ACAMS Study Guide (6th Edition) Chapter 1|55 Questions with Answers,100% CORRECT

ACAMS Study Guide (6th Edition) Chapter 1|55 Questions with Answers What is Money Laundering? - CORRECT ANSWER Money laundering is the taking of criminal proceeds and disguising their illegal sources in order to u ...

ACAMS Study Guide (6th Edition) Chapter 1|55 Questions with Answers What is Money Laundering? - CORRECT ANSWER Money laundering is the taking of criminal proceeds and disguising their illegal sources in order to use the funds to perform legal or illegal acts. Describe the three phases of Money Laundering. - CORRECT ANSWER 1) Placement is the physical disposal of cash or other assets derived from criminal activity. 2) Layering is the separation of illicit proceeds from their source by layers of financial transactions intended to conceal the origin of the proceeds. 3) 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 Give an example of the first stage of money laundering. - CORRECT ANSWER - Co-mingling illegitimate funds with legitimate ones; - making foreign exchange transactions with illegal funds; - depositing small amounts of cash into various accounts; - currency smuggling by cross border physical movement of cash; - repayment of legitimate loans Give an example of the second stage of money laundering. - CORRECT ANSWER - Electronically moving funds from one country to another; - moving funds from one financial institution to another; - converting the cash placed into the system into monetary instruments; - investing in real estate and other legitimate businesses; - placing money in stocks or bonds; using shell companies to obscure the ultimate beneficial owner and assets. Give an example of the third stage of money laundering. - CORRECT ANSWER - Purchasing luxury assets like property, artwork, jewelry or high-end automobiles; - investing in business enterprises. What are the economic effects of money laundering? - CORRECT ANSWER 1) Loss of control of, or mistakes in, decisions regarding economic policy. Due to the large amounts of money involved in the money laundering process, in some emerging market countries these illicit proceeds may dwarf government budgets. 2) Economic distortion and instability. Money launderers invest their money in activities that are not necessarily economically beneficial to the country. 3) Loss of tax revenue. Money launderers diminishes government tax revenue and indirectly harms honest taxpayers. 4) Risks to privatization efforts 5) Reputation risk for the country, and 6) Social costs Describe 4 types of risk associated with money laundering faced by a financial institution. - CORRECT ANSWER 1) 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. 2) Operational risk is described as the potential for loss resulting from inadequate internal processes, personnel or systems or from external events. 3) 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. 4) Concentration risk is the potential for loss resulting from too much credit or loan exposure to one borrower or group of borrowers. What are the Methods of Money Laundering through Banks? - CORRECT ANSWER 1) Electronic Transfers of Funds 2) Remote Deposit Capture 3) Correspondent Banking 4) Payable Through Accounts 5) Concentration Accounts 6) Private Banking 7) Politically Exposed Persons 8) Structuring 9) Microstructuring What is Electronic Transfers of Funds? - CORRECT ANSWER An electronic transfer of funds is any transfer of funds that is initiated by electronic means, such as an Automated Clearing House (ACH) computer, an automated teller machine (ATM), electronic terminals, mobile telephones, telephones or magnetic tapes. It can happen within a country or across borders. What are some indicators of money laundering using electronic transfers of funds? - CORRECT ANSWER 1) Funds transfers to or from a high-risk geographic location without an apparent business reason 2) large, incoming fund transfers from a foreign client with little or no explanation or apparent reason 3) fund transfers that have no apparent link to legitimate business 4) many small, incoming transfers of funds that are received, upon credit to the account, all or most of the deposits are wired to another account in a different geographic location in a manner inconsistent with the customer's business or history What is Remote Deposit Capture (RDC) and what risk is associated with it? - CORRECT ANSWER Remote Deposit Capture (RDC) is a product offered by banks that allows customers to scan a check and transmit an electronic image to the bank for deposit. The risk associated with it is that it enables a money launderer to deposit checks without having to visit the bank and risk detection. What is Correspondent Banking? - CORRECT ANSWER Correspondent Banking is the provision of banking services by one bank (the "correspondent bank") to another bank (the "respondent bank'"). What are the two main reasons correspondent banking is vulnerable to money laundering? - CORRECT ANSWER 1) 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 2) 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. What is Payable Through Account? - CORRECT ANSWER Transaction account opened at a depository institution by a foreign financial institution through which the foreign institution's customers engage, either directly or through sub-accounts, in banking activities and transactions in such a manner that the financial institution's customers have direct control over the funds in the account. These accounts pose risks to the depository institutions that hold them because it can be difficult to conduct due diligence on foreign institution customers who are ultimately using the PTA accounts. What are some of the money laundering risks pertaining to the use of payable through accounts (PTAs)? - CORRECT ANSWER 1) PTAs with foreign institutions licensed in offshore centers with weak bank supervision and licensing laws 2) PTAs where the respondent bank (the foreign bank) fails to conduct adequate customer due diligence 3) PTAs where the sub-account holders have currency deposit and withdrawal privileges. What is a concentration account? - CORRECT ANSWER 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 is a money laundering risk pertaining to the use of concentration accounts? - CORRECT ANSWER The primary money laundering risk pertaining to the use of concentration accounts is the fact that the customer identifying information may not be included, making the audit trail difficult or impossible to follow. What is Private Banking? - CORRECT ANSWER A department in a financial institution that provides high-end services to wealthy individuals. Private banking transactions tend to be marked with confidentiality, complex beneficial ownership arrangements, offshore investment vehicles, tax shelters and credit extension services. What factors may contribute to the vulnerabilities of private banking with regard to money laundering? - CORRECT ANSWER • Perceived high profitability, • Intense competition, • Powerful clientele, • The high level of confidentiality associated with private banking, • The close relationship of trust developed 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 a Politically Exposed Persons (PEP) and what is the primary risk in dealing with a PEP? - CORRECT ANSWER A PEP is a "politically exposed person," meaning a person who has or has had a prominent government or quasi-public position in a country. The primary risk in dealing with a PEP is that the source of funds from a PEP may be from corruption. What are some of the limitations on screening customers against lists of Politically Exposed Persons? - CORRECT ANSWER The information contained in them - and the ability to positively match your customer with a PEP on a database - can be a challenge. These lists do not always provide all relevant information related to PEPs that would assist in identifying them. For instance, there is no unique identifier, such as a date of birth or address. What is structuring? - CORRECT ANSWER Structuring involves taking a large cash deposit and breaking it into smaller amounts to be deposited into separate banks, separate accounts or on separate days in order to avoid currency transaction reports. Define smurfing. - CORRECT ANSWER A commonly technique involved in structuring, smurfing is the use of multiple individuals and/or multiple transactions for making cash deposits, buying monetary instruments or bank drafts in amounts under the reporting threshold. Describe microstructuring. - CORRECT ANSWER 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. Which money laundering stage(s) are credit cards most likely to be used and what is an example of money laundering through the use of credit cards? - CORRECT ANSWER Credit cards are not likely to be used in the initial placement of money laundering. They are more likely to be used in the layering or integration stages of money laundering. One example of using credit cards for money laundering purposes is overpaying a credit card balance and then asking for a refund. Receiving a check from the reputable credit card company makes it look like the funds received are legitimate. What is Money Services Businesses (MSB)? - CORRECT ANSWER A person (whether a natural or legal person) engaged in any of the following activities where it exceeds the applicable regulatory threshold, at which point the person is generally deemed to be a financial institution subject to AML obligations: • Dealing in foreign exchange • Check cashing • Issuing or selling travel's checks or money orders • Providing or selling prepaid access • US Postal Service • Money transmission. E.g. Western Union, MoneyGram, and PayPal. What are some ways Money Services Businesses can be used for money laundering? - CORRECT ANSWER Cashing checks without obtaining adequate proof of identity; failing to file Currency Transaction Reports when required; and transmitting funds overseas without sufficient due diligence. How can the early redemption method on insurance policies be used to launder money? - CORRECT ANSWER One indicator of possible money laundering is when a potential policyholder is more interested in the cancellation terms of a policy than the benefits of the policy. The launderer buys a policy with illicit money and then tells the insurance company that he has changed his mind and does not need the policy. After paying a penalty, the launderer redeems the policy and receives a clean check from a respected insurer. How can the free-look period be used to launder money? - CORRECT ANSWER 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 What are some of the aspects associated with securities broker dealers that increase the risk of money laundering? - CORRECT ANSWER Its international nature; the speed of their transactions; the ease of converting holdings into cash without significant loss of principal; the large volume of wires used; the competitive, commission-driven environment; the practice of maintaining securities accounts in the name of nominees or trusts; and weak AML programs. In which stage occurs money laundering through casinos? - CORRECT ANSWER Money laundering through casinos generally occurs in the placement and layering stage (for example, converting the funds to be laundered from cash to checks and utilizing casino credit to add a layer of transactions before the funds are ultimately transferred out). What are some red flags associated with casinos and gambling? - CORRECT ANSWER Paying off gambling debts in cash just under the reporting requirements; purchasing chips, but engaging in minimal gambling and then cashing the chips back in; using the gambling house for banking-like financial services, including wiring funds overseas; betting on both "red" and "black" spaces in roulette; and purchasing chips with cash just under the reporting requirements. How can art and antiques dealers and auctioneers mitigate their money laundering risks? - CORRECT ANSWER • 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. Identify three ways money laundering can occur through vehicle sellers. - CORRECT ANSWER 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 are some of the risks posed by Third-Party Payment Processors (TPPPs)? - CORRECT ANSWER Multiple financial institution relationships whereby the TPPP's suspicious activity cannot be seen in its entirety by one institution; engaging in ACH transactions from overseas whereby the suspicious transactions get hidden by the large number of other transactions the TPPP engages in; and the possibility of the return rates stemming from unauthorized transactions are higher than average. What were two of the key findings by FATF in its report on "Money Laundering/Terrorist Financing Risks and Vulnerabilities Associated With Gold," issued in July, 2015? - CORRECT ANSWER The fact that gold is an extremely attractive vehicle for laundering money due to the fact that it is relatively compact and easy to transport; and the fact that the gold market is a target for criminal activity because it is lucrative and holds its value regardless of the form it takes. List ways in which a travel agency could be used to launder money. - CORRECT ANSWER Purchasing an expensive airline ticket and then asking for a refund; paying for travel tours with multiple wires just under the reporting threshold; and creating false bookings through tour operator networks to justify significant payments from foreign travel groups. Name various ways that a gatekeeper - an attorney, notary, accountant or auditor - could assist in a money laundering scheme. - CORRECT ANSWER Creating and managing corporate vehicles or other complex legal arrangements; buying or selling property as a cover for transfers of illegal funds (layering stage) or the final investment of proceeds after they pass through the initial laundering process (integration stage); performing financial transactions, including making deposits, withdrawing funds, engaging in foreign exchange operations, buying or selling stock and sending international wires; and setting up or managing a charity. What is the primary concern with regard to the use of gatekeepers? - CORRECT ANSWER The primary concern with regard to the use of gatekeepers - attorneys, notaries, accountants and auditors - is the fact that they can be used to enhance secrecy and to keep hidden the beneficial owner of an account or transaction. Describe several ways commodity futures and options accounts may be susceptible to money laundering. - CORRECT ANSWER 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. 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. - CORRECT ANSWER 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. List reasons why real estate can be an attractive method of money laundering, according to the 2015 report by the Australian Transaction Reports and Analysis Centre (AUSTRAC). - CORRECT ANSWER It can be purchased with cash; the ultimate beneficial owner can be disguised; it is a relatively stable and reliable investment; and the value can be increased through renovations and improvements. What are some red flags associated with real estate? - CORRECT ANSWER Red flags associated with real estate: • Various uses of cash to aggregate funds for property purchase or down payment or to repay loans. • Multiple purchases and sales in a short period of time, sometimes involving property over- or under-valuation or straw buyers • Use of off-shore lenders • Unknown sources of funds for purchase such as incoming foreign wires where the originator and beneficiary customer are the same • Ownership is the customer's only link to the country in which the real estate is being purchased. 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? - CORRECT ANSWER • 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. What are two of the most common money laundering techniques involved with trade-based money laundering? - CORRECT ANSWER • Over-invoicing: By invoicing the goods or service at a price above the fair market price, the seller is able to receive value from the buyer (i.e., the payment for the goods or service will be higher than the value that the buyer receives when it is sold on the open market). • Under-invoicing: By invoicing the goods or service at a price below the fair market price, the seller is able to transfer value to the buyer (i.e., the payment for the goods or service is lower than the value that the buyer will receive when it is sold on the open market). In summary form, how does the black market peso exchange (BMPE) work in laundering money? - CORRECT ANSWER As an example, the drug trafficker sells drugs for US dollars in the US and - in order to avoid smuggling the US dollars back to Mexico - the trafficker gives the proceeds to a "peso broker." The broker finds businesses in Mexico that want to buy goods in the US. Then the broker buys the US goods with US dollars and has the goods shipped to Mexico. The business in Mexico pays the broker in Mexico in pesos and the broker then gives the pesos - minus a fee - to the drug traffickers. What are some of the money laundering risks pertaining to the use of pre-paid bank cards or reasons why they are attractive to money launderers? - CORRECT ANSWER Some of the risks of pre-paid bank cards include: anonymous card holders; anonymous funding; high value limits; global access to cash through ATMs; lax offshore jurisdictions issuing the cards; and the card being a substitute for bulk-cash smuggling. What are some of the risks listed by FATF in its 2010 report titled "Guidance For A Risk-Based Approach Prepaid Cards, Mobile Payments And Internet-Based Payment Services"? - CORRECT ANSWER Some of the risks on new products and services, according to FATF, include anonymity; geographic reach; alternative to physical cross-border transportation; easy access to cash; and the fact that several entities are required to issue prepaid cards - the program manager, issuer, acquirer, payment network, distributor and agents - that may be hard to all supervise or monitor. What is one of the primary concerns with regard to the use of virtual currencies? - CORRECT ANSWER A virtual or digital currency (VC) is a medium of exchange that operates in the digital space. One of the primary concerns with regard to the use of virtual currencies is the fact that beneficial ownership information may be difficult to obtain. What is the significance of a trust account, whether offshore or onshore, in the context of money laundering? - CORRECT ANSWER 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. Why are bearer bonds and bearer stock certificates prime vehicles for money laundering? - CORRECT ANSWER 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. What is the most basic difference between terrorist financing and money laundering? - CORRECT ANSWER 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. What general characteristics of terrorist financing can a financial institution look at to avoid becoming conduits for terrorist financing? - CORRECT ANSWER 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. Why are hawalas attractive to terrorist financiers? - CORRECT ANSWER 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. What characteristics of charities or non-profit organizations make them particularly vulnerable to misuse for terrorist financing? - CORRECT ANSWER • 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.