ACAMS 4 Exam 78 Questions with Verified Answer,100% CORRECT

ACAMS 4 Exam 78 Questions with Verified Answer SAFE HARBOR What is a safe harbor for reporting suspicious activity? - CORRECT ANSWER Safe harbor is defined as legal protection for financial institutions, their dire ...

ACAMS 4 Exam 78 Questions with Verified Answer SAFE HARBOR What is a safe harbor for reporting suspicious activity? - CORRECT ANSWER Safe harbor is defined as legal protection for financial institutions, their directors, officers and employees from criminal and civil liability for breach of any restriction on disclosing information imposed by contract or by any legislative, regulatory or administrative prohibition if they report their suspicions in good faith to the Financial Investigation Unit (FIU)even if they did not know, precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred. KEY EXTRATERRITORIAL ASPECTS OF US LAWS What is the extraterritorial aspect of section 319(b) of the Patriot Act? - CORRECT ANSWER The section also allows the Secretary of the Treasury or the Attorney General to subpoena records of a foreign bank that maintains a correspondent account in the records United States. The subpoena can request any relating to the account, including records located outside the United States. If the foreign bank fails to comply with or fails to contest the subpoena, the Secretary or the Attorney General can order the US financial institution to close the correspondent account within ten days of receipt of such order. Additionally, the section also requires foreign banks to designate a registered agent in the United States to accept service of subpoenas pursuant to this section. Furthermore, US banks and ecurities brokers and dealers that maintain correspondent accounts for foreign banks must keep ecords of the identity of the 25 percent owners of the foreign bank, unless it is publicly traded, as well as the hame of the correspondent bank's registered agent in the U.S. CRIMINAL MONEY LAUNDERING AND CIVIL FORFEITURE LAWS How does the USA PATRIOT Act impact non-U.S. banks that have an account with a U.S. financial institution? - CORRECT ANSWER Section 319(a) of the USA PATRIOT Act greatly strengthened the forfeiture powers over the funds of foreign persons and institutions. If the funds the United States pursues are deposited in a foreign bank that keeps an "interbank account" at a US bank, the United States may bring a case to forfeit the crime-tainted funds in the US account. OFAC What is OFAC? - CORRECT ANSWER OFAC, the Office of Foreign Assets Control, is the division of the U.S. Department of Treasury that administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries, terrorists, international narcotics traffickers and those engaged in activities related to the proliferation of weapons of mass destruction. OFAC acts under presidential wartime and national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and to freeze foreign assets under US jurisdiction. Many of the sanctions are based on United Nations and other international mandates that are multilateral in scope and involve close cooperation with allied governments. OFAC sanction programs prohibit transactions and require the blocking of assets of persons and organizations that appear on one of a series of lists that OFAC issues periodically. OFAC has the power to impose significant penalties on those who are found to be in violation of the blocking orders within each of the sanction programs. THE WOLFSBERG GROUP In its "AML Principles for Correspondent Banking," what does the Wolfsberg Group indicate should be done for approval and ongoing review of higher risk correspondent bank relationships? - CORRECT ANSWER Approval of higher risk Correspondent Banking relationships at the time of on-boarding and periodic review shall be subject to a higher level of approvals by business and Compliance, or relevant control function. Periodic reviews shall be conducted of all high risk Correspondent Banking relationships, at minimum on an annual basis. MAINTAINING AN AML/CFT RISK MODEL to continue to Why is it important update and revisit risk assessments? - CORRECT ANSWER Risk is dynamic and needs to be continuously managed. It should also be noted that the environment in which each organization operates is subject to continual change. Externally, the political a changes of jurisdiction or whether economic sanctions are imposed or removed may impact a country-risk rating. Internally, organizations respond to market and customer demands by introducing new products and services and implementing new delivery systems. The combination of these changes makes it critical that the ML/TF risk model is subject to regular review. In some countries, there is a legislative obligation for such reviews to be undertaken on a regular basis - usually annually or when new products, delivery channels or customer types are introduced. AML/CFT RISK SCORING What does FATE recommend considering when assessing risk? - CORRECT ANSWER When assessing risk, FATF recommends considering: *Customer risk factors such as non-resident customers, cash-intensive businesses, complex ownership structure of a company, and companies with bearer shares. • Country or geographic risks such as countries with inadequate AML/CFT systems, countries subject to sanctions or embargos, countries involved with funding or supporting of terrorist activities, or with significant levels of corruption. • Product, service, transaction or delivery channel risk factors such as private banking, anonymous transactions, and payments received from unknown third parties.) ASSESSING THE DYNAMIC RISK OF CUSTOMERS What are some factors an institution should consider when assessing the dynamic risk of its customers? - CORRECT ANSWER As every financial institution develops transaction history with customers, it should consider modifying the risk rating of the customer, based on: *Unusual activity, such as alerts, cases and suspicious transaction report (STR) filings. *Receipt of law enforcement inquiries, such as subpoenas. *Transactions that violate economic sanctions programs. *Other considerations, such as significant volumes of activity where it would not be expected, such as a domestic charity engaging in large international transactions or businesses engaged in large volumes of cash where this would not normally be expected. SYSTEM OF INTERNAL POLICIES, PROCEDURES AND CONTROLS examples of internal What are some controls, outside of policies and procedures? - CORRECT ANSWER While policies and procedures provide important guidance, the AML/CFT program also relies on a variety of internal controls, including management reports and other built-in safeguards that keep the program working. These internal controls should enable the compliance organization to recognize deviations from standard procedures and safety protocols. A matter as simple as requiring a corporate officer's approval or two signatures for transactions that exceed a prescribed amount could be a critical internal control element that if ignored seriously weakens an institution's AML/CFT program and attracts unwanted attention from supervisory authorities. THE COMPLIANCE FUNCTION What factors should be considered when determining the sophistication of a compliance function within an institution? - CORRECT ANSWER The sophistication of the compliance function should be based upon the institution's nature, size, complexity, regulatory environment, and the specific risk associated with the products, services, and clientele. No two institutions will have exactly the same compliance structure because the risk facing each institution is going to be different, as identified in their respective risk assessments. DESIGNATION AND RESPONSIBILITIES OF A COMPLIANCE OFFICER COMMUNICATION Why is it critical that the Compliance Officer have good communications skills? - CORRECT ANSWER The compliance officer must also have the means to communicate at all levels of the organization-from front-line associates all the way up to the CEO and Board of Directors. It is critical for a compliance officer to be capable of articulating matters of importance to senior and executive management, particularly significant changes that may present risk to the organization, such as a sudden or substantial increase in STRS or currency transaction reports (CTRS). Other items of concern that need to be escalated to include changes to laws or regulations management may that may require immediate action. A compliance officer must have the skills necessary to be able to analyze and interpret these ongoing changes, determine what effect have on the institution, and suggest an action they may plan when appropriate. DESIGNATION AND RESPONSIBILITIES OF A COMPLIANCE OFFICER DELEGATION OF AML DUTIES What controls should a Compliance Officer consider over an AML duty that has been delegated? - CORRECT ANSWER The compliance function may establish risk-based quality assurance reviews and monitoring and testing activities to ensure the functions are being performed appropriately. include a review of the CDD collected to ensure This may completeness, monitoring reports of CDD completeness working as expected, or defects to ensure the systems are and performing testing to assess whether the monitoring and the business performance are satisfactorily measuring and ensuring compliance. AML/CFT TRAINING - WHO TO TRAIN What are some of the target audiences for training? - CORRECT ANSWER *Customer-facing staff *Operations personnel *AML/CFT compliance staff *Senior management and board of directors *Independent testing staff AML/CFT TRAINING - HOW TO TRAIN Why is it important to have a test at the end of a training session? - CORRECT ANSWER Tests should be considered as a means to evaluate how well the training is understood with a mandatory passing score. AML/CFT TRAINING - WHEN TO TRAIN When should an institutionenom conduct training? - CORRECT ANSWER An institution's training should be ongoing and on a regular schedule. Existing employees should at least attend an annual training session. New employees should receive appropriate training with respect to their job function and within a reasonable period after joining or transferring to a new job. Situations may arise that demand an immediate session. For example, an emergency training session may be necessary right after an examination or audit that uncovers serious money laundering control deficiencies. A news story that names the institution or recent regulatory action, such as a Consent Order, might also prompt quick-response training. Changes in software, systems, procedures or regulations are additional triggers for training sessions. KNOW YOUR CUSTOMER/CDD According to FATF, when should an institution conduct CDD? - CORRECT ANSWER FATF recommends that financial institutions should be required to undertake CDD measures when: *Establishing business relationships. *Carrying out occasional transactions under certain circumstances. *There is a suspicion of money laundering or terrorist financing. • The financial institution has doubts about the veracity or adequacy of previously obtained customer identification data. EDD According to FATF, when should an institution conduct enhanced due diligence on a customer? - CORRECT ANSWER FATF indicates that when there are circumstances where the risk of money laundering or terrorist financing is higher, enhanced CDD measures should be taken. EDD FOR HIGHER RISK CUSTOMERS What are some examples of enhanced due diligence for higher risk customers? - CORRECT ANSWER A financial institution should consider obtaining additional information from high-risk customers such as: Source of funds and wealth. Identifying information on individuals with control over the ccount, such as signatories or guarantors. *Occupation or type of business. *Financial statements. *Banking references. *Domicile.MO *Proximity of the customer's residence, place of employment, or place of usiness to the bank. *Description of the customer's primary trade area and whether international ransactions are expected to be routine. *Description of the business operations, the anticipated volume of and total sales, and a list of major currency customers and suppliers. *Explanations for hanges in account activity. ACCOUNT OPENING, CUSTOMER IDENTIFICATION AND VERIFICATION According to FATF, when should the identity of a customer be verified? - CORRECT ANSWER A bank should not establish a banking relationship, or carry out any transactions, until the identity of the customer has been satisfactorily established and verified in accordance with FATF Recommendation 10. CONSOLIDATED CDD How should a global financial institution address the performance of CDD across its various operations? - CORRECT ANSWER Financial institutions should aim to apply their customer acceptance policy, procedures for customer identification, process for monitoring higher risk accounts and risk management framework on a global basis to all of their offices, branches and subsidiaries. The firm should clearly communicate these policies and procedures through ongoing training and regular communications, as well as conduct monitoring and testing to ensure compliance with the policies and procedures. ECONOMIC SANCTIONS What are the three primary categories of economic sanctions? - CORRECT ANSWER Sanctions can generally fall into one of the following categories: *Targeted Sanctions - aimed at specifically named individuals, such as key leaders in a country or territory, named terrorists, significant narcotics traffickers and proliferators of weapons of mass destruction. These sanctions often include the freezing of assets and travel bans where possible. *Sectoral Sanctions - aimed at key sectors of an economy to prohibit a very specific subset of financial dealings within those sectors to impede future growth • *Comprehensive Sanctions - generally prohibit all direct or indirect import/export, trade brokering, financing or facilitating against most goods, technology and services. These are often aimed human rights at regimes responsible for gross violations, and nuclear proliferation. ECONOMIC SANCTIONS - US What is the Office of Foreign Assets Control's (OFAC) list of sanctions persons known as? - CORRECT ANSWER The Specially Designated Nationals and Blocked Persons (SDN) list. SANCTIONS LIST SCREENING When should institutions conduct economic sanctions screening? - CORRECT ANSWER Before a financial institution starts doing business with a new customer or engaging in certain transactions (e.g., international wire payments), it should review the various country sanction program requirements as well as published lists of known or suspected terrorists, narcotics traffickers, and other criminal actors for potential matches. POLITICALLY EXPOSED PERSONS SCREENING 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. ASSESSING RISK AND DEVELOPING A RISK-SCORING MODEL Why is the risk-based approach more preferable than a prescriptive approach in the area of anti-money laundering and counter-terrorist financing? - CORRECT ANSWER *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 opposed to a "check the box" approach. It also allows to fighting money laundering and terrorist financing as firms to minimize the adverse impact of anti-money laundering procedures on their low-risk customers. THE ELEMENTS OF AN AML PROGRAM - CONTROLS What are the basic elements of financial institution's anti-money laundering program? - CORRECT ANSWER *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. THE ELEMENTS OF AN AML PROGRAM - COMPLIANCE OFFICER Identify the responsibilities of the anti- money laundering compliance officer. - CORRECT ANSWER 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 and staying current on content for staff training programs legal and regulatory developments in the field. THE ELEMENTS OF AN AML PROGRAM - TRAINING What are some characteristics of a successful anti-money laundering compliance training program? - CORRECT ANSWER 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 aundering 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. THE ELEMENTS OF AN AML PROGRAM - TRAINING Identify the basic elements behind the development of an effective anti-money laundering compliance training program. - CORRECT ANSWER *Who to train, • What to train on, *How to train, *When to train, and *Where to train. THE ELEMENTS OF AN AML PROGRAM - AUDIT Describe how the independent audit should review Suspicious Transaction Reporting (STR) systems. - CORRECT ANSWER 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. THE ELEMENTS OF AN AML PROGRAM - AUDIT What steps should the independent audit take to evaluate the bank's transaction monitoring software's ability to identify unusual activity? - CORRECT ANSWER *Reviewing policies, procedures, and processes for spicious activity monitoring, • Evaluating the system's methodology for establishing and analyzing expected activity or filtering criteria, *Evaluating the appropriateness of the monitoring reports, and * Comparing the transaction monitoring typologies to the AML/CFT risk assessment for reasonableness. WHAT RISKS DO YOUR PRODUCTS OR SERVICES POSE? What banking functions or products are considered high-risk? - CORRECT ANSWER *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). WHAT RISKS DO YOUR CUSTOMERS POSE? When categorizing risks, what are the four general levels of risk? - CORRECT ANSWER *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 resented, the firm should apply more stringent controls to reduce the risk, such as conducting nhanced due diligence and more rigorous transaction monitoring. Countries that are noted for corruption or rug 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 aundering; normal business rules apply. WHAT RISKS DO YOUR CUSTOMERS POSE? What types of customers might be considered high-risk for money laundering? - CORRECT ANSWER *Casinos, • Offshore corporations and banks located in tax/ banking havens, • MSBS, including 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). COMPLIANCE CULTURE AND SENIOR MANAGEMENT'S ROLE Where does the ultimate responsibility for the AML compliance program rest with? - CORRECT ANSWER 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. CUSTOMER DUE DILIGENCE What are the seven elements of a sound customer due diligence (CDD) program? - CORRECT ANSWER *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. KNOW YOUR EMPLOYEE Describe a sound Know Your Employee program. - CORRECT ANSWER 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. SUSPICIOUS OR UNUSUAL TRANSACTION MONITORING AND REPORTING Identify several types of internal financial institutions reports may use to discover money laundering and terrorist financing. - CORRECT ANSWER *Daily cash activity in excess of the country's reporting threshold, *Daily cash activity just below the country's reporting threshold (to identify possible structuring), *Cash activity aggregated over a period of time (e.g., individual transactions over a certain amount, or totaling more than a certain amount over a 30-day period) to identify possible structuring, *Wire transfer reports/logs (with filters using amount and geographical factors), *Monetary instrument logs/reports, • Check kiting/drawing on uncollected funds (significant debit/credit flows), *Significant change reports, and • New account activity reports. SUSPICIOUS OR UNUSUAL TRANSACTION MONITORING AND REPORTING Describe a typical suspicious or unusual transaction reporting process within a financial institution. - CORRECT ANSWER While reporting procedures from country to country, vary a typical suspicious or unusual transaction reporting process within a financial institution includes: *Procedures to identify potential suspicious transactions or activity, • A formal evaluation of each instance, and continuation, of unusual transactions or activity, *Documentation of the suspicious transaction reporting decision, whether or not filed with the authorities, *Procedures to periodically notify senior management or the board of directors of suspicious transaction filings, and *Employee training on detecting suspicious transactions or activities. BMPE According to the 1999 U.S. Customs "trade advisory" titled "The Black Market Peso Exchange," what are the three red flags as indicators of BMPE? - CORRECT ANSWER • Payment made in cash by a third party with no connection to the underlying transaction, *Payment made by wire transfers from third parties unconncted to the underlying transaction, and *Payment made with checks, bank drafts or money orders not drawn on the account of the purchaser ELECTRONIC ANTI-MONEY LAUNDERING SOLUTIONS that good Identify the four ways technology can equip organizations with improved defenses in the fight against financial crime. - CORRECT ANSWER *Transaction monitoring: scanning and analyzing data for potential money laundering activity, *Watch list filtering: screening new accounts, existing customers, beneficiaries and transaction counterparties against terrorist, criminal and other blocked-persons watch lists, *Automation of regulatory reporting: filing suspicious transaction reports (STRS), currency transaction reports (CTRS), or other regulatory eports with the government, and • A detailed audit trail: demonstrates compliance efforts to regulators. LAW ENFORCEMENT INVESTIGATIONS Define a search warrant and describe how it is issued. - CORRECT ANSWER A search warrant is a grant of permission from a court for a law enforcement agency to search certain designated premises and to seize specific categories of items or documents. Generally, the requesting agency is required cause exists to believe that to establish that probable evidence of a crime will be located. The warrant is authorized based on information contained in an affidavit submitted by a law enforcement officer. DECISION TO PROSECUTE Identify the factors a prosecutor many consider when determining whether or not to bring a case against an institution involving money laundering-related charges. - CORRECT ANSWER *The institution has a criminal history, *The institution has cooperated with the investigation, *The institution discovered and self-reported the money laundering-related issues, • The institution has had a comprehensive and effective AML program, •The institution has taken timely and effective remedial action, *There are civil remedies available that can serve as punishment, or • Deterring wrongdoing by others is needed and will be served by a prosecution. SUMMONSES AND SUBPOENAS ABC Bank was served with a subpoena compelling the production of certain documents on a personal checking account. Describe the steps the bank should consider taking upon receipt of the subpoena. - CORRECT ANSWER If an institution is served with a summons or subpoena compelling the production of certain documents, the institution should have its senior management and/or counsel review the summons or subpoena. If there are no grounds for contesting the summons or subpoena, the institution should take all appropriate measures to comply with the summons or subpoena on a timely and complete basis. Failure to do so can result in adverse action and penalties for the institution. Also, the financial institution should not notify the customer who is being investigated. If the government asks the bank to keep certain accounts open, such a request should be obtained in writing under proper letterhead and authority from the government. SEARCH WARRANTS ABC Bank was served with a search warrant. What next steps should the Bank consider? - CORRECT ANSWER 1. Call the financial institution's in-house or outside counsel, 2. Review the war cant to understand its scope, 3. Ask for and obtain a copy of the warrant, 4. Ask for a copy of the affidavit that supports the search warrant (the agents are not obligated to provide a of the affidavit, but, if a financial institution is copy allowed to see the affidavit, the financial institution can learn more about the purpose of the investigation), 5. Remain present while the agents record an inventory of all items they seize and remove from the premises. Keep track of the records taken by the agents, 6. Ask for a copy of law enforcement's inventory of what they have seized, and 7. Write down the names and agency affiliations of the agents who conduct the search. MONITORING THE INSTITUTION'S RESPONSE TO A LAW ENFORCEMENT INVESTIGATION How should a financial institution monitor the receipt of a subpoena, summons, or other government request? - CORRECT ANSWER When an institution receives a subpoena, summons or other government request, the institution should do more than just produce the records or information being sought. Financial institutions should ensure that all grand jury subpoenas, as well as other information requests from government agencies, are reviewed by senior management, an investigations group or counsel to determine how best to respond to the inquiry and to determine if the inquiry or the underlying activity might pose a risk to the institution. In addition, the institution should maintain a centralized control over all requests and responses in order to ensure that the requests are responded to on a complete and timely basis and to establish a complete record of what is provided. This centralized record will also assist with regard to the institution's own internal investigation. NOTICE TO EMPLOYEES If a bank is under investigation by a government agency for possible money should the Bank laundering, what steps have for its employees follow? - CORRECT ANSWER With regard to investigations conducted by the government, employees should be informed of the investigation and should be instructed not to produce corporate documents directly, but, rather, should inform senior management or counsel of all requests for documentation and should provide the documents to them for production. way, In that the institution will know what is being requested and what has been produced. In addition, the should be institution can determine what, if any, requests contested. The same procedure should be followed with regard to requests for employee interviews. INTERNAL INVESTIGATIONS Identify several situations that may require a financial institution to initiate an internal investigation? - CORRECT ANSWER • A report of examination from the regulators, *Information from third parties, such as customers, *Information derived from surveillance or monitoring systems, Information from employees or a company hotline, *Receipt of a governmental subpoena or search warrant, *Learning that government investigators are asking questions of institution employees, business associates, customers or even competitors, and • The filing of a civil lawsuit against the institution or a customer of the institution. INTERNAL INVESTIGATIONS What is the purpose of conducting an internal investigation? - CORRECT ANSWER The purpose of the investigation will be to learn the nature and extent of any potential wrongdoing, to develop information sufficient to report when necessary - to the authorities, to enable the institution to minimize its liability, and to stop any potential money laundering. CLOSING THE ACCOUNT The checking account for XYZ Trading LTD, a company registered in the British Virgin Islands, was identified on government subpoena issued to International Bank. The Bank has initiated an internal investigation on the account and its beneficial owners. What factors should the Bank consider on whether to close the account? - CORRECT ANSWER Based on its internal investigation, the institution should make an independent determination as to hether to close the account in issue. Some of the factors that the institution should consider are as follows: *The legal basis for closing an account, *The institution's stated policies and procedures for closing an account, *How serious is the underlying conduct. If the conduct is serious and rises to the level where the account would ordinarily be closed, then the institution should consider closing the account, or • As stated above, if law enforcement requests the institution to keep the account open, the institution should request that the investigator or prosecutor make that request in writing on roper government agency letterhead with the appropriate authorized signature. FILING AN STR If an institution decides to file an STR, what should they do as soon as possible? - CORRECT ANSWER Notify the investigators or prosecutors. THE IMPORTANCE OF GATHERING AND PRODUCING DOCUMENTS What type of documents would a financial institution have that could assist a financial investigator in tracking money movements? - CORRECT ANSWER A financial investigator's main objective is to track the money, movement of whether through a bank, broker- dealer, money services business or casino. For example, banks maintain signature cards, which are collected at the opening of an account, account statements, deposit tickets, checks and withdrawal items and credit and debit memorandums. Banks also keep records on loans, cashier's checks, certified checks, traveler's checks and orders. money They exchange currency, cash third-party checks, and conduct wire transfers, as do most money services businesses. Banks also keep safe-deposit boxes and issue credit cards. INTERVIEWING EMPLOYEES Why is it important to interview knowledgeable employees as soon as practical? - CORRECT ANSWER When performing an internal investigation, it is important to secure and review all relevant documentation and to interview all knowledgeable employees. It is important to interview these employees as soon as practicable so that their memories are the freshest and so that they can direct management or counsel to relevant documents and people on a timely basis. DISSEMINATION OF A WRITTEN REPORT BY COUNSEL What steps should the institution take to ensure a written report on the internal investigation retains the attorney-client privilege? - CORRECT ANSWER If counsel for the institution prepares a written report of an investigation, the institution should take steps to not inadvertently waive the attorney-client privilege by distributing the report to persons who should not receive it. Every page of the report should contain a statement that it is confidential and is subject to the attorney-client privilege and work-product privilege. Copies of the report should be numbered, and a list of persons who are given copies to read should be maintained. After a set period of time, all copies should be returned. Persons obtaining the report should be instructed not to make notes on their copies. All copies should be maintained in a file separate from regular institution files in a further effort to maintain the highest level of protection. MUTUAL LEGAL ASSISTANCE TREATIES What are the steps commonly taken to obtain mutual legal assistance? - CORRECT ANSWER 1. The central authority of the requesting country sends a "commission rogatoire" (letter rogatory, or letter of request) to the central authority of the other country. The letter includes the information sought, the nature of the request, the criminal charges in the requesting country and the legal provision under which the request is made, 2. The central authority that receives the request sends it to a local financial investigator to find out if the information is available, 3. An investigator from the requesting country then visits the country where the information is sought, and accompanies the local investigator during visits or when statements are taken, 4. The investigator asks the central authority for permission to remove the evidence to the requesting country, 5. The central authority sends the evidence to the requesting central authority, thereby satisfying the request for mutual legal assistance, and 6. Local witnesses may need to attend court hearings in the requesting country. AML COOPERATION BETWEEN COUNTRIES that Identify the three gateways assist with the AML cooperation between countries. - CORRECT ANSWER *Mutual Legal Assistance Treaties, *Financial Intelligence Units, and *The Supervisory Channel. FATF RECOMMENDATIONS ON COOPERATION BETWEEN COUNTRIES Recommendations 36-40 from FATF's 40 Recommendations pertain specifically to the international aspects of money laundering and terrorist financing investigations. What are Recommendations 36-40? - CORRECT ANSWER Recommendations 36-40 deal with mutual legal assistance treaties, extradition, confiscation of assets and mechanisms to exchange information internationally. NEGOTIABLE INSTRUMENTS What are bearer negotiable instruments? - CORRECT ANSWER Bearer negotiable instruments Include monetary instruments in bearer form such as: negotiable instruments (including checks, promissory notes and money orders) that are either in bearer form, are endorsed without restriction, are made out to a fictitious payee, or are otherwise in such form that title thereto passes upon delivery. MEMORANDUM OF UNDERSTANDING What is a Memorandum of Understanding (MOU)? - CORRECT ANSWER An agreement between two parties establishing a set of their relationship on a particular principles that govern matter. An MOU is often used by countries to govern their sharing of assets in international asset-forfeiture cases or to set out their respective duties in anti-money laundering initiatives. Financial Intelligence Units (FIUS), with the task of receiving and analyzing suspicious transaction reports on an ongoing basis and maintaining close links with police and customs authorities, share information among themselves informally in the context of investigations, usually on the basis of an MOU. The Egmont Group of FIUS has established a model for such MOUs. Unlike the Mutual Legal Assistance Treaty (see below), this gateway is ordinarily used not for obtaining evidence, but for obtaining intelligence that might lead to evidence. COMMISSION ROGATOIRE What is a commission rogatoire? - CORRECT ANSWER Also known as letter rogatory, commission rogatoire is a written request 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 The letter typically specifies the nature of the request, relevant criminal charges in the requesting country, the legal provision under which the request is made, and the information sought. EXTRATERRITORIAL REACH What is a country's extraterritorial reach? - CORRECT ANSWER The extension of one country's policies and laws to the laws contain several provisions that extend its prohibitions citizens and institutions of another. U.S. money laundering and sanctions into other countries. For example, the "extraterritorial jurisdiction" of the apply to a principal U.S. anti-money laundering law can non-U.S. citizen if the "conduct" occurs "in part" in the U.S. (Title 18, USC Sec. 1956(f). FINANCIAL INTELLIGENCE UNIT Describe a Financial Intelligence Unit (FIU). - CORRECT ANSWER A central governmental office that obtains information from financial reports, processes it and then discloses it to an appropriate government authority in support of a national anti-money laundering effort. The activities performed by an FIU include receiving, analyzing and disseminating information and, sometimes, investigating violations and prosecuting individuals indicated in the disclosures. FRONT COMPANY Describe a Financial Intelligence Unit (FIU). - CORRECT ANSWER A business that commingles illicit funds with revenue generated from the sale of legitimate products or services. Criminals use front companies to launder illicit of legitimate money by giving the funds the appearance origin. Organized crime has used pizza parlors to mask proceeds from heroin trafficking. have access to substantial illicit Front companies may funds, allowing them to subsidize front company products and services at levels well below market rates or even below manufacturing costs. Front companies have a competitive advantage over legitimate firms that must borrow from financial markets, making it difficult for legitimate businesses to compete with front companies. INTERNATIONAL BUSINESS COMPANY What is an International Business Company (IBC)? - CORRECT ANSWER A variety of offshore corporate structures, alternately called "exempt companies," which are dedicated to business use outside the incorporating jurisdiction, rapid formation, secrecy, broad powers, low cost, low to zero taxation, and minimal filing and reporting requirements. KNOW YOUR CUSTOMER Describe Know Your Customer (KYC). - CORRECT ANSWER Know Your Customer (KYC) refers to anti-money laundering policies and procedures used to determine the true identity of a customer and the type of activity that is "normal and expected," and to detect activity that is "unusual" for a particular customer. Many experts believe that a sound KYC program is one of the best tools in an effective anti-money laundering program. MUTUAL LEGAL ASSISTANCE TREATY What is a Mutual Legal Assistance Treaty (MLAT)? - CORRECT ANSWER An agreement among countries allowing for mutual assistance in legal proceedings and access to documents and witnesses and other legal and judicial resources in the respective countries, in private and public sectors, for use in official investigations and prosecutions. PHYSICAL CROSS-BORDER TRANSPORTATION OF CURRENCY Define physical cross-border transportation of currency. - CORRECT ANSWER The physical cross-border transportation of currency is in-bound or out-bound transportation defined as any of currency or bearer negotiable instruments from one country to another. The term includes: (1) physical transportation by a natural person, or in that person's accompanying luggage or vehicle; (2) shipment of currency through cargo containers; and currency or bearer negotiable (3) the mailing of instruments. RED FLAG Define a red flag. - CORRECT ANSWER A warning signal that should bring attention to a potentially suspicious situation, transaction or activity. REMITTANCE SERVICES What are remittance services? - CORRECT ANSWER Remittance services are also referred to as giro houses or casas de cambio. Remittance services are businesses that receive cash or other funds that they transfer through the banking system to another account. The account is held in a foreign jurisdiction where by an associated company the money is made available to the ultimate recipient. PONZI SCHEME Describe a Ponzi Scheme. - CORRECT ANSWER A money laundering system named after Charles Ponzi, an Italian immigrant who spent 10 years in jail in the U.S. for a scheme that defrauded 40,000 people out of $15,000,000. Ponzi's name became synonymous with the use of new investors' money to pay off prior investors. Ponzi schemes involve fake, non-existent investment schemes in which the investors are tricked into investing on the promise of unusually attractive returns. The operator of the scheme can keep the operation going by paying off early investors with the from money new investors until the scheme collapses under its own weight and/or the promoter vanishes with the remaining The scheme recently engaged in by Bernie money. Madoff is an example of a Ponzi scheme. The prime bank guaranty, roll program, bank debenture program and high yield promises are frequently used to entice investors into participating in Ponzi schemes. SMURFING Define smurfing. - CORRECT ANSWER A commonly used money laundering method, smurfing involves 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. TAX HAVEN Describe a tax haven. - CORRECT ANSWER Countries that offer special tax incentives or tax avoidance to foreign investors and depositors. TIPPING OFF What is tipping off? - CORRECT ANSWER The improper or illegal act of notifying a suspect that he or she is the subject of a Suspicious Transaction Report or is otherwise being investigated or pursued by the authorities. TRUSTEE Describe a trustee. - CORRECT ANSWER be a paid professional or company or A trustee may unpaid person that holds the assets in a trust fund separate from the trustee's own assets. The trustee invests and disposes of the assets in accordance with the settlor's trust deed, taking into consideration any letter of wishes. HAWALA What is hawala? - CORRECT ANSWER A funds exchange system in Indian and Chinese civilizations used to facilitate the secure and convenient cross-border movement of funds. Hawala was born centuries before Western financial systems. Merchant traders wishing to send funds to their homelands would deposit them with a hawala broker or hawaladar who normally owned a trading business. For a small fee, the banker would arrange for the funds to be available for withdrawal from another banker, normally also a trader, in another country. The two bankers would settle accounts through the normal process of trade. Today, the technique works much the same, with businesspersons in various parts of the world using their corporate accounts to move money internationally for third parties. Deposits and withdrawals are made through hawaladars, rather than traditional financial institutions. The practice is vulnerable to terrorist financing and money laundering--funds do not actually cross borders, and transactions tend to be confidential, as records are not stringently kept. In Pakistan, the system is called hundi. See Alternative Remittance System. WILLFUL BLINDNESS Describe willful blindness. - CORRECT ANSWER A legal principle that operates in money laundering causes in the U.S. and is defined by courts as the "deliberate avoidance of knowledge of the facts" or "purposeful" indifference." Courts have held that willful blindness is equivalent to actual knowledge of the illegal source of funds or of the intentions of a customer in a money laundering transaction. BASEL COMMITTEE According to the Basel Committee on Banking Supervision's paper entitled "Compliance and the compliance function in banks," what are the responsibilities of the board of directors for compliance? - CORRECT ANSWER According to the Basel Committee on Banking entitled "Compliance and the Supervision's paper compliance function in banks," the bank's board of directors is responsible for overseeing the management of the bank's compliance risk. The board should approve the bank's compliance policy, including a formal document establishing a permanent and effective the board or a compliance function. At least once a year, committee of the board should assess the extent to which the bank is managing its compliance risk effectively. BASEL COMMITTEE According to the Basel Committee on Banking Supervision's paper entitled "Customer Due Diligence for Banks," how are sound KYC procedures relevant to the safety and soundness of banks? - CORRECT ANSWER *They help to protect banks' reputation and the integrity of banking systems by reducing the likelihood of banks becoming a vehicle for or a victim of financial crime and suffering consequential reputational damage, and • They constitute an essential part of sound risk management (e.g. by providing the basis for identifying, limiting and controlling risk exposures in assets and liabilities, including assets under management).