CAFCA Exam Questions with correct Answers

CAFCA Exam Questions with correct Answers What is financial crime? - Answer-Illegal activities that are usually economically motivated Examples include money laundering, terrorist financing, and tax evasion. /.What is the impact of financial crime? - Answer-Certain countries are more prone to financial crimes Impact of crime has increased globally Threatens financial systems and economies /.Money Laundering - Answer-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 - Answer-1. Placement 2. Layering 3. Integration /.What is placement? - Answer-Putting "dirty money" into the financial system /.What is Layering? - Answer-Concealing the origin of the "dirty money" /.What is integration? - Answer-Using the "dirty money" in the legitimate economy /.Terrorist Financing - Answer-Terrorist financing (proceeds for crime) provides funds for terrorist activity. Can be legal and/or illegal activity /.Sanctions - Answer-Foreign policy and security tool Target individuals, organizations, jurisdictions, vessels Main types: Financial, economic, trade /.What are the features of fraud? - Answer-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? - Answer-Referred to as the Fraud Triangle Pressure Opportunity Rationalization /.Tax avoidance vs tax evasion - Answer-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) - Answer-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? - Answer-Financial crime jeopardizes the soundness of financial institutions /.What is the primary purpose of money laundering? - Answer-To make criminally derived property or funds appear to be legitimate /.What is a feature of terrorist financing - Answer-The money is not necessarily derived from illicit proceeds /.What is a red flag of fraud? - Answer-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. - Answer-True /.What is sign of a jurisdiction that facilitates tax evasion? - Answer-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? - Answer-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) - Answer-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 - Answer-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 - Answer-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 - Answer-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 All legal person(s) track back to a natural person(s) /.How do you determine beneficial ownership? - Answer-Know your organization's threshold If UBO cannot be found US: Control prong must certify that no one person owns 25% EU: Natural person(s) holding senior management positions are UBO When impossible to identify, ask yourself why /.What is a shell company? - Answer-No assets or operations "Shelf" is shell created to use later Appear legitimate and mask ownership Sometimes legitimate but high-risk Often facilitate money laundering /.Key FinTech risks - Answer-Vary by specific products, services, technologies Key risks: fraud, money laundering, bribery and corruption, tax evasion, terrorist financing, sanctions, cybercrime Are attractive for both legitimate customers and criminals /.Paris terror attacks (Case example) - Answer-Terrorists used prepaid cards Tiny sums difficult to track: anonymity Result: stricter rules on virtual currencies, prepaid cards