Money laundering involves taking criminal proceeds and disguising their illegal sources to use the funds to perform legal or illegal activities. Simply put, money laundering is the process of making dirty money look clean.

The United Nations 2000 Convention Against Transnational Organized Crime, also known as the
“Palermo Convention,” defines money laundering as:
• The conversion or transfer of property, knowing it is derived from a criminal offense, to conceal or disguise its illicit origin or of assisting any person who is involved in the commission of the crime to evade the legal consequences of his or her actions.
• The concealment or disguise of the true nature, source, location, disposition, movement, rights concerning, or ownership of property knowing that it is derived from a criminal offense.
• The acquisition, possession or use of property, knowing at the time of its receipt that it was derived from a criminal offense or participation in a crime.

Examples of integration transactions include:

• Purchasing luxury assets like property, artwork, jewelry or high-end automobiles
• Getting into financial arrangements
• Going into other ventures where investments can be made in business enterprises

The Yates Memo, as it is often referred to, reminds prosecutors that criminal and civil investigations into corporate misconduct should also focus on individuals who perpetrated the wrongdoing.
P.S. The function of Yates Memo prioritizing the prosecution of executives for corporate crimes.

The New York State Department of Financial Services (DFS) issued a Final Rule requiring regulated institutions to maintain “Transaction Monitoring and Filtering Programs” reasonably designed to:

(i) monitor transactions after their execution for compliance with the Bank Secrecy Act (BSA) and anti-money laundering (AML) laws and regulations, including suspicious activity reporting requirements

(ii) prevent unlawful transactions with targets of economic sanctions administered by the US Treasury Department’s Office of Foreign Assets Control (OFAC). ‘

An electronic transfer of funds is any transfer of funds that is initiated by electronic means, such as an Automated Clearing House (ACH) computer, an automated teller machine (ATM), electronic terminals, mobile telephones or telephones.

To control the risks associated with RDC, efforts must be made to integrate RDC processing into other controls, such as monitoring and fraud prevention systems. This integration should occur with any new product offered by a bank.

PTAs held in the names of respondent banks often involve checks encoded with the bank’s account number and a numeric code to identify the sub-account, which is the account of the respondent bank’s customer. Sometimes, however, the sub-account holders are not identified to the correspondent bank.

PEPs have been the source of problems for several financial institutions, as the examples below
show:

• Mario Villanueva, the corrupt governor of the Mexican state of Quintana Roo facilitated the smuggling of 200 tons of cocaine into the US, according to the US Drug Enforcement Agency (DEA). For five years, until 2001, he maintained private banking accounts at Lehman Brothers containing approximately $20 million that the DEA alleged he had received as bribes from Mexican drug traffickers.

• The Riggs Bank case revealed a web of transactions involving hundreds of millions of dollars that the bank had facilitated over many years for dictators on two continents, including Augusto Pinochet of Chile and Teodoro Obiang of Equatorial Guinea. The accounts formed part of the embassy banking portfolio that was the bank’s specialty product for decades.

• Vladimiro Montesinos, the former head of Peru’s Intelligence Service, and chief advisor of former Peruvian president Alberto Fujimori had accounts at The Bank of New York in New York City, which held the proceeds from substantial bribes from drug traffickers. Other institutions, such as American Express Bank International, Bank of America, Barclays and UBS AG, in New York, also held accounts for Montesinos. Also, he used shell companies to facilitate embezzlement, gun-running, drug trafficking, and money laundering over $400 million globally.

• Arnoldo Aleman and Byron Jerez, the former president and tax commissioner of Nicaragua, maintained accounts at Terrabank N.A. in Miami, through which they bought millions of dollars of certificates of deposit and condominiums in South Florida, allegedly with the proceeds of corruption.

P.S. Owning many companies over the world is not a sign of suspicious activities.

P.S. Usage of import or export lines facilities is not a suspicious activities and is very common in the commercial world.

A credit union central is best defined as a trade association for credit unions; it is owned by its member credit unions and helps to serve many of their financial needs. Services may include those related to capital liquidity; research, training, and advocacy concerning regulatory obligations; shared operational or back-office processes like check clearing and electronic funds transfer (EFT) processing.

Thomas prepays his credit card using illicit funds that he has already introduced into the banking system, creating a credit balance on his account. Thomas then requests a credit refund, which enables him to further obscure the origin of the funds. This constitutes layering.

TPPPs that provide services to telemarketing, gambling (online, casinos, etc.), or internet merchants and/or process RCCs for these entities may present a higher level risk of risk to a financial institution, as these types of businesses carry a high risk for consumer fraud and money laundering.

P.S. PayPal, Stripe, AliPay, WeChat Pay itself do not bring higher risk to the financial institutions.

Principal MSBs in the United States are required to have written AML policies, procedures, and internal controls; appoint a Bank Secrecy Act (BSA) Officer, provide education and training, conduct independent reviews/audits, and monitor transactions for suspicious activity.

“The Use Of Online Gambling For Money Laundering And The Financing Of Terrorism Purposes,” identified numerous potential typologies for money laundering. Some examples include:
• A money launderer colludes with an operator of an offshore online gambling operation and deposits funds obtained from criminal activities into the gambling account and withdraws such funds as winnings. The website operator keeps a percentage of the proceeds as a commission while the launderer declares the winnings to the tax authorities and then uses the funds for legitimate purposes.
• A money launderer colludes with professional gamblers to place illegally obtained funds on online gambling websites. The gamblers keep a commission from any winnings made before transferring the remaining funds to the launderer.
• A money launderer deposits funds into an online gambling account by using a stolen identity. He or she bets using the funds and receives payouts for the winnings or sustains acceptable losses.

Money laundering can occur in travel agencies in the following manner:
• Purchasing an expensive airline ticket for another person who then asks for a refund.
• Structuring wire transfers in small amounts to avoid recordkeeping requirements, especially when the wires are from foreign countries.
• Establish tour operator networks with false bookings and documentation to justify significant payments from foreign travel groups

FATF’s stated objectives are to:
“set standards and promote effective implementation of legal, regulatory and operational measures for combatting money laundering, terrorist financing and other related threats to the integrity for the international financial system. Starting with its members, FATF monitors countries’ progress in implementing the FATF Recommendations; reviews money laundering and terrorist financing techniques and counter-measures; and, promotes the adoption and implementation of the FATF Recommendations globally. “

P.S. FATF will never conduct the investigation and is not an enforcement body

Assessors conclude whether a country complies with the FATF standard. The result is a rating of five possible levels of technical compliance:

• Compliant
• Largely compliant
• Partially compliant
• Non-compliant
• Not applicable

A key element of FATF’s efforts is its detailed list of appropriate standards for countries to implement. These measures are set out in the 40 Recommendations, which were first issued in 1990 and revised in 1996, 2003 and 2012.

Specific issues emphasized in the paper include:
• The four key elements of a KYC program are:
1. Customer identification.
2. Risk management.
3. Customer acceptance.
4. Monitoring.

Banks should develop customer acceptance policies and procedures describing the customer’s background, country of origin, business activities and other risk indicators, and should develop clear and concise descriptions of who is an acceptable customer.

Since one of the primary purposes of AML rules is to create records that enable law enforcement to trace financial transactions back to the people who conduct them, banks should retain records. Banks should both record the documents it is provided when verifying customer/beneficial owner identity, whether a photocopy of the document or by recording information from the document or non-documentary source and enter all CDD information into its IT system.

There were three main points of contention about the Third Directive:

1. The definition of politically exposed persons (PEPs). The Third defined PEPs as, “natural persons who are or have been entrusted with prominent public functions and the immediate family members, or individuals known to be close associates, of such persons.” Close associates must be identified only when their relationship with a PEP is publicly known or when the institution suspects there is a relationship. Finally, the commission said persons should not be considered PEPs after one year of not being in a prominent position.

2. The inclusion of lawyers among those who are required to report suspicious activity.

3. The precise role of a “comitology committee.” The European Commission coined the term “comitology,” which means the EU system that oversees the implementation of acts proposed by the European Commission.

New requirements regarding beneficial ownership information have been introduced, particularly for trusts and similar legal arrangements. Subject to data protection rules, this information must be held in central registers in each member state and must be made available to competent authorities, financial intelligence units (FIUs), obliged entities, and any person with a legitimate interest.

P.S. It is a common strategy in the real examination to brings up authority names in options. While the might seems to be the correct answer but is not the case every time.

ASIA/PACIFIC GROUP ON MONEY LAUNDERING (APG)
• Provides a focus for cooperative AML/CFT efforts in the Asia/Pacific region.
• Provides a forum in which:
— Regional issues can be discussed and experiences shared.
— Operational co-operation among member jurisdictions is encouraged.
• Facilitates the adoption and implementation by member jurisdictions of internationally accepted AML/CFT measures.
• Enables regional and jurisdictional factors to be taken into account in the implementation of international AML/CFT measures.
• Encourages jurisdictions to implement AML/CFT initiatives, including more effective mutual legal assistance.
• Coordinates and provides practical support, where possible, to member and observer jurisdictions in the region, when requested.

CFATF members include: Anguilla, Antigua & Barbuda, Aruba, Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Cayman Islands, Curaçao, Dominica, Dominican Republic, El Salvador, Grenada, Guatemala, Guyana, Haiti, Jamaica, Montserrat, St. Kitts & Nevis, St. Lucia, St. Maarten, St. Vincent & the Grenadines, Suriname, Trinidad & Tobago, Turks & Caicos Islands, and Venezuela.

P.S. Memorization of all countries is not necessary, but candidates should also aware that some sensitive countries are not the members of CFATF.

The group developed a Memorandum of Understanding among its member countries, in which they agreed to:
• Adopt and implement the 40 FATF Recommendations.
• Apply AML measures to all serious crimes.
• Implement measures to combat the financing of terrorism.
• Implement any other measures contained in multilateral agreements and initiatives to which they subscribe for the prevention and control of the laundering of the proceeds of all serious crimes and the financing of terrorist activities.

The Wolfsberg Group began collaborating with the Banker’s Almanac in 2004 to develop the International Due Diligence Repository was developed. Details in the Repository include copies of company by-laws, relevant licenses, extracts from commercial registers or certificates of incorporation, the most recent annual reports, information about shareholders with stakes of more than five percent, biographies of board members and senior management, and information about each financial institution’s AML policies and procedures.

Egmont Group is an informal networking group of financial intelligence units and is responsible for

• Statement of Purpose (last updated 2004)
• Principles for Information Exchange Between Financial Intelligence Units for Money Laundering Cases (2001)
• Best Practices for the Exchange of Information Between Financial Intelligence Units (2004)

The due diligence program must address three measures:
1. Determining whether enhanced due diligence is necessary.
2. Assessing the money laundering risk presented by the correspondent account.
3. Applying risk-based procedures and controls reasonably designed to detect and report suspected money laundering.

The Money Laundering Control Act of 1986, the first criminal money laundering law of the US is a powerful legal weapon that may be used if the property involved in the financial transaction at issue represents the proceeds of at least one designated underlying crime — a “specified unlawful activity” (SUA).

The primary goal of an AML/CFT program is to protect the organization against the following except Cyber hacking.

It is common that in the real exam there will be some answer, such as “Cryptocurrency transaction fraud” that seems to be a correct one but are merely a distraction.

The following are common approaches to transaction monitoring;

• Creation of in-house, customizable transaction monitoring rules.
• Engaging a third-party vendor to assist with the development and implementation of automated rules.

Independent testing staff:
Independent testing personnel is the organization’s third line of defense. Because this functional area independently assesses the adequacy of the AML/ CFT compliance program, these employees should receive periodic training concerning regulatory requirements, changes in regulation, money laundering methods and enforcement, and their impact on the organization.

In regards to the AML/CFT risk scoring, it is a model that uses numeric values to determine the category of risk for the following except price.

Internal hotlines are also known as ethics, compliance, or whistleblower hotlines. They allow employees to report a wide range of activities except for unauthorized employee felicitation.

An institution’s training should be ongoing and on a regular schedule. Existing employees should at least attend an annual training session. New employees should receive appropriate training concerning their job function and within a reasonable period after joining or transferring to a new job. Situations may arise that demand an immediate session.

When looking specifically at money laundering risk, the terrorism and sanctions lists published by governments and international organizations can be a useful starting point such as those published by the following except the UK Financial Union.

The independent audit should determine the adequacy of the following in regards to the AML/CFT compliance;

• Frequency of training including the timeliness of training given to new and transferred employees.
• Disciplinary actions are taken for noncompliance with internal policies and regulatory requirements.
• Coverage of different forms of money laundering and terrorist financing as they relate to identifying suspicious activity.
• Coverage of internal policies, procedures, processes and new rules and regulations.

The following are usually issued by grand juries, operating under the purview of a court and empower a law enforcement agency to compel the production of documents and testimony except the following;

• Search warrants
• Arrest warrants
• Investigations

The New York State Department of Financial Services (DFS) issued Final Rule Part 504 on June 30, 2016, requires regulated institutions to maintain “Transaction Monitoring and Filtering Programs” (TMPs) reasonably designed to do the following except;

• Determine the adequacy of the following, as they relate to the training program and materials.
• The track previously identified deficiencies and ensure management corrects them promptly.
• Assess the effectiveness of the institution’s policy for reviewing accounts that generate multiple suspicious transaction report filings, including account closure processes.

The following statements in an AML/CFT compliance program should state an institution should operate;

• Assign clear accountability to persons for the performance of duties under the AML/CFT program.
• Provide for program continuity despite changes in management or employee composition or structure.
• Provide for dual controls and segregation of duties.

P.S. When answering MC questions, options with a similar answers – i.e. yearly and quarterly review might trick candidates to think that either one of them is correct. But this might not be the case in the real examination, please reckon.

Controls
• The internal technology or tools the financial institution utilizes to ensure the AML/CFT program is functioning as intended and within predefined parameters.
• Alerts compliance with potential outliers or deviations from the normal policy that may need to be reviewed.
• Includes management reports, automated review systems, or the utilization of multiple reviewers.

Robert works in a law enforcement agency and currently conducting a money-laundering investigation. The following steps should be included in his investigation;

• Leverage the financial knowledge and due diligence information contained in financial institutions.
• Review public records.
• Review databases.
• Review licensing and registration files.

Staff in financial institutions should avoid “tipping-off” the client and should avoid contacting the client directly to inquire a specific transaction details when conducting a money-laundering investigation.

Upon receipt of a law enforcement inquiry, the financial institution needs to ensure the following is met except someone to keep track of the daily transactions of the company.

The Treaty Between Canada and the Kingdom of Spain on Mutual Assistance in Criminal Matters defines assistance as of the following;

• Taking of evidence and obtaining statements of persons
• Provision of information
• Judicial records and government records

A commission rogatoire is a letter of request to the central authority of the other country and includes the following information except the accounts sought and the estimated criminal penalties to the parties.

Evaluate the ability of transaction monitoring software application to identify unusual activity by comparing the transaction monitoring typologies to the AML/CFT risk assessment for reasonableness.

About a certificate, share transfer or other documents, a bearer form enables a designated investment or deposit to be sold, transferred, surrendered or addressed to a bearer without the need to obtain further written instructions.

When presented with a search warrant, an institution should consider the following action;

• Call the financial institution’s in-house or outside counsel and/or designated officer in charge of security, risk management, or similar area.
• Ask for and obtain a copy of the warrant.
• Review the warrant to understand its scope.

A financial investigator’s main objective is to track the movement of money through the following except digital trails.

A person (whether a natural or legal person) engaged in any of the following activities where it exceeds the applicable regulatory threshold, at which point the person is generally deemed to be a financial institution subject to AML obligations:
• Dealing in foreign exchange
• Check to cash
• Issuing or selling travel’s checks or money orders
• Providing or selling prepaid access
• Money transmission

When considering whether — or to what extent — to bring a case against an institution involving money laundering-related charges, prosecutors will look at many factors, including:
• The institution has a criminal history.
• The institution has cooperated with the investigation.
• The institution discovered and self-reported the money laundering-related issues.
• The institution has had a comprehensive and effective AML/CFT program.

Financial institutions should ensure that all grand jury subpoenas, as well as other information requests from government agencies, are reviewed the following except Financial Officers.

The International Money Laundering Information Network (IMoLIN) has the following features except Country Finance.

At a minimum, the anti-money laundering program should include:
1. Written internal policies, procedures, and controls
2. A designated AML compliance officer
3. On-going employee training
4. Independent review to test the program

The following are the basic functions of an FIU except;

• Discretion
• Data collection

Articles 30 and 31 of the Recommendations outline the powers that the FIU and other competent authorities responsible for conducting investigations. These include:

1. Responsibility for money laundering and terrorist financing investigations within the framework of national AML/CFT policies.

2. At least in all cases related to major proceeds-generating offenses, developing a pro-active parallel financial investigation when pursuing money laundering, associated predicate offenses and terrorist financing, including cases where the associated predicate offense occurs outside their jurisdictions.

3. Expeditiously identifying, tracing and initiating actions to freeze and seize property that is or may become subject to confiscation, or is suspected of being proceeds of crime.

4. Access to all necessary documents and information for use in those investigations and prosecutions and related actions.

5. Using a wide range of investigative techniques suitable for the investigation of money laundering, associated predicate offenses, and terrorist financing.

P.S. Not all investigation need the development of pro-active parallel financial investigation

The following practices should be observed by the FIU requesting the information:
• All FIUs should submit requests for information in compliance with the Principles for Information Exchange set out by the Egmont Group. Where applicable, the provisions of information-sharing arrangements between FIUs should also be observed.
• Requests for information should be submitted as soon as the precise assistance required is identified.
• When an FIU has information that might be useful to another FIU, it should consider supplying it spontaneously as soon as the relevance of sharing this information is identified.
• The exchange of information between Egmont FIUs should securely take place. To this end, the Egmont FIUs should use the Egmont Secure Web (ESW) where appropriate.

The following are the aspects of the industry that increase its exposure to laundering except for the routine use of cash transfers to, from, and through multiple jurisdictions.

Jerry works in financial institutions may initiate investigative efforts based on the following except negative media information and suspicious activity.