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504 Cards in this Set
- Front
- Back
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What does the "SEC" do? Under what authority?
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Among other things, it regulates brokers and dealers, under authority of the Securities Exchange Act of 1934
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"Respondent Bank"
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A bank which uses the services of another bank, such as check clearing, wire transfers, etc. The bank providing the service is the "correspondent bank"
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What must a financial institution do if they have "Exempt Accounts"?
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The exempt accounts must be documented and the financial institution that secures the exemptions must still monitor their financial transactions
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Who appoints a "Federal Receiver"? (US)
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A United States Federal Court
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What was the effect of the 1988 Vienna Convention as it relates to extradition?
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It provided for money laundering to be an internationally extraditable offense
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In general terms, Enhanced Due Diligence requires what of a financial institution?
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To take additional steps of examination and caution in identifying their customers and confirming that their customers' activities and funds are legitimate.
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What is the goal of the Egmont Group?
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To provide a forum for FIUs to improve support to their respective national anti-money laundering programs and develop protocols for the sharing of information.
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What does an Extradition Treaty specify?
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The terms of such exchanges, the persons subject to being exchanged, and the crimes for which exchanges will be permitted.
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How does the Egmont Group help its members?
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Expanding / systemizing the exchange of financial intelligence, improving expertise and capabilities of their personnel, fostering better communication by applying new technologies and sharing financial crimes investigations information.
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What is the Federal Service for Financial Monitoring?
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The FIU of Russia
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What is the Serious Organised Crime Agency (SOCA)?
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The FIU of the United Kingdom
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In what country is the Egmont Group Secretariat now located?
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Canada
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What is important about the (US) Money Laundering Control Act of 1986 (MLCA)?
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It was the first law in any country to make money laundering a crime
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What does the principal US money laundering law look for before implementing its "extraterritorial reach"?
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Transportation / transfer of funds (even clean) to or from the US, if done to promote unlawful activity, or with knowledge that the funds are illicit, or to conceal or disguise the nature, location, source, ownership, etc. of funds, or to avoid federal /
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What criterion does the US need to enforce its "Extraterritorial Reach"?
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The principal US money laundering law can apply to a non-US citizen if the "conduct" occurs "in part" of the US.
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What does a "Commission Rogatoire" normally specify?
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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 that is sought.
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"Commission Rogatoire" is known in English as?
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Letters Rogatory
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Foreign Shell Banks are vehicles for _______ and _______.
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Money laundering and tax evasion.
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US law prohibits Foreign Shell Banks from _______.
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Maintaining correspondent accounts at US financial institutions (USA PATRIOT Act)
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What is a Financial Intelligence Unit
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An intelligence gathering law enforcement or regulatory body that receives financial information from covered financial institutions, businesses, and persons in its respective country.
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What does a Financial Intelligence Unit do?
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It analyzes and processes information and disseminates it to appropriate government authorities in support of anti-money laundering efforts and financial crimes investigations.
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What does a Financial Investigations Unit do beyond what a Financial Intelligence Unit does?
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It conducts investigations in support of a government's confiscation or seizure efforts.
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Who conducts the Financial Sector Assessment Program (FSAP)?
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The International Monetary Fund and the World Bank conduct the joint program.
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What does the Financial Sector Assessment Program (FSAP) do?
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Through the use of experts, the program optimizes expert resources, reduces duplication of efforts and provides uniform advice in financial sector work.
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What is the goal of the Financial Sector Assessment Program (FSAP)?
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Helps to identify financial system strengths and vulnerabilities and to reduce the potential for crisis.
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What is a "NCCT"?
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Country or territory that has been designated by the FATF as non-cooperative with international AML principles and procedures.
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"DNFBP"
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Designated Non-Financial Businesses and Professions"
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Recommendation 10 (2012 revision) states that "Financial institutions should be required to undertake Customer Due Diligence measures when:
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(i) establishing business relations; (ii) carrying out occasional transactions above the applicable designated threshold or that are wire transfers in the circumstances covered in Interpretive Note to Rec 16; (iii) there is suspicion of money laundering o
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"MVTS"
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Money or Value Transfer Services
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Recommendation 10 (2012 revision) states that CDD measures to be taken for the customer and/or beneficial owner are:
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(a) identifying the customer and verifying that identity using reliable, independent source documents, data or information; (b) identifying the beneficial owner (BO) and taking reasonable measures to verify the identify of the BO, such that the FI is sati
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Associate NPOs include
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Foreign branches of international non-profit organizations (from Interpretive Note to Recommendation 8, 2012 revision.)
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Recommendation 1 (2012 revision) states that countries should require FI's and DNFBP's to:
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Identify, assess and take effective action to mitigate their ML and TF risks.
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"Cover Payment"
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A wire transfer that combines a payment message sent directly from the ordering FI to the beneficiary FI with the routing of the funding instruction (cover) from the ordering FI to the beneficiary FI through one or more intermediary FI's.
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Non-profit organization supervision should require NPO's to (from Interpretive Note to Recommendation 8, 2012 revision)
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be licensed or registered; issue annual financial statements that provide detailed breakdowns of incomes and expenses; have controls to ensure funds are accounted for and are spent consistent with their stated purpose and objectives; maintain the identify
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Who issues the International Narcotics Control Strategy Report (INCSR) and how often?
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The United States State Department issues the report annually.
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What does the International Narcotics Control Strategy Report (INCSR) entail?
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A detailed report on the narcotics trade and a lengthy narrative on the status of the related money laundering issues in most nations
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What is one of the central strategic tools required for effective action against money laundering?
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Confiscation
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Under the US Bank Secrecy Act, SAR filings are confidential and the institution's employees cannot _______.
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"Top off" a customer that a report has been filed. Failure to maintain confidentiality is a violation of law
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Many jurisdictions have legislation to ensure that suspects are not _______.
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tipped off that they are being investigated.
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USA PATRIOT Act Section 312, "Offshore Bank"
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A bank whose license has conditions that prohibit the licensed entity from conducting banking activities with the citizens, or with the local currency, of the country that issued its license.
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Structuring is a common technique in jurisdictions that _______.
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have in place compulsory currency reporting requirements.
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What is one of the Financial Services Authority's (UK) tasks?
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To reduce financial crime, including money laundering and terrorist financing.
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A "Ponzi" scheme is named for whom?
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Charles Ponzi, an Italian immigrant to the US who spent 10 years in US jail for a scheme that defrauded 40,000 people out of $15 million.
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How is "identity theft" often accomplished?
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By acquiring personal information about the victim (e.g., date of birth, address, credit card numbers) through stealth and misrepresentations.
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"Kiting" via credit card
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A merchant submits a sales transaction on his personal bankcard account to obtain cash advances through their business.
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What is the primary use of a "Mutual Legal Assistance Treaty"?
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To allow for mutual assistance in legal proceedings and access to documents and witnesses and other legal and judicial assistance in the respective countries.
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"Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime" is known for what?
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Extending the offence of money laundering to include money laundering associated with all serious offenses, not only with drug trafficking. (adopted 9/90)
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"The United Nations Convention against Transnational Organized Crime" is also known as _______.
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The Palermo Convention (adopted 12/2000)
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"The United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances" is also known as _______.
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The Vienna Convention (adopted 12/1988)
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UK courts view on "Suspicion"
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A degree of satisfaction not necessarily amounting to belief but extending beyond speculation as to whether an event has occurred or not. Though suspicion requires a lesser factual basis than a belief, it must be built upon some foundation.
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What is the significance of "Non-Financial Trades and Businesses" in relation to money laundering?
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They are businesses such as automobile, airplane and boat dealers, lawyers, jewelers, real estate brokers and others that are subject to Bank Secrecy Act regulations (US)
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A public perception that a bank is not able to manage its operational risk effectively can _______.
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disrupt or adversely affect the business of the bank.
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Who appear to be the predominant users of hawalas and other alternative remittance systems?
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Expatriates sending money back to their home country or by other individuals sending money abroad.
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Operational risks in the Know Your Customer context relate to _______.
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weaknesses in the implementation of bank programs, ineffective control procedures and failure to practice due diligence.
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What is a private investment company (PIC)?
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A corporation, often established in an offshore jurisdiction with tight secrecy laws, to protect the financial privacy of its owners.
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What is a private investment company also known as?
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While it is normally also known as a Personal Investment Company (PIC), in some jurisdictions, the international business company or exempt company is also the same.
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May a shell bank maintain a correspondent account with a United States bank?
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No
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Give 2 examples of major Non-Governmental Organizations in the financial world.
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International Monetary Fund, World Bank.
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What does the Organization of American States do through its Inter-American Drug Abuse Control Commission (OAS-CICAD)?
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Through CICAD, the OAS issues money laundering recommendations and sponsors / coordinates training seminars for public officials and bankers in its member countries.
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What is the purpose of using "offshore" institutions?
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In attempting to reduce one's taxes or protecting or hiding assets, one tries operating one's finances under the laws of another jurisdiction that is more favorable than where one resides.
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Why is a "money order" attractive to a money launderer?
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Because it represents funds drawn on the account of a financial institution and not a particular individual.
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When was the Offshore Group of Banking Supervisors established? What was the impetus behind its establishment?
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October 1980. The instigation of the Basel Committee on Banking Supervision (with which the group maintains close contact.)
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What are the primary objectives of the Offshore Group of Banking Supervisors?
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To promote the effective supervision of banks in their jurisdictions; to further international cooperation in the supervision between the Offshore Banking Supervisors, and with Basel Committee member nations and other banking supervisors.
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Why does a launderer try to run transactions through a concentration account of a financial institution?
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Because they are accounts through which funds are transmitted and co-mingled without personally identifying the originator.
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How are "predicate crimes" sometimes defined?
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As "felonies" or "all offenses in the criminal code"
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The three stages of Money Laundering
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Placement, Layering, and Integration
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What tend to be the markings of Private Banking transactions?
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Confidentiality, complex beneficial ownership arrangements, offshore investment vehicles, tax shelters, and credit extension services.
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How do most governments view Private Banking?
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As a financial institution service that is very vulnerable to money laundering.
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What are the two primary goals of a good Know Your Customer policy?
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To determine the true identity of a customer and the type of activity that will be "normal and expected" for the customer.
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The "Kingston Declaration on Money Laundering" recommended that nations enact laws defining money laundering based on the model laws issued by _______.
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the OAS (Organization of American States.)
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With good KYC procedures, an institution can understand what is "normal and expected" for a particular customer, which helps an investigator to determine _______.
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what activity should be considered "unusual" for that particular customer.
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What risk does a financial institution face if it handles or transfers funds in a manner detrimental to the interests of the rightful owner?
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Breach of trust
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A KYE program's aim is to acquire a better knowledge and understanding of an employee's _______.
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background and activities.
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The "JMLSG"
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Joint Money Laundering Steering Group
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A good KYE program helps in detecting what four things?
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Conflicts of interest, money laundering activity, criminal activities (past or present), and suspicious activity.
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Profiling
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Procedure where an institution determines the type of activity that should be "normal and expected" for a customer and then monitors the activity based on it.
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Many experts believe that a sound KYC program is _______.
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one of the best tools in a good AML program and for detecting suspicious activity.
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In actuality, what poses the same, if not greater, reputational risk as the accounts and transactions of PEPs?
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Business relationships with family members or close associates of PEPs, as many PEPs use these people as fronts for their illicit proceeds.
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"IBC"
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International Business Company
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"KYCC"
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Know Your Customer's Customer
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Among the laws recommended by the "Kingston Declaration on Money Laundering" are ones that permit what?
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Enabling the identification, tracing and evaluation of property subject to seizure, and permit freezing assets; allowing judicial challenges to seizure orders by an administrative body; and permitting forfeiture in all cases following conviction.
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"KYCB"
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Know Your Correspondent Bank
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What is the Joint Money Laundering Steering Group
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The leading UK Trade Associations in the financial services industry
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"Integration"
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The final phase of the laundering process; the attempt to manifest apparent legitimacy to criminally derived wealth by "re-entering" it into the legitimate economy and using it there (such as the purchase of a mansion or yacht.)
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A pyramid scheme is also called _______.
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A chain-referral scheme.
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What is the aim of the Joint Money Laundering Steering Group (UK)?
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To promulgate good practices in countering money laundering and to give practical assistance in interpreting the UK Money Laundering Regulations and laws
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"Loan Back" method; Give an example of how it works
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Dirty money of a criminal [A] is sent to foreign bank account of company [B]. Investment company [C] is formed in A's country. A is appointed director of C. C borrows money from B and buys building, which is rented to 3rd parties. With rent, C pays off
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Why is it imperative to have a strong KYE program?
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In many major money laundering operations, it is not unusual to find a complicit employee in a financial institution.
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Should one ever file a Suspicious Transaction Report (STR / SAR) based on a person's profile?
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Absolutely NOT. If the decision is based purely on a profile, then you are discriminating. You need to file such reports on the ACTIVITY, especially if it differs from the "normal and expected" as reflected in the customer profile.
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What is meant by "Know Your Customer's Customer?"
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Procedures used to determine the identities of the account holders of a respondent bank in a correspondent banking relationship.
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White-collar crime
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Normally seen as non-violent or involving "business-related" schemes rather than violent or threat or violence crimes.
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True or False: The USA PATRIOT Act enacted a number of statutory provisions that bear directly on the procedures US financial institutions must follow in connection with their foreign correspondent banks.
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True.
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What is meant by "Know Your Correspondent Bank"?
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Procedures used to determine the beneficial owners of a correspondent bank and the type of activity that will be "normal and expected" for the bank.
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What are included in the Wolfsberg AML Principles on Private Banking
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General recommendations for client acceptance, updating client files, practices when identifying unusual or suspicious activity, monitoring, control responsibilities, reporting, education, and records retention.
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What is the Wolfsberg Group?
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An association of global financial institutions that issues guidelines in such areas as correspondent banking, private banking, terrorist financing, etc.
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Why is "Know Your Correspondent Bank" important?
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As a key tool in detecting suspicious or money laundering activity, it is important because correspondent accounts are often used as conduits to launder criminal proceeds in international settings.
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The (UK) Joint Money Laundering Steering Group has published a serious of AML Guidance Notes for different sectors of the financial community. Is the application of these Notes mandatory?
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NO. As a group of trade associates, it has no regulatory power or function.
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What was the target of UN Security Council Resolution 1373?
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Terrorism and terrorist financing.
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Why is "Know Your Customer's Customer" important?
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Respondent banks may be used by other banks and customers to conduct transactions through a correspondent account.
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Transparency International
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Berlin-based, non-governmental organization with goal of improving government accountability and curbing national and international corruption.
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"Commodity Pool"
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Combines funds from various members and uses them to trade in futures or options contracts
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Where is the Art Loss Register found?
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www.artloss.com
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In Emerging Money Laundering Risks, what 3 methods are identified as "Funds Transfers"?
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Stored Value Cards, Mobile Payments, and Internet Payments
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Credit Card Associations
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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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"Commodity Pool Operator"
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Operator or solicitor of funds for a commodity pool, which combines funds from members and trades futures or options contracts
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"Guaranteed Introducing Broker"
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An introducing broker-dealer with an exclusive written agreement with a Futures Commission Merchant (FCM) that obligates the FCM to assume responsibility for the introducing broker's performance.
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"Options / Options Contract"
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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.
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"Downstream Correspondent Clearer"
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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.
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In Emerging Money Laundering Risks, what 3 areas are associated with "Contractual Transactions"?
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Real Estate, Insurance Transactions, and Trade-Based Money Laundering
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"Open System Stored Value Card"
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A prepaid card that is linked to the global funds network, which can allow for worldwide ATM withdrawls and purchases with many merchants.
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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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Review customer files and conduct random sampling of accounts
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(Credit Card) Issuing Bank
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Solicits potential customers and issues the credit cards
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"Reverse Flip"
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A 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 funds appear legitimate as it sold at market.
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"CFT"
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Countering the Financing of Terrorism (could also be "CTF", Counter Terrorist Financing)
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What were recently identified as Emerging Money Laundering Risks?
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Funds Transfers, Shell Corporations, and Contractual Transactions
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What are the 2 types of Stored Value Cards?
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Open System, and Closed System
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True or False: Basel's "Customer Due Diligence for Banks" states that the decision to open an account for a PEP should be taken at a senior management level.
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True.
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The International Monetary Fund estimates that laundered funds comprise _______ of the world's gross domestic product.
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2% to 5% ($590 billion to $1.5 trillion)
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(Credit Card) Third-Party Processor
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Firm that contracts with issuing or acquiring banks to provide transaction processing and other credit card-related services for the bank.
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"Commodity"
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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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The "Art Loss Register"
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The world's largest private database of stolen art
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Give examples of Vital Service Providers (VSPs)
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Attorneys, accounts, broker-dealers, communication and transportation providers, bankers and other financial service providers, concealment trap (hiding places) builders, etc.
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"Scheme"
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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.
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"Wire Transfers"
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Electronic transmissions of funds between financial institutions on behalf of themselves or their customers.
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Give examples of White Collar Crime
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Money laundering, bribery, and health care, tax, bankruptcy, securities, or environmental frauds, etc.
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"FATF"
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Financial Action Task Force
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What was the target of UN Security Council Resolution 1267?
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Adopted in 1999, it imposed sanctions on Taliban-controlled Afghanistan for its support of Osama Bin Laden and the Al-Qaeda organization.
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FATF Recommendations: Examples of non-financial businesses and professions
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Casinos, real estate agents, precious metal / precious stones dealers, lawyers, notaries, accountants, and trust & company service providers
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"Investment Adviser"
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Person who, for compensation, provides advice on securities and investments and manages client assets
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Characteristics of an Open System Stored Value Card
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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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"Introducing Broker-Dealers in Commodities" (IB-C)
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Firm or person that solicits and accepts commodity futures orders from customers but does not accept funds. Two types of IB-C's: guaranteed and independent.
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"Commodity Trading Advisor"
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Direct or indirect advisor on buying and selling futures or commodity options
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(Credit Card) Acquiring Bank
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Processes transactions for merchants who accept credit cards
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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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Harmful or Preferential Tax Regimes
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What are some of the AML dangers of casino junkets?
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May involve movement of large sums of money going cross-border and often through multiple casinos - all by a third party (the operator.) Sometime operator does not identify funds owners.
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"FCPA" (US)
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Foreign Corrupt Practices Act
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What is the FCPA primarily known for?
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Passed in 1977, the US law is primarily known for its anti-bribery provisions (it also applies to foreign companies with stocks covered by the Securities and Exchange Act of 1934)
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FATF's designated transactional threshold for Financial Institutions is _______.
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USD / EUR 15,000 (Interpretive Note to Recommendations 5, 12, and 16.)
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FATF's designated transactional threshold for Casinos (including Internet Casinos) is _______.
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USD / EUR 3,000 (Interpretive Note to Recommendations 5, 12, and 16.)
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FATF's designated transactional threshold for Dealers in Precious Metals and/or Precious Stones is _______.
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USD / EUR 15,000 (Interpretive Note to Recommendations 5, 12, and 16.)
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True or False: According to FATF, financial transactions above a designated threshold must occur in a single operation.
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False. They may include situations where the transaction takes place in a single operation or in several operations that appear to be linked.
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How is "Legal Risk" defined by the 2001 Basel Due Diligence Principles?
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The possibility that lawsuits, adverse judgments, or contracts that turn out to be unenforceable can disrupt or adversely affect the operations or condition of a financial institution.
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What can result from an institution's disregard for the Basel Due Diligence Principles?
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The financial institution can become subject to lawsuits from the failure to observe mandatory KYC standards or from failure to practice due diligence
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What normal business practice makes "Product Diversion" possible?
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Large companies often export their branded products at wholesale prices far below those at which those products are offered in the home country.
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Why do companies export their goods at prices far below those in their home country?
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To create new overseas markets, dispose of excess goods, or otherwise recover their costs
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How does "Product Diversion" work?
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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 profits.
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"Competent Authorities" refers to _______.
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all administrative and law enforcement authorities concerned with combating money laundering and terrorist financing, including the FIU and supervisors.
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What is a "Trust"?
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A contractual arrangement whereby the trustees manages the property for the benefit of the beneficiary in accordance with the contractual terms set by the grantor.
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Who are the parties involved in a trust?
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The grantor (the owner of the property), a beneficiary and the trustee (the manager of the property.)
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"Futures Commission Merchant" (FCM)
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A firm or person that solicits or accepts orders on futures contracts or commodity options and accepts funds for their execution
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The "OCC"
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The Office of the Comptroller of the Currency. A federal regulator in the US, responsible for auditing risk and compliance measures of federally chartered banks.
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"Mutual Fund"
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A fund, offered by an investment company, that offers shares while investing the capital in diversified securities of other companies.
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"Underwriting"
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The process of agreeing to purchase a new issue of securities from an issuer and distribute it to investors. The underwriter makes a profit between the price paid to the issuer and the public offering price.
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What are the 3 main functions of a "Transfer Agent"?
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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.
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(stock) "Warrants"
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A security that offers the owner the right to subscribe for ordinary shares of a company at a fixed date, usually at a fixed price. Equivalent to stock options.
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"Variable Annuity"
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Contract issued by an insurance company under which an investor provides the insurer with funds (a lump-sum or series of payments.) The insurer then agrees to make periodic payments to the investor starting immediately or in the future.
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Why is understanding "Product Diversion" important to the AML investigator?
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Their financial institution may, wittingly or unwittingly, handle the proceeds of this crime while believing it is serving a legitimate client with major account balances.
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"Boiler Room"
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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 potential investors as possible.
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"Fraud"
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Intentional misrepresentation, concealment, or omission of the truth for the purpose of deception or manipulation to the detriment of a person or organization.
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What do boiler room salespeople typically do?
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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.
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What do boiler room salespeople typically sell?
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Penny stocks.
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"Open-end Mutual Fund" (or Company)
|
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 proportion to the net asset value of the underlying investments (no premium or discount.)
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"Closed-end Mutual Fund" (or Company)
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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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"Free Look Period"
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A contractual provision that allows the contract owner the right to return the contract within a specified period for a refund.
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"Derivatives"
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Financial instrument whose price is related to the underlying commodity, currency, economic variable, financial instrument or security.
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"Margin"
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An arrangement whereby an investor pays for part of a securities purchase and borrows the rest from a securities intermediary.
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How do "Hedge Funds" operate?
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The pool investors' money and invest those funds in financial instruments in an 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.
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What do "Hedge Funds" attempt to do?
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To profit in all kinds of markets by pursuing leveraging and other speculative investment practices that may increase the risk of investment loss.
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Common types of "Derivatives"
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Futures contracts, forwards, swaps, and options.
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"SRO"
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Self-Regulatory Organizations
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What are the characteristics of a SRO?
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Represents a profession and is made up of member professionals; has a role in regulating the persons who are qualified to enter and who practice the profession; performs certain supervisory or monitoring type functions.
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"Express Trust"
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A trust clearly created by the settlor, usually in the form of a document, such as a written deed or trust.
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"Identification data"
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Reliable, independent source of documents, data or information.
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"Penny Stocks"
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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.
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"OTC markets"
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Over-The-Counter. A market in which securities are bought and sold outside of established securities markets
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"Market Manipulation"
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A deliberate attempt to interfere with the free and fair operation of the market and create artificial, false or misleading appearances with respect to the price of, or market for, a security, commodity or currency.
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"Short Sale"
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The sale of a stock that the investor does not own. To do so, a security intermediary "loans" the stock to the investor, which comes from the intermediary's own inventory, another client's margin account or another intermediary.
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"Affidavit"
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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.
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"Account Monitoring Order" (UK & several other countries)
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An order from a government authority requiring a financial institution to provide transaction information on a suspect account for a specified period of time.
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"Arrest Warrant"
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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.
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"Portfolio Manager"
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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.
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"Nostro"
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Account established by a domestic banking institution to receive deposits from, make payments on behalf of, or handle other financial transactions for a foreign financial institution, usually in the foreign financial institution's currency.
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"Pink Sheets"
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An electronic quotation system that displays quotes of many securities traded over the counter.
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"Agent" (Insurance Industry)
|
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)
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"Distribution Channel" (Insurance Industry)
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The means through which the insurance products and services are provided to a customer.
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"Legal Arrangements" (Insurance Industry)
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Refers to express trusts or other similar legal arrangements such as fiducie, treuhand, and fideicomiso.
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"Dematerialization of Securities"
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The transfer of physical, hard-copy security certificates to book entry credits of a security holder's interest.
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"Money Mules"
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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.
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"Investigative Log"
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A contemporaneous record of the steps, observations, evidence, findings and decisions of an investigation.
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"Cash Equivalent"
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Any item that a bank is willing to accept for immediate, provisional credit to a customer's account - instantly increasing the account's balance.
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"Cash Log"
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A record that financial institutions must retain for each cash sale of bank checks, drafts, money orders, cashier's checks and traveler's checks between $3,000 and $10,000.
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"Apostille"
|
Applied by an authority, it is a special seal which certifies that a document is a true copy of an original. However, it does not and can not speak to the validity of the document's content.
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Can a notary issue an Apostille?
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Yes, but it must be in a country that signed The Hague Convention (1961) and it must bear the mark "APOSTILLE." If the notary doesn't understand, find another one.
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Give an example of the use of an Apostille.
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If one wants to open a bank account overseas, but do it through the mail, the bank may need to be assured that the copy of the passport is correct. The Apostille mark can assure this.
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"Abusive Squeezes"
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Market participants intentionally restrict a security's liquidity. May lead to increased profits when the security's price rises due to the lack of "supply."
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"Behavior Detection"
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High-speed matching of known or suspected patterns in very large databases using pattern recognition algorithms.
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"Automated Sale"
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Use of electronic clearing houses to facilitate electronic transfers of money that complete transactions between two parties where the buyer receives securities, goods, services, etc. in exchange for the money.
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"Cash Letter"
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An interbank transmittal form, resembling a deposit slip, used to accompany cash and cash equivalents items sent from one bank to another.
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A "cash letter" can also be referred to as _______.
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pouch activity.
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"Convertible Bond"
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Corporate bond that includes an option for the holder to convert it into other securities after a specified period at the discretion of the bond holder.
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"Convertible Preferred"
|
Preferred stock that includes an option for the holder to convert it into common stock at a specified conversion rate.
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Why do convertible bonds often have lower interest rates than non-convertible bonds?
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They can accrue value as the price of the underlying stock rises.
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"Corporate Bank"
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Type of foreign bank that is incorporated in the host country but is considered to be owned by a foreign parent bank. It only needs to be operated under the host country's regulations.
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"Counter Party"
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The opposing party in a transaction or trade.
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FATF Recommendation 1
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Countries should identify, assess, and understand the ML and TF risks for the country; take action and assign resources to ensure the risks are mitigated effectively
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FATF Recommendation 2
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Countries should have national AML/CFT policies which are reviewed regularly and have a designated, responsible authority. Competent authorities and supervisors should have effective domestic cooperation and coordination mechanisms.
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FATF Recommendation 3
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Countries should criminalize money laundering with a view to include the widest range of predicate offenses.
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FATF Recommendation 4
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Countries should enable their competent authorities to freeze, seize and confiscate laundered property or proceeds.
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FATF Recommendation 5
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Countries should criminalize terrorist financing as well as financing terrorist organizations or individuals even without a link to a specific terrorist act(s). They should also ensure such offenses are designated ML predicate offenses.
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FATF Recommendation 6
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Countries should implement financial sanctions against terrorist financing which should include freezing without delay any funds or other assets made available, directly or indirectly, to or for the benefit or any properly designated person or entity.
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FATF Recommendation 7
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Countries should implement financial sanctions relating to the prevention of the proliferation of weapons of mass destruction and its financing which should include freezing without delay any funds or other assets made available, directly or indirectly, t
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FATF Recommendation 8
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Countries should review the adequacy of laws and regulations relating to entities that can be abused for terrorist financing such as non-profit organizations. Such misuses can include terrorist organizations posing as legitimate entities, exploited legit
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FATF Recommendation 9
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Countries should ensure that financial institution secrecy laws do not inhibit implement of the FATF Recommendations.
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FATF Recommendation 10
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Financial institutions should be prohibited from keeping anonymous accounts or accounts with obviously fictitious names. FI's should be required to undertake CDD measures. The principle that FI's should conduct CDD should be set out in law or other enfo
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FATF Recommendation 11
|
Record retention: 5 years: data to recreate any individual transaction; 5 years after relation ends - all customer identification data.
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FATF Recommendation 12
|
Foreign and domestic PEP accounts need to be identified, approved by senior management, and have ongoing, enhanced monitoring. Sources of wealth and funds must also be established. Includes PEP's, family members and close associates.
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FATF Recommendation 13
|
With foreign correspondent banks, FI's should be required to determine nature of respondent's business, reputation, quality of supervision; assess their AML/CFT controls; obtain senior management approval; clearly define responsibilities; not deal with sh
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FATF Recommendation 14
|
Measures should be taken to ensure natural or legal persons providing money or value transfer services are licensed or registered and subject to effective monitoring systems ensuring relevant compliance. Lists of agents must be available and sanctions fo
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FATF Recommendation 15
|
Financial institutions should pay attention to any threats fro new or developing technologies, especially with non-face-to-face relationships.
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FATF Recommendation 16
|
Ensure that FI's include required and accurate originator and beneficiary information on wires and related messages and that information remain intact throughout the cycle. FI's should take freezing actions when detecting designated persons and entities.
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FATF Recommendation 17
|
Financial institutions may rely upon intermediaries to perform certain CDD elements provided the intermediary is supervised and regulated. However, ultimate responsibility remains with the financial institution.
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FATF Recommendation 18
|
FI's 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
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FATF Recommendation 19
|
Financial institutions should be required to apply EDD measures to relationships or transactions with legal or natural persons or FI's from high risk jurisdictions and countries should be able to apply appropriate countermeasures with or without FATF guid
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FATF Recommendation 20
|
A financial institution, having reasonable grounds to suspect funds are the proceeds of criminal activity or are related to terrorist financing, should be required, by law, to report such suspicions promptly to the financial intelligence unit (FIU)
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FATF Recommendation 21
|
With respect to STR / SAR reporting, financial institutions, their directors, officers and employees should be afforded safe harbor, yet barred from any unauthorized disclosures.
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FATF Recommendation 22
|
The CDD & record-keeping requirements (of Rec 10, 11, 12, 15, & 17) apply to designated non-financial businesses and professions for certain transactions and above designated thresholds.
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FATF Recommendation 23
|
Dealers in precious metals / stones, trust and company services providers, lawyers, notaries, and accounts should all be required to report suspicious activity, including issues found during an audit.
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FATF Recommendation 24
|
Countries should ensure that there is adequate, accurate and timely information on the beneficial ownership and control of legal persons available to competent authorities. Similar access should be considered for financial institutions and DNFBP's.
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FATF Recommendation 25
|
Countries should ensure that there is adequate, accurate and timely information on express trusts, including information on the setter, trustee and beneficiaries.
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FATF Recommendation 26
|
Financial institutions should have adequate supervision and regulation. Ensure no criminal element in position of control. Money transfer/exchangers should be registered and subject to monitoring.
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FATF Recommendation 27
|
Supervisors should have adequate power to supervise and monitor, including right of inspection, ability to compel information, impose sanctions and, when appropriate, suspend, restrict or withdraw a financial institution's license.
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FATF Recommendation 28
|
Designated non-financial businesses and professions should be subject to regulatory and supervisory measures. Casinos should prevent criminal ownership, operation or management.
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FATF Recommendation 29
|
Countries should establish a financial intelligence unit (FIU) to service national Center for the receipt and analysis of suspicious transaction reports and other information relevant to AML/CFT or associated predicate offenses and the subsequent dissemin
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FATF Recommendation 30
|
Countries should designate law enforcement authorities with AML/CFT responsibilities and allow them special investigative techniques. They should also make use of multidisciplinary groups and competent authorities from other countries when appropriate.
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FATF Recommendation 31
|
Competent authorities should have powers of subpoena, search and seizure and be able to use techniques such as undercover operations, intercepting communications, accessing computer systems and controlled delivery.
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FATF Recommendation 32
|
Have measures in place to detect the physical cross-border transportation of currency and bearer negotiable instruments, including a declaration and/or disclosure system and authorities should have rights to stop or restrain suspect currency or instrument
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FATF Recommendation 33
|
Countries should maintain comprehensive statistics to gauge effectiveness of their AML and CTF efforts.
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FATF Recommendation 34
|
Competent authorities should provide guidelines and applying national AML/CFT measures, especially for detecting and reporting suspicious activity.
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FATF Recommendation 35
|
Countries should have effective criminal, civil and administrative sanctions for money laundering or terrorist financing violations. Such sanctions should apply to FI's and DNFBP's as well as their directors and senior management.
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FATF Recommendation 36
|
Countries should take immediate steps to become party to and implement fully the relevant international conventions related to AML, corruption and counter terrorist financing efforts
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FATF Recommendation 37
|
Provide mutual legal assistance in money laundering and terrorist financing investigations notwithstanding category, terminology or the absence of dual criminality; maintain confidentiality of the request; and not refuse to execute the request due to laws
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FATF Recommendation 38
|
Take expeditious action to requests by foreign countries to identify, freeze, seize and confiscate property laundered; proceeds from money laundering, predicate offenses and terrorist financing; or property of corresponding value
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FATF Recommendation 39
|
Countries should recognize money-laundering and terrorist financing as extraditable offenses and have adequate legal framework for extradition
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FATF Recommendation 40
|
Countries should ensure that their competent authorities provide the widest possible range of international cooperation to their foreign counterparts - rapidly, constructively and effectively.
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|
Vital Service Providers (VSP's)
|
People who help move the billions of dollars drug traffickers earn around the world
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|
When is a jurisdiction considered to be "ring-fenced"?
|
When residents are prevented from benefiting from a tax regime, or when non-residents are prevented from accessing the domestic market.
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|
|
Basel Principles: 4 major areas of focus
|
Customer identification, compliance with legislation, recordkeeping, and staff training
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|
|
Main items found in the "AMLID"
|
Analysis of AML laws and requirements; many money laundering control measures; information about national contacts and authorities.
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|
|
"Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime"
|
[9/90] Money Laundering now associated with all serious offenses, not just drug trafficking.
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|
|
Can an "Asset Manager" have full discretion or might there be limitations?
|
There may be full discretion or limitations, depending on the terms of the contract.
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|
|
How might an "Asset Manager" be compensated?
|
Hey can be based on performance achieved, trading commissions, or percentage of the valuation of the assets under his control.
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|
|
Common characteristics of "IBC"
|
Dedication to business use outside the incorporating jurisdiction, rapid formation, secrecy, broad powers, low cost, low to zero taxation, and minimal filing and reporting requirements. Some permit use of nominee shareholders, directors and officers.
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|
"TCSP"
|
Trust and Company Service Provider
|
|
|
Examples of "Cash Based Business"
|
Restaurant, pizza delivery companies, taxi services, coin operated machines, car washes.
|
|
|
Why are "Cash Based Busisnesses" attractive to money launderers?
|
Some money launderers run or use cash-based businesses to mix illegally obtained funds with cash actually generated by the business.
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|
|
Why is the distinction of "beneficial owner" over mere signature authority important?
|
Placing emphasis on the "beneficial owner" is a necessary step in determining the source of funds.
|
|
|
What was the purpose of the NCCT list?
|
The list identified nations that lacked sufficient money laundering controls, or otherwise impeded international efforts in the fight against money laundering.
|
|
|
Why are "Blank Check" companies used?
|
Created and designed to be used by private companies intending to go public through "reverse mergers" without the high expenses involved in making their own initial public offering.
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|
|
"The Palermo Convention" focused on what?
|
Any crimes committed by transnational criminal organizations.
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|
|
How might a launderer use a "Bookmaker" and his betting shop
|
Offering customers a premium for winning betting slips (often 7 to 10% over the winning value), then collecting "clean" money from the betting shop or the bookmaker. (Must be in a jurisdiction where gambling is legal.)
|
|
|
Other names for a "Bureau de Change"?
|
Casa de cambio, or Exchange office
|
|
|
How can banks reduce reputational risk?
|
They may protect themselves by vigilance through effective KYC and KYE programs.
|
|
|
What bank products may be especially sensitive to reputational risk?
|
Managed assets, or those held in a fiduciary capacity, can pose particular reputational risks. Also, any product for which management does not maintain proper vigilance.
|
|
|
"Stored-Value Card"
|
A prepaid payment card that stores a monetary value from which the purchase amount is deducted from the card each time the card is used.
|
|
|
"Split Deposit"
|
A bank transaction where a customer splits a deposit between multiple accounts.
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|
|
"Structuring"
|
The illegal act of splitting cash deposits or withdrawals into smaller amounts to avoid the filing of a report by a financial institution.
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|
|
"Supervisors"
|
Designated competent authorities responsible for ensuring compliance by institutions with requirements to combat money-laundering and terrorist financing.
|
|
|
"Sting Operation"
|
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
|
|
|
2 primary financing sources for terrorist activities
|
(1) Receiving financial support from countries, organizations or individuals; (2) Engaging in any revenue-generating illicit activities including smuggling, credit card fraud, drug trafficking, etc.
|
|
|
"Subpoena"
|
A compulsory legal process or writ issued by a court to compel the appearance of a witness at a judicial proceeding, sometimes requiring the witness to bring to court or to a deposition specified documents that are under the witnesses control.
|
|
|
Objective of terrorist activity
|
To intimidate a population or to compel a government to do something.
|
|
|
"Suspicion"
|
A belief to the disadvantage of another, accompanied by a doubt.
|
|
|
Importance of terrorist financing
|
A successful terrorist group (or criminal organization) must be able to build and maintain an effective financial infrastructure, developing sources of funding and obscuring the links between those sources and the activities the funds support.
|
|
|
"Nesting"
|
When a foreign banks correspondent account is used by another bank to conduct its own transactions.
|
|
|
"Smurfs"
|
Runners hired by money launderers to go from bank to bank making deposits or purchasing monetary instruments in amounts under reporting thresholds.
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|
|
"NFTB"
|
Non-Financial Trades and Businesses
|
|
|
"Smart Card"
|
A plastic card resembling a traditional credit or debit card. It contains a computer chip capable of storing significantly more information than a magnetic stripe.
|
|
|
"NGO"
|
Non-Governmental Organization
|
|
|
"Shell Bank"
|
A bank that exists 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.
|
|
|
"Nominee Company"
|
One formed for the purpose of holding securities or other asset in its name on behalf of others. Or a parent bank / trust company may use one to provide nominee directors / officers for clients.
|
|
|
"Smurfing"
|
Often, the use of multiple individuals who deposit cash or buy bank drafts in amounts under the reporting threshold. It allows the launderer to structure the transactions.
|
|
|
"NCCT"
|
Non-Cooperative Country or Territory
|
|
|
"Safe Deposit Box"
|
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.
|
|
|
"OAS - CICAD"
|
The Organization of American States - Inter-American Drug Abuse Control Commission.
|
|
|
Why might a launderer use a "Safe Deposit Box"?
|
It can provide useful storage place for the proceeds of crime during the money laundering process. Normally, no one but the renter of the box knows its contents.
|
|
|
"Offshore"
|
Simply means away from one's own home country.
|
|
|
"Lockbox"
|
Thanks service whereby a company direct its customers to send payments by mail to a PO Box. The bank picks them up several times a day, deposits them into the company's account, and notifies the company of the deposit.
|
|
|
"Offshore Bank"
|
A bank or other financial institution outside the country where the depositor or customer lives.
|
|
|
"Mail-Forwarding" or "Mail-Drop Service"
|
A fully legal commercial enterprise using a stable physical address as a delivery destination for letters or parcels on behalf of fee-paying clients who don't live on the premises. Mail can be held or forwarded at the client's request.
|
|
|
"Offshore Banking"
|
The establishment and operation of foreign banks and other financial institutions in offshore tax havens.
|
|
|
"Monitoring"
|
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.
|
|
|
The "OGBS"
|
The Offshore Group of Banking Supervisors
|
|
|
"Money Order"
|
A monetary instrument usually purchased with cash. Funds are drawn on the account of a financial institution not a particular individual.
|
|
|
"MLAT"
|
Mutual Legal Assistance Treaty
|
|
|
"Kiting" using checking accounts
|
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 flute for a "free loan."
|
|
|
"Layering"
|
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.
|
|
|
How did the "Kingston Declaration on Money Laundering" come to be?
|
The US, UK, France, Canada, and the Netherlands spearheaded a gathering of 17 Caribbean nations in November 1992 in Jamaica. At the conclusion, the nations issued a "Kingston Declaration on Money Laundering."
|
|
|
"KYC"
|
Know Your Customer (or Know Your Client)
|
|
|
"Kingston Declaration on Money Laundering" expressed what?
|
Solidarity with the 1988 United Nations Convention on Illicit Trafficking in Narcotic Drugs and an agreement to implement the "FATF 40" and the 19 additional ones issued at the 1990 Aruba meeting that created the C-FATF.
|
|
|
The Joint Money Laundering Steering Group is composed of what?
|
The leading UK Trade Associations in the financial services industry
|
|
|
The US Bank Secrecy Act offers what to those who report suspicious activity?
|
"Safe harbor" - full civil immunity from any civil action that may be filed by the subject of the report.
|
|
|
The facilitation of Human Trafficking and Illegal Migration generates proceeds of _______ per year.
|
$10 Billion
|
|
|
According to UNDOC (United Nations Office on Drugs and Crime), what is currently the fastest growing criminal business in the world?
|
Human Trafficking
|
|
|
"CIP" - What does it entail?
|
Customer Identification Program. The policies and procedures of a financial institution used to identify and verify the identify of its customers.
|
|
|
Give an example of how "Credit Finance" can be used by money launderers.
|
They can borrow funds for a high value asset (e.g., a boat), pay off the loan promptly by cash settlement, then sell the asset, and start all over again.
|
|
|
"Custodian"
|
A person or entity that has the responsibility to manage or administer the custody or safekeeping of assets for other persons or institutions.
|
|
|
In relation to a client's assets, what does "custody" entail?
|
Safeguarding and administering investments or assets.
|
|
|
"Clearing Account"
|
An internal account used by financial institutions (including securities dealers) to conduct internal and bank-to-bank transactions.
|
|
|
"Credit Card"
|
A plastic card with a credit limit used to purchase goods and services and to obtain cash advances on credit for which a cardholder is subsequently billed for repayment of the credit extended.
|
|
|
"Cashier's Check"
|
An instrument that is drawn on the account of a bank or other credit institution, not a particular customer.
|
|
|
"Correspondent Bank"
|
A bank which provides services to another bank, such as check clearing, wire transfers, etc. The bank using the service is a "respondent bank."
|
|
|
"EFT"
|
Electronic Funds Transfer.
|
|
|
"SEC"
|
Securities and Exchange Commission (US)
|
|
|
"ESAAMLG"
|
Eastern and Southern African Anti-Money Laundering Group
|
|
|
"Exempt Accounts"
|
In some countries, a distinction granted to certain customers of a financial institution permitting the institution to waive their responsibility to report certain transactions otherwise required.
|
|
|
"Futures"
|
Contracts that require delivery of a commodity of specified quality and quantity, at a specified price, on a specified future date.
|
|
|
"EDD"
|
Enhanced Due Diligence
|
|
|
What are the responsibilities of a "Federal Receiver"? (US)
|
To collect, marshal, and take custody, control, and possession of assets of a foreign defendant to satisfy a civil or forfeiture judgment, or a criminal sentence obtained by the US government under US money laundering laws.
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What is the Egmont Group and how did it get its name?
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An organization whose members are recognized national Financial Intelligence Units. Its name came from the location of the first meeting, the Egmont-Arenberg Palace in Brussels.
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"Extradition"
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The surrender by one jurisdiction to another of an accused or convicted person under a bilateral agreement.
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Approximately how many members are currently in the Egmont Group? What is its website address?
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Over 115 members. www.egmontgroup.org
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"Electronic Banking"
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A method in which funds are transferred through an exchange of electronic signals between financial institutions, rather than an exchange of cash, checks or other negotiable instruments.
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"Extraterritorial Reach"
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The extension of one country's policies and laws over citizens and institutions of another country.
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What are some of the powers of the Financial Services Authority (UK)?
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The authority to establish rules on money laundering controls and the ability to prosecute firms for breaches of the regulations.
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"Forensic Accountant"
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Specializes in analyzing financial evidence and testifying as expert witness in cases of white-collar crime, including money laundering.
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"Grantor"
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The person who creates and funds a trust, usually for the benefit of another.
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USA PATRIOT Act, "Foreign Shell Bank"
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A foreign bank without a physical presence in any country and generally has no employees.
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"Forfeiture"
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The permanent loss of property or assets by legal action by a government authority for failure to comply with the law or for the involvement of the property in a criminal activity.
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"FINTRAC"
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Financial Transactions & Report Analysis Center of Canada. The Financial Intelligence Unit of Canada. Established in November, 2001.
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"FIU"
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Normally, a Financial Intelligence Unit, but it can also be a Financial Investigations Unit.
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"FSAP"
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Financial Sector Assessment Program
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What is the "FSA"? (UK)
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An independent non-governmental body that regulates the financial services industry in the U.K.
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"FSA"
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The Financial Services Authority of the United Kingdom
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"Front Company"
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Appears to be a legitimate business, but is subsidized by illicit funds, thereby concealing the true beneficial owner and disguising the ill-gotten proceeds.
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The "G-7"
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The Group of Seven Industrialized Nations (US, UK, France, Germany, Italy, Japan, and Canada.)
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"e-money"
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Electronic money, where monetary value is stored on an electronic device. Also called e-cash.
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The "G-8"
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The Group of Eight Industrialized Nations (the G-7 plus Russia.)
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What is "FinCEN"? What does it do? When was it established?
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The Financial Crimes Enforcement Network. Part of the Department of the Treasury, it is the Financial Intelligence Unit of the US. Established in 1990.
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"Intermediary Financial Institution"
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A financial institution that receives funds from a wire transfer transmitter's financial institution and relays or transmits the order of payment to the recipient's financial institution. Sometimes called an intermediary bank.
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"Identity Theft"
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The assumption of another person's identity without authorization for use in fraudulent transactions that result in a loss to the financial institution or other victim.
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"INCSR," Who issues it?
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The International Narcotics Control Strategy Report of the United States. Issued annually by the US State Department.
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What does the "INCSR" include?
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A narrative status of money laundering issues in most nations.
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"Hawala"
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A type of alternative remittance system, ethnically originating in the Middle East and Southwest Asia.
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"Bust-out", also known as?
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"Expansion of Credit" or "High Utilization of Credit Line"
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3 present forms of biometrics
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Fingerprinting, voice recognition, and iris (eye) scans
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Frequent uses of "ACH"
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Payrolls and utility or insurance payments
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"Deferred Payment"
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What a debt has been incurred and will be paid back at some point in the future.
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USA PATRIOT Act, Section 311, "Correspondent Account"
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An account established to receive deposits from, make payments on behalf of a foreign financial institution, or to handle other financial transactions related to such institution.
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"Debit Transaction"
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A bankcard is used to purchase goods, services or to obtain cash, which debits (subtracts) the amount from the cardholder's personal deposit account.
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FATF 40 (2003), "Core Principles"
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Refers to basic principles and guidelines set forth separately for the Banking, Securities, and Insurance sectors.
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"CIO" (UK Term)
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Customer Information Order
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Why are "cash deposits" so critical to a money launderer's efforts?
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If the criminal proceeds are in cash, then it is imperative to get them into the financial system (placement.)
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"AML"
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Anti-Money Laundering
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"Zakat"
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One of the Five Pillars of Islam; roughly means tithing or alms-giving
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What is STR known by in the United States?
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Suspicious Activity Report (SAR)
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What is required with Zakat
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Once every lunar year a donation of generally 2.5% of a Muslims possessions, less obligations and expenses, is required to charity
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What risk can be associated with Zakat
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The charities can offer a convenient front for money laundering or terrorist financing.
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What is the primary purpose of FinCEN?
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To collect and analyze financial information for law enforcement agencies and regulates the financial communities under the Bank Secrecy Act.
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FinCEN is the primary _______.
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AML regulator in the US, with the authority to enact rules impose penalties and share information with US and foreign agencies under signed agreements.
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Why are / were "Cashier's Checks" used in money laundering?
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They provide an instrument drawn on a bank or other credit institutions account, not a particular customer's. Prior to the explosion of counterfeits, they were rarely questioned - often being cashed "on the spot."
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Why would a launderer have currency smuggled from one country to another?
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Currency is normally smuggled into countries with stricter banking secrecy, no exchange control and lax money laundering legislation, which provides launderer with fewer risks to the money.
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Where is the "Customer Information Order" used?
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In the UK
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"Bulk Cash Smuggling"
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The transport of large quantities of currency across borders, in an effort to avoid detection.
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What does the "Customer Information Order" require?
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All (or a targeted sample of) banks and other financial institutions to provide details of any and all accounts held by the person under investigation.
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What does the "Customer Information Order" enable?
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An investigator to find where the suspect holds account(s).
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FATF 40 (2003), Who establishes the "Core Principles" for the Banking Sector?
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The Core Principles for Effective Banking Supervision are issued by the Basel Committee on Banking Supervision
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FATF 40 (2003), Who establishes the "Core Principles" for the Securities Sector?
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The Objectives and Principles for Securities Regulation are issued by the International Organization of Securities Commissions
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FATF 40 (2003), Who establishes the "Core Principles" for the Insurance Sector?
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The Insurance Supervisor Principles are issued by the International Association of Insurance Supervisors.
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An EFT is, in many respects, equivalent to what product?
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A wire transfer.
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What are some of the characteristics of EFT's?
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It is secure, efficient, and less expensive than paper check payments and collections. They are done in batch and are less expensive than wire transfers.
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Name an entity that makes use of EFT technology?
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The Automated Clearing House (ACH)
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When and where was the ESAAMLG established?
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Established in August of 1999, in Tanzania.
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What region does the "APG" cover?
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South Asia, Southeast and East Asia, and the South Pacific.
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"BNI"
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"Bearer-Negotiable Instrument"
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Ordering FI
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The financial institution that initiates a wire transfer and transfers of funds upon receiving the request for the wire on behalf of the originator.
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"Serial Payment"
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A direct sequential chain of payment where the wire transfer and accompanying payment message travel together from the ordering FI to the beneficiary FI directly or through one or more intermediary FI's. (Correspondent banks)
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Beneficiary FI
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The financial institution that receives a wire transfer from the ordering FI directly or through an intermediary FI and makes the funds available to the beneficiary.
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Examples of Predicate Crimes
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Trafficking in drugs, psychotropics, stolen goods, arms, humans; racketeering; terrorism; terrorist financing; sexual exploitation (including that of children); counterfeiting of currency or goods; corruption; bribery; fraud; environmental crimes, murder,
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FATF has how many Associate Members?
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Eight: APG, CFATF, EAG, MONEYVAL, ESAAMLG, GAFISUD, GIABA, and MENAFATF
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False Declaration
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Miss representation of the value of currency or BNI's being transported, or misrepresentation of other relevant data which is required for submission in the declaration or otherwise requested by authorities (including failure to make it a required declara
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False Disclosure
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Miss representation of the value of currency or BNI's being transported, or misrepresentation of other relevant data which is asked for upon request in the disclosure or otherwise requested by authorities (including failure to make it a required declarati
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"MONEYVAL"
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Council of Europe Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism.
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"GAFISUD"
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Financial Action Task Force on Money Laundering in South America
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"MENAFATF"
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Middle East and North Africa Financial Action Task Force
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"EAG"
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Eurasia Group
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"GIABA"
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Intergovernmental Action Group Against Money Laundering in Africa
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Why is "refining" critical to a money launderer's efforts?
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If one needs to transport currency across borders, one needs to have the smallest package possible to minimize detection.
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How are debit cards convenient to the money launderer?
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If issued by financial institutions in secrecy havens, they leave little, if any, trace of the source of funds being drawn to pay the account holders obligations when the debit card is used.
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"Dormant Account"
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An account that does not show activity other than the posting of interest or account maintenance fees.
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"Debit Card"
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Issued by a financial institution, it allows an account holder to draw funds from a pre-existing account in his name for paying obligations, or making purchases in other locations/businesses.
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In AML terms, "Cross Border"
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Used in the context of activities between companies or individuals located in two countries, usually moving money or value between countries. CROSSing the BORDER.
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When was the Council of Europe Directive on Prevention of the Use of the Financial System for the Purpose of Money Laundering revised?
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December, 2001
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What is the function of the "CTR"?
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To communicate to government authorities when a currency transaction involving more than a certain amount takes place or multiple currency transactions aggregate over that amount in a single business day.
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What did the Council of Europe Directive on Prevention of the Use of the Financial System for the Purpose of Money Laundering entail?
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Required member states to achieve certain results to prevent their domestic financial systems from being exploited for money laundering by amending national laws, if needed.
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"Currency Smuggling"
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The transportation of currency from one country to another in a manner to avoid detection and evade any reporting requirements.
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Describe two (2) methods of money laundering using credit cards.
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(1) pay amounts owed on the card from an account containing criminal money. (2) Front-end load the card (overpaying the account) with dirty money, and then draw out the funds anywhere in the world via ATM machines.
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"Bust-out"
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Customer makes payments on account with bad checks, then takes cash advances before they clear, thereby expanding his credit.
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"BIS" Its website address? Its key investigative resource?
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Bank for International Settlements. www.bis.org, SWIFT code lookup feature.
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"Biometrics"
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Science of identifying features that differentiate one person from another.
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"Alternative Remittance System" (ARS) or "Informal Value Transfer System" (IVTS)
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Method to transfer values, often cross-border, outside of the legitimate banking system. Often, no physical movement of currency. No formal verification or recordkeeping.
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"Legal Person"
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Legal entity / artificial person. A legal construct with legal rights or duties (e.g., capacity to enter into contracts, sue or be sued.)
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Name 3 forms of IVTS or ARS
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Hawala, Hundi, Chiti Banking, Chop Shop Banking, Poey Kuan
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"ACH"
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Automated Clearing House - A system used to electronically debit or credit a checking or savings account.
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"BCBS"
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Basel Committee on Banking Supervision
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Duty of Trustees in a "Bare Trust"? Also known as?
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Only to convey the trust property to the beneficiary(ies) when called upon to do so. Also a dry, formal, naked, passive or simple trust.
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"Basel Principles" were issued when? By whom?
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1988, by the Basel Committee on Banking Regulations and Supervisor Practices.
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"BSA" Enacted when?
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Bank Secrecy Act, a key US AML statute. Imposes regulatory controls on financial institutions and many others. Must report and keep records on various financial transactions. Enacted in 1970.
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"Bank Secrecy"
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Bank secrecy prohibits banks in certain countries from revealing the existence of an account or discussing information about it without consent of the customer.
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"Austrac"
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Australian Transaction Reports and Analysis Centre. Financial Intelligence Unit of Australia, established in 1988.
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"Asset Protection Planning"
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Process that includes reorganizing how assets are held so as to make them less vulnerable should a claim be made against a person or entity.
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"Asset Manager"
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Person appointed by a written contract to direct investment programs of a company or trust
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"APG"
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The Asia / Pacific Group on Money Laundering.
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The "AMLID", where found?
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AMLID is a secure, multi-lingual database - an important reference tool for law enforcement involved in cross-jurisdictional work. (see IMOLIN.org)
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Previously, the Assets Recovery Agency dealt with the confiscation of criminals' assets in the UK. Who handles that now?
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SOCA - the Serious Organised Crime Agency.
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5 elements of a BSA / AML Compliance Program
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(1) Written internal policies, procedures and controls; (2) duly designated AML Compliance Officer; (3) ongoing employee training; (4) independent audit function; (5) approval of program by firm's board of directors
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The FATF 40 (2003) definition of a PEP is not intended to cover what type of people?
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Middle ranking or more junior individuals in the specified categories (government, judicial, military, etc.)
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"Placement"
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The first phase of the money laundering process; the physical disposal of illegally obtained cash, often by its introduction into the financial system
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"KYE"
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Know Your Employee
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"Predicate Crimes"
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Specified unlawful activities whose proceeds, if involved in the subject transaction can give rise to prosecution for the crime of money laundering.
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Permitting courts to decide that "all property obtained during a prescribed period of time by a person convicted of drug trafficking has been derived from such criminal activity" is recommended in the _______.
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Kingston Declaration on Money Laundering
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"Ponzi Scheme"
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Deploy in which current investors' money is used to pay off previous investors, giving the appearance of a business or investment having a legitimate return. No real product or business actually exists.
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"International Money Laundering Abatement and Anti-Terrorism Financing Act of 2001"
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Title III of the 2001 USA PATRIOT Act. It contains most, but not all, of the provisions the deal directly with money laundering matters.
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"Ponzi Scheme" examples
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The Prime Bank Guaranty Roll Program, Bank Debenture Program, High Yield Promises
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"Investment Banking"
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Provides brokerage and money management services, access to international markets and securities, account sweep features, and other alternatives to traditional banking instruments.
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"Policies"
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Internal "rules" of a financial institution that define how employees are expected to conduct themselves and the operating rules of the financial institution or business.
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"Profiling"
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Procedure by which a financial institution determines the type of activity should be considered "normal and expected" for a customer and later monitors the activity to determine if it stays within the profile.
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"Red Flag"
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A warning signal used to bring attention to a potentially suspicious or money-laundering situation, transaction or activity.
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"Reputational Risk"
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The potential adverse publicity regarding a bank's business practices and associations, whether accurate or not, will cause damage, including a loss of confidence in the integrity of the institution.
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"PEP" Examples
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Heads of state or government; senior politicians, and government, judicial or military officials; senior executives of state-owned corporations and important political party officials.
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How can banks be vulnerable to reputational risk?
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Because they can become a vehicle for, or a victim of, illegal activities perpetrated by customers.
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FATF 40 (2003) defines PEP's as _______.
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Individuals who are or have been entrusted with prominent public functions in a foreign country, for example Heads of State or of government, senior politicians, senior government, judicial or military officials.
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"Risk Matrix"
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A chart which sets out critical risk parameters, permitting a financial institution to determine whether a customer or potential customer presents a low, medium or high money laundering risk.
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"Pyramid Scheme"
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A fraudulent marketing program in which people buy the right to sell to others the right to sell a product. Generally, no products are ever sold as the "big money" is in the "rights to sell."
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"Safe Harbor"
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Legal protection from civil liability extended by law or regulation to the person or institution that reports suspicious activity to a government authority or undertakes another legally mandated or permissible task.
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"Risk-Based Approach"
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When an assessment of the varying risks associated with the different types of clients, businesses, accounts, and transactions it handles is used in implementing a program.
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"Regulatory Agency"
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An agency created by a government to supervise and oversee a classification of institutions in the domestic economy.
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"Remittance Service"
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Receives funds which it transfers through the banking system to an account held by an associated company in another jurisdiction where the money is available to the ultimate recipient.
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Self-Regulator Body (SRB)
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A body that represents a profession, is made up of members of that profession, has a role in regulating those entering and practicing in the profession. They perform supervisory or monitoring functions and they should enforce rules to ensure high ethical
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"Remittance Services" also called?
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Money Service Businesses, Giro Houses, Casas de Cambio.
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What powers does a regulatory agency normally have?
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To issue regulations, to perform audits and examinations, to impose fines and penalties, and to terminate charters or curtail activities of institutions under its jurisdiction.
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"Remittance Services" examples
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Issuers, sellers and redeemers of money orders, travelers checks, or stored value; my transmitters; check cashiers; currency exchangers / dealers
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"Suspicious Activity"
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A customer's activity or financial transaction that is suspected of being related to a money laundering or other criminal offense, or related to a terrorist financing offense.
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"STR"
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Suspicious Transaction Report
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What does the "UK Guidance Notes" state about a "suspicious transaction"?
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One which is inconsistent with the customer's known legitimate business, or personal activities, or with the normal business for that type of account.
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How can "Constructive (Involuntary) Trust Liability" arise?
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If it is deemed that a financial institution "knew" that the property in its possession belongs to a person other than its client.
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Bank Secrecy Act (BSA) - Name some of the conditions of "suspicious activity"
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(1) Involves illegal funds, (2) is designed to evade any suspicious activity reporting requirement, or (3) has no apparent lawful or business purpose.
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"E-Cash"
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Digital or electronic money - units of value stored electronically on the computer's hard disk or the microchip of a plastic card. Designed for the Internet, it can be passed from person-to-person.
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"Tax Information Exchange Agreements"
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Bilateral agreements entered between some national governments, which serve to produce evidence that is useful and money laundering and tax evasion prosecutions.
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Why is E-Cash attractive to the launderer?
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It can be totally anonymous (just like currency) and has immediate value (it is not a promise to pay); large amounts of e-cash can be "transported" quickly and easily via the Internet.
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The "EU"
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European Union
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"MLRO"
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Money Laundering Reporting Officer
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"Concentration Account"
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And account held by a financial institution in its name and used primarily for internal administrative or bank-to-bank transactions.
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"Private Banking"
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The department any financial institution providing certain high-end services to high net worth individuals and other wealthy customers
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"Confidentiality"
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Keeping certain facts, data and information out of public or unauthorized view
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"PIC"
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A Private Investment Company or a Personal Investment Company
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"Confiscate"
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To transfer property from a private use to a public use; to appropriate private property as a result of criminal conviction because the possession itself was a crime
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"Operational Risk"
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The risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events.
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Why would a "Bank Draft" be attractive to a money launderer?
|
As an instrument drawn on a bank or other credit institution, it is often made payable upon presentment and is drawn on the issuing institution's account in another country making it harder to determine beneficial owner of funds
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From the cartel's perspective, what happens when they are involved in the BMPE
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"We deposited our US dollars from our drug trade into the US account of a money dealer. For a fee, he then provided us with pesos here in South America."
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From a South American company's perspective, what happens when they are involved in the BMPE?
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"To pay for US goods, we needed US dollars. Peso dealer gave better rates than the local banks. We paid him in pesos, he paid the US company in dollars." (Nothing may appear wrong from this perspective.)
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From a US company's perspective (such as Phillip Morris), what happens when they are involved in the BMPE?
|
"A South American company ordered product and paid us in US dollars (per our terms.) They used a money dealer to convert the currency." (Nothing may appear wrong from this perspective.)
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Who tends to use "Collection Accounts"?
|
Collection accounts are used by certain ethnic groups from Asia or Africa (or other regions) to launder money.
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What is the main purpose of a "Front Company"?
|
To conceal the true beneficial owner of illicit funds and hide them amongst legitimate funds.
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What is the economic risk of a "Front Company"?
|
Having access to substantial illicit funds, they subsidize the front goods / services to below market rates - sometimes selling products below production costs - thereby squeezing legitimate businesses from the marketplace.
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"Front Company" example
|
New York pizzerias were notorious as front companies for the heroin trade.
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"Commission Rogatoire"
|
Letters of request for legal or judicial assistance, sent by the central authority of one country to the central authority of another country, when seeking evidence from the other jurisdiction.
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From the money dealer's perspective, what happens in the BMPE?
|
Cartel deposits drug money in my US account. For a fee, I deliver pesos to them in Columbia. I get the pesos from South American businesses who pay me, plus a fee. I pay US companies in dollars for goods ordered. US companies are paid with the US drug dol
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How was the CFATF established?
|
As a result of meetings convened in Aruba in May 1990 and Jamaica in November 1992.
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When did US financial institutions have to implement Customer Identification Programs?
|
By October 2003
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What is a characteristic of a "Custodian"?
|
Typically, customs are not active, aggressive managers of the assets in question, but instead passively preserve the assets.
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What form must a Customer Identification Program take and who must approve it?
|
It must be in writing and be approved by the institutions Board of Directors, or a committee of the board that oversees the program.
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What effect does the USA PATRIOT Act have on "Clearing Accounts"?
|
It prohibits the use of such accounts by an institution's customer.
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What are two other names for a "Clearing Account"?
|
Concentration Account, Omnibus Account
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When was the Council of Europe Directive on Prevention of the Use of the Financial System for the Purpose of Money Laundering first adopted?
|
Adopted by the Council of Europe in June 1991
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When crime did the Council of Europe Directive on Prevention of the Use of the Financial System for the Purpose of Money Laundering confine itself to?
|
Drug Trafficking as defined in the Vienna Convention
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When did the revision of the Council of Europe Directive on Prevention of the Use of the Financial System for the Purpose of Money Laundering accomplish?
|
It extended the money laundering offenses beyond credit and financial institutions to corporate service providers, casinos, lawyers and accountants.
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When sector did the Council of Europe Directive on Prevention of the Use of the Financial System for the Purpose of Money Laundering confine itself to?
|
While confined to credit and financial institutions as being most vulnerable, states were encouraged to extend into other sectors that might become involved in money laundering.
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"Retail Banking"
|
Typical mass-market banking where individual customers use local branches of larger commercial banks.
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"Wholesale Banking"
|
Banking services between merchant banks and other financial institutions.
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"CTR"
|
Currency Transaction Report
|
|
|
What does the US "Bank Secrecy Act" do?
|
Imposes regulatory controls on financial institutions and many others, who, must report and keep records of various financial transactions. (Key US AML statute.)
|
|
|
What is the purpose of the STR / SAR?
|
It is the designated form for communicating the finding of suspicious activity to the appropriate federal authority.
|
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|
In the UK, what is a "MLRO" responsible for?
|
The oversight of his or her firm's anti-money laundering activities in the implementation of the AML strategies and policies.
|
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"Bearer Share Certificates"
|
Negotiable corporate share certificates made out to "Bearer," not in the name of an individual or organization.
|
|
|
"Batch Processing"
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Data processing / data communications transmission in which related transactions are grouped together transmitted for processing, usually by the same computer and under the same application.
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Wolfsberg AML Guidelines, "beneficial ownership"
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Level of ownership in funds that, as a practical matter, equates to control over such funds or entitlement to such finds.
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"Batch"
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Accumulation of captured (sale) transactions waiting to be settled. Multiple batches may be settled throughout the day.
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FATF 40 "beneficial owner"
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Natural person(s) who ultimately owns or controls a customer; person(s) on whose behalf the transaction is being conducted; person(s) who exercise effective control over a legal person or arrangement.
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The distinction of "beneficial owner" over mere signature authority or mere legal title is important in that it focuses on what?
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It focuses on who has the ultimate control or entitlement of the assets.
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Characteristics of a "Blank Check Company"
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Few, if any assets; little activity; no business plan; no experienced management.
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"Blacklist" - officially known as? Who issues it?
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The Non-Cooperative Countries and Territories (NCCT) list. It was issued by the FATF. (Presently, no listed countries.)
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What services might be offered by a "Bureau de Change"?
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Buy/sell foreign currencies; consolidating small denomination bank notes into larger ones; exchanging financial instruments such as travelers checks, money orders and personal checks; telegraphic transfer facilities.
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"Bureau de Change" - Why attractive to money launderers?
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The services offered; not as heavily regulated as traditional financial institutions; most customers are "occasional," so KYC is harder.
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"Bookmaker"
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A broker in holding money for a person who gambles and he charges a fee for that service.
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"Branch"
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Place of business which forms a legally dependent part of a financial institution. It directly carries out all or some of the transactions inherent in the business of that financial institution.
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"Bank Draft"
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A common instrument issued by banks and often purchased for cash.
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"BMPE"
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Black Market Peso Exchange. The principal and preferred money laundering system of the Columbian drug cartels.
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"Collective Knowledge"
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A financial institution is thought to be in possession of the sum of the knowledge that is held separately by its directors, officers and employees.
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"Cardholder"
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Person to whom a financial transaction card is issued or an additional person authorized to use the card.
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"CDPC"
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The European Committee on Crime Problems of the Council of Europe.
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"Cash Collateralized Loan"
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A loan extended, usually to a private banking customer, in which cash deposits, sometimes in another jurisdiction, are accepted as collateral on a loan.
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"Cash Based Business"
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A business where customers usually pay with cash for the goods or services provided.
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What is one of the sub-committees of the CDPC?
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MONEYVAL (formerly PC-R-EV) is the Select Committee of experts on the evaluation of anti-money laundering measures in European countries that are not members of the FATF.
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"CFATF"
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Carribbean Financial Action Task Force.
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