FOLLOW THE MONEY WINTERLUDE 2022 EXAM #2 (DAVID FOWLER)

NAME:

Exam totals 30 points. Please answer the question completely, but do not add extra information that is
not relevant. It is fine if you can answer the question completely in a few paragraphs, but you must fully
answer the questions as points will be deducted if you do not address the question completely.

As discussed in the accompanying rubric, you must provide logical, well-constructed and well-sourced
answers. It is imperative that the language used is as clear, concise, and to-the-point as possible.
Carefully chosen language that is accurate, brief, and clear leaves nothing to interpretation. I will deduct
points for answers that are based on opinion rather than well-crafted, well-sourced analysis.

You must provide source citations (APA or MLA is fine), including links if possible. I need to be able to
recreate your analysis and how you came to your conclusions. I will be using an anti-plagiarism tool
when grading. I will deduct 5 points off your total exam score if you fail to provide source citations.

Exam Questions:

______________________________________________________________

"There were three primary themes that defined the U.S. Government's campaign that shaped the
environment and evolution of financial power after September 11: the expansion of the international
anti-money laundering regime; the development of financial tools and intelligence geared specifically to
dealing with issues of broad national security; and the growth of strategies based on a new
understanding of the centrality of both the international financial system and the private sector to
transnational threats and issues pertaining to national security. "Treasury's War, p8)

1. (5 points) Drawing from class discussions and the two required books, provide three examples of
how the U.S. Government's AML/CFT priorities has evolved since 2001. Please address why the
three priorities changed during this time and what actions did the U.S. Government to address new
priorities.

The U.S. Government's AML/CFT priorities have evolved since 2001, specifically in Human Trafficking
and Human Smuggling, Cybercrime, and Foreign and domestic terrorist financing. After establishing the
USA Patriot Act and the transformation of the Treasury office, the use of the freedoms provided in the
Act paired with advancing technology has moved the U.S government's involvement in these illegal
activities to a more efficient level.

Using legitimate financial institutions to process payments, pay business expenses, launder and
move money, and disguise who is profiting from these three types of illegal actions has been able to
operate without the scrutiny of the government. With advancements in electronic tracking and tracing
and the wide range of legalities provided by the Patriot Act, it is much easier to identify illicit actors,
victims, and those unknowingly connected with these types of acts.
 When it comes to cyber security, the focus used to be on computers until the rise of the smartphone
in the early to mid-2,000's. With the ever rapid technological growth of the online community, there are
more mobile subscriptions worldwide at 8.3 billion (Statista, 2021), than there are people currently at
7.9 billion (World Population Clock: 7.9 Billion People (2022) - Worldometer, 2022). As electronic
banking becomes the norm, cybercrime is becoming more frequent.

"According to the Global Threat Assessment, "cybercrime is defined as a crime in which a computer
is the object of the crime (hacking, phishing, spamming), or is used as a tool to commit an offense (child
pornography, etc.) or both (theft of virtual currency)." "The predicated offense is usually theft or fraud:
(Patel, 2020, p. 2). "Business Email Compromise Aka Email Account Compromise (EAC) is one of the most
financially damaging online crimes. Criminals send an email message that appears to come from a
known source, making a legitimate request." (Patel, 2020, p. 16) Currently, as we are faced with the
COVID-19 pandemic, the cybercrooks are using phishing techniques to pray on the fears of COVID-19
and con people. "Email recipients would be led to click on links that supposedly offered health advice, or
attackers would utilize emails that include links and downloads for malware, which enable them to steal
information from their victims." (Eira, 2022)

The U.S Government has become much faster at identifying these scams and ensuring that they are
well known. A bank or agency can return the stolen funds by providing insurance theft using software to
determine if the loss of funds was criminal. This is a vast improvement in keeping the online banking
world trustworthy to the public and operational.

Financial Patters of Human Trafficking has been a significant step forward for the U.S Government. I
have a friend who works for the FBI as part of the action arm of the law to physically interdict in these
types of cases. They heavily rely on the financial details to identify the network and players involved. A
financial indicator of Human Trafficking is the "transactional activity (credits and/or debits) inconsistent
with a customer's alleged employment, business or expected activity, or where transactions lack a
business or apparent lawful purpose." (Patel, CSE/HUMAN TRAFFICKING, 2021, p. 8)

A look at the financial patterns of an Illicit Massage Business in the H.T. Roadmap document
provides details on how these illegal entities can disguise themselves as legitimate business. "Financial
institutions that have monitored patterns in credit card transactions have noted significant differences
between typical transaction patterns at legitimate massage business and transaction patterns at illicit
massage business." (Anthony, 2018, p. 25)

As the U.S Government maps and tracks these types of transactions, they can identify these
organizations exploiting often trafficked individuals. The Polaris report found that "the average business
connects to at least one other illicit massage business as well as non-massage venues such as nail salons,
beauty shops, restaurants, grocery stores, and dry cleaners." (Anthony, 2018, p. 25) This priority to take
down the illicit business and attack the entire network is proof of the growing sophistication and
proficiency of the U.S Government.

Domestic Terrorist Financing became the focus of the U.S Government post 9/11 attack. Using the
USA Patriot Act to identify terrorists and threats was only the beginning. The U.S. National Illicit Finance
Risk Assessment (NTFRA), first published in 2018, identifies terrorist financing threats, vulnerabilities,
and risks. (Patel, US Approach to IIlicit FInance, 2021, p. 4) For the U.S to have routinely published
National Priorities, objectives, and goals to combat T.F. in the 2020 strategy, it further shows the growth
and evolving priorities of the USG.

2. (5 points) Provide one example of how the U.S. Treasury leveraged FATF to expand or change the
international AML regime since 2001. Why did the U.S. push for the expansion/change? How did the
U.S. push for the expansion/change? What was the outcome of the expansion/change?

If the U.S wouldn't do business with a specific bank, that bank would then be outed. The
substantial loss of business would influence the bank to make changes to lose the bad reputation
imposed indirectly from the United States. For example, the "Bad Bank Initiative" launched in 2003
as mentioned in the Treasury's War was used twice against Jurisdictions. The first targets were
Ukraine and Nauru. "The treasury proposed to label these countries a primary money laundering
locations that were deeply compromised by Russian organized crime." (Zarate, 2013, p. 153)
Ultimately the countries were rapidly responding by changing legislation within days of the proposal
to avoid such labels from the United States. "It was a domestic regulatory action with enormous
international impact." (Zarate, 2013, p. 153) This far-reaching influence proves the significant
importance of the legislation implemented known as the USA Patriot Act. (Further discussed in #3)

3. (5 points) Discuss one specific AML-related financial tool, intelligence source, or legislation discussed
in Treasury's War that the USG developed to deal with issues involving AML and national security
since 2001. Why was the tool, intelligence source, or legislation important?

A vital legislation tool discussed in Treasury's War that the USG developed to deal with issues
involving AML and national security since 2001 is the USA Patriot Act. After the attack on the United
States on September 11, 2001, then-President George Bush signed the Patriot Act on October 26, 2001.
This legislation was necessary because "it gave the secretary of the treasury, among other things, the
ability to designate foreign jurisdictions, institutions, types of accounts, and classes of transactions as
"primary money laundering concerns." (Zarate, 2013, p. 151)

"The purpose of the USA Patriot Act is to deter and punish terrorist acts in the United States and
around the world; to enhance law enforcement investigatory tools, and other purposes, some of which
include to strengthen U.S. measures to prevent, detect and prosecute international money laundering
and financing of terrorism." (USA PATRIOT Act | FinCEN.gov, n.d.) The treasury has many tools at its
disposal in its mission. Some of the tools were considered Nuclear Options due to their strength and
inability to be used without everyone knowing about them. Some of the weaker tools were more of a
nuisance than effective. The USA Patriot Act, specifically section 311, gave the secretary of the treasury
a versatile tool. "Institutions could be identified as risk from an anti-money-laundering perspective—in
essence, a threat to the integrity of the financial system." (Zarate, 2013, p. 152) This versatile ability has
provided the USG with the ability to affect banks worldwide by using the influential powers of the U.S
economy.
4. (5 points) During the MER evaluation in 2015/16, the assessors identified significant gaps in the U.S.
regulatory framework. Identify three gaps highlighted in the MER and discuss how illicit actors
exploit these three weaknesses to launder or store funds in the U.S. Please provide specific
examples.

R.22 Customer Due Diligence – Noncompliant (FATF, 2016, p. 13) "Casinos were not required to
perform enhanced due diligence (EDD) for higher-risk categories of customer, nor was there a
requirement to undertake CDD when there is a suspicion of ML/TF; accountants, dealers in precious
metals and stones, lawyers and real estate agents were not subject to customer identification and
record-keeping requirements; and DNFBP were not subject to specific obligations relating to PEPs, new
technologies, introduced business and unusual transactions." (FATF, 2016, p. 220)

For example: without Customer Due Diligence, an illicit actor can take their illicit funds and
either transfer them from a digital wallet into an online casino or physically bring their cash into a casino
where they deposit the dirty money and receive their gambling chips. At this point, if no one is asking
who you are or where you got your money from, the risk is low for the illicit actor. If more than one at
once, this or these will then play a few hands and then cash out. "Sometimes this is also done through
fixed-odds betting terminals (FOBTs) as players play and lose a little bit, then cash out, so they have a
receipt to show as proof of their 'winnings'." (Keaton, 21) For example, if in Vegas, they could enter and
perform the same scheme in multiple locations, significantly reproducing the output of laundered
money. The ability to perform these types of transactions online behind many layers of false locations
and identities only increases the threat and risk if CDD is not performed by Casinos. As long as the
transactions are $5,000 or less, Casinos were not required to file SARs.

R.23 Other Measures— Noncompliant (FATF, 2016, p. 13) "Casinos were the only DNFBP sector
required to report suspicious transactions, and there was a threshold on that obligations; other DNFBPs
were not subject to the tipping off provision or protected from liability when they choose to file a SAR;
other sectors were nor required to implement adequate internal controls, and there were no specific
obligations on other sectors to give special attention to the country advisories relating to countries that
have deficient AML controls." (FATF, 2016, p. 221)

For example: As a Lawyer or Real estate agent, I have the power to voluntarily indicate if I
believe a transaction is suspicious if the transaction is over USD 10,000. As a bad illicit actor in the
position of lawyer or real estate agent, this weakness allows me to take on clients or deposits for 10k or
less without caring if the money is legal. As a firm or someone with a network, I could easily exploit this
weakness for profit by moving the funds through my network compounding the illicit funds into each
branch or section by making it company policy not to do more than the law requires and only report if
over 10k. These funds would then legally be placed into the banking system and laundered for profit.

R.24 Transparency & Bo of legal persons-- Noncompliant (FATF, 2016, p. 13) "The technical
deficiencies were the absence of any measures to ensure that there was adequate, accurate and timely
information on the beneficial ownership and control of legal persons that could be obtained or accessed
in a timely fashion by competent authorities." (FATF, 2016, p. 222) "While the process for obtaining and
recording basic information about these entities is there, there is no process or mechanism in any State
for obtaining, recording and making public the process of gathering information on beneficial
ownership." (FATF, 2016, p. 222)
 For example: Using a well-layered system of Front companies, Shell companies, and Shelf
companies used for the mixing of illicit funds, the different requirements and methods of each state
make it difficult to identify the B.O. By exploiting these legalities, an illicit entity can continue to operate
without the B.O. being able to be identified. A trigger could alert the actual B.O. of the danger of
continued operations by looking into the companies. They could go into hiding or make other
arrangements to protect themselves.

5. (5 points) Describe three actions the USG has taken since 2016 to mitigate risks highlighted in the
2016 MER. What gaps are these actions closing? Please provide specific examples.

Many key compliance activities have been actioned on since 2016 that are closing some of the gaps
highlighted in the 2016 MER. For instance, the use of the Risk Assessment to determine if the proper
groundwork has been completed to determine what level of illicit financial activity risks may be part of
that entity is an upfront policy to combat the failed compliance of R.22 in the 2016 MER in the Due
Diligence. For example, we discussed in our group a real estate agency using the checklist to ensure that
its offshore client isn't using their entities as cover because they are using illicit funds or circumventing
legalities. This risk assessment helps keep everyone honest and transparent.

Transaction monitoring has helped fill the gap in the 2016 MER non-compliant rating for
recommendation 23-Other measures. The ability to use A.I. and software to monitor the end-to-end
business transaction and generate document numbers in some instances creates an online transaction
database that allows these auditing and transaction programs/teams to build and look for patterns or
discrepancies and flag them for further investigation. These flags have led to the discovery of illicit
sexual activity, child pornography, and illegal massage parlors. (Anthony, 2018)

R.24-Transparency & B.O. of legal persons was rated as non-compliant in the 2016 MER. The USG
has been working on legal structuring and wording to ensure that the IRS has all EIN information for tax
purposes. This also creates a database of EINs and data for the Treasure to identify the B.O. and related
entities.

6. (5 points) Explain how the Customer Due Diligence (CDD) activities discussed in class are directly
related to specific FATF recommendations, providing at least 2 examples.

"Customer Due Diligence (CDD), aka Know-Your-Customer (KYC) checks, relates to the process of
performing background checks on the customer to ensure that they are properly risk assessed before
being onboarded, and theater screened on an ongoing basis to ensure that relationship should be
maintained." (Lee, 2022, p. 13) Regarding the FATF and the MER published in 2016, R.24 (FATF, 2016, p.
13) was a non-compliant area regarding the transparency & B.O. of legal persons. In class, we discussed
scenarios on how the CDD may help identify the B.O. Scenario 1, "Shareholding vs. beneficial
ownership, outlined the fact that for each immediate shareholder holds less than 25% does not mean
that there are no beneficial owners—in this case, is there any relationship between the shareholder?"
(Lee, 2022, p. 26) To continue to follow the chain of ownership to the B.O. is the true objective. If the
system is complex and hard to follow, is this done on purpose for a legitimate reason? Completing these
second and third levels of CDD brings transparency or flags a risky customer.
 The CDD addresses the shortcoming of noncompliance explicitly with R.22 Customer Due
Diligence – Noncompliant (FATF, 2016, p. 13) By identifying the customer and further verifying their
identity using verifiable documents, data, or information (Lee, 2022, p. 16) outlines the steps to be taken
by a casino or online gambling company to ensure that the identity of the player is who they say they
are and the funds being used are legal. Standardizing form questions like how much income you make in
a year, what is your line of business etc., creates parameters that could flag you if you are operating
outside the normal limits of those parameters. These two CDD activities directly relate to the FATF
recommendations provided and help improve the findings.

Works Cited
Anthony, B. (2018, July). On-Ramps, Intersections, and Exit Routes A roadmap for systems and industries
to prevent and disrupt human trafficing. Polaris. Financial Services Industry.

Eira, A. (2022, 01 14). While world governments have their hands full dealing with the COVID-19
pandemic, shady cyberheist operators a. Retrieved from Financesonline.com:
https://financesonline.com/cybercrime-trends/

FATF. (2016, December). Anti-money laundering and counter-terrorist financing measures - United
States, Fourth Round Mutual Evauation Report. Retrieved from FATF: https://www.fatf-
gafi.org/media/fatf/documents/reports/mer4/MER-United-States-2016.pdf

Keaton, B. (21, 11 26). How Money Laundering Really Works & Why It’s A Problem In The Gambling
Industry. Retrieved from Casino.org Blog:
https://www.scribbr.com/apa-citation-generator/new/webpage/

Lee, J. (2022, 01 20). Customer Due Diligence.

Patel, K. (2020, 12 28). Cybercrime and fruad v 5 Jan.

Patel, K. (2021, 01 01). CSE/HUMAN TRAFFICKING.

Patel, K. (2021, 01 06). Industry Approach.

Patel, K. (2021, 01 15). US Approach to IIlicit FInance.

Statista. (2021, 12 9). Number of mobile subscriptions worldwide 1993-2021. Retrieved from Statista:
https://www.statista.com/statistics/262950/global-mobile-subscriptions-since-1993/

USA PATRIOT Act | FinCEN.gov. (n.d.). Retrieved from Financial Crimes Enforcement Network:
https://www.fincen.gov/resources/statutes-regulations/usa-patriot-act

World Population Clock: 7.9 Billion People (2022) - Worldometer. (2022, 01 21). Retrieved from World
Population Clock: 7.9 Billion People (2022) - Worldometer:
https://www.worldometers.info/world-population/

Zarate, J. C. (2013). Treasury's War. New York: PublicAffairs.