• Money Laundering
    What is money laundering?

    Money laundering is the taking of criminal proceeds and disguising their illegal sources in order to use the funds to perform legal or illegal acts.

  • Three Stages in the Money Laundering Cycle
    Give an example of the second stage of money laundering.

    Electronically moving funds from one country to another; moving funds from one financial institution to another; and converting the cash placed into the system into monetary instruments.

  • Three Stages in the Money Laundering Cycle
    Give an example of the third stage of money laundering.

    Purchasing luxury assets like property, artwork, jewelry or high-end automobiles; and investing in business enterprises.

  • Three Stages in the Money Laundering Cycle
    Give an example of the first stage of money laundering.

    Commingling illegitimate funds with legitimate ones; making foreign exchange transactions with illegal funds; and depositing small amounts of cash into various accounts.

  • Individual Accountability
    What does the Yates memo say?

    The Yates memo, issued by then-Deputy Attorney General Sally Yates of the Department of Justice, reminds prosecutors that criminal and civil investigations into corporate misconduct should also focus on individuals who perpetrated the wrongdoing.

  • Electronic Transfers of Money
    What are some indicators of money laundering using electronic transfers of funds?

    Funds transfers to or from a financial secrecy haven; large, incoming fund transfers from a foreign client with little or no explanation or apparent reason; and fund transfers that have no apparent link to legitimate business.

  • Remote Deposit Capture
    What is remote deposit capture and what risk is associated with it?

    Remote deposit capture is a product offered by banks that allows customers to scan a check and transmit an electronic image to the bank for deposit. The risk associated with it is that it enables a money launderer to deposit checks without having to visit the bank and risk detection.

  • Payable Through Accounts
    What are some of the money laundering risks pertaining to the use of payable through accounts (PTAs)?

    PTAs with foreign institutions licensed in offshore centers with each bank supervision; PTAs where the respondent bank (the foreign bank) fails to conduct adequate customer due diligence; and PTAs where the sub-account holders have currency deposit and withdrawal privileges.

  • Concentration Accounts
    What is a money laundering risk pertaining to the use of concentration accounts?

    The primary money laundering risk pertaining to the use of concentration accounts is the fact that the customer-identifying information may not be included, making the audit trail difficult or impossible to follow.

  • PEPs
    What is a PEP and what is the primary risk in dealing with a PEP?

    A PEP is a “politically exposed person,” meaning a person who has or has had a prominent government or quasi-public position in a country. The primary risk in dealing with a PEP is that the source of funds from a PEP may be from corruption.

  • Structuring
    What is structuring?

    Structuring involves taking a large cash deposit and breaking it into smaller amounts to be deposited into separate banks, separate accounts or on separate days in order to avoid currency transaction reports.

  • Credit Cards
    Which money laundering stage(s) are credit cards most likely to be used and what is an example of money laundering through the use of credit cards?

    Credit cards are not likely to be used in the initial placement of money laundering. They are more likely to be used in the layering or integration stages of money laundering. One example of using credit cards for money laundering purposes is overpaying a credit card balance and then asking for a refund. Receiving a check from the reputable credit card company makes it look like the funds received are legitimate.

  • Third-Party Payment Processors
    What are some of the risks posed by Third-Party Payment Processors (TPPPs)?

    Multiple financial institution relationships whereby the TPPP’s suspicious activity cannot be seen in its entirety by one institution; engaging in ACH transactions from overseas whereby the suspicious transactions get hidden by the large number of other transactions the TPPP engages in; and the possibility of the return rates stemming from unauthorized transactions are higher than average.

  • Money Services Businesses
    What are some ways Money Services Businesses can be used for money laundering?

    Cashing checks without obtaining adequate proof of identity; failing to file Currency Transaction Reports when required; and transmitting funds overseas without sufficient due diligence.

  • Securities Broker-Dealers
    What are some of the aspects associated with securities broker-dealers that increase the risk of money laundering?

    Its international nature; the speed of their transactions; the ease of converting holdings into cash without significant loss of principal; the large volume of wires used; the competitive, commission-driven environment; the practice of maintaining securities accounts in the name of nominees or trusts; and weak AML programs.

  • Casinos
    What are some red flags associated with casinos and gambling?

    Paying off gambling debts in cash just under the reporting requirements; purchasing chips, but engaging in minimal gambling and then cashing the chips back in; using the gambling house for banking-like financial services, including wiring funds overseas; betting on both “red” and “black” spaces in roulette; and purchasing chips with cash just under the reporting requirements.

  • Dealers in High-Value Items
    What were two of the key findings by FATF in its report on “Money Laundering/Terrorist Financing Risks and Vulnerabilities Associated With Gold,” issued in July, 2015?

    The fact that gold is an extremely attractive vehicle for laundering money due to the fact that it is relatively compact and easy to transport; and the fact that the gold market is a target for criminal activity because it is lucrative and holds its value regardless of the form it takes.

  • Travel Agencies
    List ways in which a travel agency could be used to launder money.

    Purchasing an expensive airline ticket and then asking for a refund; paying for travel tours with multiple wires just under the reporting threshold; and creating false bookings through tour operator networks to justify significant payments from foreign travel groups.

  • Gatekeepers
    Name various ways that a gatekeeper – an attorney, notary, accountant or auditor – could assist in a money laundering scheme.

    Creating and managing corporate vehicles or other complex legal arrangements; buying or selling property as a cover for transfers of illegal funds; performing financial transactions, including making deposits, withdrawing funds, engaging in foreign exchange operations, buying or selling stock and sending international wires; and setting up or managing a charity.

  • Gatekeepers
    What is the primary concern with regard to the use of gatekeepers?

    The primary concern with regard to the use of gatekeepers – attorneys, notaries, accountants and auditors – is the fact that they can be used to enhance secrecy and to keep hidden the beneficial owner of an account or transaction.

  • Real Estate
    List reasons why real estate can be an attractive method of money laundering, according to the 2015 report by the Australian Transaction Reports and Analysis Centre (AUSTRAC).

    It can be purchased with cash; the ultimate beneficial owner can be disguised; it is a relatively stable and reliable investment; and the value can be increased through renovations and improvements.

  • Trade-Based Money Laundering
    What are two of the most common money laundering techniques involved with trade-based money laundering?

    Over and under invoicing.

  • Black Market Peso Exchange
    In summary form, how does the black market peso exchange (BMPE) work in laundering money?

    As an example, the drug trafficker sells drugs for US dollars in the US and – in order to avoid smuggling the US dollars back to Mexico – the trafficker gives the proceeds to a “peso broker.” The broker finds businesses in Mexico that want to buy goods in the US. Then the broker buys the US goods with US dollars and has the goods shipped to Mexico. The business in Mexico pays the broker in Mexico in pesos and the broker then gives the pesos – minus a fee – to the drug traffickers.

  • New Products and Services
    What are some of the money laundering risks pertaining to the use of pre-paid bank cards or reasons why they are attractive to money launderers?

    Some of the risks of pre-paid bank cards include: anonymous card holders; anonymous funding; high value limits; global access to cash through ATMs; lax offshore jurisdictions issuing the cards; and the cards being a substitute for bulk-cash smuggling.

  • New Products and Services
    What are some of the risks listed by FATF in its 2010 report titled “Guidance For A Risk-Based Approach Prepaid Cards, Mobile Payments And Internet-Based Payment Services”?

    Some of the risks on new products and services, according to FATF, include anonymity; geographic reach; alternative to physical cross-border transportation; easy access to cash; and the fact that several entities are required to issue prepaid cards – the program manager, issuer, acquirer, payment network, distributor and agents – that may be hard to all supervise or monitor.

  • Virtual Currency
    What is one of the primary concerns with regard to the use of virtual currencies?

    One of the primary concerns with regard to the use of virtual currencies is the fact that beneficial ownership information may be difficult to obtain.

  • Terrorist Financing
    What are some emerging risk for Terrorist Financing?

    Self-funding by foreign terrorist fighters; terrorists raising funds through the use of social media; new payment products and services; and exploitation of natural resources;

  • Money Laundering
    What is the concept of willful blindness?

    The concept of willful blindness is the “deliberate avoidance of knowledge of the facts” or “purposeful indifference,” and is the equivalent of actual knowledge.

  • Correspondent Banking
    What are the two main reasons correspondent banking is vulnerable to money laundering?

    • 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
    • The amount of money that flows through correspondent accounts 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.
  • Concentration Accounts
    What is a concentration account?

    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, 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.

  • Structuring
    Describe microstructuring.

    Designing a transaction to evade triggering a reporting or recordkeeping requirement is called “structuring.” Microstructuring is essentially the same as structuring, except that 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.

  • Insurance
    How can the early redemption method on insurance policies be used to launder money?

    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.

  • Dealers in High Value Items
    How can art and antiques dealers and auctioneers mitigate their money laundering risks?

    • 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.
    • If there is reason to believe an item might be stolen, immediately 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.
  • Investment and Commodity Advisers
    Describe several ways commodity futures and options accounts may be susceptible to money laundering.

    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 with no relation to the client,
    • 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
    Describe the type of services to third parties that any person or business provides on a professional basis to participate in the creation, administration, or management of corporate vehicles.

    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,
    • Acting as (or arranging for another person to act as) a director or secretary of a company, a partner of a partnership, or a similar position in relation to other legal persons,
    • Providing a registered office, business address or correspondence for a company, a partnership or any other legal person or arrangement,
    • Acting as (or arranging for another person to act as) a trustee of an express trust, and
    • Acting as (or arranging for another person to act as) a nominee shareholder for another person.
  • Shell Companies
    According to a 2001 report, “Money Laundering in Canada: An Analysis of RCMP Cases,” what are the four related reasons to establish or control a shell company for money laundering purposes?

    • Shell companies accomplish the objective of converting the cash proceeds of crime into alternative assets,
    • Through the use of shell companies, the launderer can create the perception that illicit funds have been generated from a legitimate source,
    • Once a shell company is established, a wide range of legitimate and/or bogus business transactions can be used to further the laundering process, and
    • Shell companies can also be effective in concealing criminal ownership. Nominees can be used as owners, directors, officers or shareholders.
  • Trusts
    What is the significance of a trust account, whether offshore or onshore, in the context of money laundering?

    The significance of a trust account — whether onshore or offshore — in the context of money laundering cannot be understated: It can be used as part of the first step in converting illicit cash into less suspicious assets; it can help hide criminal ownership of funds or other assets; and it is often an essential link between different money laundering vehicles and techniques, such as real estate, shell and active companies, nominees and the deposit and transfer of criminal proceeds.

  • Bearer Bonds
    Why are bearer bonds and bearer stock certificates prime vehicles for money laundering?

    Bearer bonds and bearer stock certificates, or “bearer shares,” are prime money laundering vehicles because they belong, on the surface, to the “bearer.” When bearer securities are transferred, because there is no registry of owners, the transfer takes place by physically handing over the bonds or share certificates. Bearer shares offer lots of opportunities to disguise their legitimate ownership.

  • Terrorist Financing
    What is the most basic difference between terrorist financing and money laundering?

    The most basic difference between terrorist financing and money laundering involves the origin of the funds. Terrorist financing uses funds for an illegal political purpose, but the money is not necessarily derived from illicit proceeds. On the other hand, money laundering always involves the proceeds of illegal activity. The purpose of laundering is to enable the money to be used legally.

  • Terrorist Financing
    What general characteristics of terrorist financing can a financial institution look at to avoid becoming conduits for terrorist financing?

    FATF’s report entitled “Guidance for Financial Institutions in Detecting Terrorist Financing” published April 24, 2002 describes general characteristics of terrorist financing that a financial institution can look at to avoid becoming conduits for terrorist financing, including:

    • (a) Use of an account as a front for a person with suspected terrorist links,
    • (b) Appearance of an accountholder’s name on a list of suspected terrorists,
    • (c) Frequent large cash deposits in accounts of non-profit organizations,
    • (d) High volume of transactions in the account, and
    • (e) Lack of a clear relationship between the banking activity and the nature of the accountholder’s business.
  • Hawala and Other Informal Value Transfer Systems
    Why are hawalas attractive to terrorist financiers?

    Hawalas are attractive to terrorist financiers because they, unlike formal financial institutions, are not subject to formal government oversight and do not keep detailed records in a standard form. Although some hawaladars do keep ledgers, their records are often written in idiosyncratic shorthand and are maintained only briefly.

  • Charities or Non-Profit Organizations
    What characteristics of charities or non-profit organizations make them particularly vulnerable to misuse for terrorist financing?

    • Enjoying the public trust,
    • Having access to considerable sources of funds,
    • Being cash-intensive,
    • Frequently having a global presence, often in or next to those areas that are exposed to terrorist activity, and
    • Often being subject to little or no regulation and/or having few obstacles to their creation.
  • Economic and Social Consequences of Money Laundering
    Describe four types of risk associated with money laundering faced by a financial institution.

    • 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 events.
    • 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.
  • Three Stages in the Money Laundering Cycle
    Describe the three phases of money laundering.

    • 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 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.
  • Correspondent Banking
    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.

    Section 312, which requires institutions to set up risk based due diligence to mitigate the money laundering risks posed by foreign financial institutions. Section 313, which prohibits U.S. financial institutions from opening or maintaining correspondent accounts for foreign shell banks and requires them 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(b), which requires U.S. financial institutions to maintain records of the identity of the owners of foreign banks for which they maintain correspondent accounts.

  • Private Banking
    What factors may contribute to the vulnerabilities of private banking with regard to money laundering?

    • Perceived high profitability,
    • Intense competition,
    • Powerful clientele,
    • The high level of confidentiality associated with private banking,
    • The close relationship of trust developed between relationship managers and their clients,
    • 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.
  • Money Remitters and Money Exchange Houses
    What is one of the most important aspects of due diligence for a bank when establishing a relationship with a money remitter?

    Ensuring the money remitter is properly licensed.

  • Insurance
    How can the free-look period be used to launder money?

    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 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.

  • Trusts
    How does having a lawyer as a trustee on an account at a financial institution create vulnerabilities to money laundering at an institution?

    Lawyers often serve as trustees by holding money or assets “in trust” for clients. This enables lawyers to conduct transactions and to administer the affairs of a client. Sometimes, the illicit money is placed in a law firm’s general trust account in a file set up in the name of the client, a nominee, or a company controlled by the client.

  • Vehicle Sellers
    Identify three ways money laundering can occur through vehicle sellers.

    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:

    • Structuring cash deposits below the reporting threshold, or purchasing 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.
  • Economic and Social Consequences of Money Laundering
    What are the economic effects of money laundering?

    • 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, and
    • Social costs.