Practice Questions

How long is the record retention period for financial institutions?

5 Years

4)The Recommendations enhance the transparency and _____ of legal persons and arrangements: A. Availability of beneficial ownership information B. Financial safety and soundness C. Correspondent relationships

A. Availability of beneficial ownership information

Which statement is true? A. 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. B. Concentration accounts are also known as correspondent accounts. Frequently used to facilitate transactions for private banking, trust and custody accounts, funds transfers and international affiliates. C. Correspondent banking is where banks open direct bank accounts for politically exposed persons located in foreign jurisdictions. D. Omnibus accounts are different from concentration accounts because they do not provide the customer direct access to the account.

A. 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.

Money laundering and terrorism financing can have potentially devastating economic, security and social consequences. While these crimes can occur in any country, they have particularly significant economic and social consequences for: A. Developing countries, emerging markets and countries with fragile financial systems. B. First world countries, including politically mature jurisdictions such as Western Europe and USA. C. Countries listed on the FATF PEP list.

A. Developing countries, emerging markets and countries with fragile financial systems.

What are examples of alternate remittance systems? A. Hawala, Hundi and BMPE. B. BLPE, Hawala and Chiti. C. Hundali, Handi and BMPE. D. PTA, Hundi and BMPEP.

A. Hawala, Hundi and BMPE.

Under the FATF Recommendations, knowledge or intent to prove the offense of money laundering may be inferred from... A. Objective factual circumstances B. Subjective factual circumstances C. Objective high-risk circumstances

A. Objective factual circumstances

A person arrives at the teller window of a money transfer company. He wants to pick up a wire transfer that was sent to him. Under the FATF Recommendations, when should the MSB conduct CDD? A. Only if the wire transfer amount is over USD/EUR 1,000 B. Only if the wire transfer amount is over USD/EUR 10,000 C. Only if the wire transfer amount is over USD/EUR 15,000

A. Only if the wire transfer amount is over USD/EUR 1,000

The FATF Recommendations: A. Set an international standard, which countries should implement through measures adapted to their particular circumstances B. Set national standards, which financial institutions should implement through measures adapted to group-wide policies C. Set a standard for central bank governors, when conducting AML examinations at the international level

A. Set an international standard, which countries should implement through measures adapted to their particular circumstances

What is a futures commission merchant? A person or company that: A. Solicits or accepts orders on futures contracts and commodity options and accepts funds for their execution. B. Solicits and accepts commodity futures orders from customers but does not accept funds. C. Provides advice on securities and investments and manages client assets. D. Draws commodity checks on custodial arrangements that allows him to remain anonymous to the broker.

A. Solicits or accepts orders on futures contracts and commodity options and accepts funds for their execution.

Why is a Payable Through Account vulnerable to money laundering? A. These are master correspondent accounts established at a domestic bank by a foreign bank that allow the customers of the foreign bank to do a wide range of transactions. B. These are correspondent accounts located in a non-cooperative country or territory. C. These are nested correspondent accounts at a foreign shell bank with customers with whom the domestic bank did not exercise due diligence. D. These are master escrow accounts on which a domestic bank generally does not conduct periodic verification.

A. These are master correspondent accounts established at a domestic bank by a foreign bank that allow the customers of the foreign bank to do a wide range of transactions.

Under the FATF Recommendations, countries should apply the crime of ML to all serious offenses, with a view to including the widest range of predicate offenses. A. True B. False C. This is not defined

A. True

What are the CDD measures under the FATF Recommendations? ID the customer, and: A. Verify ID using reliable information, ID the beneficial owner, and verify ID, Understanding nature/purpose of business relationship, conducting ongoing due diligence B. Verify the ID using non-public information, ID and verify the PEP, understanding the nature/purpose of the business relationship and filing STRs C. Verify the ID of occasional customers, ID the beneficial owner, understanding the nature/purpose of the business relationship and EDD for PEPs and correspondent banking

A. Verify ID using reliable information, ID the beneficial owner, and verify ID, Understanding nature/purpose of business relationship, conducting ongoing due diligence

In addition, money raised for terrorist groups is also used for: A. mundane B.PEP C. nesting _____ expenses like food and rent, and is not always strictly used for just the terrorist acts themselves.

A. mundane

From a technical perspective, the laundering methods used by terrorists and other criminal organizations are: A. similar B. different C.an issue from the past

A. similar

Which statement is true? A. A bearer share is a negotiable instrument that accords ownership in sequentially numbered bank accounts B. An indicator of money laundering is when an insurance policy holder is more interested in the cancellation terms of a policy than the benefits of the policy C. An indicator of money laundering in the trust sector is "wash trading" or offsetting securities transactions, creating the illusion of trust. D. Commodity trading advisors do not have direct contact with their clients and therefore are less vulnerable to money laundering than gatekeepers.

B. An indicator of money laundering is when an insurance policy holder is more interested in the cancellation terms of a policy than the benefits of the policy

1) The Financial Action Task Force (FATF) is _____ body established in 1989 by the Ministers of its Member jurisdictions. A. A financial B. An inter-governmental C. A central bank

B. An inter-governmental

Designated non-financial businesses and professions under the FATF recommendations include: A. Real estate agents, MSBs, dealers in precious metals/stones, lawyers, notaries and similar professionals and trust and company service providers B. Casinos, real estate agents, dealers in precious metals/stones, lawyers, notaries and similar professionals and trust and company service providers C. Securities broker-dealers, MSBs, casinos, real estate agents, lawyers, notaries and similar professionals, and trust and company service providers

B. Casinos, real estate agents, dealers in precious metals/stones, lawyers, notaries and similar professionals and trust and company service providers

Which statement is true? A. Monetary instruments are vulnerable to money laundering because it allows small banks to open correspondent accounts with larger financial institutions. B. Hawalas are used to move money internationally with very little evidence. C. Terrorist financing is different than money laundering because it generally involves larger amounts than traditional laundering of criminal proceeds. D. E-cash is not attractive to the money launderer because it cannot be completely anonymous and does not allow for large amounts to be "transported" quickly and easily.

B. Hawalas are used to move money internationally with very little evidence.

Which statement is true? A. In correspondent accounts, respondent bank's customers can conduct their own transactions: sending wire transfers, making and withdrawing deposits and maintaining checking accounts through the respondent bank's correspondent account without needing to clear the transactions through the respondent bank. B. In Payable Through Accounts, respondent bank's customers can conduct their own transactions: sending wire transfers, making and withdrawing deposits and maintaining checking accounts through the respondent bank's correspondent account without needing to clear the transactions through the respondent bank. C. PTAs differ from correspondent accounts whereby: Foreign bank's customers directly control funds at the correspondent bank VERSUS traditional correspondent relationship where correspondent bank takes orders from its customers and passes them on to the respondent bank. D. Concentration accounts differ from shell bank accounts whereby: Foreign shell bank's customers internally control funds at the correspondent bank VERSUS traditional concentration accounts where respondent bank takes orders from internal employees.

B. In Payable Through Accounts, respondent bank's customers can conduct their own transactions: sending wire transfers, making and withdrawing deposits and maintaining checking accounts through the respondent bank's correspondent account without needing to clear the transactions through the respondent bank.

What are open loop prepaid cards? A. Credit cards that can be used at any merchant at anytime. B. Network-branded cards that can be spent anywhere on the payment network. C. Store-branded cards that can be spent anywhere at anytime at any merchant. D. Store-branded cards that can be spent at any store location of the issuing store.

B. Network-branded cards that can be spent anywhere on the payment network.

Which statement is true regarding the risk of Politically Exposed Persons (PEPs)? A. PEPs provide access to third parties on whom the financial institution has not conducted sufficient due diligence. B. PEPs have significantly greater exposure to the politically corrupt funds, including accepting bribes or misappropriating government funds. C. PEPs are foreign customers who inherently present additional risk as they are engaged in crossborder transactions. D. PEPs generally do not pose enhanced risks to an institution due to their political standing; rather, PEPs increase the prestige of an institution.

B. PEPs have significantly greater exposure to the politically corrupt funds, including accepting bribes or misappropriating government funds.

3)The FATF Recommendations set out the essential measures that countries should have inplace to identify the risks, and develop policies and domestic coordination, pursuemoney laundering, terrorist financing and the financing of proliferation, and apply _____ measures for the financial sector and other designated sectors: A. Integrity B. Preventive C. Financing

B. Preventive

The KYC information for JVT Networks LLC states it is in the business of "providing telecommunications equipment to small and medium businesses" and it expected to receive monthly incoming wire transfers from companies in the US and to execute monthly outgoing wire transfers to China, Hong Kong, and Singapore. JVT is 100% owned by Sammie Mavis Jr. and maintains no employees. A transaction monitoring review revealed numerous incoming wire transfers from companies in Panama, outgoing wires to companies in Singapore, and outgoing checks to numerous individuals in the US. There is no additional activity in the account and the address for JVT Networks is mailbox rental business. The activity in the account of JVT Networks appears indicative of a? A. Shelf company. B. Shell company. C. International business corporation. D. Offshore company.

B. Shell company.

Although it would seem logical that funding from legitimate sources does not need to be laundered, there is a need for the terrorist group to: A. capture B. disguise C. proceed _____ the link between it and its legitimate funding sources.

B. disguise

A financial investigator at London World Bank is reviewing the account of TRI MFG Ltd. and identified the monthly wire transfers originating from XYZ Trading Ltd. at Offshore Bank, a private bank located in the Caribbean Islands. The investigator expresses concern over the wire transfers and through an online search she was able to identify that Offshore Bank specializes in establishing private investment companies for high net worth individuals, however, she was unable to identify any information on XYZ Trading Ltd. Which of the following presents the highest risk to London World Bank? A. Offshore Bank is a private bank servicing high net worth clients. B. No online presence for XYZ Trading Ltd. C. A respected online publication recently exposed Offshore Bank has been providing banking services to corrupt politicians. D. Repeated monthly wire transfers.

C. A respected online publication recently exposed Offshore Bank has been providing banking services to corrupt politicians.

Under the FATF Recommendations, which are considered "financial institutions"? Any natural or legal person who conducts as a business one or more activities such as: A. Participation in securities issues, trust and company services providers, currency changing B. Placement of life insurance, trading in commodity futures, casino services C. Acceptance of deposits from the public, financial guarantees and commitments, portfolio management

C. Acceptance of deposits from the public, financial guarantees and commitments, portfolio management

A financial investigator at Offshore Bank is reviewing the account of XYZ Trading Ltd. in response to weekly incoming wire transfers. The investigator notices the total of the weekly wire transfers is evenly distributed monthly in wire transfers to LMO Imports GmbH in Frankfurt and TRI MFG Ltd. in London. Which of the following phase(s) of money laundering is XYZ Trading using with Offshore Bank? A. Integration only. B. Placement only. C. Layering only. D. Placement, layering, and integration.

C. Layering only.

A person arrives at the teller window of a Bank A. He does not have an account at the bank, but wants to make a deposit into his brother's account at Bank A. There is no suspicion of money laundering. Under the FATF Recommendations, when should the bank conduct CDD? A. Not necessary to conduct CDD because there is no suspicion of money laundering B. Only if the deposit amount is above USD/EUR 10,000 C. Only if the deposit amount is above USD/EUR 15,000

C. Only if the deposit amount is above USD/EUR 15,000

Mr. X is a narcotics distributor. He utilizes smurfs to deposit the cash sales of drug proceeds into three accounts maintained at three different banks. At each bank, Mr. X then executes a wire transfer on a weekly basis for 85% of the total balance in the account to a private investment company called 'XYZ Trading Ltd.' located in an offshore jurisdiction. A financial investigator reviewing the account at each bank is trying to determine what stages of money laundering Mr. X is engaged in. Which of the following is true? A. Integration only. B. Placement and integration. C. Placement and layering. D. Placement, layering, and integration.

C. Placement and layering.

ABC Bank maintains an AML policy that states "For all legal entities, ABC Bank requires more than 90% ownership of the entity to be identified to individuals." Mr. Jammer seeks to open an account at ABC Bank for his company Golden Shippers LLC, which is owned as follows: 51% Jay Jammer 29% Golden Shipping LLC 16% Hank Ford 4% Liam Nesan A compliance analyst is reviewing the documentation to determine whether to approve the account opening based on the ownership structure. How should the analyst proceed? A. Permit the account to be opened as the documentation identifies 100% of the owners. B. Open the account because Golden Shippers and Golden Shipping are similar entities. C. Request Mr. Jammer to provide ownership information of Golden Shipping LLC to further evaluate whether the ownership meets the requirements. D. None of the above.

C. Request Mr. Jammer to provide ownership information of Golden Shipping LLC to further evaluate whether the ownership meets the requirements.

The FATF objectives are: A. Spreading the AML message among FATF members, monitoring the implementation of the Recommendations worldwide and reviewing ML trends and countermeasures B. Spreading the safety and soundness message among FATF members, monitoring the implementation of the Recommendations worldwide and making typologies exercises. C. Spreading the AML message worldwide, monitoring the implementation of the Recommendations among FATF members and reviewing ML trends and countermeasures

C. Spreading the AML message worldwide, monitoring the implementation of the Recommendations among FATF members and reviewing ML trends and countermeasures

Among the additional challenges for financial institutions that rely on the proceeds of crime are: A. Loss of profitable business B. Liquidity problems through deposit of funds C. Termination of correspondent banking facilities D. A and C

D. A and C

Typically, havens for money laundering and terrorist financing have: A. Limited number of predicate crimes for money laundering. B. Limited types of institutions and persons covered by money laundering laws and regulations. C. Little to no enforcement of the laws, weak penalties, or provisions that make it difficult to confiscate or freeze assets related to money laundering. D. All of the above

D. All of the above

What is a red flag of money laundering through casinos? A. Prepaying a casino token or chip by using funds that are already in the casino system, creating a debit balance. B. Extensive gambling via multiple games throughout the casino. C. Using casino commodity brokers to access multiple future chips. D. Asking for winners' checks to be made out in the name of third persons.

D. Asking for winners' checks to be made out in the name of third persons.

Which of the following is considered a weakness in free trade zones? A. Minimal oversight by foreign governments and inadequate AML/CFT safeguards. B. Strong procedures to inspect goods and legal entities. C. Lack of cooperation between free trade zones and foreign customs authorities.

D. Minimal oversight by local authorities and inadequate AML/CFT safeguards.

A foreign individual seeks to open a company in an offshore jurisdiction for the sole purpose of managing personal investments. What type of corporate vehicle would the individual open? A. Publicly traded company. B. Shelf company. C. International business corporation. D. Private investment company.

D. Private investment company.

What method can a bank can implement to prevent the smurfing of funds into an account? A. Only accept cash deposits with proof of its origin. B. Request identification of a person making a single cash deposit into an account held in his/her name. C. Prohibit cash deposits of more than $5,000 on consecutive days. D. Request identification of a person making a cash deposit into an unrelated account located outside the geographic location where the account is located.

D. Request identification of a person making a cash deposit into an unrelated account located outside the geographic location where the account is located.

2)2. The mandate of the FATF is to: A. Impose penalties B. Issue regulations D. Set standards

D. Set standards

Willful blindness

Deliberate avoidance of knowledge of the facts

These: A. Politically exposed persons B. Front companies C. Shell banks Have access to substantial _____ , allowing them to subsidize products and services at levels well market _____ rates. They have a competitive advantage over legitimate firms that draw capital funds from financial markets. This makes it difficult for legitimate business to _____ against them.

Front Companies, illicit funds, below, compete

The ancient _____ system has also played a role in moving terrorist related funds.

Hawala

_____ 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 financial institutions that rely on the proceeds of crime.

Legal

What did the Riggs Bank case reveal?

The Riggs Bank case revealed a web of transactions, involving hundreds of millions of dollars, that the bank had facilitated over many years for dictators on two continents, including Augusto Pinochet of Chile and Teodoro Obiang of Equatorial Guinea. The accounts formed part of the embassy banking portfolio that was the bank's specialty product for decades

What is concentration risk?

The potential for loss results from too much credit or loan exposure to one borrower or group of borrowers.

Money laundering money trail is:

circular

If money laundering is prevalent, there is likely to be more _____ . Criminals may try to bribe government officials, lawyers and employees of financial or non- financial institutions so that they can continue to run their criminal businesses.

corruption

Money launderers are known to own businesses that appear legitimate and engage in legitimate business, but are in fact controlled by _____ who commingle the proceeds of illicit activity with legitimate funds to hide the ill- gotten gains.

criminals

Money laundering and terrorist financing can harm the soundness of a country's _____ sector. They can also negatively affect the _____ of individual banks or other financial institutions.

financial, soundness

By using front companies and other investments in legitimate companies, money laundering proceeds can be used to control whole industries or sectors of the economy of certain countries. This increases the potential for monetary and economic _____ due to the misallocation of resources from artificial distortions in asset and commodity prices.

instability

Terrorist Financing money trail is:

linear

In doing so, the terrorists use: cash smuggling, structuring, purchase of _____ instruments, wire transfers, and use of debit or credit cards.

monetary

Operational risk is described as the potential for loss resulting from inadequate internal _____, personnel or systems or from external events. Such losses occur when institutions incur reduced or terminated inter-bank or _____ banking services or an increased cost for these services.

processes, correspondent

Reputational risk is described as the potential that adverse _____ whether accurate or not, will cause a loss of public _____ in the integrity of the organization.

publicity, confidence