Term
| (Credit Card) Acquiring Bank |
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Definition
| Processes transactions for merchants who accept credit cards |
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Term
| (Credit Card) Issuing Bank |
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Definition
| Solicits potential customers and issues the credit cards |
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Term
| (Credit Card) Third Party Processor |
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Definition
| Firm that contracts with issuing or acquiring banks to provide transactions processing and other credit card-related services for the bank |
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Term
| According to FATF's Recommendations (2012), what are the designated thresholds for transactions under Recommendations 10, 22, and 23? |
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Definition
| FATF also designated specific thresholds that trigger AML scrutiny. For example, the threshold that financial institutions should monitor for occasional customers is €15,000 [Recommendation 10]; for casinos, including Internet casinos, it is €3,000 [Recommendation 22]; and for dealers in precious metals, when engaged in any cash transaction, it is €15,000 [Recommendation 22‐23]. |
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Term
| According to FATF, what three circumstances should be kept in mind when dealing with possible cuckoo smurfing activity? |
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Definition
- The existence of these deposits is not necessarily grounds to reconsider 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.
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Term
| According to Section 312 of the USA Patriot Act, the due diligence program for correspondent and private banking accounts must address what three measures? |
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Definition
The due diligence program for foreign correspondent and private banking accounts for non‐U.S. persons must include “appropriate, specific and risk‐based,” and, where necessary, enhanced policies, procedures and controls reasonably designed to identify and report suspected money laundering in a correspondent account maintained in the United States. This due diligence program must also be included in the institution’s anti‐money laundering program. The due diligence program must address three measures:
- Determining whether enhanced due diligence is necessary,
- Assessing the money laundering risk presented by the correspondent account,
- Applying risk‐based procedures and controls reasonably designed to detect and report suspected money laundering.
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Term
| 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? |
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Definition
- 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.
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Term
| According to the Egmont Group, what is the definition of a Financial Intelligence Unit (FIU)? |
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Definition
| In 1996, based on the work of its Legal Working Group, Egmont approved a definition of an FIU. It was amended in 2004 to reflect the FIUs’ role in combating terrorism financing as follows: (a) A central, national agency responsible for receiving (and, as permitted, requesting), analyzing and disseminating to the competent authorities, disclosures of financial information, (b) Concerning suspected proceeds of crime and potential financing of terrorism, and (c) Required by national legislation or regulation, in order to combat money laundering and terrorism financing. |
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Term
| According to the FATF 40 Recommendations, the complete set of countermeasures against money laundering and terrorist financing covers what 5 elements? |
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Definition
• The identification of risks and development of appropriate policies,
• The criminal justice system and law enforcement,
• The financial system and its regulation,
• The transparency of legal persons and arrangements, and
• International cooperation. |
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Term
| According to the Wolfsberg Anti‐Money Laundering Principles for Private Banking (2000), what are situations for private banking that require further due diligence? |
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Definition
• Public officials, including individuals holding, or having held, positions of public trust, as well as their families and close associates,
• High‐risk countries, including countries “identified by credible sources as having inadequate anti‐money laundering standards or representing high‐risk for crime and corruption, ” and
• High‐risk activities, involving clients and beneficial owners whose source of wealth “emanates from activities known to be susceptible to money laundering. |
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Term
Account Monitoring Order
(UK & several other countries) |
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Definition
| An order from a government authority requiring a financial institution to provide transaction information on a suspect account for a specific time. |
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Term
Agent
(Insurance Industry) |
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Definition
Refers to where the agent is acting under a contractual arrangement with the insurer to carry out its CDD functions. (I.e the agent is regarded as synonymous with the insurer)
[FAFC Risk based approach - Guidance for the Life Insurance Sector - Oct 2009] |
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Term
| Alternative Remittance System (ARS) |
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Definition
| Underground banking or informal value transfer system. Often associated with ethnic groups from the Middle East, Africa or Asia, and commonly involves the transfer of values among countries outside of the formal banking system. The remittance entity can be an ordinary shop selling goods that has an arrangement with a correspondent business in another country. There is usually no physical movement of currency and a lack of formality in regard to verification and record-keeping. The money transfer takes place by coded information that is passed through chits, couriers, letters or faxes, followed by telephone confirmations. Almost any document that carries an identifiable number can be used by the receiver to pick up the values in the other country. The systems are referred to by different names depending upon the country: Hawala (an Urdi word meaning "reference"), Hundi (a Hindi word meaning "trust"), Chiti banking (referring to the way the system operates), Chop Shop banking (China), and Poey Kuan (Thailand). |
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Term
| Anti-Money Laundering International Database (AMLID) |
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Definition
| A compendium of analyses of money laundering laws and regulations, including two general classes of money laundering control measures—domestic laws and international cooperation—as well as information on national contacts and authorities. A secure, multilingual database, AMLID is an important reference tool for law enforcement officers involved in cross-jurisdictional work. See www.imolin.org. |
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Term
| Anti-Money Laundering Program |
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Definition
The system designed to assist institutions in their fight against money laundering and terrorist financing. In many jurisdictions, government regulations require financial institutions, including banks, securities dealers and money services businesses,
to establish such programs. At a minimum, the anti-money laundering program should include:
1. Written internal policies, procedures and controls;
2. A designated AML compliance officer;
3. On-going employee training; and
4. Independent review to test the program. |
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Term
| Are the costs of non‐compliance with anti‐money laundering laws and regulations limited to fines and penalties levied by regulators? |
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Definition
| The cost of the fines and penalties levied by regulators due to non‐compliance with anti‐money laundering laws and regulations is only part of the overall expense. Significant additional costs include legal bills, potential loss of business due to reputational damage, extensive compliance review charges, consulting fees, costs for system and other compliance program enhancements, as well as the opportunity costs as the compliance staff and others will be spending the bulk of their time addressing the consent order. |
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Term
| As considered by the UN and the OECD, these are jurisdictions that have no or low tax rates, and do not attract real business or foreign investment |
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Definition
| Harmful or Preferential Tax Regimes |
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Term
| Asia/Pacific Group on Money Laundering (APG) |
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Definition
| A Financial Action Task Force (FATF)-style regional body consisting of jurisdictions in the Asia/Pacific Region. See www.apgml.org. |
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Term
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Definition
| A person appointed through a written contract by a company or trust to direct the entity's investment program. The program can be a fully discretionary account, or the contract can impose limitations on it. Fees to the asset manager can be based on performance achieved, trading commissions or a percentage of the valuation of the estate under his or her management. High fees and a close relationship with the owners or beneficiaries can expose the asset manager to potential conflicts between a duty to report unusual or suspicious activity and the fiduciary duty to the client. |
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Term
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Definition
| A process that includes reorganizing how assets are held so as to make them less vulnerable should a claim be made against a person. Asset protection is also a term used by tax planners for measures taken to protect assets from taxation in other jurisdictions. |
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Term
| Asset Protection Trusts (APTs) |
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Definition
| A special form of irrevocable trust usually created (i.e. settled) offshore for the principal purposes of preserving and protecting part of one's wealth from creditors. Title to the asset is transferred to a person named the trustee. APTs are generally used for asset protection and are usually tax neutral. Their ultimate function is to provide for the beneficiaries. Some proponents advertise APTs as allowing foreign trustees to ignore U.S. court orders and to simply transfer the trust to another jurisdiction in response to legal action threatening the trust's assets (so-called "flying trusts"). |
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Term
| Automated Clearing House (ACH) |
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Definition
| An electronic banking network that processes large volumes of both credit and debit transactions that originate in batches. ACH credit transfers include direct deposit payroll payments and payments to contractors and vendors. ACH debit transfers include consumer payments on insurance premiums, mortgage loans and other kinds of expenses. The system is used for bulk orders made days in advance—for example, a large corporation's entire payroll. Both governments and commercial sectors can utilize the ACH system. ACH payments are commonly small, recurring and submitted in bulk by well established users, and are not practical for money laundering. |
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Term
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Definition
| Vulnerable to money laundering because it represents a reputable international monetary instrument drawn on a reputable institution, and is often made payable—in cash—upon presentation and at the issuing institution's account in another country. |
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Term
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Definition
| Refers to laws and regulations in countries that prohibit banks from disclosing information about an account—or even revealing its existence—without the consent of the account holder. Impedes the flow of information across national borders among financial institutions and their supervisors. Article 4 of the FATF's 40 Recommendations of 2003 states that countries should ensure that financial institutions' secrecy laws do not inhibit implementation of the FATF Recommendations. |
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Term
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Definition
| The primary U.S. anti-money laundering regulatory statute (Title 31, U.S. Code Sections 5311-5355) enacted in 1970 and most notably amended by the USA Patriot Act in 2001. Among other measures, it imposes money laundering controls on financial institutions and many other businesses including the requirement to report and keep records of various financial transactions. |
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Term
| Bank Secrecy Act (BSA) Compliance Program |
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Definition
| A program that U.S.-based financial institutions—as defined by the Bank Secrecy Act—are required to establish and implement in order to control money laundering and related financial crimes. The program's components include at a minimum: The development of internal policies, procedures and controls; the designation of a compliance officer; an ongoing employee training program; and an independent audit function to test the program. |
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Term
| Bank for International Settlements (BIS) |
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Definition
| An international organization that serves as a bank for central banks and which fosters international monetary and financial cooperation with the purpose of attaining stability in the world economy. It hosts the Secretariat of the Basel Committee on Banking Supervision. The Committee has formulated broad supervisory standards and guidelines on Know Your Customer issues. See www.bis.org. |
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Term
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Definition
| Also known as a dry, formal, naked, passive, or simple trust, in which the trustees have no duties other than to convey the trust property to beneficiaries when called upon to do so. Bare trusts are vulnerable to money laundering, since the final beneficiary is unknown. |
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Term
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Definition
| A guidance paper on customer due diligence for banks issued by the Basel Committee on Banking Supervision (BCBS) in October 2001. The paper includes sound Know Your Customer policies and procedures that according to the Committee are critical to protecting the safety and soundness of banks and the integrity of banking systems. See www.bis.org/bcbs. |
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Term
| Basel Committee on Banking Supervision (BCBS) |
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Definition
| The Basel Committee was established by the G-10's central bank of governors in 1974 to promote sound supervisory standards worldwide. Its secretariat is appointed by the Bank for International Settlements in Basel, Switzerland. It has issued, among others, papers on Customer Due Diligence for Banks, Consolidated KYC Risk Management, and Sharing of financial records among jurisdictions in connection with the fight against terrorist financing. See www.bis.org/bcbs. |
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Term
Basel Committee's "Customer Due Diligence for Banks"
When verifying a unit's compliance with KYC policies and procedures, the home country supervisors or auditors should do what? |
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Definition
| Review customer files and conduct random sampling of acounts |
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Term
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Definition
| A type of data processing and data communications transmission in which related transactions are grouped together and transmitted for processing, usually by the same computer and under the same application. |
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Term
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Definition
| Transfer comprising a number of individual wire transfers that are sent to the same financial institution, and which may be ultimately intended for different persons. |
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Term
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Definition
| In relation to a certificate, share transfer or other document, a bearer form enables a designated investment or deposit to be sold, transferred, surrendered or addressed in any other way without the need to obtain further written instructions. |
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Term
| Bearer Negotiable Instruments |
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Definition
| Include monetary instruments in bearer form such as: travelers checks; negotiable instruments (including checks, promissory notes, and money orders) that are either in bearer form, endorsed without restriction, made out to a fictitious payee, or are otherwise in such form that title thereto passes upon delivery; incomplete signed instruments (including checks, promissory notes, and money orders), with the payee's name omitted. |
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Term
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Definition
| Negotiable instruments that accord ownership in a corporation to the person who is in physical possession of the bearer share certificate. |
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Term
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Definition
| A negotiable corporate share certificate made out to "Bearer" and not in the name of an individual or organization. |
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Term
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Definition
| Also called a nominee account. Held by one person or entity on behalf of another or others, Benami accounts are associated with the hawala underground banking system of the Indian subcontinent. A person in one jurisdiction seeking to move funds through a hawaladar to another jurisdiction may use a Benami account or Benami transaction to disguise his/her true identity or the identity of the recipient of the funds. |
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Term
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Definition
| The natural person who ultimately owns or controls a customer and/or the person on whose behalf a transaction is being conducted. It also incorporates those persons who exercise ultimate effective control over a legal person or arrangement. |
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Term
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Definition
| All trusts (other than charitable or statutory-permitted noncharitable trusts) must have beneficiaries, which may include the settlor. Trusts must also include a maximum time frame, known as the "perpetuity period," which normally extends up to 100 years. While trusts must always have some ultimately ascertainable beneficiary, they may have no defined existing beneficiaries. Trusts may only have objects of a power until some person becomes entitled as beneficiary to income or capital on the expiry of a defined period, known as the "accumulation period." The latter period is normally coextensive with the trust perpetuity period, which is usually referred to in the trust deed as the "trust period". |
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Term
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Definition
| The science of identifying features that distinguish one person from another. Fingerprinting, voice recognition and iris (eye) scans are three forms of biometrics technology that may some day render pen-to-paper signatures outdated. Certain institutions use biometrics to verify the identity of their customers. With the advent of customer identification regulations, biometric tools may become more common in financial institutions. |
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Term
| Black Market Peso Exchange (BMPE) |
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Definition
| The principal and preferred money laundering method of the Colombian drug cartels. Money derived from illegal activity in the U.S. is purchased by "peso brokers" from criminals in other countries and often deposited in U.S. bank accounts that the broker has established. The brokers sell checks and wire transfers drawn on those accounts to legitimate businesses that use them to purchase goods and services in the U.S. |
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Term
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Definition
| A type of company designed to be used by private corporations intending to issue publicly traded shares through "reverse mergers" without the high expenses involved in making their own initial public offering. Blank check companies often have few assets, engage in little business activity, and have no business plan or experienced management. |
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Term
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Definition
| Plays a comparable role to that of a stockbroker, but in the gambling industry. For a fee, a bookmaker holds money for a person who gambles. Bookmakers are vulnerable to money laundering, since launderers may offer their customers money for winning betting slips, often 7 to 10 percent above the value of the winnings. The launderer then collects clean money from the bookmaker. |
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Term
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Definition
| A place of business that forms a legally dependent part of a financial institution and carries out directly all or some of the transactions inherent in the business of that financial institution. |
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Term
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Definition
Also called "casa de cambio" or "exchange office," a bureau
de change offers a range of services that are attractive to money launderers: currency exchange and consolidation of small denomination bank notes into larger ones; exchange of financial instruments such as travelers checks, money orders and personal checks; and telegraphic transfer facilities. In some countries, such businesses are not as heavily scrutinized for money laundering as are traditional financial institutions. Also, their customers are often occasional, making it more difficult for these businesses to "know their customers." |
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Term
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Definition
A scheme in which the use or extension of credit is obtained and is increased fraudulently while the perpetrators avoid having to pay back the illegally obtained credit or goods. Typically, a bust-out ring will operate a shell or front business that accepts credit purchases on stolen or fraudulently obtained credit cards. The criminals run the cards or numbers through credit card terminals, but either do not provide any goods or services or provide stolen or non-licensed goods. The innocent credit card company credits the account of the front business. Before the transactions can be reversed, the criminals have moved the funds from the accounts of the front business.
The cardholders who knowingly participate in these bust-out schemes generally refuse to pay the credit card companies for their "purchases." These people have either obtained cards with fraudulent or stolen identification or otherwise cannot be found. Bust-out schemes have been very popular in creating large bankruptcy frauds in which business entities secure loans in excess of the actual value of the company or property and then disappear with the money, leaving the lender to take a substantial loss. |
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Term
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Definition
| See Customer Due Diligence. |
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Term
| CDPC (French: Comité Européen pour les Problèmes Criminels) |
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Definition
| European Committee on Crime Problems of the Council of Europe. A subcommittee of the CDPC is MONEYVAL, formerly PC-R-EV, the select committee of experts on the evaluation of anti-money laundering measures in European countries that are not members of FATF. |
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Term
|
Definition
| Countering the Financing of Terrorism one may also see "CTF" (Counter Terrorist Financing) |
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Term
| CICAD (Spanish: Comisión Interamericana para el Control del Abuso de Drogas) |
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Definition
| See Organization of American States—Inter-American Drug Abuse Control Commission. |
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Term
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Definition
| Person to whom a financial transaction card is issued, or an additional person authorized to use the card. |
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Term
| Caribbean Financial Action Task Force (CFATF) |
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Definition
| A FATF-style regional body comprising Caribbean states, including Aruba, the Bahamas, the British Virgin Islands, the Cayman Islands and Jamaica. See www.cfatf.org. |
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Term
| Cash Collateralized Loans |
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Definition
| A cash collateralized loan has cash deposits as the loan's collateral. The cash deposits can sometimes reside in another jurisdiction. |
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Term
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Definition
| Sums of money placed in a financial institution's accounts. Vulnerable to money laundering in the "placement phase," as criminals move their cash into the non-cash economy by making deposits into accounts at financial institutions. |
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Term
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Definition
| Any business in which customers usually pay with cash for the products or services provided, such as restaurants, pizza delivery services, taxi firms, coin-operated machines or car washes. Some money launderers run or use cash-based businesses to commingle illegally obtained funds with cash actually generated by the business. |
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Term
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Definition
| Common monetary instrument often purchased with cash. Used for laundering purposes, cashier's checks provide an instrument drawn on a reputable institution, such as a bank or credit union. |
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Term
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Definition
A formal assertion in writing which, under the USA Patriot Act, is used by U.S. regulators in different contexts, including a written statement by a respondent bank signed by its duly authorized representative certifying that the bank does not do business with shell banks (under Section 313 of the USA Patriot Act). It can also be a written representation provided by a U.S. federal agent stating that the matter for which he or she is seeking information from financial institutions under Sec. 314(a) of the USA Patriot Act regulations is linked to money laundering or terrorist financing. |
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Term
|
Definition
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Term
| Characteristics of an "Open System Stored Value Card" |
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Definition
| Often co-branded by financial institution; may have VISA or MasterCard logos; can be reloadable; usually can access ATMs for withdrawals globally; non customers can buy them |
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Term
|
Definition
| See Alternative Remittance System. |
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Term
|
Definition
| See Alternative Remittance System. |
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Term
|
Definition
| Also called an "omnibus" or "concentration account." Held by a financial institution in its name, a clearing account is used primarily for internal administrative or bank-to-bank transactions in which funds are transmitted and commingled without personally identifying the originators. The USA Patriot Act prohibits the use of such accounts for customer transactions. |
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Term
Closed-end Mutual Fund
(or Company) |
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Definition
| A fund set up by an investment trust that issues a fixed number of shares to its investors. As such, the market price of the shares fluctuates - often selling at a premium or discount to the fund's net asset value (NAV). |
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Term
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Definition
Immigrants from foreign countries deposit many small amounts of currency into one account where they reside, and the collected sum is transferred to an account in their home country without documentation of the sources of the funds. Certain ethnic groups from Asia or Africa may use collection accounts to launder money. |
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Term
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Definition
The sum of the knowledge held separately by a financial institution's directors, officers and employees regarding a certain issue, customer or account. The notion of collective knowledge can be used to suggest corporate responsibility for compliance and liability for non-compliance. For example, the financial institution's knowledge is the totality of what all of the employees know within the scope of their employment. So, if Employee A knows one facet of a customer's information, B knows another facet of it, and C a third facet of it, the institution knows all the facets of the customer's information. |
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Term
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Definition
| Also known as letters rogatory, commission rogatoires are written requests for legal or judicial assistance sent by the central authority of one country to the central authority of another when seeking evidence from the foreign jurisdiction. The letter typically specifies the nature of the request, the relevant criminal charges in the requesting country, the legal provision under which the request is made, and the information sought. |
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Term
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Definition
| Goods such as food, grains and metals that are usually traded in large amounts on a commodities exchange, usually through futures contracts |
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Term
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Definition
| Goods such as food, grains and metals that are usually traded in large amounts on a commodities exchange, usually through futures contracts. |
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Term
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Definition
| Combined funds from various members and uses them to trade in futures or options contracts |
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Term
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Definition
| Operator or solicitor of funds for a commodity pool, which combines funds from members and trades futures or options contracts |
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Term
| Commodity Trading Advisor |
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Definition
| Direct or indorect advisor on buying and selling futures or commodity options |
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Term
| Common types of "Derivatives" |
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Definition
| Futures contracts, forwards, swaps, and options. |
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Term
| Competent Authorities refers to ___________. |
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Definition
| all administrative and law enforcement authorities concerned with combating money laundering and terrorist financing, including the FIU and supervisors. |
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Term
|
Definition
|
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Term
|
Definition
Concentration risk primarily applies to the asset side of the balance sheet. As a common practice, supervisors not only require banks to have information systems to identify credit concentrations, but also set limits to restrict bank exposure to single borrowers or groups of related borrowers. Without knowing exactly who the customers are (through Know Your Customer policies) and their relationship with other customers, the bank is not able to measure its concentration risk, which is particularly relevant in the context of related counter-parties and connected lending. On the liability side, concentration risk is associated with funding risk, especially the risk of early and sudden withdrawal of funds by large depositors that could harm an institution's liquidity. |
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Term
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Definition
Keeping certain facts, data and information out of public
or unauthorized view. In the U.S., U.K. and many other jurisdictions, confidentiality is required when filing suspicious transaction or activity reports — the filing institution's employees cannot notify a customer that a report has been filed. In another context, a breach of confidentiality can occur when an institution discloses client information to enforcement agencies or a financial intelligence unit in violation of the jurisdiction's bank secrecy laws. |
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Term
|
Definition
Includes forfeiture where applicable, and means the permanent deprivation of funds or other assets by order of a competent authority or a court. Confiscation or forfeiture takes place through a judicial or administrative procedure that transfers the ownership of specified funds or other assets to the state. Upon transfer, the person(s) or entity(ies) that held an interest in the specified funds or other assets at the time of the confiscation or forfeiture lose all rights, in principle, to the confiscated or forfeited assets. Confiscation or forfeiture orders are usually linked to a criminal conviction or a court decision whereby the confiscated or forfeited property is determined to have been derived from or intended for use in a violation of the law. Confiscation is a central strategic tool that is required in order to take effective action against money laundering and terrorist financing. It is crucial that criminal justice systems make provisions for efficient and effective methods of tracing, freezing and eventually confiscating proceeds of criminal activity. Mutual legal assistance treaties can provide for confiscation of assets in one jurisdiction based upon prosecutions elsewhere. |
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Term
| Constructive (Involuntary) Trust Liability |
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Definition
The imposition of trustee obligations upon a financial institution deemed to "know" that property in its possession belongs to a person other than its client. A financial institution can face the risk of breach of trust if it handles or transfers the funds in a manner detrimental to the interests of the rightful owner. Anti-money laundering specialists should be especially vigilant when there is suspicion that funds may have been derived from a victim of crime, resulting in the victim's loss of funds or property. |
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Term
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Definition
| Entities such as American Express, MasterCard and VISA, which license member banks to issue bankcards, authorize merchants to accept those cards, or both. |
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Term
| Dematerialization of securities |
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Definition
| The transfer of physical, hard copy security certificates to book entry credits of a security holder's interest. |
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Term
| Describe FATF's Recommendation 1 (2012) on the risk‐based approach. |
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Definition
| Countries should start by identifying, assessing and understanding the money laundering and terrorist financing risks they face. Then they should take appropriate measures to mitigate the identified risks. The risk‐based approach allows countries to target their limited resources in a targeted manner to their own particular circumstances, thereby increasing the efficiency of the preventative measures. Financial institutions should also use the risk‐based approach to identify and mitigate the risks they face. |
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Term
| Describe FATF's Recommendation 15 (2012) on new technologies. |
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Definition
| Countries and financial institutions should assess the risks associated with developments of new products, business practices, delivery mechanisms and technology. Financial institutions should assess these risks prior to launching new products; they should also take appropriate measures to mitigate the risks identified. |
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Term
| Describe FATF's Recommendations 20‐21 (2012) on suspicious transaction reporting and liability. |
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Definition
| The Recommendations say that financial institutions must report to the Financial Intelligence Unit where they suspect or have reasonable grounds to suspect that funds are the proceeds of a criminal activity or are related to terrorist financing. The financial institutions and the employees reporting such suspicions should be protected from liability for reporting and should be prohibited from disclosing that they have reported such activity. |
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Term
| Describe a sound Know Your Employee program. |
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Definition
A Know Your Employee (KYE) program means that the institution has a program in place that allows it to understand an employee’s background, conflicts of interest and susceptibility to money laundering complicity.
Policies, procedures, internal controls, job descriptions, code of conduct/ethics, levels of authority, compliance with personnel laws and regulations, accountability, monitoring, dual control, and other deterrents should be firmly in place. |
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Term
| Describe four types of risk associated with money laundering faced by a financial institution. |
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Definition
• 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 |
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Term
| Describe how the independent audit should review Suspicious Transaction Reporting (STR) systems. |
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Definition
| The independent audit should review Suspicious Transaction Reporting (STR) systems, which should include an evaluation of the research and referral of unusual transactions. Testing should include a review of policies, procedures and processes for referring unusual or suspicious activity from all business lines (e.g., legal, private banking, foreign correspondent banking) to the personnel or department responsible for evaluating unusual activity. |
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Term
| Describe microstructuring. |
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Definition
| 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. |
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Term
| Describe several ways commodity futures and options accounts may be susceptible to money laundering. |
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Definition
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. |
|
|
Term
| Describe the elements that should be addressed in a global approach to KYC identified in the Basel Committee's October 2004 paper called "Consolidated KYC Risk Management." |
|
Definition
The Basel Committee's October 2004 paper called "Consolidated KYC Risk Management" addresses the need for banks to adopt a global approach and to apply the elements necessary for a sound KYC program to both the parent bank or head office and all of its branches and subsidiaries. These elements consist of:
• Risk management,
• Customer acceptance and identification policies, and
• Ongoing monitoring of higher‐risk accounts. |
|
|
Term
| Describe the three phases of money laundering. |
|
Definition
• 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. |
|
|
Term
| 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. |
|
Definition
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. |
|
|
Term
Distrubution Channels
(Insurance Industry) |
|
Definition
The means through which the insurance products and services are provided to a customer.
[FAFC Risk based approach - Guidance for the Life Insurance Sector - Oct 2009] |
|
|
Term
| Downstream Correspondent Clearer |
|
Definition
| A Correspondent Banking Client who receives Correspondent Banking services from an institution and itself provides Correspondent Banking services to other financial institutions in the same currency as the account it maintains with the institution. |
|
|
Term
|
Definition
| A trust clearly created by the settlor, usually in the form of a document, such as a written deed or trust. |
|
|
Term
|
Definition
| Financial Action Task Force |
|
|
Term
FATF Recommendation
--10--
(you do NOT need to know this number for the exam) |
|
Definition
Record retention:
5 years - data to recreate any individual transaction
5 years after relationship ends - all customer identification data |
|
|
Term
FATF Recommendation
--11--
(you do NOT need to know this number for the exam) |
|
Definition
| Financial institutions should pay special attention to (and examine and document) complex, unusual large transactions, and all transactions which have no apparent economic pr lawful purpose. |
|
|
Term
FATF Recommendation
--12--
(you do NOT need to know this number for the exam) |
|
Definition
| The CDD & record-keeping requirements (of Rec 5, 6, 8, & 11) apply to non-financial businesses and professions |
|
|
Term
FATF Recommendation
--13--
(you do NOT need to know this number for the exam) |
|
Definition
| Financial institutions should be required, by law or regulation, to report suspicious activity to their national FIU |
|
|
Term
FATF Recommendation
--14--
(you do NOT need to know this number for the exam) |
|
Definition
| With respect to STR / SAR reporting, financial institutions should be afforded safe harbor, yet barred from any unauthorized disclosures |
|
|
Term
FATF Recommendation
--15--
(you do NOT need to know this number for the exam) |
|
Definition
| Financial institutions should have AML / CFT programs that include approves policies, employee screening & ongoing training, and an audit function to test it all |
|
|
Term
FATF Recommendation
--16--
(you do NOT need to know this number for the exam) |
|
Definition
| Dealing in precious metals / stones, trust and company services providers, layers, notaries and accountants should be all required to report suspicious activity, but legal privilege cannot be violated |
|
|
Term
FATF Recommendation
--17--
(you do NOT need to know this number for the exam) |
|
Definition
| Countries should have effective criminal, civil and administrative sanctions for money laundering or terrorist financing vioolations |
|
|
Term
FATF Recommendation
--18--
(you do NOT need to know this number for the exam) |
|
Definition
| Countries should not allow shell banks. Financial institutions should not have correspondent banking relationships with shell banks or banks that allow shell banks to do business through their accounts. |
|
|
Term
FATF Recommendation
--19--
(you do NOT need to know this number for the exam) |
|
Definition
| Countries should have a central authority to collect suspicious activity and international currency reports. Should have secure computerized data base |
|
|
Term
FATF Recommendation
--20--
(you do NOT need to know this number for the exam) |
|
Definition
| Countries should apply recommendations to any business or profession that poses a money laundering or terrorist financing risk |
|
|
Term
FATF Recommendation
--21--
(you do NOT need to know this number for the exam) |
|
Definition
| Should receive special attention to the relationships or transactions of people, companies, or financial institutions from countries showing little regard for these recommendations |
|
|
Term
FATF Recommendation
--22--
(you do NOT need to know this number for the exam) |
|
Definition
| FATF principles should apply to all branches and subsidiaries of a financial institution, even those abroad. Inability to do so should be reported to parent institution's regulatory / Supervisory authority |
|
|
Term
FATF Recommendation
--23--
(you do NOT need to know this number for the exam)- |
|
Definition
Financial institutions should have adequate supervision and regulation.
Ensure no criminal element in position of control. Money transfer / exchangers should be registered and subjected to monitoring |
|
|
Term
FATF Recommendation
--24--
(you do NOT need to know this number for the exam)- |
|
Definition
| Designated non-financial businesses and professions should be subject to regulatory and supervisory measures. Casinos should prevent criminal ownership, operations or management |
|
|
Term
FATF Recommendation
--27--
(you do NOT need to know this number for the exam)- |
|
Definition
| Countries should design law enforcement authorities with AML/CFT responsibilities and allow them special investigative techniques |
|
|
Term
FATF Recommendation
--28--
(you do NOT need to know this number for the exam)- |
|
Definition
| Competent authorities should have powers of subpoena, search and seizure |
|
|
Term
FATF Recommendation
--29--
(you do NOT need to know this number for the exam) |
|
Definition
| Supervisors should have the power to monitor and ensure compliance, including the ability to compel production of information and to impose sactions |
|
|
Term
FATF Recommendation
--30--
(you do NOT need to know this number for the exam) |
|
Definition
| Competent authorities should be provided with adequate financial human and technological resources. Personnel should be of high integrity. |
|
|
Term
FATF Recommendation
--31--
(you do NOT need to know this number for the exam) |
|
Definition
| Countries should ensure policy makers, the FIU, law enforcement and supervisors have effective mechanisms to enable cooperation |
|
|
Term
FATF Recommendation
--32--
(you do NOT need to know this number for the exam) |
|
Definition
| Countries should maintain comprehensive statistics to gauge effectiveness of their AML and CTF efforts |
|
|
Term
FATF Recommendation
--33--
(you do NOT need to know this number for the exam) |
|
Definition
| Countries should ensure that there is adequate, accurate and timely information on the beneficial ownership and control of legal persons |
|
|
Term
FATF Recommendation
--34--
(you do NOT need to know this number for the exam) |
|
Definition
| Countries should ensure that there is adequate, accurate and timely information on express trust, including information on the settlor, trustee and beneficiaries |
|
|
Term
FATF Recommendation
--35--
(you do NOT need to know this number for the exam) |
|
Definition
| Countries should take immediate steps to become party to and implement fully the relevant international convertions related to AML and CRT efforts |
|
|
Term
FATF Recommendation
--36--
(you do NOT need to know this number for the exam) |
|
Definition
| Provide mutual legal assistance |
|
|
Term
FATF Recommendation
--37--
(you do NOT need to know this number for the exam) |
|
Definition
| Render mutual legal assistance notwithstanding the absence of duel criminality. Where duel criminality is required, classification should be an issue |
|
|
Term
FATF Recommendation
--38--
(you do NOT need to know this number for the exam) |
|
Definition
| Take expeditious action to requests by foreign countries to identify, freeze, seize and confiscate property that is proceeds of money laundering or a predicate crime |
|
|
Term
FATF Recommendation
--39--
(you do NOT need to know this number for the exam) |
|
Definition
| Countries should recognize money laundering as an extraditable offense |
|
|
Term
| FATF Recommendation --09-- (you do NOT need to know this number for the exame) |
|
Definition
| Financial institutions may rely upon intermediaries to perform certain CDD elements provided the intermediary is supervised and regulated. However ultimate responsibility remains with financial institutions |
|
|
Term
| FATF Recommendation --25-- (you do NOT need to know this number for the exam)- |
|
Definition
| Competent authorities should provide guidelines in applying national AML/CFT measures, especially for detecting and reporting suspicious activity |
|
|
Term
| FATF Recommendation --26-- (you do NOT need to know this number for the exam)- |
|
Definition
| Countries should establish national centers to receive and disseminate AML/CFT information and have access to law enforcement and others |
|
|
Term
|
Definition
| The FATF Recommendations are the internationally endorsed global standards against money laundering and terrorist financing: they increase transparency and enable countries to successfully take action against illicit use of their financial system. |
|
|
Term
FATF Recommendations
Examples of non-financial businesses and professionals |
|
Definition
| Casinos, real estate agents, precious metal / precious stone dealers, lawyers, notaries, accountants, and trust & Company services providers |
|
|
Term
| FATF's designated transactional threshold for Casinos (including Internet Casinos) is ____________. |
|
Definition
USD / ERU 3,000
(Interpretive Note to Recommendations 5, 12, and 16) |
|
|
Term
| FATF's designated transactional threshold for Dealers in Precious Metals and / or Precious Stones is ____________. |
|
Definition
USD / ERU 15,000
(Interpretive Note to Recommendations 5, 12, and 16) |
|
|
Term
| FATF's designated transactional threshold for Financial Institutions is ___________. |
|
Definition
USD / ERU 15,000
(Interpretive Note to Recommendations 5, 12, and 16) |
|
|
Term
| Give examples of Vital Services Providers (VSPs) |
|
Definition
| Attorneys, accountants, broker-dealers, communications and transportation providers, bankers and other financial service providers, concealment trap (hiding places) builders, ect |
|
|
Term
| Give examples of white color crime |
|
Definition
| money laundering, bribery, and health care, tax, bankruptcy, securities, or environmental frauds, etc |
|
|
Term
| Guaranteed Introducing Broker" |
|
Definition
| An Introducing broker - dealer with an exclusive written agreement with a Futures Commission Merchant (FCM) that obligates the FCM to the assume responsibility for the introducing broker's performance |
|
|
Term
| How can art and antiques dealers and auctioneers mitigate their money laundering risks? |
|
Definition
• 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. |
|
|
Term
| How can senior management show its commitment to compliance with anti‐money laundering laws and regulations? |
|
Definition
• Establishing a strong compliance plan that is approved by the board of directors and is fully implemented,
• Insisting that it be kept informed of compliance efforts,
audit reports and any compliance failures, with corrective measures instituted,
• Communicating compliance expectations to the institution personnel,
• Including regulatory compliance within the job descriptions and job performance evaluations of institution personnel,
• Implementing procedures, processes and controls to ensure compliance with the AML program, and
• Conditioning employment on regulatory compliance. |
|
|
Term
| How can the early redemption method on insurance policies be used to launder money? |
|
Definition
| 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. |
|
|
Term
| How can the free‐look period be used to launder money? |
|
Definition
| 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. |
|
|
Term
| How did the European Union's Second Directive on Prevention on the Use of the Financial System for the Purpose of Money Laundering (2001) expand the scope of the First Directive? |
|
Definition
| The European Union's Second Directive on Preventation on the Use of the Financial System for the Purpose of Money Laundering (2001) extended the scope of the First Directive beyond drug‐related crimes. The definition of “criminal activity” was expanded to cover not just drug trafficking, but all serious crimes, including corruption and fraud against the financial interests of the European Community. |
|
|
Term
| How do "Hedge Funds" operate? |
|
Definition
| They pool investors' money and invest those funds in financial instruments in a effort to turn a profit. They typically issue securities in "private offerings" that are usually not required to be registered with a securities or financial regulator. |
|
|
Term
| How does "Product Diversion" work? |
|
Definition
Product is purchased with terms that it is going to foreign country A.
While in transit, the product is diverted back to the originating country or to another foreign market where the greatly discounted price provides for extreme profit |
|
|
Term
| How does having a lawyer as a trustee on an account at a financial institution create vulnerabilities to money laundering at an institution? |
|
Definition
| 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. |
|
|
Term
| How does the Caribbean Financial Action Task Force (CFATF) monitor member's implementation of the anti‐money laundering recommendations? |
|
Definition
The CFATF monitors members’ implementation of the anti‐money laundering recommendations identified in the Kingston Declaration through the following activities:
• Self‐assessment of the implementation of the recommendations,
• An ongoing program of mutual evaluation of members,
• Coordination of, and participation in, training and technical assistance programs,
• Biennial plenary meetings for technical representatives, and
• Annual ministerial meetings. |
|
|
Term
| How does the scope of the European Union's Third Money Laundering Directive differ from the Second Money Laundering Directive? |
|
Definition
• It specifically includes the category of trust and company service providers,
• It covers all dealers trading in goods who trade in cash over 15,000 Euros, and
• The definition of financial institution includes certain insurance intermediaries. |
|
|
Term
| How is "Legal Risk" defined by the 2001 Basel Due Diligence Principles? |
|
Definition
| The possibility that lawsuits adverse judgements or contracts that turn out to be unenforceable can disrupt or adversely affect the operation or condition of a financial institution. |
|
|
Term
| How is a private banking account defined under Section 312 of the USA Patriot Act? |
|
Definition
| Under Section 312 of the USA Patriot Act, a private banking account is defined as an account with a minimum aggregate deposit of $1 million for one or more non‐U.S. persons and which is assigned to a bank employee acting as a liaison with the non‐U.S. person. |
|
|
Term
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. |
|
Definition
Section 312 requires institutions must 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, 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. |
|
|
Term
| Identify the basic elements behind the development of an effective anti‐money laundering compliance training program. |
|
Definition
• Who to train,
• What to train on,
• How to train,
• When to train, and
• Where to train. |
|
|
Term
| Identify the responsibilities of the anti‐money laundering compliance officer. |
|
Definition
| A person should be designated as the anti‐money laundering compliance officer. This individual should be responsible for designing and implementing the program, making necessary changes and disseminating information about the program’s successes and failures to key staff members, constructing anti‐money laundering‐related content for staff training programs and staying current on legal and regulatory developments in the field. |
|
|
Term
| Identify the seven specific customer identification issues as identified in the Basel Committee's October 2001 paper called "Customer Due Diligence for Banks." |
|
Definition
• Trust, nominee and fiduciary accounts,
• Corporate vehicles, particularly companies with nominee shareholders or entities with shares in bearer form,
• Introduced businesses,
• Client accounts opened by professional intermediaries, such as “pooled” accounts managed by professional intermediaries on behalf of entities such as mutual funds, pension funds and money funds,
• Politically exposed persons,
• Non‐face‐to‐face customers, i.e., customers who do not present themselves for a personal interview, and
• Correspondent banking. |
|
|
Term
| Identify the seven topics of international standards incorporated into the FATF 40 Recommendations (2012). |
|
Definition
• AML/CFT policies and procedures [Recommendations 1‐2],
• Money laundering and confiscation [Recommendations 3‐4],
•Terrorist financing and financing of proliferation [Recommendations 5‐8],
• Financial and non‐financial institution preventative measures [Recommendations 9‐23],
• Transparency and beneficial ownership of legal persons and arrangements [Recommendations 24‐25],
• Powers and responsibilities of competent authorities and other institutional measures [Recommendations 26‐35], and
• International cooperation [Recommendations 36‐40]. |
|
|
Term
| Identify the three important tasks that FATF focuses on. |
|
Definition
• Spreading the anti‐money laundering message worldwide,
• Monitoring implementation of the FATF Recommendations among FATF members, and
• Reviewing money laundering trends and countermeasures. |
|
|
Term
| Identify three ways money laundering can occur through vehicle sellers. |
|
Definition
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. |
|
|
Term
| Identify, in general, who should approve policies and procedures. |
|
Definition
| Policies and procedures should be in writing, and must be approved by appropriate levels of management. In general, institution‐level policies should be approved by the board, while business unit procedures can be approved by business unit management. |
|
|
Term
| In 2009, FATF began to publicly identify high risk jurisdictions. What made the named jurisdictions high risk? |
|
Definition
| The named countries had strategic deficiencies in their AML/CFT regimes. |
|
|
Term
In Emerging Money Laundering Risk, what 3 areas are associated with
Contractual Transactions"? |
|
Definition
Real Estate
Insurance Transactions
Trade-Based Money Laundering |
|
|
Term
| In Emerging Money Laundering Risk, what 3 methods are identified as "Funds Transfers"? |
|
Definition
Stolen Money Cards
Mobile Payments
Internet Payments |
|
|
Term
| Introducing Broker-Dealers in Commodities (IB-C) |
|
Definition
| Firm or person that solicits and accepts commodity futures orders from customers but does not accept funds. Two types of IB-Cs: guaranteed and independent |
|
|
Term
|
Definition
| A contemporaneous record of the steps, observations, evidence, findings and decisions of an investigation. |
|
|
Term
|
Definition
| Person who, for compensation, provides advice on securities and investments and manages client assets |
|
|
Term
Legal Arrangements
(Insurance Industry) |
|
Definition
Refers to express trusts or other simular legal arrangements, such as fiducie (French), treuhand (German), and fideicomiso (Spain).
[FAFC Risk based approach - Guidance for the Life Insurance Sector - Oct 2009] |
|
|
Term
|
Definition
| A person who transfers stolen money (or merchandise) from one country to another, often as a result of online scams. Transfers can be done electronically, via mail or courier service, or in person. |
|
|
Term
|
Definition
| Also called a Benami account. Held by one person or entity on behalf of another or others, Nominee accounts are associated with the hawala underground banking system of the Indian subcontinent. A person in one jurisdiction seeking to move funds through a hawaladar to another jurisdiction may use a Nominee account or Benami transaction to disguise his/her true identity or the identity of the recipient of the funds. |
|
|
Term
|
Definition
| Account established by a domestic banking institution to receive deposits from, make payments on, behave of, or handle other financial transactions for a foreign financial institution, usually in the foreign financial instution's currency. |
|
|
Term
| Open Source Stored Value Card |
|
Definition
| A prepaid card that is linked to the global funds network, which can allow for worldwide ATM withdrawls and purchases with many merchants |
|
|
Term
Open-end Mutual Fund
(or Company) |
|
Definition
A fund set up by an investment trust in which the number of shares can fluctuate as investors' move in and out of the fund. Share price moves in direct porporation to the net asset value of the underlying investments
(no premium or discount) |
|
|
Term
| Options" / "Options Contract |
|
Definition
| The right, but not the obligation to buy or sell a set amount of something, such as a share or commodity, at a set price after a set expiration date. |
|
|
Term
|
Definition
| An electronic quotation system that displays quotes of many securities traded over the counter. |
|
|
Term
|
Definition
Underground banking or informal value transfer systems. Often associated with ethnic groups from the Middle East, Africa or Asia, and commonly involves the transfer of values among countries outside of the formal banking system. The remittance entity can be an ordinary shop selling goods that has an arrangement with a correspondent business in another country. There is usually no physical movement of currency and a lack of formality with regard to verification and record- keeping. The money transfer takes place by coded information that is passed through chits, couriers, letters or faxes, followed by telephone confirmations. Almost any document that carries an identifiable number can be used by the receiver to pick up the values in the other country. The systems are referred to
by different names depending upon the country: Hawala (an Arabic word meaning "change" or "transform"), Hundi (a Hindi word meaning "collect"), Chiti banking (referring to the way the system operates), Chop Shop banking (China), and Poey Kuan (Thailand). |
|
|
Term
|
Definition
|
A professional responsible for the securities portfolio of an individual or institutional investor. In return for a fee, the manager has the responsibility of choosing and managing assets. |
|
|
Term
|
Definition
| An cooperative property seller agrees to sell home at a well below market reported price, then accepts the difference "under the table". When launderer later sells house, he recognizes "gain" and all the funds appear legitimate as it is sold at market |
|
|
Term
|
Definition
| Self Regulatory Organizations |
|
|
Term
|
Definition
| Quite simply - a plan. While in the US, this term is often associated with a nefarious plan, it should NOT be assumed to be evil, especially as it may appear on the ACAMS exam |
|
|
Term
|
Definition
| The world's largest private database of stolen art. |
|
|
Term
| The international Monetary fund estimates that laundered funds comprise __________ of the world's gross domestic product. |
|
Definition
2% to 5%
($590 billion to 1.5 trillion) |
|
|
Term
| Transparency International |
|
Definition
| Berlin based, non-governmental organization with goal of improving government accountability and curbing national and international corruption |
|
|
Term
True or False
According to FATF, financial transactions above a designated threshold must occur in an single operation. |
|
Definition
FALSE
They may include situations where the transaction takes place in a single operation or in several operations that appeared to be linked |
|
|
Term
True or False?
Basel's "Customer Due Diligence for Banks" states the the decision to open an account for a PEP should be taken at the senior management level |
|
Definition
|
|
Term
| Vital Services Providers (VSPs) |
|
Definition
| People who move the billions of dollars drug traffickers earn around the world |
|
|
Term
| What are six principles set forth in the Basel Committee's Statement of Principles called “Prevention of Criminal Use of the Banking System for the Purpose of Money Laundering”? |
|
Definition
In 1988, the Basel Committee issued a Statement of Principles called “Prevention of Criminal Use of the Banking System for the Purpose of Money Laundering” in recognition of the vulnerability of the financial sector to misuse by criminals. This was a step toward preventing the use of the banking sector for money laundering, and it set out principles with respect to:
• Customer identification,
• Compliance with laws,
• Conformity with high ethical standards and local laws and regulations,
• Full cooperation with national law enforcement to the extent permitted without breaching customer confidentiality,
• Staff training, and
• Record keeping and audits. |
|
|
Term
| What are some characteristics of a successful anti‐money laundering compliance training program? |
|
Definition
| Regulations and laws require financial institutions to have formal, written AML compliance programs that include “training for appropriate personnel.” A successful training program not only should meet the standards set out in the laws and regulations that apply to an institution, but should also satisfy internal policies and procedures and should mitigate the risk of getting caught up in a money laundering scandal. Training is one of the most important ways to stress the importance of anti‐money laundering efforts, as well as educating employees about what to do if they encounter potential money laundering. |
|
|
Term
| What are the basic elements of financial institution's anti‐money laundering program? |
|
Definition
• A system of internal policies, procedures and controls,
• A designated compliance officer with day‐to‐day oversight over the AML program,
• An ongoing employee training program, and
• An independent audit function to test the AML program. |
|
|
Term
| What are the characteristics of a SRO? |
|
Definition
| Represents a profession and is made up member professionals; has a role in regulating the persons who are qualified to enter and who practices the profession; performs certain supervisory or monitoring type functions. |
|
|
Term
| What are the economic effects of money laundering? |
|
Definition
• 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. |
|
|
Term
| What are the four key elements of Know Your Customer (KYC) as identified in the Basel Committee's October 2001 paper called "Customer Due Diligence for Banks?" |
|
Definition
• Customer identification,
• Risk management,
• Customer acceptance, and
• Monitoring. |
|
|
Term
| What are the seven elements of a sound customer due diligence (CDD) program? |
|
Definition
• Full identification of customer and business entities, including source of funds and wealth when appropriate,
• Development of transaction and activity profiles of each customer’s anticipated activity,
• Definition and acceptance of the customer in the context of specific products and services,
• Assessment and grading of risks that the customer or the account present,
• Account and transaction monitoring based on the risks presented,
• Investigation and examination of unusual customer or account activity, and
• Documentation of findings. |
|
|
Term
| What are the two main reasons correspondent banking is vulnerable to money laundering? |
|
Definition
• 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. |
|
|
Term
| What banking functions or products are considered high‐risk? |
|
Definition
• Private banking,
• Offshore international activity,
• Deposit‐taking facilities,
• Wire transfer and cash‐management functions,
• Transactions in which the primary beneficiary is undisclosed,
• Loan guarantee schemes,
• Travelers checks,
• Official bank checks,
• Money orders,
• Foreign exchange transactions,
• Trade‐financing transactions with unusual pricing features, and
• Payable Through Accounts (PTAs). |
|
|
Term
| What can result from an institution's disregard from the Basel Due Diligence Principles? |
|
Definition
| The financial institution can become subject to lawsuits from the failure to observe mandatory KYC standards or from the failure to practice due diligence. |
|
|
Term
| What characteristics of charities or non‐profit organizations make them particularly vulnerable to misuse for terrorist financing? |
|
Definition
• 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. |
|
|
Term
| What do "hedge Funds" attempt to do? |
|
Definition
| To profit in all kinds of markets by pursuing leveraging and other speculative investments practices that may increase the risk of investment loss. |
|
|
Term
| What do boiler room people salespeople typically do? |
|
Definition
| Urge investors to buy "house stocks" - stocks that the firm buys and sells as a market maker or has in its inventory. Oftentimes, they are running a "pump-and-dump" scheme. |
|
|
Term
| What factors may contribute to the vulnerabilities of private banking with regard to money laundering? |
|
Definition
• 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. |
|
|
Term
| What general characteristics of terrorist financing can a financial institution look at to avoid becoming conduits for terrorist financing? |
|
Definition
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. |
|
|
Term
|
Definition
| A contractual arrangement whereby the trustee manages the property for the benefit of the beneficiary in accordance with the contractual terms set by the grantor. |
|
|
Term
| What is a concentration account? |
|
Definition
| 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. |
|
|
Term
What is one of the most important aspects of due diligence for a bank when establishing a
relationship with a money remitter? |
|
Definition
| Ensuring the money remitter is properly licensed. |
|
|
Term
| What is the difference in the money trail between terrorist financing and money laundering? |
|
Definition
| The money trail for money laundering is circular with money eventually ending up with the person who generated it. On the other hand, the money trail for terrorist financing is linear with the money generated being used to propagate terrorist groups and activities. |
|
|
Term
| What is the most basic difference between terrorist financing and money laundering? |
|
Definition
| 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. |
|
|
Term
| What is the significance of a trust account, whether offshore or onshore, in the context of money laundering? |
|
Definition
| 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 |
|
|
Term
| What normal business practice makes "Product Diversion" possible? |
|
Definition
| Large companies often export their branded products at wholesale prices far below those at which those products are offered in their home country. |
|
|
Term
| What steps should the independent audit take to evaluate the bank's ability to identify unusual activity? |
|
Definition
• Reviewing policies, procedures, and processes for suspicious activity monitoring,
• Evaluating the system’s methodology for establishing and analyzing expected activity or filtering criteria,
• Evaluating the system’s ability to generate monitoring reports, and
• Determining whether the system’s filtering criteria are reasonable. |
|
|
Term
| What types of customers might be considered high‐risk for money laundering? |
|
Definition
• Casinos,
• Offshore corporations and banks located in tax/banking havens,
• Leather goods stores,
• Currency exchange houses, money remitters, check cashers,
• Car, boat and plane dealerships,
• Used‐car and truck‐dealers and machine parts manufacturers,
• Travel agencies,
• Brokers/dealers in securities,
• Jewel, gem and precious metals dealers,
• Import/ export companies, and
• Cash‐intensive businesses (restaurants, retail stores, parking). |
|
|
Term
| What was the target of UN Security Council Resolution 1267 |
|
Definition
| Adopted in 1999, it imposed sanctions on Taliban-controlled Afghanistan for its support of Osama Bin Laden and the Al-Qaeda organizations. |
|
|
Term
| What were recently identified as Emerging Money Laundering Risk? |
|
Definition
Funds Transfers
Shell Corporations
Contractual Transactions |
|
|
Term
| When categorizing risks, what are the four general levels of risk? |
|
Definition
• Prohibited — The company will not tolerate any dealings of any kind given the risk. Countries subject to economic sanctions or designated as state sponsors of terrorism, such as Sudan or Iran, are prime candidates for prohibited transactions. Prohibited customers would include shell banks,
• High‐Risk – The risks here are significant, but are not necessarily prohibited. To mitigate the heightened risk presented, the firm should apply more stringent controls to reduce the risk, such as conducting enhanced due diligence and more rigorous transaction monitoring. Countries that are noted for corruption or drug trafficking are generally deemed high risk. High‐risk customers may include PEPs; high‐risk products and services may include correspondent banking and private banking,
• Medium‐Risk — Medium risks are more than a low‐ or standard‐risk of money laundering, and merit additional scrutiny, but do not rise to the level of high‐risk, and
• Low‐ or Standard‐Risk — This represents the baseline risk of money laundering; normal business rules apply. FATF member countries and domestic retail customers are frequently, but not always, considered to be standard‐ or low‐risk. |
|
|
Term
| When is a jurisdiction considered to be "ring-fenced"? |
|
Definition
| When residents are prevented from benefiting from a tax regime or when nonresidents are prevented from accessing the domestic market. |
|
|
Term
| Where are the 2 types of Stored Value Cards? |
|
Definition
|
|
Term
| Where does the ultimate responsibility for the AML compliance program rest with? |
|
Definition
| The ultimate responsibility for the AML compliance program rests with the board of directors. Members must set the tone from the top by openly voicing their commitment to the program, ensuring that their commitment flows through all service areas and lines of business, and holding responsible parties accountable for compliance. |
|
|
Term
Where is the
Art Loss Register
found? |
|
Definition
|
|
Term
| Who do companies export their goods at prices far below those in their home country? |
|
Definition
| To create new overseas markets, dispose of excess goods, or otherwise recover their cost. |
|
|
Term
| Why are bearer bonds and bearer stock certificates prime vehicles for money laundering? |
|
Definition
| 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. |
|
|
Term
| Why are hawalas attractive to terrorist financiers? |
|
Definition
| 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. |
|
|
Term
| Why is "Know your customer's customer" important? |
|
Definition
| Respondent banks may be used by other banks and customers to conduct transactions through a correspondent account. |
|
|
Term
| Why is the risk‐based approach more preferable than a prescriptive approach in the area of anti‐money laundering and counter‐terrorist financing? |
|
Definition
• Flexible — as money laundering and terrorist financing risks vary across jurisdictions, customers, products and delivery channels, and over time,
• Effective — as companies are better equipped than legislators to effectively assess and mitigate the particular money laundering and terrorist financing risks they face, and
• Proportionate — because a risk‐based approach promotes a common sense and intelligent approach to fighting money laundering and terrorist financing as opposed to a “check the box” approach. It also allows firms to minimize the adverse impact of anti‐money laundering procedures on their low‐risk customers. |
|
|
Term
| Why is understanding "product Diversion" important to the AML investigator? |
|
Definition
| Their financial instituion may, wittingly or unwhittingly, handle the proceed of this crime while believing it is serving a legitimate client with major account balances. |
|
|
Term
|
Definition
| Electronic transmission of funds between financial institutions on behave of themselves or their customers. |
|
|
Term
|
Definition
| Reliable, independent source of documents, data, or information. |
|
|
Term
|
Definition
| A written statement given under oath before an officer of the court, notary public, or other authorized person. Commonly used as the factual basis for an application for a search, arrest or seizure warrant. |
|
|
Term
|
Definition
| Court order directing a law enforcement officer to seize and detain a particular person and require them to provide an answer to a complaint or otherwise appear in court. |
|
|
Term
|
Definition
Over-The-Counter
A market in which securities are bought and sold outside of established securities markets |
|
|
Term
|
Definition
| Securities with very low market price, volume and/or liquidity that are traded on a securities exchange or on the OTC markets. They tend to be more volatile than those on the major exchanges. |
|
|
Term
|
Definition
| The sale of a stock that the investor does not own. To do so, a securities intermediary "loans" the stock to the investor, which comes from the intermediary's own inventory, another client's margin account, another intermediary. |
|
|
Term
What are the three main functions of a "Transfer Agent"? |
|
Definition
| Issue and cancel securities certificates to reflect changes in ownership, act as an intermediary for the issuing company, and handle lost, stolen or destroyed certificates. |
|
|
Term
|
Definition
| Refers to dishonest broker-dealers who set up a group of high pressure salespeople who use banks of telephones to make cold calls to as many people as potential investors as possible. |
|
|
Term
|
Definition
| Financial instrment whose price is related to the underlying commodity, currency, economic variable, financial instrument or security. |
|
|
Term
|
Definition
| Intentional misrepresentation, concealment, or omission of the trust for the purpose of deception or manipulation to the detriment of a person or organization. |
|
|
Term
|
Definition
| A contractual provision that allows the contract owner the right to return the contract within a specific period for a refund. |
|
|
Term
|
Definition
Contract issued by an insurance company under which an investor provides the insurer with funds (a lump-sum or series of payments). The insurance then agrees to make periodic payments).
The insurer then agrees to make periodic payments to the investor starting immediately or in the future. |
|
|
Term
|
Definition
| A security that offers the owner the right to scribe for ordinary shares of a company at a fixed date, usually at a fixed price. Equivalent to stock options. |
|
|
Term
2012 revision
FATF Recomendation
-- 19 --
(you should NOT need to know the by number for the exam) |
|
Definition
| Financial Institutions should be required to apply EDD measures to relationships or transactions with legal or natural persons or Fis from high risk jurisdictions and countries should be able to apply appropraite countermeasures with or without FATF guidance. |
|
|
Term
2012 revision
FATF Recomendation
-- 18 --
(you should NOT need to know the by number for the exam) |
|
Definition
| FIs should be required to implement programs against ML and TF, and financial groups should have group-wide programs including AML/CFT related information sharing within the group. Multi-country groups should apply measures consistent with home country requirements. |
|
|
Term
|
Definition
| The process of distancing illegal proceeds from their source by creating complex layers of financial transactions designed to disguise the audit trail and provide anonymity |
|
|
Term
"Kiting"
Using checking accounts |
|
Definition
| A scheme where a customer deposits a check from an account of his at another bank then, normally, the next day deposits a check in the second bank drawn on the first bank, hoping to play the float for a "free loan" |
|
|
Term
|
Definition
Mutual
Legal
Assistance
Treaty |
|
|
Term
|
Definition
| A monetary instrument usually purchased with cash. Funds are drawn on the account of a financial institution and not a particular individual |
|
|
Term
|
Definition
The Offshore
Group of
Banking
Supervisors |
|
|
Term
|
Definition
| An element of KYC. The regular comparing of ongoing account activity to the type of activity considered to be "normal and expected" for the particular individual or institutional customer. |
|
|
Term
|
Definition
| The establishment and operation of foreign banks and other financial institutions in offshore tax havens |
|
|
Term
"Mail Forwarding"
or
"Mail-Drop Service" |
|
Definition
| A fully legal commercial enterprise using a stable physical address as a delivery destination for letters or parcials on behalf of fee-paying clients who don't live on the premises. Mail can't be held or forwarded at the client's request. |
|
|
Term
|
Definition
| A bank or other financial institution outside the country where the depositor or customer lives. |
|
|
Term
|
Definition
| Bank service whereby a company directs it's customers to send payments by mail to a post office box. The bank picks them up several times a day, deposits them into the company's account, and notifies the company of the deposit. |
|
|
Term
|
Definition
| Simply means away from one's own home country |
|
|
Term
| Why might a launder use a "Safe Deposit box"? |
|
Definition
| It can provide a useful storage place for the proceeds of a crime during the money laundering process. Normally, no one but the renter of the box knows its contents. |
|
|
Term
|
Definition
| The Organization of American States - Inter-American Drug Abuse Control Commission |
|
|
Term
|
Definition
| A safe inside a bank that can be used to store anything of importance that the customer wishes to protect, like legal documents, jewelry, coins, wills, etc. |
|
|
Term
|
Definition
Non-Cooperative Country or Territory |
|
|
Term
|
Definition
| Often, the use of multiple individuals who deposit cash or buy bank drafts in amounts under the reported threshold. It allows the launderer to structure the transactions. |
|
|
Term
|
Definition
One formed for the purpose of holding securities or other assets in its name on the behalf of others.
Or
A parent bank / trust co. may use one to provide nominee directors / officers for clients. |
|
|
Term
|
Definition
| A bank that exist on paper only. It has an address on paper, but no physical presence in any country, and is able to evade day-to-day bank regulation. |
|
|
Term
|
Definition
Non-
Governmental
Organization |
|
|
Term
|
Definition
| A plastic card resembling a traditional credit or debit card. It contains a computer chip capable of storing significantly more information than a magnetic strip. |
|
|
Term
|
Definition
Non-Financial
Trades and
Businesses |
|
|
Term
Importance of terrorist financing |
|
Definition
|
A successful terrorist group (or criminal organization) must be able to build and maintain an effective financial infrastructure, developing sources of funding obscuring the links between those sources and the activities the funds support. |
|
|
Term
|
Definition
| A belief to the disavantage of another, accompanied by a doubt. |
|
|
Term
Objective of terrorist activity |
|
Definition
| To intimidate a population or to compel a government to do something. |
|
|
Term
|
Definition
| A compulsory legal process or writ issued by a court to compel the apperance of a witness at a judicial proceeding, something requiring the witness to bring to court or to a deposition specified documents that are under the witness' control. |
|
|
Term
2 primary financial sources for terrorist activities |
|
Definition
- Receive financial support from countries, organizations, or individuals.
- Engaging in any revenue-generating illicit activities including smuggling, credit card fraud, drug trafficking, etc.
|
|
|
Term
|
Definition
| An investigative tactic in which undercover officers pose as criminals, sometimes using a "front" business, to win the confidence of the targets of the investigation and gather information and obtain evidence of their criminal conduct. |
|
|
Term
|
Definition
| Designated competent authorities responsible for ensuring compliance by institutions with requirements to combat money laundering and terrorist financing. |
|
|
Term
|
Definition
| The illegal act of splitting cash deposits or withdrawals into smaller amounts to avoid the filing of a report by a financial institution. |
|
|
Term
|
Definition
| A bank transaction where a customer splits a deposit between more than one account |
|
|
Term
|
Definition
| A prepaid payment card that stored a monetary value from which the purchase amount is deducted from the card each time the card is used. |
|
|
Term
| What bank products may be especially sensitive to reputational risk? |
|
Definition
| Managed Assets, or those held in a fiduciary capacity, can pose particular reputational risk. Also any product for which management does not maintain proper vigilance. |
|
|
Term
How can a bank reduce reputational risk? |
|
Definition
They may protect themselves by vigilance through effective KYC and KYE programs |
|
|
Term
|
Definition
| The International Narcotics Control Strategy Report of the United States. Issued annually by the US State Department |
|
|
Term
|
Definition
Payrolls and utilities
or
insurance payments |
|
|
Term
Basel Principles
4 major areas of focus |
|
Definition
- Customer Identification
- Compliance with Legislation
- Record-keeping
- Staff Training
|
|
|
Term
How might an "Asset Manager" be compensated? |
|
Definition
Pay can be based on one or more of the following:
- performance achieved
- trading commissions
- percentage other valuation of the assets under his/her control
|
|
|
Term
Can an "Asset Manager" have full discretion or might there be limitations? |
|
Definition
There may be full discretion or limitations depending on the terms of the contract. |
|
|
Term
| "Council of Europe Convention on Laundering, Search, Seizure and COnfiscation of the Proceeds from Crime" |
|
Definition
| [9/90] Money Laundering now associates with all serious offences, not just drug trafficking. |
|
|
Term
How might a launderer use a "Bookmaker" and his betting shop? |
|
Definition
Offering customers a premium for winning betting slips (Often 7-10% over the winning value), then collecting "Clean" money from the betting shop or the bookmaker.
Note: Must be in the jurisdiction where the gambeling is legal |
|
|
Term
Other names for a "Bureau de Charge"? |
|
Definition
Casa de cambio
or
Exchange office |
|
|
Term
The "Palermo Convention" focused on what? |
|
Definition
Any crimes committed by transnational criminal organizations |
|
|
Term
Why are "Blank Check Companies" used? |
|
Definition
Created and designed to be used by private companies intending to go public through "reverse merger" without the high expenses involved in making their own initial public offering. |
|
|
Term
What was the purpose of the NCCT list? |
|
Definition
| The list identified nations that lacked sufficient money laundering controls, or otherwise impeded international efforts in the fight against money laundering. |
|
|
Term
Why is the distinction of "beneficial owner" over mere signature authority important? |
|
Definition
Placing emphasis on the "beneficial owner" is a necessary step in determining the source of funds. |
|
|
Term
Examples of "Cash Based Businesses" |
|
Definition
- Restaurants
- Pizza Delivery Companies
- Taxi Services
- Coin-operated Machines
- Car Washes
|
|
|
Term
FAFT 40
Recommendation 4
Effect on
"Bank Secrecy" |
|
Definition
| Countries should ensure that financial institution secrecy laws do not inhibit implemenation of the FATF Recommendations |
|
|
Term
3 present forms of
"Biometrics" |
|
Definition
- Fingerprinting
- Voice Recognition
- Iris (eyes) Scans
|
|
|
Term
"Bust-out"
also known as? |
|
Definition
"Expansion of Credit"
or
"High Utilization of Credit Line" |
|
|
Term
|
Definition
A type of alternative remittance system, ethnically originating in the Middle East and Southwest Asia |
|
|
Term
What does the
"INCSR" include? |
|
Definition
A narrative of money laundering issues in most nations. |
|
|
Term
|
Definition
The
Financial Services Authority
of the United Kingdom |
|
|
Term
|
Definition
Appears to be a legitimate business, but is subsidized by illicit funds, thereby concealing the true beneficial owner and disguising the ill-gotten proceeds. |
|
|
Term
|
Definition
The group of Seven Industrialized Nations
(US, UK, France, Germany, Italy, Japan & Canada) |
|
|
Term
|
Definition
Electronic money, where monetary value is stored on an electronic device.
Also called e-cash. |
|
|
