Compliance & AML Overview

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Questions and Answers

What is one reason physical certificates pose a money laundering risk to broker-dealers?

Their trade information can be easily altered. (correct)

They can be easily registered with multiple owners.

They have a fixed validity period.

They are regularly required to be updated.

What does the presence of front companies indicate in trade-based money laundering?

Involvement of well-known businesses.

Potential concealment of illicit activities. (correct)

The legitimacy of the funding source.

A greater transparency in transactions.

What should be done when a law enforcement officer visits a branch and inquires about information?

Immediately file a suspicious transaction report.

Confirm the officer's identity as an authorized representative. (correct)

Notify the branch employees to remain silent.

Gather all information the officer requested.

Which factor is a red flag indicating potential trade-based money laundering?

Significant discrepancies appear between the bill of lading and the invoice. Signup and view all the answers

How do physical certificates present a unique challenge in confirming the source of funds?

There is little available information to confirm the source of the funds. Signup and view all the answers

What economic impact can arise from money laundering using front companies?

Weakening of the legitimate private sector. Signup and view all the answers

In a scenario of suspicious wire transfers related to silk flower shipments, what is a concerning element?

The inconsistency between the type of commodity and regular business activities. Signup and view all the answers

Which of the following could signal that an automotive parts company is engaged in trade-based money laundering?

Multiple transactions are made to a shell company. Signup and view all the answers

What action should the branch manager take regarding the teller and the ethnic group customers?

Conduct further investigation before taking any other action Signup and view all the answers

How should the bank respond to a law enforcement official's inquiry about a customer under investigation?

Request a formal letter be submitted to verify the validity of the request Signup and view all the answers

What type of activity should prompt additional transactional review related to potential human trafficking?

Cash deposits that occur in cities where the customer does not reside or conduct business Signup and view all the answers

Which scenario exemplifies a situation that requires careful monitoring due to potential compliance issues?

A real estate development uses property insurance from a high-risk jurisdiction Signup and view all the answers

What does establishing a charitable annuity generally suggest about a client’s intentions?

The client values philanthropic activities while receiving benefits Signup and view all the answers

Which of the following indicates a potentially suspicious pattern in customer transactions?

Repetitive activity with minimal variation between transactions Signup and view all the answers

What key factor should be assessed when a customer uses cash deposits unusually?

The frequency of the deposits compared to the customer’s cash flow Signup and view all the answers

When addressing customer inquiries from law enforcement, what should a bank prioritize?

Ensuring compliance with legal standards and procedures Signup and view all the answers

What should the employee do in response to the inappropriate advice from a colleague?

Report the conversation to the compliance officer Signup and view all the answers

Which two pieces of information must a non-U.S. bank provide to comply with the requirements of the USA PATRIOT Act?

The name and address of all beneficial owners who own 25% or more of the bank Signup and view all the answers

What are two legal risks associated with having insufficient privacy policies?

Industry of regulatory sanctions Signup and view all the answers

What must the vice president acquire when a foreign bank wants to open a correspondent account under the USA PATRIOT Act?

Information relating to the foreign bank's anti-money laundering program Signup and view all the answers

Which action is an example of the integration stage of money laundering?

Depositing illicit funds into an account set up for a front company Signup and view all the answers

What type of information is crucial for U.S. financial institutions to receive from non-U.S. banks holding correspondent accounts?

Information related to the foreign bank's ultimate beneficial owners Signup and view all the answers

In the context of inadequate privacy policies, what could result from regulatory sanctions?

Substantial financial penalties Signup and view all the answers

What is a potential consequence of not having robust anti-money laundering programs in place in a financial institution?

Increased scrutiny from regulatory bodies Signup and view all the answers

What should a bank report when it detects potentially suspicious activity indicative of money laundering?

To the Financial Intelligence Unit Signup and view all the answers

What is the primary function of the Egmont Group in relation to financial intelligence units (FIUs)?

To enhance cooperation and information exchange among FIUs Signup and view all the answers

Which action is important when reviewing system settings for an automated surveillance system with increased alerts?

Compare settings to peer organizations Signup and view all the answers

Which location is best suited for a law enforcement investigator to conduct an effective interview with a suspect?

In an interview room at the law enforcement agency Signup and view all the answers

Which mechanism should countries adopt to improve the effectiveness of cross-border money laundering investigations?

Request information through Interpol Signup and view all the answers

What is a key consideration when calibrating an automated alert system for anti-money laundering?

Historical effectiveness of the alert system Signup and view all the answers

Why is it critical to review parameter settings of an automated surveillance system?

To ensure the system is not overly sensitive and under-reports Signup and view all the answers

What is the benefit of interviewing a suspect in a neutral setting?

It may reduce intimidation for the suspect Signup and view all the answers

What amount of money is referenced as a potential threshold for anti-money laundering compliance?

10,000 Euros Signup and view all the answers

What are two requirements for U.S. financial institutions when engaging with international institutions under the USA PATRIOT Act?

Performing due diligence on correspondent accounts Signup and view all the answers

What can be a consequence for institutions that violate anti-money laundering laws, as highlighted by the HSBC settlement?

Civil money penalties Signup and view all the answers

When is a U.S. bank required to block or reject an international funds transfer involving a designated party?

Only if the U.S. bank is involved in the funds transfer Signup and view all the answers

What should a bank investigator do if contacted by law enforcement for information on a suspicious transaction report?

Refer the agent to the bank's compliance officer Signup and view all the answers

What action should countries take in regard to terrorist financing as per the Financial Action Task Force Recommendations?

Criminalize the financing activities Signup and view all the answers

Which of the following could indicate a potential red flag in a wholesale auto business's financial activities?

Receiving wires totaling $1,250,000 from a dealer in Benin in four months Signup and view all the answers

What is a potential risk for banks stemming from violating anti-money laundering regulations?

Loss of bank charter/license Signup and view all the answers

Study Notes

Compliance & AML

Employees should always report suspicious activity to the Compliance Officer.
USA PATRIOT Act requires US financial institutions to collect information from non-US banks holding correspondent accounts, specifically:
- The name and address of the non-US bank's beneficial owners who own 25% or more.
- The name and address of a US person authorized to receive legal process on behalf of the non-US bank.
Legal risks of inadequate privacy policies include:
- Charges of deceptive business practices.
- Industry or regulatory sanctions.
Foreign Correspondent Banking under the USA PATRIOT Act requires US banks to obtain:
- The identity of 10% owners of the correspondent bank, unless publicly traded.
- Information related to the foreign bank's anti-money laundering program.
Money Laundering Integration Stage:
Depositing illicit funds into an account set up for a front company.
Investigating Suspicious Activity:
- Branch managers should investigate unusual customer activity before taking action.
- Banks should only provide customer information to law enforcement with a formal letter verifying the request.
Identifying Red Flags for Human Trafficking:
- Cash deposits in cities where the customer does NOT reside or conduct business.
- Wire transfer activity from countries with significant migrant populations.
Broker-Dealers:
- Physical certificates pose money laundering risks due to their potential for use in off-market transactions and lack of readily available source of funds information.
Trade-Based Money Laundering Red Flags:
- Use of shell companies.
- Inconsistency between the commodity description on the bill of lading and the invoice.

Compliance & AML Continued

Compliance Officers and Law Enforcement: When a law enforcement official contacts a bank, the compliance officer should confirm the officer is an authorized representative.
Front Companies: Front companies can have a significant economic consequence, weakening the legitimate private sector.
EU Fourth AML Directive requires banks to report cash transactions above €10,000.
USA PATRIOT Act Requirements for US financial institutions when conducting business with international institutions:
- Perform due diligence on correspondent accounts.
- Comply with Special Measures issued under the USA PATRIOT Act.
HSBC Settlement Case: Violating anti-money laundering laws can result in significant consequences like:
- Civil money penalties.
- Forfeiture of assets.
Blocking International Funds Transfers: US banks must block or reject international funds transfers involving an Office of Foreign Assets Control designated party.
Suspicion Transaction Reports (STRs): When a law enforcement agent requests information from a bank regarding an STR, the investigator should refer the agent to the bank's compliance officer.
Financial Action Task Force (FATF) 40 Recommendations: Countries must criminalize the financing of terrorist acts.
Suspicious Activity Reporting: Suspected money laundering activities from customer accounts should be reported to the Financial Intelligence Unit (FIU) according to the FATF.
Egmont Group Role: The Egmont Group facilitates cooperation and information exchange between FIUs to combat money laundering and terrorist financing.
Automated Surveillance Systems: When evaluating system settings, the settings should be compared to similar organizations within the peer group.
Investigative Interview Location: The best location for a law enforcement interview with a suspect is an interview room in the offices of a law enforcement agency.
Cross-Border Money Laundering Investigations: Countries should encourage information sharing and cooperation between FIUs to facilitate investigations.
Wholesale Auto Business Red Flags: Receiving repeated wire transfers from a high-risk jurisdiction, frequent transfers from a checking account to a savings account and limited or no information about the client's business activities should trigger further investigation.

Additional Key points

Anti-Money Laundering (AML) Regulations: These regulations exist to prevent criminals from using the financial system to launder money, therefore protecting the integrity of the financial system and combating financial crime.
Financial Intelligence Units (FIUs): They are responsible for receiving, analyzing, and disseminating financial intelligence to relevant authorities.

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Description

This quiz covers essential compliance and anti-money laundering (AML) principles as dictated by the USA PATRIOT Act. Participants will learn about reporting suspicious activities, legal risks, and requirements for foreign correspondent banking. Test your understanding of these critical regulatory requirements and practices.