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• Placement is the physical disposal of cash or other assets derived
from criminal activity.
• Layering is the separation of illicit proceeds from their source by
layers of financial transactions intended to conceal the origin of the
Describe the three phases of money laundering.
proceeds.
• Integration is supplying apparent legitimacy to illicit wealth
through the re‐entry of the funds into the economy in what appears
to be normal business or personal transactions.
• Reputational risk is described as the potential that adverse publicity
regarding an organization's business practices and associations, whether
accurate or not, will cause a loss of public confidence in the integrity of the
organization.
• Operational risk is described as the potential for loss resulting from
inadequate internal processes, personnel or systems or from external
Describe four types of risk associated with events.
money laundering faced by a financial institution. • Legal risk is the potential for lawsuits, adverse judgments, unenforceable
contracts, fines and penalties generating losses, increased expenses for an
organization, or even the closure
of the organization.
• Concentration risk is the potential for loss resulting from
too much credit or loan exposure to one borrower or
group of borrowers.
• Loss of control of, or mistakes in, decisions regarding economic
policy,
• Economic distortion and instability,
What are the economic effects of money laundering? • Loss of tax revenue,
• Risks to privatization efforts,
• Reputation risk for the country, and
• Social costs.
• By their nature, correspondent banking relationships create a
situation in which a financial institution carries out financial
transactions on behalf of customers of another institution. This
indirect relationship means that the correspondent bank provides
services for individuals or entities for which it has neither verified
the identities nor obtained any first‐hand knowledge, and
What are the two main reasons correspondent
• The amount of money that flows through correspondent accounts
banking is vulnerable to money laundering?
can pose a significant threat to financial institutions, as they process
large volumes of transactions for their customers' customers. This
makes it more difficult to identify the suspect transactions, as the
financial institution generally does not have the information on the
actual parties conducting the transaction to know whether they are
unusual.
Section 312 requires institutions must set up risk based due
diligence to mitigate the money laundering risks posed by foreign
Identify and describe the three sections of the USA Patriot
financial institutions.
Act concerning due diligence U.S. financial institutions need
Section 313, which prohibits U.S. financial institutions from opening
to perform for relationships with foreign correspondent
or maintaining correspondent accounts for foreign shell banks and
banking customers.
requires them to take "reasonable steps" to ensure that a
correspondent account of a foreign bank is not being used indirectly
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to provide banking services to a shell bank.
Section 319, which requires U.S. financial institutions to maintain
records with the names and address of the owners of foreign banks
for which they maintain correspondent accounts.
Concentration accounts are internal accounts established to
facilitate the processing and settlement of multiple or individual
customer transactions within the bank, usually on the same day.
These accounts are also known as special‐use, omnibus, settlement,
What is a concentration account?
suspense, intraday, sweep or collection accounts. Concentration
accounts are frequently used to facilitate transactions for private
banking, trust and custody accounts, funds transfers and
international affiliates.
• Perceived high profitability,
• Intense competition,
• Powerful clientele,
• The high level of confidentiality associated with private banking,
• The close relationship of trust developed between relationship
What factors may contribute to the vulnerabilities of private
managers and their clients,
banking with regard to money laundering?
• Commission‐based compensation for relationship managers,
• A culture of secrecy and discretion developed by the relationship
managers for their clients, and
• The relationship managers becoming client advocates to protect their
clients.
Designing a transaction to evade triggering a reporting or
recordkeeping requirement is called "structuring."
Microstructuring is essentially the same as structuring, except that
Describe microstructuring. it is done at a much smaller level. Instead of taking $18,000 and
breaking it into two deposits, the microstructurer might break it
into 20 deposits of approximately $900 each. This level of
structuring makes it extremely difficult to detect
The existence of these deposits is not necessarily grounds to
reconsider the relationship with a customer.
According to FATF, what three circumstances should • It could be the indicator of laundering, therefore it should be
be kept in mind when dealing with possible cuckoo smurfing examined carefully.
activity? • Law enforcement will need information on the depositor, so
banks should seek to identify cash deposits made by third parties
and should retain surveillance footage.
What is one of the most important aspects of
due diligence for a bank when establishing a Ensuring the money remitter is properly licensed.
relationship with a money remitter?
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
How can the free‐look period be used to launder money? launderer to get an insurance check, which represents cleaned
funds. However, as more insurance companies are subject to AML
program requirements, this type of money laundering is more
readily detected and reported
How can the early redemption method on insurance policies
be used to launder money?
, CAMS
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One indicator of possible money laundering is when a potential
policyholder is more interested in the cancellation terms of a policy
than the benefits of the policy. The launderer buys a policy with
illicit money and then tells the insurance company that he has
changed his mind and does not need the policy. After paying a
penalty, the launderer redeems the policy and receives a clean
check from a respected insurer.
• Require all art vendors to provide names and addresses. Ask that
they sign and date a form that states that the item was not stolen
and that they are authorized to sell it.
• Verify the identities and addresses of new vendors and
customers.
How can art and antiques dealers and auctioneers • If there is reason to believe an item might be stolen, immediately
mitigate their money laundering risks? contact the Art Loss Register (www. artloss.com), the world's
largest private database of stolen art.
• Look critically when a customer asks to pay in cash.
• Be aware of money laundering regulations.
• Appoint a senior staff member to whom employees can
report suspicious activities.
The industry defined as "vehicle sellers" includes sellers and brokers of new
vehicles, such as automobiles, trucks, and motorcycles; new aircraft,
including fixed wing airplanes and helicopters; new boats and ships, and
used vehicles. Laundering risks and ways laundering can occur through
vehicle sellers include:
Identify three ways money laundering can occur
• Structuring cash deposits below the reporting threshold, or purchasing
through vehicle sellers.
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,
• Accepting third‐party payments, particularly from jurisdictions with
ineffective money laundering controls.
There are several ways commodity and futures accounts are susceptible to money
laundering, including:
• Withdrawal of assets through transfers to unrelated accounts or to
high‐risk countries,
• Frequent additions to or withdrawals from accounts,
• Checks drawn on, or wire transfers from, accounts of third parties
Describe several ways commodity futures and options
with no relation to the client,
accounts may be susceptible to money laundering
• Clients who request custodial arrangements that allow them
to remain anonymous,
• Transfers of funds to the adviser for management followed by transfers to
accounts at other institutions in a layering scheme,
• Investing illegal proceeds for a client, and
• Movement of funds to disguise their origin.
Trust and company service providers (TCSP) include those persons and
entities that, on a professional basis, participate in the creation,
administration or management of corporate vehicles. They refer to
any person or business that provides any of the following services
to third parties:
• Acting as a formation agent of legal persons,
Study online at https://quizlet.com/_ikfz5l
• Placement is the physical disposal of cash or other assets derived
from criminal activity.
• Layering is the separation of illicit proceeds from their source by
layers of financial transactions intended to conceal the origin of the
Describe the three phases of money laundering.
proceeds.
• Integration is supplying apparent legitimacy to illicit wealth
through the re‐entry of the funds into the economy in what appears
to be normal business or personal transactions.
• Reputational risk is described as the potential that adverse publicity
regarding an organization's business practices and associations, whether
accurate or not, will cause a loss of public confidence in the integrity of the
organization.
• Operational risk is described as the potential for loss resulting from
inadequate internal processes, personnel or systems or from external
Describe four types of risk associated with events.
money laundering faced by a financial institution. • Legal risk is the potential for lawsuits, adverse judgments, unenforceable
contracts, fines and penalties generating losses, increased expenses for an
organization, or even the closure
of the organization.
• Concentration risk is the potential for loss resulting from
too much credit or loan exposure to one borrower or
group of borrowers.
• Loss of control of, or mistakes in, decisions regarding economic
policy,
• Economic distortion and instability,
What are the economic effects of money laundering? • Loss of tax revenue,
• Risks to privatization efforts,
• Reputation risk for the country, and
• Social costs.
• By their nature, correspondent banking relationships create a
situation in which a financial institution carries out financial
transactions on behalf of customers of another institution. This
indirect relationship means that the correspondent bank provides
services for individuals or entities for which it has neither verified
the identities nor obtained any first‐hand knowledge, and
What are the two main reasons correspondent
• The amount of money that flows through correspondent accounts
banking is vulnerable to money laundering?
can pose a significant threat to financial institutions, as they process
large volumes of transactions for their customers' customers. This
makes it more difficult to identify the suspect transactions, as the
financial institution generally does not have the information on the
actual parties conducting the transaction to know whether they are
unusual.
Section 312 requires institutions must set up risk based due
diligence to mitigate the money laundering risks posed by foreign
Identify and describe the three sections of the USA Patriot
financial institutions.
Act concerning due diligence U.S. financial institutions need
Section 313, which prohibits U.S. financial institutions from opening
to perform for relationships with foreign correspondent
or maintaining correspondent accounts for foreign shell banks and
banking customers.
requires them to take "reasonable steps" to ensure that a
correspondent account of a foreign bank is not being used indirectly
,CAMS
Study online at https://quizlet.com/_ikfz5l
to provide banking services to a shell bank.
Section 319, which requires U.S. financial institutions to maintain
records with the names and address of the owners of foreign banks
for which they maintain correspondent accounts.
Concentration accounts are internal accounts established to
facilitate the processing and settlement of multiple or individual
customer transactions within the bank, usually on the same day.
These accounts are also known as special‐use, omnibus, settlement,
What is a concentration account?
suspense, intraday, sweep or collection accounts. Concentration
accounts are frequently used to facilitate transactions for private
banking, trust and custody accounts, funds transfers and
international affiliates.
• Perceived high profitability,
• Intense competition,
• Powerful clientele,
• The high level of confidentiality associated with private banking,
• The close relationship of trust developed between relationship
What factors may contribute to the vulnerabilities of private
managers and their clients,
banking with regard to money laundering?
• Commission‐based compensation for relationship managers,
• A culture of secrecy and discretion developed by the relationship
managers for their clients, and
• The relationship managers becoming client advocates to protect their
clients.
Designing a transaction to evade triggering a reporting or
recordkeeping requirement is called "structuring."
Microstructuring is essentially the same as structuring, except that
Describe microstructuring. it is done at a much smaller level. Instead of taking $18,000 and
breaking it into two deposits, the microstructurer might break it
into 20 deposits of approximately $900 each. This level of
structuring makes it extremely difficult to detect
The existence of these deposits is not necessarily grounds to
reconsider the relationship with a customer.
According to FATF, what three circumstances should • It could be the indicator of laundering, therefore it should be
be kept in mind when dealing with possible cuckoo smurfing examined carefully.
activity? • Law enforcement will need information on the depositor, so
banks should seek to identify cash deposits made by third parties
and should retain surveillance footage.
What is one of the most important aspects of
due diligence for a bank when establishing a Ensuring the money remitter is properly licensed.
relationship with a money remitter?
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
How can the free‐look period be used to launder money? launderer to get an insurance check, which represents cleaned
funds. However, as more insurance companies are subject to AML
program requirements, this type of money laundering is more
readily detected and reported
How can the early redemption method on insurance policies
be used to launder money?
, CAMS
Study online at https://quizlet.com/_ikfz5l
One indicator of possible money laundering is when a potential
policyholder is more interested in the cancellation terms of a policy
than the benefits of the policy. The launderer buys a policy with
illicit money and then tells the insurance company that he has
changed his mind and does not need the policy. After paying a
penalty, the launderer redeems the policy and receives a clean
check from a respected insurer.
• Require all art vendors to provide names and addresses. Ask that
they sign and date a form that states that the item was not stolen
and that they are authorized to sell it.
• Verify the identities and addresses of new vendors and
customers.
How can art and antiques dealers and auctioneers • If there is reason to believe an item might be stolen, immediately
mitigate their money laundering risks? contact the Art Loss Register (www. artloss.com), the world's
largest private database of stolen art.
• Look critically when a customer asks to pay in cash.
• Be aware of money laundering regulations.
• Appoint a senior staff member to whom employees can
report suspicious activities.
The industry defined as "vehicle sellers" includes sellers and brokers of new
vehicles, such as automobiles, trucks, and motorcycles; new aircraft,
including fixed wing airplanes and helicopters; new boats and ships, and
used vehicles. Laundering risks and ways laundering can occur through
vehicle sellers include:
Identify three ways money laundering can occur
• Structuring cash deposits below the reporting threshold, or purchasing
through vehicle sellers.
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,
• Accepting third‐party payments, particularly from jurisdictions with
ineffective money laundering controls.
There are several ways commodity and futures accounts are susceptible to money
laundering, including:
• Withdrawal of assets through transfers to unrelated accounts or to
high‐risk countries,
• Frequent additions to or withdrawals from accounts,
• Checks drawn on, or wire transfers from, accounts of third parties
Describe several ways commodity futures and options
with no relation to the client,
accounts may be susceptible to money laundering
• Clients who request custodial arrangements that allow them
to remain anonymous,
• Transfers of funds to the adviser for management followed by transfers to
accounts at other institutions in a layering scheme,
• Investing illegal proceeds for a client, and
• Movement of funds to disguise their origin.
Trust and company service providers (TCSP) include those persons and
entities that, on a professional basis, participate in the creation,
administration or management of corporate vehicles. They refer to
any person or business that provides any of the following services
to third parties:
• Acting as a formation agent of legal persons,
