Anti-Money Laundering Certificate Exam Graded A+ 2023

Money Laundering - ANSWER-The process of making dirty money look clean. Criminals disguise the source of funds, changing the form or moving the money to a place where it is less likely to attract attention. The process of money laundering can be broken down into three stages: Placement, Layering and Integration. UN 2000 Convention Against Transnational Organized Crime - "Palermo Convention" def. of Money Laundering - ANSWER-1. The conversion of property for the concealment of its origin 2. The concealment of the true nature of the property 3. The acquisition/use of property All three need: KNOWING it was derived from a criminal offense Importance of "KNOWING" in money laundering - ANSWER-You have to prove knowing in money laundering. The intent and knowledge required to prove the offense of money laundering includes the concept that such a mental state may inferred from "objective factual circumstances." Willful Blindness - ANSWER-This is the deliberate avoidance of knowledge of the facts or purposeful indifference and have held that willful blindness is the equivalent of actual knowledge of the illegal source of funds or the intentions of a customer in a money laundering transaction. Difference of ML and Terrorist Financing - ANSWER-The funds destined for money laundering are derived from criminal activities while the funds of terrorist financing may include funds from perfectly legitimate sources. Concealment of funds used for terrorism is primarily designed to hide the purpose for which these funds are used, rather than their source. Placement - ANSWER-Stage one of money laundering. This is the physical disposal of cash or other assets derived from criminal activity. During this phase the money launderer introduces the illicit proceeds into the financial system. Often, this is accomplished by placing the funds into circulation through formal financial institutions, casinos, and other legitimate businesses, both domestic and international. Placement techniques - ANSWER-1. Blending of funds 2. Foreign Exchange 3. Breaking up amounts 4. Currency smuggling 5. Loans Blending of funds - ANSWER-Co-mingling of illegitimate funds with legitimate funds such as placing the cash from illegal narcotics sales into cash-intensive locally owned restaurant. Breaking up amounts - ANSWER-Placing cash in small amounts and depositing them into numerous bank accounts in an attempt to evade reporting requirements. Currency smuggling - ANSWER-cross-border physical movement of cash or monetary instrucments Loans used for Placement - ANSWER-Repayment of legitimate loans using laundered cash Layering - ANSWER-The separation of illicit proceeds from their source by layers of financial transactions intended to conceal the origin of the proceeds. This stage involves converting the proceeds of crime into another form and making it difficult to find the origin and beneficial owners. Examples of Layering - ANSWER-1. Electronically moving funds from one country to another and dividing them into advanced financial options or markets 2. Moving funds from one financial institution to another or within accounts at the same institution 3. Converting the cash placed into monetary instruments 4. Reselling high value goods and prepaid access/stored value products. 5. Investing in real estate and other legitimate businesses 6. Using shell companies to obscure the ultimate beneficial owner and assets. Integration - ANSWER-Third stage of money laundering. This stage is the part where the money tries to become legitimate to illicit wealth through the re-entry of the funds into the economy in what appears to be normal business or personal transactions. This stage provides a launderer the opportunity to increase his wealth with the proceeds of crime. Examples of Integration - ANSWER-1. Purchasing luxury assets like property, artwork, jewelry, or high end automobiles. 2. Getting into financial arrangements or other ventures where investments can be made in business enterprises Economic/Social Risks of Money Laundering - ANSWER-1. Increased exposure to Organized Crime and Corruption 2. Undermining the Legitimate private sector 3. Weakening financial institutions 4. Dampening Effect on Foreign Investments 5. Loss of control of, or mistakes, in decisions regarding economic policy 6. Economic distortion and instability 7. Loss of tax revenue 8. Risks to privatization efforts 9. Reputation Risk for the Country 10. Risk of International Sanctions 11. Social Costs 12. Reputation Risk 13. Operational Risk 14. Legal Risk 15. Concentration Risk Banks - Electronic Transfers of Funds - ANSWER-This is a transfer of funds that is initiated by electronic means such as an ACH, ATM, electronic terminals, mobile telephones, or telephones or magnetic tapes. Indicators the Electronic Transfers of Funds are related to money laundering - ANSWER-1. Funds transfers that occur to or from financial secrecy havens, geographical risk areas, or when activity is inconsistent with the customer's business history 2. Large, incoming funds transfers that are received on behalf of a foreign client with little or no explanation or apparent reason 3. Many small, incoming transfers that are made using checks and money orders. Upon credit to the account, all or most of the transfers or deposits are wired to another account in a different geographic location in a manner inconsistent with the customer's business or history. 4. Funds activity that is unexplained, repetitive or shows unusual patterns. 5. Payments or receipts are received that have no apparent link to legitimate contracts, goods or services. 6. Funds transfers that are sent or received from the same person to or from different accounts. Remote Deposit Capture (RDC) - ANSWER-RDC is a product offered by banks that allows customers to scan a check and transmit an electronic image to the bank for deposit. Potential Abuse of RDC for ML - ANSWER-RDC leads itself to potential abuse by money launderers as he or she no longer needs to go into the bank and risk detection. Correspondent Banking - ANSWER-This is the provision of banking services by one bank (The Correspondent Bank) to another bank (Respondent Bank). This is used sp banks can undertake international financial transactions for themselves and for their customers in jurisdictions where they have no physical presence. Correspondent Banking Vulnerability to ML - ANSWER-1. By its nature, correspondent banking relationships create a situation in which a financial institution carries out financial transactions on behalf of customers of another institution of which they have not verified the identities of nor obtained any first-hand knowledge. 2. The increase of money that flows through correspondent accounts can pose a significant threat as they process large volumes of transactions for their customers customers making it more difficult to identify 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. Payable Through Accounts (PTAs) - ANSWER-In some correspondent relationships, the respondent bank's customers are permitted to conduct their own transactions through the respondent's banks correspondent account without first clearing the transactions through the respondent bank. This is different in that the foreign bank's customers have the ability to directly control funds at the correspondent bank. Elements of PTA's that threaten the correspondent bank's money laundering defenses - ANSWER-1. PTAs with foreign institutions licensed in offshore financial service centers with weak or nascent bank supervision and licensing laws. 2. PTA arrangements where the correspondent bank regards the respondent bank as its sole customer and fails to apply its CDD policies and procedures to the customers of the respondent bank. 3. PTA arrangements in which sub-account holders have currency deposit and withdrawal privileges 4. PTAs used in conjunction with subsidiary representative or other office of the respondent bank, which may enable the respondent bank to offer the same services as a branch without being subject to supervision. Concentration Accounts - ANSWER-These 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 do this by aggregating funds from several locations into one centralized account. Risks Associated with Concentration Accounts - ANSWER-Money laundering risks arise if the customer-identifying information is separated from the financial transaction. If separation occurs, the audit trail is lost and accounts may be misused or administered improperly. Implementation of what for Concentration Accounts? - ANSWER-1. Requiring dual signatures on general ledger tickets 2. Prohibiting direct customers access to concentration accounts. 3. Capturing customer transactions in the customer's accounts statements. 4. Prohibiting customers' knowledge of concentration accounts or their ability to direct employees to conduct transactions through the accounts. 5. Retaining appropriate transaction and customer identifying information. 6. Reconciling accounts frequently by an individual who is independent from the transactions. 7. Establishing a timely discrepancy resolution process. 8. Identifying and monitoring recurring customer names. Private Bankingeduced transparency. - ANSWER-Private banking provides highly personalized and confidential products and services to wealthy clients at fees that are often based on "asset under management." Private banking often operates semi-autonomously from other parts of a bank. Vulnerabilities of Private Banking related to ML - ANSWER-A culture of secrecy and discretion and intense competition and perceived high profitability. Private Investment Companies (PIC) - ANSWER-PICs are corporations established by individual bank customers and others in offshore jurisdictions to hold assets. They are "shell companies" formed to maintain client's confidentiality and for various tax or trust related reasons. Excellent money laundering vehicles. Politically Exposed Persons (PEPs) - ANSWER-Iindividuals who are or have been entrusted with prominent public functions by a country 1. Foreign PEPs 2. Domestic PEPs Structuring - ANSWER-Designing a transaction to evade triggering a reporting or record-keeping requirement. Smurfing - ANSWER-A type of structuring. This involves multiple individuals making multiple cash deposits or buying multiple monetary instruments or bank drafts in amounts under the reporting threshold in attempt to evade detection. Microstructuring - ANSWER-This is the same as structuring expect that it is done at a much smaller level. Instead of two deposits of $9000 each there would be 20 deposits of approximately $900. Methods of detecting Microstructuring - ANSWER-1. The use of counter deposit slips as opposed to preprinted deposit slips. 2. Frequent activity in an account immediately following the opening of the account with only preliminary and incomplete documentation. 3. Frequent visits to make cash deposits of nominal amounts that are inconsistent with typical business or personal banking activity. 4. Cash deposits followed by ATM withdrawals, particularly in higher risk countries. Cash deposits made into business accounts by third parties with no apparent connection to the company. Credit Unions and Building Societies - ANSWER-They are not-for-profit member-owned and operated democratic financial co-operatives. Credit Card Industry - ANSWER-1. Credit Card Associations 2. Issuing banks that issue credit cards 3. Acquiring banks which process transactions for merchants who accept credit cards 4. TPPs Third-Party Payment Processors (TPPs) - ANSWER-They are generally bank customers that provide payment-processing services to merchants and other business entities and often use their commercial bank accounts to conduct payment processing for their merchant clients. (often not subject to any AML/CFT requirements. Traditionally TPPs contracted with US merchants that had physical locations in the United States in order to help collect monies owned by customers. These merchant transactions primarily included credit card payments and also Automated Clearing House (ACH) . Considering that a financial institution maintains a relationship with the TPPP and not the underlying merchant, it becomes difficult for the financial institution to know on whose behalf it is processing a transaction. Money Servicing Business (MSB) - ANSWER-MSBs transmit or converts currencies. Such businesses usually provide currency exchange, money transmission, check-cashing, and money order services. MSBs are the following: dealer in foreign exchange, check cashier, issuer of traveler's checks or money orders, money transmitter, provider and seller of prepaid access US Postal Service. Dealer in Foreign Exchange - ANSWER-They provide currency exchange services and typically operate along international borders, airports, or near communities with high populations of foreign individuals Check Casher - ANSWER-MSB may cash checks for consumers and/or commercial business. In addition to check cashing, these MSBs may also provide other financial services so their customers can pay bills, purchase money orders or transmit funds domestically or internationally. Issuer of Traveler's Checks of Money Orders - ANSWER-T=The issuer of a money order or traveler's check is responsible for the payment of the item and often uses agents to sell the negotiable items Money Trasmitter - ANSWER-They accept currency or funds for the purpose of transferring those funds electronically through a financial agency. (i.e. PayPal or MoneyGram or Western Union) Provider and Seller of Prepaid Access - ANSWER-Referred to as stored value in the sense that providers arrange for access to funds that have been paid in advance and can be retrieved or transferred at some point in the future. They are two types Open Loop Prepaid Cards - ANSWER-They can be used for purchases at any merchant that accepts cards issued for use on the payment network associated with the card. Usually these are branded with the network logo such as American Express, Visa, MasterCard