CAMS

Define a politically exposed person (PEP).

A PEP is a person who is or has been entrusted with a prominent public function domestically or by a foreign country or international organization. Relatives and close associates of PEPs are also considered to be PEPs.

Explain the roles of the following participants in the virtual currency (VC) ecosystem: User, Exchanger, and Administrator.

A User is a person who obtains VC to purchase goods or services. An Exchanger is a person engaged as a business in the exchange of VC for real currency, funds, or other virtual currency. An Administrator is a person engaged as a business in issuing VC and who has the authority to redeem the virtual currency.

According to FATF Recommendation 10, when should the identity of a customer be established and 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.

What is smurfing?

A commonly used money laundering method, involving the use of multiple individuals and/or multiple transactions for making cash deposits, buying monetary instruments or bank drafts in amounts under the reporting threshold.

What is the Black Market Peso Exchange (BMPE)?

A form of trade-based money laundering, the BMPE is a process by which money in the United States derived from illegal activity is purchased by peso brokers and deposited in US bank accounts established by the brokers. The brokers sell checks and wire transfers drawn on those accounts to legitimate businesses, which use them to purchase goods and services in the US. (Although the US is prominently figured in BMPE, the process is not limited exclusively to that country.)

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.

What is willful blindness?

A legal principle that operates in money laundering cases 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.

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

A private banking account is defined as an account with a minimum aggregate deposit of US$1 million; an account for one or more non-US people; and an account that is assigned to a bank employee acting as a liaison with the non-US person.

What is a search warrant, and how is it issued?

A search warrant is a grant of permission from a court for a law enforcement agency to search certain designated premises and seize specific categories of items or documents. Generally, the requesting agency is required to establish that probable cause exists that evidence of a crime will be located. The warrant is authorized based on information contained in an affidavit submitted by a law enforcement officer.

What are the basic elements, or four pillars, of an effective AML/CFT program?

A system of internal policies, procedures and controls (first line of defense); a designated compliance function with a compliance officer (second line of defense); an ongoing employee training program; and an independent audit function to test the overall effectiveness of the AML program (third line of defense).

How can trust accounts be used to launder money, whether offshore or onshore, in the context of money laundering?

A trust can be used to convert illicit cash into less suspicious assets; help disguise criminal ownership of funds and other assets; form an essential link between different money laundering vehicles and techniques, such as real estate, nominees, and the deposit and transfer of criminal proceeds; and hide assets from legitimate creditors and protect property from seizure. Payments to the trust beneficiaries can be used to launder money.

What is a trustee?

A trustee may be a paid professional or company or unpaid person who holds the assets in a trust fund separate from the trustee's own assets. The trustee invests and disposes of the assets in accordance with the settlor's trust deed, taking into consideration any letter of wishes.

What is a red flag in the context of financial crime?

A warning signal that should bring the attention of a financial organization to a potentially suspicious transaction or activity.

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

AML/CFT policies and coordination [Recommendations 1-2]; money laundering and confiscation [Recommendations 3-4]; terrorist financing and financing of proliferation [Recommendations 5-8]; financial and nonfinancial 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].

In addition to policies and procedures, what are examples of internal controls with AML/CFT programs?

AML/CFT programs rely on a variety of internal controls, including management reports, automated review systems, and utilization of multiple reviewers; the internal technology or tools the financial organization uses to ensure the AML/CFT program is functioning as intended and within predefined parameters; the alert compliance department to identify potential outliers and deviations from normal policy that may need to be reviewed.

Describe the Wolfsberg Group's recommendation concerning a correspondent bank's due diligence on a respondent bank.

According to the Wolfsberg Group, a bank's due diligence on a respondent bank should be based on the respondent's risk profile and the nature of the business relationship. Due diligence should address specific risk indicators, such as the respondent bank's geographic risk, ownership and management structures, customer base, and products and services offered. Furthermore, the determination of the level and scope of due diligence that is required on a respondent bank should be made after considering the relationship between the respondent bank and its ultimate parent (if any).

According to the Egmont Group, what best practices should be observed by an FIU requesting information from another FIU?

All FIUs should submit requests for information in compliance with the Principles of Information Exchange. When applicable, the provisions of information-sharing arrangements among FIUs should also be observed. Requests for information should be submitted as soon as the precise assistance required is identified. When an FIU has information that might be useful to another FIU, it should consider supplying it spontaneously as soon as the relevance of sharing this information is identified. The exchange of information among Egmont FIUs should take place in a secure way. To this end, the Egmont FIUs should use the Egmont Secure Web (ESW) when appropriate.

What is a commission rogatoire?

Also known as letters rogatory, or a letter of request, a commission rogatoire is a written request for evidence sent by the central authority of the requesting country to the central authority of the other country. The letter includes the information sought, the nature of the request, the criminal charges in the requesting country, and the legal provision under which the request is made.

What are the components of an effective AML/CFT training program?

An effective training program explains the relevant AML/CFT laws and regulations and covers the organizations' policies and procedures used to mitigate money laundering risks. Training should emphasize the importance of AML/CFT efforts and educate employees about what to do if they encounter potential money laundering.

What are the potential risk factors commonly associated with prepaid bank cards?

Anonymous cardholders, anonymous funding, anonymous access to funds, high value limits and no limits on the number of cards individuals can acquire; global access to cash through ATMs; offshore card issuers that might not observe laws in all jurisdictions; and use as a substitute for bulk-cash smuggling.

What are the nine FATF-Style Regional Bodies?

Asia/Pacific 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); Eurasian Group (EAG); Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG); Financial Action Task Force of Latin America (GAFILAT); Inter-Governmental 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).

Why is the issue of requiring attorneys to be gatekeepers in the AML/CFT area controversial?

Attorneys have confidential relationships with their clients.

What types of documents do financial organizations typically have that could assist a financial investigator in tracking money movements?

Banks maintain signature cards, which are collected at the opening of an account, account statements, deposit tickets, checks and withdrawal items, and credit and debit memorandums. They also keep records on loans, cashier's checks, certified checks, traveler's checks, and money orders. They exchange currency, cash third-party checks, and conduct wire transfers, as do most MSBs. Financial organizations also keep safe deposit boxes and issue credit cards. Online-based financial organizations maintain login activity logs, IP addresses, and geographical location information.

What types of customers do supervisory authorities identify as inherently high-risk for money laundering?

Banks; casinos; offshore corporations and banks located in tax/banking havens; embassies; MSBs, including currency exchange houses, money remitters, check cashers; virtual currency exchanges; car, boat, and airplane dealerships; used car and truck dealers and machine parts manufacturers; professional service providers (e.g., attorneys, accountants, investment brokers, and other third parties who act as financial liaisons for their clients); travel agencies; broker-dealers in securities; jewel, gem, and precious metals dealers; import and export companies; and cash-intensive businesses.

What makes bearer bonds, bearer stock certificates, and bearer shares prime vehicles for money laundering?

Bearer bonds, bearer stock certificates, and bearer shares belong, on the surface, to the "bearer." When bearer securities are transferred, because there is no registry of owners, the transfer takes place by physically handing over the bonds or share certificates. Bearer shares offer many opportunities to disguise their legitimate ownership.

What are bearer checks?

Bearer checks are unconditional orders (i.e., negotiable instruments) that, when presented to a financial organization, must be paid to the holder of the instrument rather than to a payee specified on the order itself. The financial organization is usually not obligated to verify the identity of the presenter of a bearer check unless the transaction exceeds a specific threshold.

When should a financial organization conduct sanctions screening?

Before a financial organization starts doing business with a new customer or engaging in certain transactions, it should review the various country sanctions program requirements and published lists of known or suspected terrorists, narcotics traffickers, and other criminals, for potential matches.

Give an example of the first stage of money laundering.

Blending of funds, purchasing significant stored value cards w/currency, FX, breaking up amounts, currency smuggling, and loans

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. They are frequently used to facilitate transactions for private banking, trust and custody accounts, funds transfers, and international affiliates.

What is one of the most important aspects of due diligence for a bank when establishing a relationship with a money services business (MSB)?

Confirm that the MSB has implemented a sufficient AML/CFT program (e.g., procedures, training, and suspicious activity monitoring) and is properly licensed and/or registered in the jurisdictions in which it operates.

What are some red flags of money laundering associated with casinos and gambling?

Converting the funds to be laundered from cash to checks and using casino credit to layer transactions before transferring out the funds; buying chips with illicit funds and requesting repayment via a check drawn on the casino's account; using illegal funds to repay casino lines of credit; junket operators moving funds across borders and through multiple casinos; paying gambling debts in cash just under the reporting requirements; engaging in minimal gambling without a reasonable explanation; using casinos for banking-like financial services; and unusual gaming and transaction patterns.

In what ways is correspondent banking vulnerable to financial crime?

Correspondent banks do not know the customers of the respondent directly and rely on the respondent bank's internal controls; less information is available to help the correspondent bank recognize unusual activity; the correspondent does not know the degree of supervision to which the respondent is subject, and might have limited information on the respondent's AML/CFT controls; and some respondents are correspondents to third banks, which further shields the parties involved.

Describe FATF's Recommendation 15 (2012) concerning new products, delivery mechanisms, and technologies.

Countries and financial organizations should assess the risks associated with the development of new products, business practices, delivery mechanisms, and technology. They should assess these risks prior to launching new products and take appropriate measures to mitigate the identified risks.

International AML/CFT Standards Differentiate between what are referred to as FATF's "black list" and "grey list."

Countries and jurisdictions on the "black list" have strategic deficiencies that are so serious that FATF calls on its members and nonmembers to apply EDD and, in the most serious cases, countermeasures. Countries and jurisdictions on the "grey list" are already actively engaging with FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing. Once a jurisdiction is under increased monitoring, it means it has committed to swiftly resolve the identified strategic deficiencies within an agreed-upon time frame, while the FATF keeps it under close scrutiny.

Describe FATF's Recommendation concerning 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 in line with their own specific circumstances to increase the efficiency of the preventative measures. Financial organizations should also use a risk-based approach to identify and mitigate their risks.

What is a tax haven?

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

List various functions of gatekeepers—attorneys, notaries, accountants, and auditors—that can be useful to money launderers.

Creating and managing corporate vehicles and other complex legal arrangements; buying or selling property as a cover for illegal fund transfers; performing financial transactions; providing financial and tax advice; providing introductions to financial organizations; undertaking certain litigation; and setting up and managing charities.

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 more likely to be used in the second (layering) and third (integration) stages of money laundering. Examples include overpaying a credit card balance and then asking for a refund and placing illegal funds in accounts at offshore banks and then accessing the funds using credit and debit cards associated with the offshore account.

4of7 International AML/CFT Standards What are the topics of the 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"?

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 recordkeeping and audits.

What are the seven elements of a sound customer due diligence (CDD) program?

Customer identification; profiles; customer acceptance; risk rating; monitoring; investigation; and documentation.

According to FATF, what categories of risk factors warrant enhanced due diligence measures?

Customer risk factors (e.g., nonresident customers, cash-intensive businesses, complex ownership structure); country or geographic risks (e.g., countries with inadequate AML/CFT systems, countries subject to sanctions, countries involved with funding or supporting of terrorist activities); and product, service, transaction or delivery channel risk factors (e.g., private banking, anonymous transactions, payments received from unknown third parties).

How do drug-trafficking organizations (DTOs) take advantage of Black Market Peso Exchanges (BMPEs)?

DTOs take advantage of complex BMPE schemes involving the export of goods across the US/Mexico border to help move funds from the US back to the country where the DTO is based.

Identify several types of internal reports financial organizations can use to discover possible money laundering and terrorist financing.

Daily cash activity exceeding the country's reporting threshold; daily cash activity just below the country's reporting threshold; cash activity aggregated over a period of time (e.g., individual transactions over a certain amount or totaling more than a certain amount over a 30-day period, to identify possible structuring); wire transfer reports/logs with filters using amounts and geographical factors; monetary instrument logs/reports; check kiting/drawing on uncollected funds with significant debit/credit flows; significant change reports; and new account activity reports.

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

Determining whether enhanced due diligence is necessary; assessing the money laundering risk presented by the correspondent account; and applying risk-based procedures and controls reasonably designed to detect and report suspected money laundering.

What must EU member countries do with the EU Directives?

EU members must transpose into Directives into law.

Given an example of the second stage of money laundering

Electronically moving funds from one country to another and dividing them into advanced financial options and/or markets; moving funds from one financial institution to another or within accounts at the same institution; converting the cash placed into the system into monetary instruments; reselling high-value goods and prepaid access or stored value products; investing in real estate and other legitimate businesses; placing money in stocks, bonds, or life insurance products; and using shell companies to obscure the ultimate beneficial owner and assets.

If a financial organization is under investigation by a government agency, what information should it give employees?

Employees should be informed of the investigation and instructed not to directly produce corporate documents. Rather, they should inform senior management or counsel of all requests for documentation and provide the documents to them for production. In that way, the organization knows what is being requested and what has been produced. In addition, the organization can determine what, if any, requests should be contested. The same procedure should be followed with requests for employee interviews

What characteristics of charities and nonprofit 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 near areas exposed to terrorist activity; and often being subject to little or no regulation and/or having few obstacles to their creation.

What are financial intelligence units (FIUs)?

FIUs are mandatory national agencies that handle financial intelligence. They receive reports of suspicious transactions from financial organizations, other people, and entities, analyze them, and disseminate the resulting intelligence to local law enforcement agencies and foreign FIUs to combat money laundering.

International AML/CFT Standards What is the purpose of a memorandum of understanding in the context of financial intelligence units (FIUs) conducting investigations?

FIUs are tasked with receiving and analyzing SARs and maintaining close links with police and customs authorities. They share information among themselves informally in the context of investigations, usually on the basis of memoranda of understanding. The Egmont Group of FIUs has established a model for MOUs. They are not typically used for obtaining evidence, but for obtaining intelligence that might lead to evidence.

Describe FATF's Recommendations regarding suspicious activity reporting.

Financial organizations must report to the appropriate FIU when 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 organizations and employees reporting such suspicions should be protected from liability for reporting and prohibited from disclosing that they have reported such activity. Confidentiality concerning suspicious activity reports (SARs) is critical to the effective functioning of the reporting regime.

How should a global financial organization address the performance of customer due diligence across its various operations?

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

How should a financial organization monitor the receipt of a subpoena, summons, or other requests from government agencies?

Financial organizations should ensure that all grand jury subpoenas and other information requests from government agencies are reviewed by senior management and an investigations group or legal counsel to determine how best to respond to the inquiry and whether the inquiry or the underlying activity might pose a risk to the organization. In addition, the organization should maintain centralized control over all requests and responses to ensure that it responds to requests on a complete and timely basis and maintains a complete record of information provided. This centralized record will also assist in the organization's internal investigation.

The Wolfsberg Group and the FATF recommend what enhanced due diligence before commencing or continuing a business relationship with high-risk customers?

For high-risk customers, both the Wolfsberg Group's Correspondent Banking Principles and the FATF recommend obtaining the approval of senior management to commence or continue the business relationship, as well as requiring the first payment to be carried out through an account in the customer's name with a bank subject to similar CDD standards.

What are some indicators of money laundering using electronic transfers of funds?

Funds transfers to or from a financial secrecy haven or high-risk geographic location without an apparent business reason or when the activity is inconsistent with the customer's business or history; large, incoming funds transfers on behalf of a foreign client with little or no explanation or apparent reason; checks and money orders used to receive many small, incoming transfers of funds or to make deposits; funds activity that is unexplained, repetitive, or reveals unusual patterns; payments or receipts that have no apparent link to legitimate contracts, goods, or services; and funds transfers sent or received from the same person to or from different accounts.

Why is gold vulnerable to money laundering and terrorist financing risks?

Gold has high intrinsic value in a compact and easy-to-transport form. It can be bought and sold simply and often anonymously for currency in most areas of the world, allowing criminals to convert their illicit cash into anonymous, transferable assets. The gold market is a target for criminal activity because it is lucrative and holds its value regardless of the form it takes.

What are the typical features of high-risk insurance products?

High-risk insurance products typically offer the ability to fold funds and assets into the policy; full or partial underlying investments under the control of the customer; the option of asset transfers; and a high upper limit for the amount of funds held.

What is an international business company (IBC)?

IBCs are entities formed outside a person's or business's country of residence, typically in offshore jurisdictions, for confidentially or asset protection purposes. IBCs permit the person to reduce transparency between the owner in her home country and the offshore entity where the company is registered.

What is the purpose of The International Money Laundering Information Network (IMoLIN)?

IMoLIN serves as a clearinghouse of money laundering information for the benefit of national and international AML agencies. It was developed and is administered by the Global Programme against Money Laundering, Proceeds of Crime, and the Financing of Terrorism of the United Nations Office on Drugs and Crimes on behalf of the UN and other international organizations, including Interpol.

In an internal investigation, who exactly does the attorney for the organization represent?

In an internal investigation, attorneys for the organization represent the entity and not its employees. Counsel should understand these issues and conduct the internal investigation accordingly. Work product and communications might be protected under attorney-client privilege. There can be serious consequences when the interests of an entity and its employees diverge or conflict, and when an employee implicates the employer, or vice versa. In such cases, separate counsel could be required.

What are some of the potential macroeconomic consequences of unchecked money laundering?

Increased exposure to organized crime and corruption; undermining the legitimate private sector; weakening financial organizations; dampening effect on foreign investments; 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; risk of international sanctions; social costs; reputational risk; operational risk; legal risk; and concentration risk.

Recommendations 36-40 from FATF's 40 Recommendations pertain specifically to international cooperation in AML/CFT investigations. What do these Recommendations address?

International instruments, mutual legal assistance, mutual legal assistance regarding freezing and confiscation, extradition, and other forms of international cooperation.

what makes real estate an attractive channel for laundering illicit funds?

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.

During a law enforcement investigation against a financial organization, why is it important to interview knowledgeable employees as soon as practical?

It is important to interview these employees as soon as practicable so that their memories are fresh, and they can direct management or counsel to relevant documents and people on a timely basis.

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 it expands the definition of financial institution to include certain insurance intermediaries.

What are some of the aspects associated with the securities industry that increase its exposure to money laundering?

Its international nature; speed of transactions; ability to conduct free-of-payment transfers; ease of converting holdings to cash without significant loss of principal; routine use of wire transfers to, from, and through multiple jurisdictions; competitive, commission-driven environment; practice of maintaining securities accounts as nominees or trustees; and weak AML programs.

Describe Know Your Customer (KYC).

KYC refers to anti-money laundering policies and procedures used to determine the true identity of a customer and the type of activity that is normal and expected, and to detect activity that is unusual for a particular customer. Many experts believe that a sound KYC program is one of the best tools in an effective AML/CFT program.

Describe microstructuring

Microstructuring is a method of placing large amounts of illicit cash into the financial system. It is essentially the same as structuring (i.e., designing a transaction to evade reporting requirements), but at a smaller level. A microstructurer might take an $18,000 deposit and break it into 20 deposits of approximately $900 each.

What are some ways money services businesses (MSBs) can be used for money laundering?

Money launderers can use money remitters and currency exchanges to make funds available to criminal organizations at a destination country in the local currency. The launderer or broker then sells the criminal dollars to foreign businesspeople wishing to make legitimate purchases of goods for export. The cash-intensive and transactional nature of MSBs can facilitate 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. Making dirty money look clean

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

Money laundering risks can arise in concentration accounts when the customer-identifying information is separated from the financial transaction. When separation occurs, the audit trail is lost, and accounts can be misused or administered

What are some of the target audiences for training?

Most areas of the financial organization should receive AML/CFT training, including customer-facing staff; operations personnel; AML/CFT compliance staff; senior management and board of directors; and independent testing staff. In some countries, training programs must extend beyond full- and part-time employees to include contractors, consultants, students, apprentice placements, and secondees from other branches or subsidiaries.

What are some of the risks posed by third-party payment processors (TPPPs)

Multiple financial organization relationships, whereby the TPPP's suspicious activity cannot be seen in its entirety; money laundering by sending funds directly to a financial organization from a foreign jurisdiction through an international ACH payment; and high return rates from unauthorized transactions.

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

Natural and legal persons trading in goods are covered to the extent that they make or receive cash payments of €10,000 or more (decreased from €15,000).

Does the Basel Committee prohibit the use of numbered accounts?

No, numbered accounts should not be prohibited, but they should be subjected to exactly the same KYC procedures as other customer accounts. 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."

Following an investigation, a financial organization decides to file a suspicious activity report (SAR). What should they do as soon as possible?

Notify the investigators or prosecutors

What is the role of 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 policy and national security goals against targeted foreign countries, terrorists, international narcotics traffickers, and criminals engaged in activities related to the proliferation of weapons of mass destruction. OFAC imposes controls on transactions and freezes foreign assets under US jurisdiction.

What are some common money laundering techniques involved with trade-based money laundering?

Overinvoicing and underinvoicing; overshipping and short-shipping; ghost-shipping; shell companies; multiple invoicing; and black market trades.

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 weak bank supervision and licensing laws; PTAs arrangements in which the correspondent bank fails to apply CDD to the respondent's customers; PTA arrangements in which subaccount holders have currency deposit and withdrawal privileges; and PTAs used in conjunction with a subsidiary, representative, or other office of the respondent bank.

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

Perceived high profitability; intense competition; powerful clientele; high level of confidentiality; close trust developed between relationship managers and their clients; commission-based compensation for relationship managers; culture of secrecy and discretion; and role of relationship managers as client advocates to protect their clients.

What banking functions and products are considered high-risk?

Private banking; offshore international activity; deposit-taking facilities; wire transfer and cash-management functions; transactions in which the primary beneficiary is undisclosed; loan guarantee schemes; travelers checks; official bank checks; money orders; foreign exchange transactions; international remittances; payment services such as payment processors, prepaid products, automatic clearing house; remote deposit capture; trade-financing transactions with unusual pricing features; and payable through accounts.

Describe the components of a typical suspicious or unusual transaction reporting process within a financial organization as part of its AML/CFT program.

Procedures to identify suspicious and unusual transactions and activity through various channels, including employee observations and identification, inquiries from law enforcement, and alerts generated by transaction monitoring systems; formal evaluation of each instance and continuation of unusual transactions and activity; documentation of the SAR reporting decision (i.e., whether or not a report was filed with authorities); procedures to periodically notify senior management or the board of directors of SAR filings; and employee training on detecting suspicious transactions and activity.

What are the four levels of AML/CFT risk?

Prohibited: The organization will not tolerate any dealings of any kind, given the risk. High risk: Risks are significant, but they are not necessarily prohibited. Medium risk: Risks merit additional scrutiny, but they do not rise to the level of high-risk. Low risk: The baseline risk of money laundering. Typically indicates normal, expected activity.

In what ways can a financial organization cooperate with law enforcement during an investigation?

Providing investigators with the information they need to reach an investigative conclusion might be the most effective way to terminate an investigation before it has a devastating effect on the resources and reputation of an organization. Cooperation could include making employees, including corporate officers, available for interviews, and producing documents without the requirement of a subpoena. It could also include a voluntary disclosure by providing investigators with any report written by counsel regarding the subject under investigation.

List ways in which travel agencies can be used to launder money.

Purchasing an expensive airline ticket for another person, who then asks for a refund; structuring wire transfers in small amounts to avoid recordkeeping requirements; and establishing tour operator networks with false bookings and documentation to justify significant payments from foreign travel groups.

Give an example of the third stage of ML

Purchasing luxury assets such as property, artwork, jewelry, or high-end automobiles; and entering into financial arrangements and other ventures in which investments can be made in business enterprises.

Describe an AML/CFT compliance officer's accountability.

Regardless of the way an organization delegates its various AML/CFT tasks, its designated compliance officer is responsible for executing the AML/CFT program. More and more often, various regulators are seeking enforcement actions against not only the organization, its executive management team, and board of directors for AML/CFT violations, but the compliance officer as well.

What are remittance services?

Remittance services are also referred to as giro houses or casas de cambio. Remittance services are businesses that receive cash or other funds that they transfer through the banking system to another account. The account is held by an associated company in a foreign jurisdiction where the money is made available to the ultimate recipient.

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

Remote deposit capture (RDC) is a bank product that allows customers to scan a check and transmit an electronic image to the bank for deposit. Because RDC minimizes human intervention, it decreases the ability to identify potential fraud indicators, such as an altered check and multiple deposits of the same item.

Describe the four types of risk associated with money laundering that are faced by financial organizations.

Reputational risk (the potential that adverse publicity regarding an organization's business practices and associations will cause a loss of public confidence in the integrity of the organization), operational risk (the potential for loss resulting from inadequate internal processes, personnel, or systems), legal risk (the potential for lawsuits, adverse judgments, unenforceable contracts, fines and penalties), and concentration risk (the potential for loss resulting from too much credit or loan exposure to one borrower or group of borrowers).

Risks and Methods of Money Laundering and Terrorist Financing How can art and antiques dealers and auctioneers mitigate their money laundering risks?

Require all art vendors to provide identifying information and confirm that they are authorized to sell the item; verify the identities and addresses of new vendors and customers; report suspicious items to the Art Loss Register; avoid cash payments; be aware of money laundering regulations; and appoint a senior staff member to whom employees can report suspicious activities.

What steps should the independent audit take to evaluate the ability of transaction monitoring software to identify unusual activity?

Review policies, procedures, and processes for suspicious activity monitoring; review the processes for ensuring the completeness, accuracy, and timeliness of the data supplied by the source transaction processing systems; evaluate the methodology for establishing and analyzing expected activity and filtering criteria; evaluate the appropriateness of the monitoring reports; and compare the transaction monitoring typologies with the AML/CFT risk assessment for reasonableness.

International AML/CFT Standards According to the Basel Committee's January 2014 guidelines, "Sound Management of Risks Related to Money Laundering and Financing of Terrorism," what controls should banks implement?

Risk analysis and governance; three lines of defense; customer due diligence and acceptance; transaction monitoring systems and ongoing monitoring; management of information; and reporting of suspicious transactions and asset freezing

Why is it important for organizations to continue to update and revisit their AML/CFT risk assessments?

Risk is dynamic and needs to be continuously managed, and the environment in which each organization operates is subject to continual change. Externally, the political changes of a jurisdiction and whether economic sanctions are imposed or removed can affect a country's risk rating. Internally, organizations respond to market and customer demands by merging or acquiring other companies, 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.

Describe the elements that should be addressed in a global approach to KYC, as identified in the Basel Committee's October 2004 paper, "Consolidated KYC Risk Management."

Risk management; customer acceptance and identification policies; and ongoing monitoring of higher-risk accounts.

What are some specific controls that e-money institutions can implement to mitigate the money launderings risks of prepaid cards, mobile payments, and internet-based payment services?

Robust oversight of outsourced functions; limits on storage values, transactions, and turnover; transaction monitoring systems capable of detecting money laundering patterns and deviations; systems for identifying customers with multiple purses, accounts, and cards; geolocation, device-related information, and IP addresses to identify discrepancies in customer activity from the information provided at onboarding; cooperation with merchants that accept e-money; geographic restrictions on the use and function of e-money products.

What is a safe harbor for reporting suspicious activity?

Safe harbor is legal protection for financial organizations, their directors, officers, and employees from criminal and civil liability for breach of any restriction on disclosing information imposed by contract or by any legislative, regulatory, or administrative prohibition, if they report their suspicions in good faith to the financial intelligence unit, even if they did not know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred.

International AML/CFT Standards How does Section 319(a) of the USA PATRIOT Act affect non-US banks that have an account with a US financial organization?

Section 319(a) of the USA PATRIOT Act greatly strengthened the forfeiture powers over the funds of foreign persons and organizations. 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.

What are some emerging risks for terrorist financing?

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

What are four related purposes for establishing or controlling a shell company for money laundering?

Shell companies convert the cash proceeds of crime into alternative assets; create the perception that illicit funds were generated from a legitimate source; facilitate a wide range of legitimate and/or fake business transactions that can be used to further the laundering process; and conceal criminal ownership.

What are examples of information obtained when a financial organization conducts enhanced due diligence on high-risk customers?

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, and place of business to the bank; description of the customer's primary trade area and whether international transactions are expected; description of the business operations, the anticipated volume of currency and total sales; a list of major customers and suppliers; explanations for changes in account activity.

Identify the three important tasks that FATF focuses on to fulfill its objectives.

Spreading the anti-money laundering message worldwide; monitoring implementation of the FATF Recommendations among FATF members; and reviewing money laundering trends and countermeasures.

Describe the three stages of money laundering.

Stage one: placement is the physical disposal of cash or other assets derived from criminal activity. Stage two: layering is the separation of illicit proceeds from their source by layers of financial transactions intended to conceal the origin of the proceeds. Stage three: integration is supplying apparent legitimacy to illicit wealth through the reentry of the funds into the economy in what appears to be normal business or personal transactions.

What are some money laundering risks, methods, and red flags in the vehicle sales industry?

Structuring cash deposits below the reporting threshold; purchasing vehicles with sequentially numbered checks or money orders; trading in vehicles and conducting successive transactions of buying and selling new and used vehicles to produce complex layers of transactions; and accepting third-party payments, particularly from jurisdictions with ineffective money laundering controls.

What is structuring?

Structuring is designing a transaction to evade triggering a reporting or recordkeeping requirement, e.g., breaking a large cash deposit into smaller amounts to be deposited into separate banks, separate accounts, or on separate days to avoid currency transaction reports.

Risks and Methods of Money Laundering and Terrorist Financing Describe the types of services that trust and company service providers (TCSPs) offer to third parties.

TCPSs can act as a formation agent of legal persons; act as (or arrange 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; provide a registered office, business address, or correspondence for a company, partnership, or another legal person or arrangement; act as (or arrange for another person to act as) a trustee of an express trust; and act as (or arrange for another person to act as) a nominee shareholder for another person.

What is the basic difference between the crimes of terrorist financing and money laundering?

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 used legally.

Why are tests important in AML/CFT training?

Tests evaluate how well the training is understood, with a mandatory passing score.

What are the responsibilities of a financial organization's AML compliance officer?

The AML compliance officer is responsible for managing all aspects of the AML/CFT compliance program. This includes, but is not limited to, designing and implementing the program, making necessary changes and updates, disseminating information about the program's successes and failures to key staff members, constructing AML/CFT-related content for staff training programs, and managing the organization's adherence to applicable AML/CFT laws and regulations, including staying current on legal and regulatory developments in the field.

International AML/CFT Standards According to the Basel Committee, how are sound KYC policies and procedures critical to protecting the safety and soundness of banks?

The Basel Committee's KYC guidance centers on the use of due diligence requirements to mitigate the dangers of corrupt customers. Without due diligence, banks can be subject to reputational, operational, legal, and concentration risks, which can result in significant financial cost. Sound KYC policies and procedures are critical to protecting the safety and soundness of banks, as well as the integrity of banking systems.

International AML/CFT Standards 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)

What are the primary ways in which the EU's Second Money Laundering Directive expanded the scope of the First Directive?

The EU's Second Directive extended the scope of the First Directive beyond drug-related crimes; expanded the definition of "criminal activity" to cover not just drug trafficking, but all serious crimes; brought currency exchanges and money remittance offices under AML coverage; clarified that knowledge of criminal conduct can be inferred from objective factual circumstances; provided a more precise definition of money laundering; and widened the businesses and professions that are subject to the obligations of the Directive.

What organization provides a forum for financial intelligence units around the world to improve cooperation and foster trust among countries to securely share sensitive information in the fight against money laundering and the financing of terrorism.

The Egmont Group of Financial Intelligence Units

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

The First Directive of 1991 confined predicate offenses of 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.

International AML/CFT Standards What permanent international organization was the first reach an agreement on model legislation aimed specifically at dealing with money laundering?

The Organization of American States (OAS), via the Inter-American Drug Abuse Control Commission

What is the name of the Office of Foreign Assets Control's (OFAC) sanctions list?

The Specially Designated Nationals and Blocked Persons (SDN) list

What are some sources for identifying high-risk countries?

The US State Department's annual "International Narcotics Control Strategy Report," rating more than 100 countries on their money laundering controls; Transparency International's 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; and in the US, certain domestic jurisdictions are evaluated based on whether they fall within government-identified higher-risk geographic locations, such as high-intensity drug trafficking areas (HIDTAs) and high-intensity financial crime areas (HIFCAs).

What motivated passage of the USA Patriot Act, and to whom does it apply?

The USA PATRIOT Act was motivated by the terrorist attacks of September 11, 2001, and the urgent need to decipher and disable mechanisms that finance terrorism, including strengthening money laundering laws and the Bank Secrecy Act. The USA PATRIOT Act has implications for US organizations and non-US organizations that do business in the US.

Why is it important for an organization's AML/CFT compliance officer to have good communication skills?

The ability of the compliance officer to communicate effectively, both in writing and verbally, is vital to the success of an organization's AML/CFT program. The compliance officer must be able to communicate at all levels of the organization—from front-line associates to the CEO and board of directors. The compliance officer needs to be capable of articulating matters of importance to senior and executive management. A compliance officer must be able to analyze and interpret changes, determine what effect they could have on the organization, and suggest an action plan, when appropriate.

According to the Basel Committee, what are the responsibilities of the board of directors related to AML/CFT compliance?

The board of directors plays a critical oversight role. The board should approve and oversee policies for risk, risk management, and compliance. The board also should have a clear understanding of the money laundering risks, including timely, complete, and accurate information related to the risk assessment. Along with senior management, the board should appoint a qualified chief AML officer with overall responsibility for the AML function and provide this officer with sufficient resources to execute his responsibilities to oversee compliance with the bank's AML program.

What is meant by a country's "extraterritorial reach?"

The extension of one country's policies and laws to the citizens and organizations of another. US AML laws contain several provisions that extend its prohibitions and sanctions into other countries. For example, the "extraterritorial jurisdiction" of the principal US AML law can apply to a non-US citizen if the "conduct" occurs "in part" in the US (Title 18, USC Sec. 1956(f)). The extension of one country's policies and laws to the citizens and organizations of another. US AML laws contain several provisions that extend its prohibitions and sanctions into other countries. For example, the "extraterritorial jurisdiction" of the principal US AML law can apply to a non-US citizen if the "conduct" occurs "in part" in the US (Title 18, USC Sec. 1956(f)).

According to the Basel Committee's KYC guidance, what are the four key elements of a KYC program?

The four key elements of a KYC program are customer identification, risk management, customer acceptance policy, and ongoing monitoring.

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

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

What is tipping off?

The improper or illegal act of notifying a suspect that he is the subject of a suspicious activity report (SAR) or is otherwise being investigated or pursued by the authorities.

Anti-Money Laundering/Counter-Terrorist Financing Compliance Programs What is involved in the independent audit's review of case management and suspicious activity reporting (SAR) systems?

The independent audit's review of case management and SAR systems should include an evaluation of the research and referral of unusual transactions and a review of policies, procedures, and processes for referring unusual and suspicious activity from all business lines to the personnel responsible for investigating it.

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

The jurisdiction should be strategically important based on quantitative (e.g., size of GDP, population) and qualitative indicators (e.g., impact on global financial system, level of AML/CFT risks faced) and additional considerations (e.g., level of adherence to financial sector standards), and FATF's geographic balance should be enhanced by the jurisdiction becoming a member.

ABC Bank was served with a subpoena compelling the production of certain documents on a personal checking account. What are the first steps the bank should take after being served with the subpoena?

The organization should ensure its senior management and/or legal counsel reviews the subpoena and independently confirms its legitimacy (e.g., to confirm that it is not an attempted fraud to obtain confidential information). If there are no grounds for contesting the subpoena, the organization should take all appropriate measures to comply with the summons or subpoena on a timely and complete basis. The financial organization should never notify the customer being investigated.

When counsel for a financial organization prepares a written report of an investigation, what steps should the organization take to retain the attorney-client privilege?

The organization should take steps to not inadvertently waive the attorney-client privilege by distributing the report to persons who should not receive it. Every page of the report should contain a statement that it is confidential and is subject to the attorney-client privilege and work-product privilege. Copies of the report should be numbered, and a list of people who are given copies to read should be maintained. After a set period of time, all copies should be returned. Individuals who receive the report should be instructed not to make notes on their copies. All copies should be maintained in a file separate from regular organization files to maintain the highest level of protection.

What is meant by the "physical cross-border transportation of currency"?

The physical cross-border transportation of currency refers to any inbound or outbound transportation of currency or bearer negotiable instruments from one country to another. The term includes the physical transportation by a natural person, or in that person's accompanying luggage or vehicle; shipment of currency through cargo containers; and the mailing of currency or bearer-negotiable instruments.

What factors should be considered when determining the level of sophistication of an organization's compliance function?

The sophistication of the compliance function should be based upon the organization's nature, size, complexity, regulatory environment, and the specific risks associated with its products, services, and customers. No two organizations will have exactly the same compliance structure, because the risks facing each organization are different, as identified in their respective risk assessments.

What are the FATF-designated thresholds that should trigger AML scrutiny?

The threshold that financial organizations should monitor for occasional customers is US$15,000 [Recommendation 10]; for casinos, including Internet casinos, it is US$3,000 [Recommendation 22]; and for dealers in precious metals, when engaged in any cash transaction, it is $US15,000 [Recommendations 22-23].

Where does the ultimate responsibility for a financial organization's AML/CFT program lie?

The ultimate responsibility for the AML/CFT program lies with the board of directors. Members must set the tone from the top by openly voicing their commitment to the program, ensuring that their commitment flows through all service areas and lines of business, and holding responsible parties accountable for compliance.

What is a limitation of using publicly available sources of information to identify politically exposed persons (PEPs) and their associations?

These lists do not provide all relevant information related to PEPs that would assist in identifying them. For example, they do not include unique identifiers, such as date of birth or address, which poses significant operational constraints, particularly at large retail financial organizations.

When should a financial organization conduct training?

Training should be ongoing and on a regular schedule. Existing employees should at least attend an annual training session. New employees should receive appropriate training with respect to their job function and within a reasonable period after joining or transferring to a new job. Situations may arise that demand an immediate session or enhanced training. Changes in software, systems, procedures, or regulations are additional triggers for training sessions, as well as specific illicit financial activity that affects a specific business line or department.

What makes hawalas attractive to terrorist financiers?

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

As a financial organization develops transaction history with its customers, what factors should lead it to consider modifying the risk rating of a customer?

Unusual activity, such as alerts, cases, and suspicious activity (SAR) filings; receipt of law enforcement inquiries, such as subpoenas; transactions that violate economic sanctions programs; and significant volumes of activity where it would not be expected.

Describe factors that indicate a financial organization is at risk for being used as a conduit for terrorist financing?

Use of an account as a front for a person with suspected terrorist links; appearance of an account holder's name on a list of suspected terrorists; frequent, large cash deposits in accounts of nonprofit organizations; high volumes of transactions in accounts; and lack of a clear relationship between the banking activity and the nature of the account holder's business.

According to FATF Recommendation 10, when should financial organizations undertake customer due diligence measures?

When establishing business relationships; carrying out occasional transactions under certain circumstances; when there is a suspicion of money laundering or terrorist financing; and when the financial organization has doubts about the veracity or adequacy of previously obtained customer identification data.

What is a mutual legal assistance treaty (MLAT)?

When evidence is required from another jurisdiction, a request can be made for mutual legal assistance. MLATs provide a legal basis for transmitting evidence that can be used for prosecution and judicial proceedings. MLATs only involve two countries at a time.

How can having a lawyer as a trustee on a client's account create vulnerabilities to money laundering at a financial organization?

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

According to FATF's Recommendation 10, when should a financial organization conduct enhanced due diligence (EDD) on a customer?

When there are circumstances in which the risk of money laundering or terrorist financing is higher, EDD measures should be taken. These include customer risk factors; country or geographic risk factors; and product, service, transaction, and delivery channel risk factors.

Anti-Money Laundering/Counter-Terrorist Financing Compliance Programs What are the basic questions to ask when developing an AML/CFT compliance training program?

Who to train? What training topics? How to train? When to train? Where to train?

Explain the legal concept of willful blindness in the context of money laundering.

Willful blindness is 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.

Describe several ways in which the investment and commodity advising industry is susceptible to money laundering.

Withdrawal of assets through transfers to unrelated accounts or high-risk jurisdictions; 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 for anonymity; 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.

What does the Yates memo say?

he Yates memo reminds prosecutors that criminal and civil investigations into corporate misconduct should also focus on individuals who perpetrated the wrongdoing. It notes that the resolution of a corporate case does not provide protection to individuals from criminal or civil liability.