit the crime-tainted funds in the US account.

TERRORIST FINANCING What are some emerging risk for Terrorist Financing?

Self-funding by foreign terrorist fighters; terrorists raising funds through the use of social media; new payment products and services; and exploitation of natural resources;

NEW PRODUCTS AND SERVICES What are some of the money laundering risks pertaining to the use of pre-paid bank cards or reasons why they are attractive to money launderers?

Some of the risks of pre-paid bank cards include anonymous card holders; anonymous funding; high value limits; global access to cash through ATMs; lax offshore jurisdictions issuing the cards; and the cards being a substitute for bulk-cash smuggling.

NEW PRODUCTS AND SERVICES What are some of the risks listed byFATFin its 2010 report titled "Guidance For A Risk-Based Approach Prepaid Cards, Mobile Payments And Internet- Based Payment Services"?

Some of the risks on new products and services, according to FATF, include anonymity; geographic reach; alternative to physical cross-border transportation; easy access to cash; and the fact that several entities are required to issue prepaid cards - the program manager, issuer, acquirer, payment network, distributor and agents - that may be hard to all supervise or monitor.

STRUCTURING What is structuring?

Structuring involves taking a large cash deposit and breaking it into smaller amounts to be deposited into separate banks,separate accounts or on separate days in order to avoid currency transaction reports.

AML/CFT TRAINING - HOW TO TRAIN Why is it important to have a test at the end of a training session?

Tests should be considered as a means to evaluate how well the training is understood with a mandatory passing score.

THE BASEL COMMITTEE ON BANKING SUPERVISION Describe the elements that should be addressed in a global approach to KYC identified in the BaselCommittee's October 2004 paper called "Consolidated KYC Risk Management."

The Basel Committee's October 2004 paper called "Consolidated KYC Risk Management" addresses the need for banks to adopt a global approach and to apply the elements necessary for a sound KYC program to both the parent bank or head office and all ofits branches and subsidiaries. These elements consist of: • Risk management, • Customer acceptance and identification policies, and • Ongoing monitoring of higher-risk accounts.

FATF-STYLE REGIONAL BODIES AND FATF ASSOCIATE MEMBERS Which of the FATF-Style Regional Bodies issued its own set of 19 recommendations, which were specific to the region?

The Caribbean Financial Action Task Force (CFATF), in 1990.

EGMONT GROUP What is the organization that provides a forum for financial intelligence units around the world to improve the cooperation in the ight against money laundering and financing of terrorism?

The Egmont Group of Financial Intelligence Units.

EUROPEAN UNION DIRECTIVES ON MONEY LAUNDERING What was the primary way in which the European Union's Second Directive on Prevention on the Use of the Financial System for the Purpose of Money Laundering (2001) expanded the scope of the First Directive?

The European Union's Second Directive on Prevention on the Use of the Financial System for the Purpose of Money Laundering (2001) extended the scope of the First Directive beyond drug-related crimes. The definition of "criminal activity" was expanded to cover not just drug trafficking, but all serious crimes, including corruption and fraud against the financial interests of the European Community.

FIRST DIRECTIVE What was considered a predicate offense for money laundering under the First EU Money Laundering Directive?

The First Directive of 1991 confined predicate offenses for money laundering to drug trafficking as defined in the 1988 Vienna Convention. However, member states were encouraged to extend the predicate offenses to other crimes.

FATF Describe FATF's Recommendations 20-21 (2012) on suspicious transaction reporting and liability.

The Recommendations say that financial institutions must report to the Financial Intelligence Unit where they suspect or have reasonable grounds to suspect that funds are the proceeds of a criminal activity or are related to terrorist financing. The financial institutions and the employees reporting such suspicions should be protected from liability for reporting and should be prohibited from disclosing that they have reported such activity.

ECONOMIC SANCTIONS - US What is the Office of Foreign Assets Control's (OFAC) list of sanctions persons known as?

The Specially Designated Nationals and Blocked Persons (SDN) list.

INDIVIDUAL ACCOUNTABILITY What does the Yates memo say?

The Yates memo, issued by then-Deputy Attorney General Sally Yates of the Department of Justice, reminds prosecutors that criminal and civil investigations into corporate misconduct should also focus on individuals who perpetrated the wrongdoing.

DESIGNATION AND RESPONSIBILITIES OF A COMPLIANCE OFFICER - DELEGATION OF AML DUTIES What controls should a Compliance Officer consider over an AML duty that has been delegated?

The compliance function may establish risk-based quality assurance reviews and monitoring and testing activities to ensure the functions are being performed appropriately. This may include a review of the CDD collected to ensure completeness, monitoring reports of CDD completeness or defects to ensure the systems are working as expected, and performing testing to assess whether the monitoring and the business performance are satisfactorily measuring and ensuring compliance.

DESIGNATION AND RESPONSIBILITIES OF A COMPLIANCE OFFICER - COMMUNICATION Why is it critical that the Compliance Officer have good communications skills?

The compliance officer must also have the means to communicate at all levels of the organization — from front-line associates all the way up to the CEO and Board of Directors. It is critical for a compliance officer to be capable of articulating matters of importance to senior and executive management, particularly significant changes that may present risk to the organization, such as a sudden or substantial increase in STRs or currency transaction reports (CTRs). Other items of concern that need to be escalated to management may include changes to laws or regulations that may require immediate action. A compliance officer must have the skills necessary to be able to analyze and interpret these ongoing changes, determine what effect they may have on the institution, and suggest an action plan when appropriate.

MONEY LAUNDERING What is the concept of willful blindness?

The concept of willful blindness is the "deliberate avoidance of knowledge of the facts" or "purposeful indifference," and is the equivalent of actual knowledge.

USA PATRIOT ACT According to Section 312 of the USA Patriot Act, the due diligence program for foreign correspondent accounts must address what three measures?

The due diligence program for foreign correspondent accounts for non-U.S. persons must include "appropriate, specific and risk-based," and, where necessary, enhanced policies, procedures and controls reasonably designed to identify and report suspected money laundering in a correspondent account maintained in the United States. This due diligence program must also be included in the institution's anti-money laundering program. The due diligence program must address three measures: • Determining whether enhanced due diligence is necessary, • Assessing the money laundering risk presented by the correspondent account, Applyingrisk-basedproceduresandcontrolsreasonably designed to detect and report suspected moneylaundering.

DEALERS IN HIGH-VALUE ITEMS What were two of the key findings by FATF in its report on "Money Laundering/Terrorist Financing Risks and Vulnerabilities Associated With Gold," issued in July, 2015?

The fact that gold is an extremely attractive vehicle for laundering money due to the fact that it is relatively compact and easyto transport; and the fact that the gold market is a target for criminal activity because it is lucrative and holds its value regardlessof the form it takes.

FATF-STYLE REGIONAL BODIES What are three high-level principles that apply to both FATF and FATF-Style Regional Bodies?

The following high-level principles apply for both FATF and FSRBs: • Role: FSRBs play an essential role in identifying and addressing AML/CFT technical assistance needs for their individualmembers. In those FSRBs that carry out this co-ordination work, technical assistance necessarily complements mutual evaluation and follow-up processes by helping jurisdictions to implement FATF standards. • Autonomy: FATF and FSRBs are free-standing organizations that share the common goals of combating money laundering and the financing of terrorism and proliferation and of fostering effective AML/CFT systems. • Reciprocity: FATF and FSRBs operate on the basis of (mutual or joint or common) recognition of their work,whichimpliesthatFSRBsandFATFputinplace similar mechanisms for effective participation and involvement in eachother'sactivities.

VEHICLE SELLERS 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 producecomplex layers of transactions, • Accepting third-party payments, particularly from jurisdictions with ineffective money laundering controls.

TERRORIST FINANCING What is the most basic difference between terrorist financing and money laundering?

The most basic difference between terrorist financing and money laundering involves the origin of the funds. Terrorist financing uses funds for an illegal political purpose, but the money is not necessarily derived from illicit proceeds. On the other hand, money laundering always involves the proceeds of illegal activity. The purpose of laundering is to enable the money to be usedlegally.

NON-COOPERATIVE COUNTRIES In 2009, FATF began to publicly identify high risk jurisdictions. What made the named jurisdictions high risk?

The named countries had strategic deficiencies in their AML/CFT regimes.

GATEKEEPERS What is the primary concern with regard to the use of gatekeepers?

The primary concern with regard to the use of gatekeepers - attorneys, notaries, accountants and auditors - is the fact thatthey can be used to enhance secrecy and to keep hidden the beneficial owner of an account or transaction.

CONCENTRATION ACCOUNTS What is a money laundering risk pertaining to the use of concentration accounts?

The primary money laundering risk pertaining to the use of concentration accounts is the fact that the customer- identifying information may not be included, making the audit trail difficult or impossible to follow.

KEY EXTRATERRITORIAL ASPECTS OF US LAWS What is the extraterritorial aspect of section 319(b) of the Patriot Act?

The section also allows the Secretary of the Treasury or the Attorney General to subpoena records of a foreign bank that maintains a correspondent account in the United States. The subpoena can request any records relating to the account, including records located outside the United States. If the foreign bank fails to comply with or fails to contest the subpoena, the Secretary or the Attorney General can order the US financial institution to close the correspondent account within ten days of receipt of such order. Additionally, the section also requires foreign banks to designate a registered agent in the United States to accept service of subpoenas pursuant to this section. Furthermore, US banks and securities brokers and dealers that maintain correspondent accounts for foreign banks must keep records of the identity of the 25 percent owners of the foreign bank, unless it is publicly traded, as well as the name of the correspondent bank's registered agent in the U.S.

TRUSTS What is the significance of a trust account, whether offshore or onshore, in the context of money laundering?

The significance of a trust account — whether onshore or offshore — in the context of money laundering cannot be understated: It can be used as part of the first step in converting illicit cash into less suspicious assets; it can help hide criminal ownership of funds or other assets; and it is often an essential link between different money laundering vehicles and techniques, such as realestate, shell and active companies, nominees and the deposit and transfer of criminal proceeds.

THE COMPLIANCE FUNCTION What factors should be considered when determining the sophistication of a compliance function within an institution?

The sophistication of the compliance function should be based upon the institution's nature, size, complexity, regulatory environment, and the specific risk associated with the products, services, and clientele. No two institutions will have exactly the same compliance structure because the risk facing each institution is going to be different, as identified in their respective risk assessments.

FOURTH DIRECTIVE What is the revised threshold for reporting suspicious transactions under the Fourth EU Money Laundering Directive?

The threshold for entities obliged to report suspicious transactions (i.e., persons trading in goods or carrying out transactions) decreased from EUR 15,000 to EUR 10,000.

INVESTMENT AND COMMODITY ADVISERS Describe several ways commodity futures and options accounts may be susceptible to money laundering.

There are several ways commodity and futures accounts are susceptible to money laundering, including: • Withdrawal of assets through transfers to unrelated accounts or to high-risk countries, • Frequent additions to or withdrawals from accounts, • Checks drawn on, or wire transfers from, accounts of third parties with no relation to the client, • Clients who request custodial arrangements that allow them to remain anonymous, • Transfers of funds to the adviser for management followed by transfers to accounts at other institutions in a layering scheme, • Investing illegal proceeds for a client, and • Movement of funds to disguise their origin.

TRUST AND COMPANY SERVICE PROVIDERS 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) atrustee of an express trust, and • Acting as (or arranging for another person to act as) a nominee shareholder for another person.

USA PATRIOT ACT How is a private banking account defined under Section 312 of the USA Patriot Act

Under Section 312 of the USA Patriot Act, a private banking account is defined as an account with a minimum aggregate deposit of $1 million for one or more non-U.S. persons and which is assigned to a bank employee acting as a liaison with the non-U.S.person.

AML/CFT RISK SCORING What does FATF recommend considering when assessing risk?

When assessing risk, FATF recommends considering: • Customer risk factors such as non-resident customers, cash-intensive businesses, complex ownership structure of a company, and companies with bearer shares. • Country or geographic risks such as countries with inadequate AML/CFT systems, countries subject to sanctions orembargos, countries involved with funding or supporting of terrorist activities, or those with significant levels of corruption. • Product, service, transaction or delivery channel risk factors such as private banking, anonymous transactions, and payments received from unknown third parties.)

SYSTEM OF INTERNAL POLICIES, PROCEDURES AND CONTROLS What are some examples of internal controls, outside of policies and procedures?

While policies and procedures provide important guidance, the AML/CFT program also relies on a variety of internal controls, including management reports and other built-in safeguards that keep the program working. These internal controls should enable the compliance organization to recognize deviations from standard procedures and safety protocols. A matter as simple as requiring a corporate officer's approval or two signatures for transactions that exceed a prescribed amount could be a critical internal control element that if ignored seriously weakens an institution's AML/CFT program and attracts unwanted attention from supervisory authorities.

BLACK MARKET PESO EXCHANGE In summary form, how does the black-market peso exchange (BMPE) work in laundering money?

dollars in the US and - in order to avoid smuggling the US dollars back to Mexico - the trafficker gives the proceeds to a "peso broker." The broker finds businesses in Mexico that want to buy goods in the US. Then the broker buys the US goods with USdollars and has the goods shipped to Mexico. The business in Mexico pays the broker in Mexico in pesos and the broker then gives the pesos - minus a fee - to the drug traffickers.

BEARER BONDS Why are bearer bonds and bearer stock certificates prime vehicles for money laundering?

earer bonds and bearer stock certificates, or "bearer shares," are prime money laundering vehicles because they belong, on the surface, to the "bearer." When bearer securities are transferred, because there is no registry of owners, the transfer takes placeby physically handing over the bonds or share certificates. Bearer shares offer lots of opportunities to disguise their legitimateownership.

HAWALA AND OTHER INFORMAL VALUE TRANSFER SYSTEMS Why are hawalas attractive to terrorist financiers?

they, unlike formal financial institutions, are not subject to formal government oversight and do not keep detailed records in a standard form. Although some hawaladars do keep ledgers, their records are often written in idiosyncratic shorthand and aremaintained only briefly.

FATF Identify the seven topics of international standards incorporated into the FATF 40 Recommendations (2012).

• AML/CFT policies and procedures [Recommendations 1-2], • money laundering and confiscation [Recommendations 3-4], • terrorist financing and financing of proliferation [Recommendations 5-8], • financial and non-financial institution preventative measures [Recommendations 9-23], • transparency and beneficial ownership of legal persons and arrangements [Recommendations 24-25], • powers and responsibilities of competent authorities and other institutional measures [Recommendations 26-35], and • international cooperation [Recommendations 36-40].

FATF-STYLE REGIONAL BODIES What are the nineFATF-StyleRegional Bodies?

• Asia/Pacifc Group on Money Laundering (APG). • Caribbean Financial Action Task Force (CFATF) • Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL, formerly PC-R-EV) • Eurasian Group (EAG) • Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) • Financial Action Task Force of Latin America (GAFILAT) (formerly known as Financial Action Task Force on Money Laundering in South America (GAFISUD) • Intergovernmental Action Group against Money- Laundering in West Africa (GIABA) • Middle East and North Africa Financial Action Task Force (MENAFATF) Task Force on Money Laundering in Central Africa(GABAC)

CORRESPONDENT BANKING 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 theyprocess 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.

THE BASEL COMMITTEE ON BANKING SUPERVISION What are the four key elements of Know Your Customer (KYC) as Identified in the BaselCommittee's October 2001 paper called "Customer Due Diligence for Banks?"

• Customer identification, • Risk management, • Customer acceptance, and • Monitoring.

AML/CFT TRAINING - WHO TO TRAIN What are some of the target audiences for training?

• Customer-facing staff • Operations personnel • AML/CFT compliance staff • Senior management and board of directors • Independent testing staff

CHARITIES OR NON-PROFIT ORGANIZATIONS What characteristics of charities or non-profit organizations make them particularly vulnerable to misuse for terrorist financing?

• 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.

EUROPEAN UNION DIRECTIVES ON MONEY LAUNDERING How does the scope of the European Union's Third Money Laundering Directive differ from the Second Money Laundering Directive?

• It specifically includes the category of trust and company service providers, • It covers all dealers trading in goods who trade in cash over 15,000 Euros, and • The definition of financial institution includes certain insurance intermediaries.

ECONOMIC AND SOCIAL CONSEQUENCES OF MONEY LAUNDERING What are the economic effects of money laundering?

• Loss of control of, or mistakes in, decisions regarding economic policy, • Economic distortion and instability, • Loss of tax revenue, • Risks to privatization efforts, • Reputation risk for the country, and • Social costs.

PRIVATE BANKING 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.

THREE STAGES IN THE MONEY LAUNDERING CYCLE 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 apparent legitimacy to illicit wealth through the re-entry of the funds into the economy in what appearsto be normal business or personal transactions.

THE WOLFSBERG GROUP According to the Wolfsberg Anti-Money Laundering Principles for Private Banking (2000), what are situations for private banking that require further due diligence?

• Public officials, including individuals holding, or having held, positions of public trust, as well as their families and closeassociates, • High-risk countries, including countries "identified by credible sources as having inadequate anti-money laundering standards or representing high-risk for crime and corruption, " and • High-risk activities, involving clients and beneficial owners whose source of wealth "emanates from activities known to be susceptible to money laundering.

ECONOMIC AND SOCIAL CONSEQUENCES OF MONEY LAUNDERING 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 organization. • Operational risk is described as the potential for loss resulting from inadequate internal processes, personnel or systems orfrom 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 ofborrowers.

DEALERS IN HIGH VALUE ITEMS 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 notstolen and that they are authorized to sell it. • Verify the identities and addresses of new vendors and customers. • If there is reason to believe an item might be stolen, immediately contact the Art Loss Register (www. artloss.com), 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.

SHELL COMPANIES According to a 2001 report, "Money Laundering in Canada: An Analysis of RCMP Cases," what are the four related reasons to establish or control a shell company for money laundering purposes?

• Shell companies accomplish the objective of converting the cash proceeds of crime into alternative assets, • Through the use of shell companies, the launderer can create the perception that illicit funds have been generated from a legitimate source, • Once a shell company is established, a wide range of legitimate and/or bogus business transactions can be used to further the laundering process, and • Shell companies can also be effective in concealing criminal ownership. Nominees can be used as owners, directors, officers or shareholders.

FATF Identify the three important tasks that FATF focuses on.

• Spreading the anti-money laundering message worldwide, • Monitoring implementation of the FATF Recommendations among FATF members, and • Reviewing money laundering trends and countermeasures.

AML/CFT RISK IDENTIFICATION - GEOGRAPHIC LOCATION What are some sources of identifying countries that pose heightened geographic risk?

• The US State Department issues an annual "International Narcotics Control Strategy Report" rating more than 100 countries on their money laundering controls. • Transparency International publishes a yearly "Corruption Perceptions Index," which rates more than 100 countries on perceived corruption. • FATF identifies jurisdictions with weak AML/CFT regimes and issues country-specific Mutual Evaluation Reports. IntheUnitedStatescertaindomesticjurisdictions are evaluated based on whether they fall within government-identified higher-risk geographic locations such as High Intensity DrugTraffickingAreas (HIDTA) or High Intensity Financial Crime Areas(HIFCA).

FATF According to the FATF 40 Recommendations, the complete set of countermeasures against money laundering and terrorist financing covers what 5 elements?

• The identification of risks and development of appropriate policies, • The criminal justice system and law enforcement, • The financial system and its regulation, • The transparency of legal persons and arrangements, and • International cooperation.

FATF MEMBERS AND OBSERVERS At a high level, what are the criteria for becoming a FATF Member?

• The jurisdiction should be strategically important based on quantitative and qualitative indicators and additional considerations. • FATF's geographic balance should be enhanced by the jurisdiction becoming a member. • The country should provide a written commitment at the political/ministerial level. • Within a maximum of three years after being invited to participate in FATF as an observer the mutual evaluation process for the country should be launched. • Membership is granted if the mutual evaluation is satisfactory.

THE BASEL COMMITTEE ON BANKING SUPERVISION Identify the seven specific customer identification issues as identified in the Basel Committee's October 2001 paper called "Customer Due Diligence for Banks."

• Trust, nominee and fiduciary accounts, • Corporate vehicles, particularly companies with nominee shareholders or entities with shares in bearer form, • Introduced businesses, • Client accounts opened by professional intermediaries, such as "pooled" accounts managed by professional intermediaries on behalf of entities such as mutual funds, pension funds and money funds, • Politically exposed persons, • Non-face-to-face customers, i.e., customers who do not present themselves for a personal interview, and • Correspondent banking.