Anti-money
Laundering
Flash
cards
Describe
the
three
phases
of
money
laundering.
-
ANSWER-•
Placement
is
the
physical
disposal
of
cash
or
other
assets
derived
from
criminal
activity.
•
Layering
is
the
separation
of
illicit
proceeds
from
their
source
by
layers
of
financial
transactions
intended
to
conceal
the
origin
of
the
proceeds.
•
Integration
is
supplying
apparent
legitimacy
to
illicit
wealth
through
the
re
‐
entry
of
the
funds
into
the
economy
in
what
appears
to
be
normal
business
or
personal
transactions.
What
are
the
two
main
reasons
correspondent
banking
is
vulnerable
to
money
laundering?
-
ANSWER-•By
their
nature,
correspondent
banking
relationships
create
a
situation
in
which
a
financial
institution
carries
out
financial
transactions
on
behalf
of
customers
of
another
institution.
This
indirect
relationship
meas
that
the
correspondent
bank
provides
services
for
individuals
or
entities
for
which
it
has
neither
verified
the
identities
nor
obtained
any
first
‐
hand
knowledge,
and
•
The
amount
of
money
that
flows
through
correspondent
accounts
can
pose
a
significant
threat
to
financial
institutions,
as
they
process
large
volumes
of
transactions
for
their
customers'
customers.
This
makes
it
more
difficult
to
identify
the
suspect
transactions,
as
the
financial
institution
generally
does
not
have
the
information
on
the
actual
parties
conducting
the
transaction
to
know
whether
they
are
unusual.
Describe
four
types
of
risk
associated
with
money
laundering
faced
by
a
financial
institution.
-
ANSWER-•
Reputational
risk
is
described
as
the
potential
that
adverse
publicity
regarding
an
organization's
business
practices
and
associations,
whether
accurate
or
not,
will
cause
a
loss
of
public
confidence
in
the
integrity
of
the
organization.
•
Operational
risk
is
described
as
the
potential
for
loss
resulting
from
inadequate
internal
processes,
personnel
or
systems
or
from
external
events.
•
Legal
risk
is
the
potential
for
lawsuits,
adverse
judgments,
unenforceable
contracts,
fines
and
penalties
generating
losses,
increased
expenses
for
an
organization,
or
even
the
closure of
the
organization.
•
Concentration
risk
is
the
potential
for
loss
resulting
from
too
much
credit
or
loan
exposure
to
one
borrower
or
group
of
borrowers.
Identify
and
describe
the
three
sections
of
the
USA
Patriot
Act
concerning
due
diligence
U.S.
financial
institutions
need
to
perform
for
relationships
with
foreign
correspondent
banking
customers.
-
ANSWER-Section
312
requires
institutions
must
set
up
risk
based
due
diligence
to
mitigate
the
money
laundering
risks
posed
by
foreign
financial
institutios
Section
313,
which
prohibits
U.S.
financial
institutions
from
opening
or
maintaining
correspondent
accounts
for
foreign
shell
banks
and
requires
them
to
take
"reasonable
steps"
to
ensure
that
a
correspondent
account
of
a
foreign
bank
is
not
being
used
indirectly
to
provide
banking
services
to
a
shell
bank.
Section
319,
which
requires
U.S.
financial
institutions
to
maintain
records
with
the
names
and
address
of
the
owners
of
foreign
banks
for
which
they
maintain
correspondent
accounts.
What
are
the
economic
effects
of
money
laundering?
-
ANSWER-•
Loss
of
control
of,
or
mistakes
in,
decisions
regarding
economic
policy,
•
Economic
distortion
and
instability,
•
Loss
of
tax
revenue,
•
Risks
to
privatization
efforts,
•
Reputation
risk
for
the
country,
and
•
Social
costs.
What
is
a
concentration
account?
-
ANSWER-Concentration
accounts
are
internal
accounts
established
to
facilitate
the
processing
and
settlement
of
multiple
or
individual
customer
transactions
within
the
bank,
usually
on
the
same
day.
These
accounts
are
also
known
as
special
‐
use,
omnibus,
settlement,
suspense,
intraday,
sweep
or
collection
accounts.
Concentration
accounts
are
frequently
used
to
facilitate
transactions
for
private
banking,
trust
and
custody
accounts,
funds
transfers
and
international
affiliates.
What
factors
may
contribute
to
the
vulnerabilities
of
private
banking
with
regard
to
money
laundering?
-
ANSWER-•
Perceived
high
profitability,
•
Intense
competition,
•
Powerful
clientele,
•
The
high
level
of
confidentiality
associated
with
private
banking,
•
The
close
relationship
of
trust
developed
between
relationship
managers
and
their
clients,
•
Commission
‐
based
compensation
for
relationship
managers,
•
A
culture
of
secrecy
and
discretion
developed
by
the relationship
managers
for
their
clients,
and
•
The
relationship
managers
becoming
client
advocates
to
protect
their
clients.
What
is
one
of
the
most
important
aspects
due
diligence
for
a
bank
when
establishing
a
relationship
with
a
money
remitter?
-
ANSWER-Ensuring
the
money
remitter
is
properly
licensed.
Describe
micro
structuring.
-
ANSWER-Designing
a
transaction
to
evade
triggering
a
reporting
or
recordkeeping
requirement
is
called
"structuring."
Microstructuring
is
essentially
the
same
as
structuring,
except
that
it
is
done
at
a
much
smaller
level.
Instead
of
taking
$18,000
and
breaking
it
into
two
deposits,
the
microstructurer
might
break
it
into
20
deposits
of
approximately
$900
each.
This
level
of
structuring
makes
it
extremely
difficult
to
detect.
How
can
the
free
‐
look
period
be
used
to
launder
money?
-
ANSWER-A
free
‐
look
period
is
a
feature
that
allows
investors,
for
a
short
period
of
time
after
the
policy
is
signed
and
the
premium
paid,
to
back
out
of
a
policy
without
penalty.
This
process
allows
the
money
launderer
to
get
an
insurance
check,
which
represents
cleaned
funds.
However,
as
more
insurance
companies
are
subject
to
AML
program
requirements,
this
type
of
money
laundering
is
more
readily
detected
and
reported.
According
to
FATF,
what
three
circumstances
should
be
kept
in
mind
when
dealing
with
possible
cuckoo
smurfing
activity?
-
ANSWER-•
The
existence
of
these
deposits
is
not
necessarily
grounds
to
reconsider
the
relationship
with
a
custome
•
It
could
be
the
indicator
of
laundering,
therefore
it
should
be
examined
carefully.
•
Law
enforcement
will
need
information
on
the
depositor,
so
banks
should
seek
to
identify
cash
deposits
made
by
third
parties
and
should
retain
surveillance
footage.
Identify
three
ways
money
laundering
can
occur
through
vehicle
sellers.
-
ANSWER-The
industry
defined
as
"vehicle
sellers"
includes
sellers
and
brokers
of
new
vehicles,
such
as
automobiles,
