Questions and Answers
What constitutes unusual activity for virtual currency?
Which of the following is unusual activity in an insurance setting?
What is an indicator of unusual activity in a broker-dealer setting?
Which of the following defines unusual activity indicative of trade-based money laundering?
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Unusual activity indicative of human trafficking can involve cash deposits that are inconsistent with _____ .
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What are terrorist financing behavior indicators?
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Which category of risk in AML/CFT represents significant risks but not necessarily prohibited activities?
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What actions indicate unusual real estate activity?
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What is AML/CTF Risk Scoring?
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Which of the following are pros of a Risk Based Approach?
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What categories does FATF focus on when assessing risk?
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What are the AML/CTF Risk Categories?
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Which of the following are considered High Risk Customer Types?
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Products/Services Risks deal with how transactions are monitored.
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What are some examples of High Risk Products/Functions?
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What are the Basic Elements of an AML/CFT program?
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Who should be trained in AML/CFT regulations?
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What is involved in Customer Identification (CDD)?
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Which types of sanctions are designed to target specific individuals?
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Comprehensive Sanctions generally prohibit most goods, technology, and services against most countries.
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What does the Specially Designated Nationals and Blocked Persons list published by OFAC contain?
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What does Know Your Employee (KYE) program entail?
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Which of the following is NOT a feature of Automated AML/CFT solutions?
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What does the capability to assess unusual customer behavior include?
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Which of the following is a red flag for unusual customer behavior?
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What indicates unusual cash transactions?
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What is a characteristic of unusual wire transfer transactions?
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Which behavior may be a sign of unusual commercial account activity?
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What could be a sign of unusual investment activity?
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Define unusual employee activity in a banking context.
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Which of the following is a red flag for unusual activity in a money remitter/currency exchange setting?
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Study Notes
AML/CTF Fundamentals
- AML/CTF Risk Scoring: Uses numeric values to categorize risk by geography, customer type, and products/services. Risk ratings must be reevaluated periodically.
- Pros of Risk-Based Approach: Provides flexibility, effectiveness, and proportionality in compliance strategies.
FATF Guidelines
- FATF Recommendations: Focus on assessing risk through customer factors, geographic risks, and product/service transaction risks.
Risk Categories
- AML/CTF Risk Categories: Include prohibited, high, medium, and low risk.
High-Risk Customers and Products
- High-Risk Customer Types: Entities like banks, casinos, offshore corporations, embassies, money services businesses (MSBs), virtual currency exchanges, and cash-intensive businesses.
- High-Risk Products/Functions: Involve private banking, international transactions, money transfer services, and accounts with unusual transaction characteristics.
AML/CFT Program Essentials
- Basic Elements: Internal policies and controls, designated compliance officer, employee training, and independent audits form the backbone of an effective AML/CFT program.
Customer Due Diligence (CDD)
- Risk-Based Procedures for CDD: Understanding customer relationships, ongoing monitoring for suspicious activities, and updating customer information.
- Key Components: Include identifying and verifying customers, understanding business relationship purposes, and conducting ongoing due diligence.
Compliance Features
- AML Policies, Procedures, Controls: Must track key metrics, ensure dual controls, and comply with recordkeeping regulations.
- Elements of Policies and Procedures: Should be clear, approved by management, regularly updated, and establish stakeholder responsibilities.
Monitoring and Investigations
- Transaction Monitoring: Involves the management of software applications and analysis of transaction data in accordance with risk profiles.
- Financial Investigations: Include monitoring alerts from transactions and filing suspicious transaction reports (STRs) as necessary.
Training and Evaluation
- Training Program Components: Must cover AML/CFT laws, internal policies, suspicious activity reporting, and maintaining confidentiality.
- Who to Train: Includes customer-facing staff, operations personnel, compliance staff, and senior management.
Independent Audit Process
- Audit Objectives: Assess integrity of AML/CFT programs, evaluate compliance with laws, and test the effectiveness of monitoring systems.
Compliance Culture
- FinCEN Guidelines: Encourage leadership support, adequate resource allocation, and a comprehensive understanding of AML/CFT impact and compliance within organizations.
Customer Identification Requirements
- Natural Clients: Require full identification including legal name, addresses, and official ID numbers.
- Foreign Entities: Must provide proof of incorporation, beneficial ownership, and expected account usage.
Sanctions
- Types of Sanctions: Targeted (against named individuals), sectoral (specific economic sectors), and comprehensive (broad prohibitions).
- US Sanctions Lists: The Specially Designated Nationals and Blocked Persons list identifies entities involved in terrorism and narcotics trafficking.
Know Your Employee (KYE)
- KYE Program: Aims to understand employee backgrounds to mitigate conflicts of interest and susceptibility to money laundering.### Automated AML/CFT Solutions
- Features include automated customer verification, watch list filtering, transaction monitoring, regulatory reporting automation, case management, and maintaining an audit trail.
Capabilities of Automated Systems
- Monitors transactions to identify anomalies, gathers Customer Due Diligence (CDD) information, and scores customer responses.
- Conducts evaluations of suspicious transactions based on each client's risk profile.
- Provides workflow features for investigation assignments and monitoring, storing at least one year of data.
- Automates filing of Suspicious Transaction Reports (STRs) and standard reporting on investigation nature and productivity.
Unusual Customer Behavior Red Flags
- Signs such as excessive nervousness, discussing recordkeeping to avoid reporting, and reluctance to proceed after being informed of reporting rules.
- High velocity of funds movements with low account balances, large deposits from PEPs or students, and unusual currency transaction patterns.
Unusual Customer ID Circumstances
- Presentation of suspicious or unusual identification, reluctance to provide background info, or attempts to open accounts without ID.
- Permanent addresses outside service area, disconnected contact details, and requests to avoid account statements or mail.
Unusual Cash Transactions
- Large cash deposits made without prior counting, frequent exchanges of small bills for larger ones, and deposits often containing counterfeit bills.
- Conducting transactions below reporting thresholds and transferring cash between accounts in a disjointed manner.
Unusual Non-Cash Deposits
- Depositing large volumes of traveler's checks, consecutively numbered money orders, or checks inconsistent with account purpose.
Unusual Wire Transfer Transactions
- Wire transfers sent or received from various accounts, with persons sending small instruments below reporting thresholds or funds transferred inexplicably across borders.
Unusual Safe Deposit Box Activity
- Excessive time spent near safe deposit boxes, visits prior to cash deposits under reporting thresholds, and renting multiple boxes.
Unusual Activity in Credit Transactions
- Misrepresentation on financial statements, using complex transactions for loans, sudden repayments of large loans without clear funding sources.
Unusual Commercial Account Activity
- Inconsistent financial statements, lack of regular activity on corporate accounts, and high-value transactions among shell companies with no apparent reason.
Unusual Trade Financing Transactions
- Requests for trade financing on commodities with inconsistent market prices, amendments to letters of credit without justification, and unusual payment locations linked to trades.
Unusual Investment Activity
- Using investment accounts to wire funds offshore and cashing out annuities prematurely.
Other Unusual Customer Activity
- High transaction levels via internet or telephone, purchasing numerous prepaid cards, and transactions involving personal accounts for business purposes.
Unusual Employee Activity
- Discrepancy in employee credentials, excessive unresolved exceptions, and lifestyles inconsistent with their salaries.
Unusual Activity in Money Remitter/Currency Exchange Settings
- Alterations in transaction details to avoid CTR filing, frequent purchases below thresholds, and customers using multiple IDs simultaneously.
Unusual Activity for Virtual Currency
- Inconsistent fund transfers related to VC exchanges, multiple accounts funneling to few VC accounts, and significant purchases below reporting thresholds.
Unusual Activity in an Insurance Setting
- Cash payments on policies, use of diverse currencies to pay premiums, and redemption requests during "legal cancellation" periods.
Unusual Activity in a Broker-Dealer Setting
- Customer reluctance to provide information on undisclosed principals, multiple accounts with high wire activity, and transactions designed to evade documentation requirements.
Unusual Real Estate Activity
- Invalid documents submitted for loan cancellations, falsified checks, and misrepresentation of primary residency status on loans.
Unusual Activity for Dealers of Precious Metals and High-Value Items
- Diamonds sourced from countries lacking production, raising concerns about legitimacy in transactions.### Unusual Activity Indicative of Trade Based Money Laundering
- Trade conducted via large volumes with countries outside the recognized "diamond pipeline".
- Purchases or imports drastically exceeding anticipated sales figures.
- Sales of gold bars, coins, or loose diamonds from retail jewelry stores.
- Increased activity in a diamond dealer's account despite a sector-wide decline.
- Transactions between local firms facilitated by an overseas intermediary.
- Payments related to rare or unique diamonds appear outside standard trading practices.
- Use of a single bank account by various businesses leading to potential misuse.
- A sole bank account having multiple handlers for deposits, both retail and wholesale.
- Third parties utilized for fund deposits into a diamond dealer's account.
- Financial activities showing clear inconsistencies with standard diamond trade practices.
- Deposits from foreign companies followed by immediate fund transfers to alternative jurisdictions.
- Exports settled through offsetting and payments received from third parties.
- Transfers where the ordering customer is a Money Service Business (MSB).
- Receivership names on payments from diamond dealers do not correspond to exporters or suppliers.
Unusual Activity Indicative of Human Smuggling
- Numerous wire transfers, often under $3,000, sent from various US locations to a common beneficiary near the US-Mexico border.
- Multiple transfers conducted at different branches directed at border cities on same or consecutive days.
- Money flows deviating from established remittance patterns involving high migrant populations.
- Significant currency deposits in US banks followed by transfers to migrant-heavy countries.
- Unrelated customers sending wires to the same beneficiary near the border, often using similar details.
- Accounts functioning as funnel accounts exhibiting quick withdrawals and cash deposits in disconnected locations.
- Frequent exchanges of small currency for larger denominations by non-cash-intensive customers.
- New customers may unintentionally replace previous clients whose accounts were closed due to suspicious activities.
- Inconsistent lifestyles of customers suggest funding sources unrelated to their proclaimed employment.
- Inflated cash inflows inconsistent with the expected business activities.
Unusual Activity Indicative of Human Trafficking
- Business clients show abnormal payroll expenditures, often low relative to their workforce and operations.
- Significant payroll deductions raise red flags about employee compensation.
- Cashing payroll checks where most funds are retained by employers or returned to their accounts.
- Outbound wire transfers with no legitimate purpose directed towards high-risk trafficking origins.
- Accounts acting as funnel accounts, marked by irregular cash deposits and swift fund withdrawals.
- Multiple unrelated customers sending funds to a common beneficiary.
- Transactions involving individuals escorted by third parties to send money abroad.
- Regular payments to unregistered recruitment agencies linked to labor violations.
- Accounts are created or used by customers accompanied by third parties indicating possible trafficking.
- Foreign workers’ accounts custodians can be their employers or employment agencies.
Terrorist Financing Behavior Indicators
- Transaction parties from nations known for supporting terrorism pose a significant risk.
- Employment of false corporations, including shell entities, to obscure true ownership.
- Inclusion of individuals in the UN 1267 Sanctions List heightens alert.
- Media disclosures linking account holders to terrorist organizations.
- Lack of proper identification for the beneficial owner of accounts.
- Use of nominees, trusts, or family accounts raises suspicion.
- False identification usage for account setups can indicate illicit intent.
- Misappropriation of non-profit organizations for funding terrorism.
Terrorist Financing Indicators Linked to Financial Transactions
- Nonprofits engaged in fund usage inconsistent with their organizational purpose.
- Transactions lacking economic justification; often convoluted to disguise fund sources.
- Inconsistent transaction patterns compared to the normal activity of the account.
- Structured deposits created to bypass detection systems.
- Suspicious references accompanying many cash deposits and withdrawals.
- Frequent ATM activities without clear business rationale pointing to money movement.
- Abnormal cash activities in international accounts signal potential issues.
- Multiple small cash deposits followed by significant wires to other countries raise concerns.
- Reliance on various foreign bank accounts to potentially obscure transaction origins.
High Risk (AML/CFT Risk Categories)
- High risks present that aren’t outright prohibitions; necessitate stringent controls and enhanced due diligence.
Medium Risk (AML/CFT Risk Categories)
- Medium risk requires extra scrutiny; typical for retail businesses engaging some cash transactions, yet not entirely cash-intensive.
Low Risk (AML/CFT Risk Categories)
- Low risk indicates baseline money laundering risk, typically reflecting expected and normal business activity.
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Test your knowledge on Anti-Money Laundering and Counter Terrorist Financing compliance programs with these flashcards from ACAMS Chapter 3. Explore key concepts like AML/CTF risk scoring and the benefits of a risk-based approach. Perfect for professionals looking to enhance their understanding and application of compliance strategies.