Introduction to Money Laundering Study Guide

Introduction to Money Laundering

• ACAMS is an organization dedicated to anti-money laundering (AML) and combating the financing of terrorism (CFT).
• This document is for personal study only and cannot be shared without express permission.

Risks and Methods of Money Laundering and Terrorist Financing

• Money Laundering: The process of concealing the origin of illegally obtained money.
• Stages of Money Laundering: Criminals perform three steps to launder money: placement, layering, and integration.
• Economic and Social Consequences: Money laundering fuels criminal activity, burdens governments with increased law enforcement and healthcare costs and dissuades legitimate businesses seeking to participate in the financial system.

Banks and Other Depository Institutions

• Electronic Funds Transfers: Banks are a key tool for money laundering because of their role in the process.

• International Sanctions: The US, UN, EU and other international bodies apply financial sanctions, which individuals and institutions must adhere to, or face severe repercussions.

• Risk of International Sanctions: Failing to comply with international sanctions can result in criminal and civil penalties.

• Social Costs from Money Laundering: This fuels crime and increases costs associated with law enforcement and healthcare resources.

• Correspondent Banking: A mechanism for financial institution international transactions.

• Payable-Through Accounts (PTAs): Accounts permitting funds transfer between various accounts.

• Concentration Accounts: Accounts used to combine and conceal funds.

• Private Banking: Specialized banking services for high-net-worth individuals and the possible involvement of private investment companies (PICs).

• Politically Exposed Persons (PEPs): Individuals holding prominent positions of power, which can pose a higher risk in money laundering.

• Structuring: Breaking down large sums into smaller ones to avoid regulatory scrutiny.

• Microstructuring: The process of creating smaller transactions to evade detection.

• Credit Unions and Building Societies: Financial institutions that can be vulnerable to money laundering.

Nonbank Financial Institutions

• Credit Card Industry: Vulnerability of credit card transactions to money laundering.
• Third-Party Payment Processors: A significant payment intermediary in money laundering.
• Money Service Businesses (MSBs): Businesses involved in financial transactions.
• Insurance Companies: Vulnerable if not implementing appropriate anti-money laundering controls.
• Securities Broker-Dealers: High-risk environment, given the significant value transactions involved.

Nonfinancial Businesses and Professions

• Casinos: Possible means of concealing and converting money through gaming activities
• Dealers in High-Value Items: Businesses such as precious metal dealers, jewelers, and art dealers are vulnerable to money laundering.
• Travel Agencies and Websites: Facilitators for money laundering activities through travel arrangements.
• Vehicle Sales: High-value vehicles are utilized to launder money.
• Gatekeepers (Notaries, Accountants, Lawyers): Individuals who facilitate complex transactions, potentially concealing illicit transactions.
• Investment and Commodity Advisors: Individuals who advise investors; they can be targets of money laundering schemes.
• Trust and Company Service Providers: Facilitate the creation of shell and other types of companies, making them targets of money laundering.
• Real Estate: Real estate transactions are commonly used as part of the money laundering process.

International Trade Activity

• Free Trade Zones: Places where financial controls on trades are often less strict.
• Trade-Based Money Laundering (TBML): Laundering money through international trade transactions.
• Black Market Peso Exchange (BMPE): A scheme used for money laundering, particularly in the U.S. and Mexico.
• Wildlife Trafficking: Illegally obtained money by trafficking wildlife.

Risk Associated with New Payment Products and Services

• Prepaid Cards, Mobile Payments, and Internet-Based Payment Services: Modern payment methods with varying levels of oversight.
• Virtual Currency: Digital currencies like cryptocurrencies are gaining popularity but raise concerns of use in illicit finance; they facilitate anonymity and are very difficult to trace.

Corporate Vehicles Used to Facilitate Illicit Finance

• Public Companies and Private Limited Companies: Criminals frequently use companies to hide the origin and movement of ill-gotten funds.
• Shell and Shelf Companies: Corporations with limited operational activity.
• Trusts: A legal mechanism that can be used to conceal ownership and control of assets.

Terrorist Financing

• Differences and Similarities: Methods overlap but not all the same.
• Detecting Terrorist Financing: Methods used to identify and counter acts of terrorist financing, including use of charities.
• Use of Hawala: A peer-to-peer money transfer system; often used to finance terrorism.
• Use of Charities and Nonprofit Organizations (NPOs): Criminals use NPOs to facilitate terrorist financing schemes.

International AML/CFT Standards

• FATF (Financial Action Task Force): International standards for AML/CFT.
• FATF 40 Recommendations: Recommendations given to international jurisdictions regarding AML/CFT.
• FATF-Style Regional Bodies (FSRBs): Regional bodies that have been established for applying AML/CFT recommendations. These include APG, CFATF, MONEYVAL, GAFILAT, GIABA, MENAFATF, ESAAMLG, and GABAC.
• Basel Committee on Banking Supervision: Oversees banking regulation and supervision.
• European Union Directives on Money Laundering: EU regulations on money laundering.
• Other Influencing Bodies: Include organizations like the Organization of American States, Egmont Group, the Wolfsberg group, and the World Bank and IMF.

Key US Legislative and Regulatory Initiatives

• USA PATRIOT Act: U.S. law intended to deter and prosecute the financing of terrorism.
• Anti-Money Laundering Act (AMLA) of 2020: U.S. law focused on combating money laundering.
• Office of Foreign Assets Control (OFAC): U.S. agency administering and enforcing sanctions on foreign countries, entities, and individuals.

Anti-Money Laundering/Countering the Financing of Terrorism Compliance Programs

• Assessing AML/CFT Risk: Evaluating the risk of compliance failure.
• Maintaining an AML/CFT Risk Model: Essential for an effective compliance program.
• AML/CFT Risk Scoring: A process to rank various issues.
• AML/CFT Program Elements: Necessary components for a compliant organization. These include internal policies, procedures, and controls; compliance function; compliance officer responsibilities; training; and independent auditing.
• Regulator Sanctions: Examples given for a professional that commits criminal acts.

This study guide provides an overview of money laundering, highlighting its definitions, stages, and the economic and social impacts it has on society. It also explores the critical role banks play in the money laundering process through electronic funds transfers and international sanctions. Great for personal study and understanding AML and CFT concepts.