Anti-money Laundering

Anti-money Laundering Describe the three phases of money laundering. - ✔✔• Placement is the physical disposal of cash or other assets derived from criminal activity. • Layering is the separation of illicit proceeds fr ...

Anti-money Laundering Describe the three phases of money laundering. - ✔✔• Placement is the physical disposal of cash or other assets derived from criminal activity. • Layering is the separation of illicit proceeds from their source by layers of financial transactions intended to conceal the origin of the proceeds. • Integration is supplying apparent legitimacy to illicit wealth through the re‐entry of the funds into the economy in what appears to be normal business or personal transactions. What are the two main reasons correspondent banking is vulnerable to money laundering? - ✔✔•By their nature, correspondent banking relationships create a situation in which a financial institution carries out financial transactions on behalf of customer of another institution. This indirect relationship meas 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. Describe four types of risk associated with money laundering faced by a financial institution. - ✔✔• Reputational risk is described as the potential that adverse publicity regarding an organization's business practices and associations, whether accurate or not, will cause a loss of public confidence in the integrity of the organization. • Operational risk is described as the potential for loss resulting from inadequate internal processes, personnel or systems or from external events. • Legal risk is the potential for lawsuits, adverse judgments, unenforceable contracts, fines and penalties generating losses, increased expenses for an organization, or even the closure of the organization. • Concentration risk is the potential for loss resulting from too much credit or loan exposure to one borrower or group of borrowers. Identify and describe the three sections of the USA Patriot Act concerning due diligence U.S. financial institutions need to perform for relationships with foreign correspondent banking customers. - ✔✔Section 312 requires institutions must set up risk based due diligence to mitigate the money laundering risks posed by foreign financial institutios 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. What are the economic effects of money laundering? - ✔✔• Loss of control of, or mistakes in, decisions regarding economic policy, • Economic distortion and instability, • Loss of tax revenue, • Risks to privatization efforts, • Reputation risk for the country, and • Social costs. What is a concentration account? - ✔✔Concentration accounts are internal accounts established to facilitate the processing and settlement of multiple or individual customer transactions within the bank, usually on the same day. These accounts are also known as special‐use, omnibus, settlement, suspense, intraday, sweep or collection accounts. Concentration accounts are frequently used to facilitate transactions for private banking, trust and custody accounts, funds transfers and international affiliates. What factors may contribute to the vulnerabilities of private banking with regard to money laundering? - ✔✔• Perceived high profitability, • Intense competition, • Powerful clientele, • The high level of confidentiality associated with private banking, • The close relationship of trust developed between relationship managers and their clients, • Commission‐based compensation for relationship managers, • A culture of secrecy and discretion developed by the relationship managers for their clients, and • The relationship managers becoming client advocates to protect their clients. What is one of the most important aspects due diligence for a bank when establishing a relationship with a money remitter? - ✔✔Ensuring the money remitter is properly licensed. Describe micro structuring. - ✔✔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. How can the free‐look period be used to launder money? - ✔✔A free‐look period is a feature that allows investors, for a short period of time after the policy is signed and the premium paid, to back out of a policy without penalty. This process allows the money launderer to get an insurance check, which represents cleaned funds. However, as more insurance companies are subject to AML program requirements, this type of money laundering is more readily detected and reported. According to FATF, what three circumstances should be kept in mind when dealing with possible cuckoo smurfing activity? - ✔✔• The existence of these deposits is not necessarily grounds to reconsider the relationship with a custome • 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. Identify three ways money laundering can occur through vehicle sellers. - ✔✔The industry defined as "vehicle sellers" includes sellers and brokers of new vehicles, such as automobiles, trucks, and motorcycles; new aircraft, including fixed wing airplanes and helicopters; new boats and ships, and used vehicles. Laundering risks and ways laundering can occur through vehicle sellers include: • Structuring cash deposits below the reporting threshold, or purchasing vehicles with sequentially numbered checks or money orders, • Trading in vehicles and conducting successive transactions of buying and selling new and used vehicles to produce complex layers of transactions, • Accepting third‐party payments, particularly from jurisdictions with ineffective money laundering controls What is the significance of a trust account, whether offshore or onshore, in the context of money laundering? - ✔✔The significance of a trust account — whether onshore or offshore — in the context of money laundering cannot be understated: It can be used as part of the first step in converting illicit cash into less suspicious assets; it can help hide criminal ownership of funds or other assets; and it is often an essential link between different money laundering vehicles and techniques, such as real estate, shell and active companies, nominees and the deposit and transfer of criminal proceeds. Describe several ways commodity futures and options accounts may be susceptible to money laundering. - ✔✔There are several ways commodity and futures accounts are susceptible to money laundering, including: • Withdrawal of assets through transfers to unrelated accounts or to high‐risk countries, • Frequent additions to or withdrawals from accounts• Checks drawn on, or wire transfers from, accounts of third parties with no relation to the client, • Clients who request custodial arrangements that allow them to remain anonymous, • Transfers of funds to the adviser for management followed by transfers to accounts at other institutions in a layering scheme, • Investing illegal proceeds for a client, and • Movement of funds to disguise their origin. According to a 2001 report, "Money Laundering in Canada: An Analysis of RCMPCases," what are the four related reasons to establish or control a shell company for money laundering purposes? - ✔✔• Shell companies accomplish the objective of converting the cash proceeds of crime into alternative assets, • Through the use of shell companies, the launderer can create the perception that illicit funds have been generated from a legitimate source, • Once a shell company is established, a wide range of legitimate and/or bogus business transactions can be used to further the laundering process, and • Shell companies can also be effective in concealing criminal ownership. Nominees can be used as owners, directors, officers or shareholders. Describe the type of services to third parties that any person or business provides on professional basis to participate in the creation, administration, or management of corporate vehicles. - ✔✔Trust and company service providers (TCSP) includethose persons and entities that, on a professional basis, participate in the creation, administration or management of corporate vehicles. They refer to anyperson 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. Identify three ways money laundering can occur through vehicle sellers. - ✔✔The industry defined as "vehicle sellers" includes sellers and brokers of new vehicles, such as automobiles, trucks, and motorcycles; new aircraft, includingfixed wing airplanes and helicopters; new boats and ships, and used vehicles. Laundering risks and wayslaundering 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 fro jurisdictions with ineffective money laundering controls. How can art and antiques dealers and auctioneers mitigate their money laundering risks? - ✔✔• Require all art