Financial Crimes Compliance
questions and answers
Define a search warrant and describe how it is issued. - correct answer ✔✔ Granted permission
from a court, for a law enforcement agency to search designated premises and to seize specific
categories of items or documents. Generally, the requesting agency is required to establish that
probable cause exists that evidence of a crime will be located. This document is authorized
based on information contained in an affidavit submitted by a law enforcement officer.
Describe the three phases of money laundering. - correct answer ✔✔ • Placement-introducing
cash or other assets derived from criminal activity into legitimate businesses/financial
institutions.
• Layering - moving cash/assets to create "distance" between the illicit source of proceeds by
layers of financial transactions intended to conceal it's origins .
• Integration - 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.
Describe four types of risk associated with
money laundering faced by a financial institution. - correct answer ✔✔ • Reputational risk - the
potential of adverse publicity regarding an organization's business practices and associations,
will cause a loss of public confidence in the integrity of the organization.
• Operational risk - the potential for loss resulting from inadequate internal processes,
personnel or systems or from external events.
• Legal risk - 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 - the potential for loss resulting from too much credit or loan exposure to
one borrower or group of borrowers.
What are the economic effects of money laundering? - correct answer ✔✔ • Loss of control of,
or mistakes in, decisions regarding economic policy
• Economic distortion and instability
• Loss of tax revenue
• Risks to privatization efforts,
• Reputation risk for the country
• Social costs
What are the two main reasons correspondent
banking is vulnerable to money laundering? - correct answer ✔✔ • The bank provides services
for individuals or entities for which it has neither verified the identities nor obtained any first‐
hand knowledge
• It is more difficult to identify the suspicious transactions, as the financial institution generally
does not have the information on the actual parties conducting the transaction to know
whether they are unusual.
Identify and describe the three sections of the USA Patriot Act concerning due diligence U.S.
financial institutions need to perform for relationships with foreign correspondent banking
customers. - correct answer ✔✔ Section 312-Risk Based Approach. Institutions must set up risk
based due diligence to mitigate the money laundering risks posed by foreign financial
institutions.
Section 313-Shell Bank Prohibition. U.S. financial institutions cannot open or maintain
correspondent accounts for foreign shell banks. Requires FIs to take "reasonable steps" to
ensure that a correspondent account of a foreign bank is not being used indirectly to provide
banking services to a shell bank.
,Section 319-Recordkeeping. 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.
What is a concentration account? - correct answer ✔✔ 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, suspense, intraday, sweep or collection accounts. These accounts are frequently
used to facilitate transactions for private banking, trust and custody accounts, funds transfers
and international affiliates.
What factors may contribute to the vulnerabilities of private
banking with regard to money laundering? - correct answer ✔✔ • Perceived high profitability
• Intense competition
• Powerful clientele
• The high level of confidentiality associated with private banking
• The close relationship of trust developed w/RMs and their clients
• Commission‐based compensation for RMs
• A culture of secrecy and discretion developed by the RMs for their clients
• The RMs become client advocates to protect their clients.
Describe microstructuring. - correct answer ✔✔ Essentially the same as structuring, except it is
done at a much smaller level. This level of structuring is more difficult to detect.
Ex: Instead of taking $18,000 and breaking it into two deposits, the money launderer might
break it into 20 deposits of approximately $900 each.
According to FATF, what three circumstances should
be kept in mind when dealing with possible cuckoo smurfing
, activity? - correct answer ✔✔ • The existence of these deposits is not necessarily grounds to
end the relationship with a customer
• It could be the indicator of laundering, therefore it should be examined carefully
• 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 relationship with a money remitter? - correct answer
✔✔ The most important factoring in establishing the relationship is ensuring the entity is
properly licensed
According to FATF's paper called "Risk‐Based Approach Guidance for Casinos," what are the
potential transaction risks for land‐based and internet casinos? - correct answer ✔✔ Casinos
should consider operational aspects (i.e. products, services, games, and accounts/account
activities) that can be used to facilitate money laundering and terrorist financing
activities. In addition, land‐based and Internet casinos have the following potential transaction
risks:
• Proceeds of crime,
• Cash,
• Transfers between customers,
• Loan sharking,
• Use of casino deposit accounts, and
• Redemption of chips, tickets, or tokens for currency.
How can the early redemption method on insurance policies be used to launder money? -
correct answer ✔✔ 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.
questions and answers
Define a search warrant and describe how it is issued. - correct answer ✔✔ Granted permission
from a court, for a law enforcement agency to search designated premises and to seize specific
categories of items or documents. Generally, the requesting agency is required to establish that
probable cause exists that evidence of a crime will be located. This document is authorized
based on information contained in an affidavit submitted by a law enforcement officer.
Describe the three phases of money laundering. - correct answer ✔✔ • Placement-introducing
cash or other assets derived from criminal activity into legitimate businesses/financial
institutions.
• Layering - moving cash/assets to create "distance" between the illicit source of proceeds by
layers of financial transactions intended to conceal it's origins .
• Integration - 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.
Describe four types of risk associated with
money laundering faced by a financial institution. - correct answer ✔✔ • Reputational risk - the
potential of adverse publicity regarding an organization's business practices and associations,
will cause a loss of public confidence in the integrity of the organization.
• Operational risk - the potential for loss resulting from inadequate internal processes,
personnel or systems or from external events.
• Legal risk - 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 - the potential for loss resulting from too much credit or loan exposure to
one borrower or group of borrowers.
What are the economic effects of money laundering? - correct answer ✔✔ • Loss of control of,
or mistakes in, decisions regarding economic policy
• Economic distortion and instability
• Loss of tax revenue
• Risks to privatization efforts,
• Reputation risk for the country
• Social costs
What are the two main reasons correspondent
banking is vulnerable to money laundering? - correct answer ✔✔ • The bank provides services
for individuals or entities for which it has neither verified the identities nor obtained any first‐
hand knowledge
• It is more difficult to identify the suspicious transactions, as the financial institution generally
does not have the information on the actual parties conducting the transaction to know
whether they are unusual.
Identify and describe the three sections of the USA Patriot Act concerning due diligence U.S.
financial institutions need to perform for relationships with foreign correspondent banking
customers. - correct answer ✔✔ Section 312-Risk Based Approach. Institutions must set up risk
based due diligence to mitigate the money laundering risks posed by foreign financial
institutions.
Section 313-Shell Bank Prohibition. U.S. financial institutions cannot open or maintain
correspondent accounts for foreign shell banks. Requires FIs to take "reasonable steps" to
ensure that a correspondent account of a foreign bank is not being used indirectly to provide
banking services to a shell bank.
,Section 319-Recordkeeping. 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.
What is a concentration account? - correct answer ✔✔ 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, suspense, intraday, sweep or collection accounts. These accounts are frequently
used to facilitate transactions for private banking, trust and custody accounts, funds transfers
and international affiliates.
What factors may contribute to the vulnerabilities of private
banking with regard to money laundering? - correct answer ✔✔ • Perceived high profitability
• Intense competition
• Powerful clientele
• The high level of confidentiality associated with private banking
• The close relationship of trust developed w/RMs and their clients
• Commission‐based compensation for RMs
• A culture of secrecy and discretion developed by the RMs for their clients
• The RMs become client advocates to protect their clients.
Describe microstructuring. - correct answer ✔✔ Essentially the same as structuring, except it is
done at a much smaller level. This level of structuring is more difficult to detect.
Ex: Instead of taking $18,000 and breaking it into two deposits, the money launderer might
break it into 20 deposits of approximately $900 each.
According to FATF, what three circumstances should
be kept in mind when dealing with possible cuckoo smurfing
, activity? - correct answer ✔✔ • The existence of these deposits is not necessarily grounds to
end the relationship with a customer
• It could be the indicator of laundering, therefore it should be examined carefully
• 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 relationship with a money remitter? - correct answer
✔✔ The most important factoring in establishing the relationship is ensuring the entity is
properly licensed
According to FATF's paper called "Risk‐Based Approach Guidance for Casinos," what are the
potential transaction risks for land‐based and internet casinos? - correct answer ✔✔ Casinos
should consider operational aspects (i.e. products, services, games, and accounts/account
activities) that can be used to facilitate money laundering and terrorist financing
activities. In addition, land‐based and Internet casinos have the following potential transaction
risks:
• Proceeds of crime,
• Cash,
• Transfers between customers,
• Loan sharking,
• Use of casino deposit accounts, and
• Redemption of chips, tickets, or tokens for currency.
How can the early redemption method on insurance policies be used to launder money? -
correct answer ✔✔ 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.
