CAFCA Test – Questions With Complete Solutions (A+)
What is financial crime? Right Ans - Illegal activities that are usually
economically motivated
Examples include money laundering, terrorist financing, and tax evasion.
What is the impact of financial crime? Right Ans - Certain countries are
more prone to financial crimes
Impact of crime has increased globally
Threatens financial systems and economies
Money Laundering Right Ans - Engaging in financial transactions to
conceal the identity, source, or destination of illegally gained funds.
"The process of making illegal funds appear legitimate"
Three stages of Money Laundering Right Ans - 1. Placement
2. Layering
3. Integration
What is placement? Right Ans - Putting "dirty money" into the financial
system
What is layering? Right Ans - Concealing the origin of the "dirty money"
What is integration? Right Ans - Using the "dirty money" in the
legitimate economy
Terrorist Financing Right Ans - Terrorist financing (proceeds for crime)
provides funds for terrorist activity.
Can be legal and/or illegal activity
Sanctions Right Ans - Foreign policy and security tool
Target individuals, organizations, jurisdictions, vessels
,Main types: Financial, economic, trade
What are the features of fraud? Right Ans - An intentional act of criminal
deception in order to obtain an unjust advantage
Results in financial or personal gain
Can be committed by one or more individuals
What are the three reasons someone commits fraud? Right Ans -
Referred to as the Fraud Triangle
Pressure
Opportunity
Rationalization
Tax avoidance vs tax evasion Right Ans - Tax avoidance uses legal
practices to reduce taxes owed
Tax evasion uses illegal practices to evade paying taxes owed
Tax evasion includes hiding taxable assets from the authorities
Panama Papers (Case example) Right Ans - A classic example of the use
of shell companies to conceal customer wealth
Millions of secret documents were leaked to the press
Over 200,000 shell companies set up by law firm in Panama
What is a negative impact of financial crime? Right Ans - Financial crime
jeopardizes the soundness of financial institutions
What is the primary purpose of money laundering? Right Ans - To make
criminally derived property or funds appear to be legitimate
What is a feature of terrorist financing Right Ans - The money is not
necessarily derived from illicit proceeds
What is a red flag of fraud? Right Ans - A sense of urgency and pressure
to act immediately is a common red flag of fraud.
, True or False: Some industries are at higher risk for bribery than others,
especially those in which commercial success is driven by getting approval,
authority, or contracts from government entities. Right Ans - True
What is sign of a jurisdiction that facilitates tax evasion? Right Ans -
They levy low or minimal taxation on the income of non-residents, and
provide tax advantages to non-residents
What is an example of higher risk? Right Ans - Customer: Non-resident,
complex owner
Jurisdiction: Low regulation, tax haven
Product: Prepaid card, private banking
Channel: No direct relationship with customer
Politically Exposed Person (PEP) Right Ans - According to FATF's
revised 40 Recommendations of 2012, a PEP is an individual who has been
entrusted with prominent public functions in a foreign country, such as a
head of state, senior politician, senior government official, judicial or
military official, senior executive of a state-owned corporation or
important political party official, as well as their families and close
associates. The term PEP does not extend to middle- ranking individuals in
the specified categories. Various country regulations will define the term
PEP, which may include domestic as well as foreign persons.
Beneficial ownership Right Ans - Person(s) having ultimate control over
an account, through ownership or other means
Account name might not be controller name
Regulation requires knowing beneficial owner(s)
Percentage of control Right Ans - Jurisdiction sets threshold (often
25%)
Your organization sets threshold
Beneficial owner is natural or legal
Ultimate beneficial owner is always natural person
What are the Two types of beneficial owner Right Ans - Those with
"ownership" and those with "control"
Owner owns 25% or more of equity interests of a legal person
Controller is the non-owner who exercises operational control
What is financial crime? Right Ans - Illegal activities that are usually
economically motivated
Examples include money laundering, terrorist financing, and tax evasion.
What is the impact of financial crime? Right Ans - Certain countries are
more prone to financial crimes
Impact of crime has increased globally
Threatens financial systems and economies
Money Laundering Right Ans - Engaging in financial transactions to
conceal the identity, source, or destination of illegally gained funds.
"The process of making illegal funds appear legitimate"
Three stages of Money Laundering Right Ans - 1. Placement
2. Layering
3. Integration
What is placement? Right Ans - Putting "dirty money" into the financial
system
What is layering? Right Ans - Concealing the origin of the "dirty money"
What is integration? Right Ans - Using the "dirty money" in the
legitimate economy
Terrorist Financing Right Ans - Terrorist financing (proceeds for crime)
provides funds for terrorist activity.
Can be legal and/or illegal activity
Sanctions Right Ans - Foreign policy and security tool
Target individuals, organizations, jurisdictions, vessels
,Main types: Financial, economic, trade
What are the features of fraud? Right Ans - An intentional act of criminal
deception in order to obtain an unjust advantage
Results in financial or personal gain
Can be committed by one or more individuals
What are the three reasons someone commits fraud? Right Ans -
Referred to as the Fraud Triangle
Pressure
Opportunity
Rationalization
Tax avoidance vs tax evasion Right Ans - Tax avoidance uses legal
practices to reduce taxes owed
Tax evasion uses illegal practices to evade paying taxes owed
Tax evasion includes hiding taxable assets from the authorities
Panama Papers (Case example) Right Ans - A classic example of the use
of shell companies to conceal customer wealth
Millions of secret documents were leaked to the press
Over 200,000 shell companies set up by law firm in Panama
What is a negative impact of financial crime? Right Ans - Financial crime
jeopardizes the soundness of financial institutions
What is the primary purpose of money laundering? Right Ans - To make
criminally derived property or funds appear to be legitimate
What is a feature of terrorist financing Right Ans - The money is not
necessarily derived from illicit proceeds
What is a red flag of fraud? Right Ans - A sense of urgency and pressure
to act immediately is a common red flag of fraud.
, True or False: Some industries are at higher risk for bribery than others,
especially those in which commercial success is driven by getting approval,
authority, or contracts from government entities. Right Ans - True
What is sign of a jurisdiction that facilitates tax evasion? Right Ans -
They levy low or minimal taxation on the income of non-residents, and
provide tax advantages to non-residents
What is an example of higher risk? Right Ans - Customer: Non-resident,
complex owner
Jurisdiction: Low regulation, tax haven
Product: Prepaid card, private banking
Channel: No direct relationship with customer
Politically Exposed Person (PEP) Right Ans - According to FATF's
revised 40 Recommendations of 2012, a PEP is an individual who has been
entrusted with prominent public functions in a foreign country, such as a
head of state, senior politician, senior government official, judicial or
military official, senior executive of a state-owned corporation or
important political party official, as well as their families and close
associates. The term PEP does not extend to middle- ranking individuals in
the specified categories. Various country regulations will define the term
PEP, which may include domestic as well as foreign persons.
Beneficial ownership Right Ans - Person(s) having ultimate control over
an account, through ownership or other means
Account name might not be controller name
Regulation requires knowing beneficial owner(s)
Percentage of control Right Ans - Jurisdiction sets threshold (often
25%)
Your organization sets threshold
Beneficial owner is natural or legal
Ultimate beneficial owner is always natural person
What are the Two types of beneficial owner Right Ans - Those with
"ownership" and those with "control"
Owner owns 25% or more of equity interests of a legal person
Controller is the non-owner who exercises operational control
