Certificate in Anti-Money Laundering Foundations: Study Guide

Study Guide
Certificate in Anti-Money
Laundering Foundations
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Agenda
Introduction to this Program............................................................................................... 1
1 Module 1: Introduction to AML/CTF ..................................................................................... 3
1.1 Introduction to this Module .......................................................................................... 3
1.2 What is Money Laundering? What are Predicate Offenses? ............................................... 4
1.3 Stages of Money Laundering ........................................................................................ 5
1.4 Exemplary Methods of Money Laundering (Banks & Financial Institutions) ......................... 7
1.5 Exemplary Methods of Money Laundering (Non-Banks) ................................................... 8
1.6 What is Terrorist Financing? ........................................................................................ 9
1.7 Stages of Terrorist Financing ..................................................................................... 10
1.8 Exemplary Methods of Terrorist Financing ................................................................... 11
1.9 Similarities and Differences Between Money Laundering and Terrorist Financing .............. 12
1.10 Case Study – Terrorist Financing Using Real Estate ...................................................... 14
1.11 Module Summary ..................................................................................................... 14
1.12 Multiple Choice Quiz ................................................................................................. 15
1.13 Further Reading and References................................................................................. 16
2 Module 2: Overview of Relevant AML/CTF Laws and Regulations ........................................... 18
2.1 Introduction to this Module ........................................................................................ 18
2.2 Financial Action Task Force (FATF) ............................................................................. 19
2.3 United Nations, International Monetary Fund, and World Bank ....................................... 20
2.4 Wolfsberg Group ...................................................................................................... 23
2.5 Basel Committee ...................................................................................................... 24
2.6 Egmont Group ......................................................................................................... 25
2.7 US AML/CTF Legislation ............................................................................................ 26
2.8 EU AML/CTF Legislation............................................................................................. 28
2.9 Case Study: Role of Financial Action Task Force in Prevention of ML/TF .......................... 30
2.10 Module Summary ..................................................................................................... 31
3 Module 3: Organizational AML/CTF and Risk Mitigation Measures .......................................... 34
3.2 AML/CTF Governance (Function and MLRO) ................................................................. 35
3.3 AML/CTF Risk Identification and Risk Assessment ......................................................... 37
3.4 AML/CTF Policies, Procedures, and Controls Framework ................................................ 39
3.5 AML/CTF Employee Training ...................................................................................... 40
3.6 Independent AML/CTF Audit and Review ..................................................................... 41
3.7 Transaction Monitoring.............................................................................................. 41
3.8 Know Your Customer and Customer Due Diligence ....................................................... 43
3.9 Case Study: AML/CTF Compliance Program Implementation Requirements ...................... 46
3.10 Module Summary ..................................................................................................... 47

4 Module 4: AML/CTF Investigations .................................................................................... 51
4.2 Indicators for Money Laundering and Terrorist Financing ............................................... 52
4.3 Performing an AML/CTF Investigation ......................................................................... 54
4.4 Possible AML/CTF Investigation Outcomes ................................................................... 55
4.5 Filing Suspicious Activity Reports ............................................................................... 56
4.6 Record Keeping and Documentation Requirements ....................................................... 59
4.7 Role of the Financial Intelligence Unit and International Cooperation .............................. 60
4.8 Case Study: AML/CTF Documentation to be Maintained ................................................. 60
4.9 Module Summary ..................................................................................................... 61
5 Completing the Program .................................................................................................. 64
0 Introduction to this Program

This course about Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) is designed because
every organization needs it. Financial institutions such as banks, insurance companies, brokerage houses,
and other entities face financial crime risks and incidents. Criminals such as money launderers, terrorists,
tax evaders, insider traders, cyber attackers, etc., try to break the organizations' controls and gain access
to systems, people, and information for their benefit.
In this course, you will learn about the core concepts of financial crime and the anti-financial crime
framework and programs developed and implemented in organizations to prevent financial crime. Financial
crime risk assessment and evaluation process are also covered in this course.
Who can Benefit from this Course?
This course is designed for professionals in compliance, anti-money laundering, anti-financial crime, risk
management, internal controls, fraud risk management, and internal audit functions. This course may also
be attended by other professionals interested in learning about the core concepts of anti-money laundering
and counter-terrorism financing (AML/CTF) framework and principles.
What will You Learn, and How is this Course Structured?
This course is divided into different modules and lessons, and your learning journey will include the following
modules:
Module 1: Introduction to AML/CTF
In the first module, you will acquire foundational knowledge about money laundering or ML and terrorist
financing or TF, including the concepts such as their different stages, predicate offenses, methods of ML/TF
in organizations such as banks and financial institutions, and other non-bank organizations. You will also
learn the similarities and differences between the ML and TF. Then, we will discuss a case study to
understand how the money launderers perform the ML activity.
Module 2: Overview of Relevant AML/CTF Laws and Regulations
In the second module, you will gain further knowledge about the AML/CTF laws and regulations prescribed
by various AML/CTF regulatory bodies or authorities of different countries and jurisdictions. You will also
learn about the AML/CTF broader requirements prescribed by the Financial Action Task Force (FATF), United
Nations, International Monetary Fund, World Bank, Wolfsberg Group, Basel Committee, Egmont Group, and
the AML/CTF legislation in the United States of America and European Union. At the end of this module, we
will also discuss a case study to have an understanding of the role of FATF in the prevention of ML/TF
activities.
Module 3: Organizational AML/CTF and Risk Mitigation Measures
In the third module, you will learn about the AML/CTF measures and programs which are the set of rules,
policies, processes, and the appointment of a money laundering reporting officer or MLRO, and monitoring
activities to prevent the occurrence of ML/TF. At the end of the module, we will discuss a case study where
you will learn about the broader steps required by an institution to develop the overall compliance program.
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Module 4: AML/CTF Investigations
In the fourth module, you will acquire a deeper understanding of the role of the Financial Intelligence Unit
or FIU, Suspicious Activities and Alerts, Investigation of Suspicious Activities, Suspicious Activity Reports
or SAR, and its filing. Then, we will discuss a case study related to an institution's AML/CTF documentation
requirement.
At the end of each module, you will find a module summary and multiple-choice quiz questions for your
best learning results.
Throughout this course, you will find many practical examples and case studies. This course also includes
numerous downloads and learning materials, such as a study guide, flashcards, and many more!
In the end, you can test your knowledge with a final assessment. This assessment comprises multiple-
choice questions based on this course's content. The final assessment is an open-book exam; you can use
the course materials to answer the questions. The number of attempts for the final assessment is not
limited, and in case you don't meet the passing mark of 80 percent, you can retake the final assessment.
After you have successfully completed this course, you will be able to retrieve your official certificate of
completion.
If you have ideas for improving the course content, please let us know through the course evaluation and
feedback form, which you will find at the end of this course.
Preparatory Reading
Ref.
Author Title Link
No.
1 Financial Crime Academy Money Laundering Methods used by Criminals Hyperlink
2 International Monetary Fund IMF Role in Anti Money Laundering (AML) Hyperlink
3 Financial Crime Academy Transaction Monitoring Hyperlink
European Institute of Management

4 Role of Compliance Officer Hyperlink
and Finance
Anti-Money Laundering and Know Your

5 Financial Crime Academy Hyperlink
Customer (AML/KYC)
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1 Module 1: Introduction to AML/CTF
1.1 Introduction to this Module
In this module, you will gain foundational knowledge about money laundering and terrorist financing,
including the concepts such as different stages of ML and TF, predicate offenses, and methods of ML/TF in
organizations such as banks, financial institutions, and other non-bank organizations. You will also learn
the similarities and differences between the ML and TF. In the end, you will hear a case study to understand
how the money launderers perform the ML activity.
Lesson 1 – What is Money Laundering? What are Predicate Offenses?
In the first lesson, you will learn about the concepts of one of the most important categories of criminal
activities, Money Laundering (ML). You will also learn the concept of predicate offenses in this lesson.
Lesson 2 – Stages of Money Laundering
In the second lesson, you will acquire further knowledge about the different stages of ML activities used by
criminals to hide, transfer, or utilize illegal money to hide the true origin of illegal money or their own
identity.
Lesson 3 – Exemplary Methods of Money Laundering (Banks & Financial Institutions)
In the third lesson, you will gain a deeper understanding of different methods money launderers use to
perform money laundering activities using the banks and financial institutions (FIs), such as FIs doing
money service businesses.
Lesson 4 – Exemplary Methods of Money Laundering (Non-Banks)
In the fourth lesson, you will learn how money laundering activities are performed by money launderers
using the channel of non-bank institutions.
Lesson 5 – What is Terrorist Financing?
In the fifth lesson, you will acquire relevant knowledge about concepts related to terrorist financing
activities, who perform these activities, and the potential negative impacts this criminal activity may have
on the institutions.
Lesson 6 – Stages of Terrorist Financing
In the sixth lesson, you will gain a deeper understanding of the different stages of Terrorist Financing (TF)
activities that criminals use to transfer or help other terrorists located in different places or jurisdictions.
Lesson 7 – Exemplary Methods of Terrorist Financing
In the seventh lesson, you will learn about how terrorist financing activities are performed by the terrorists
using illegal money to support the terrorist activities and the people involved in those activities.
Lesson 8 – Similarities and Differences Between Money Laundering and Terrorist Financing
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In the eighth lesson, you will acquire further knowledge that money laundering and terrorist financing are
both criminal activities. Still, they have differences and similarities, which shall clarify why some criminals
are involved in money laundering and some in terrorist financing.
Lesson 9 - Case Study
In the ninth lesson, we will go through a case study where you will learn how the criminals plan and perform
the criminal activity to gain financial benefits at the expense of the economy or an institution.
At the end of this module, you will find a module summary and multiple-choice quiz questions for your best
learning results. You can use the multiple-choice quiz questions to self-test your newly acquired knowledge.
1.2 What is Money Laundering? What are Predicate Offenses?
You may already have your idea of what money laundering is, and, according to the verbatim, you might
think about making something clean that was previously dirty. If you have something like that on your
mind, you are not too far away from the actual explanation. In this video, you will learn what money
laundering is and gain a basic understanding of the elements that make money laundering.
The precise definition of money laundering varies slightly in each country where it is recognized in the
criminal law. It varies according to relevant organizations and standard-setting bodies, which are covered
later.
The term money laundering describes the activity of concealing or disguising the identity of illegally
obtained proceeds. This activity aims to make the illegally obtained proceeds appear to have originated
from legitimate sources. Money laundering enables criminals to enjoy profits and funds without jeopardizing
their source. When a criminal activity generates substantial profits, the individual or group involved must
find a way to control the funds without attracting attention to the underlying activity or the persons
involved. Criminals do this by disguising the sources, changing the form, or moving the funds to a place
where they are less likely to attract attention.
When criminals derive funds from illegal activities, that money must be disguised before it can be introduced
into the legitimate financial system. Money laundering is the illegal process of disguising the profits of
financial crime, typically by using the services of banks and businesses. Criminals transfer their illegal funds
from one place to another through a country's financial system, such as banking channels. The transfer of
illegal money may support other criminals in various jurisdictions or countries.
Criminal activity is usually undertaken to generate revenue or provide a benefit to those undertaking the
activity. Organized groups undertake significant criminal activity, and laundering is the process of disguising
the illegal origins and ownership of the criminal property to enable the criminals to use and enjoy it without
jeopardizing themselves or attracting unwelcome attention, such as from law enforcement. The main
purpose of money laundering is to take advantage of criminal activities. Money laundering is the result of
almost all profitable crimes.
To give you a few examples of different definitions of money laundering, the German Criminal Code keeps
it rather simple and describes money laundering as "concealing unlawfully acquired assets."
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The Financial Action Task Force describes money laundering "as the processing of […] criminal proceeds to
disguise their illegal origin."
Common between all definitions of money laundering is that they contain two key elements:
● Fund or assets obtained through criminal or illegal activities
● Disguising the illegal origin of these funds are assets
For the first element, it is therefore necessary to conduct a crime first and make money from it. These
crimes that build the basis for money laundering are called predicate offenses. Predicate offenses vary in
each country and are usually codified in a country's criminal code. Exemplary predicate offenses may
include narcotrafficking, tax evasion, murder, grievous bodily harm, corruption, fraud, smuggling, human
trafficking, illegal wildlife trafficking, and forgery. If one conducts such a predicate offense, makes money
from it and tries to hide the illegal origin of the funds, this makes for money laundering.
Predicate offenses in ML refer to a crime component of a larger crime. In a financial context, the predicate
offense would be any crime that generates monetary proceeds. The larger crime would be money
laundering or financing of terrorism.
A predicate offense is a crime that is a component of a more serious crime. For example, producing unlawful
funds is the primary offense, and money laundering is the predicate offense.
In money laundering, a predicate offense that generates funds or assets is required as an entry condition.
Predicate offenses vary in each country and are usually codified in a country's criminal code. Since 2004,
the FATF has updated the 40 recommendations to expand the list of predicate offenses.
Financial intelligence units in the European Union and the United States have created legislation to mirror
or expand these offenses.
In the United States, these offenses were initially created by the Bank Secrecy Act of 1970 and expanded
by the USA Patriot Act of 2001. With the passage of the 6th EU Money Laundering Directive, the European
Union has adopted standard predicate offenses to mitigate loopholes in member state AML legislation.
In the European Union, for example, the so-called sixth European Union AML Directive defines and
standardizes 22 such offenses for money laundering in all its member states.
Exemplary predicate offenses include narcotrafficking, tax evasion, murder, grievous bodily harm,
corruption, human trafficking, illegal wildlife trafficking, and forgery.
1.3 Stages of Money Laundering
The world appears to become faster and more and more complex each day. Just like how the methods used
by money launderers become more sophisticated and the financial transactions more complex – this goes
especially for using cryptocurrencies for money laundering purposes.
There is no specific or single methodology of money laundering. As in many other subject areas, a
theoretical model was built to cover as many money laundering methodologies as possible conceptually. In
the case of money laundering, this model was derived from money laundering methodologies uncovered
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by law enforcement and government authorities. In practice, and despite the variety of methods employed,
the laundering process is accomplished in three basic stages of this model. These steps can be taken
simultaneously in the course of a single transaction, but they can also appear in well separable forms one
by one. These three stages are placement, integration, and layering. The same concepts that apply to
money laundering using cash apply to money laundering using cryptocurrencies.
The stages of money laundering include the processes by which illegal funds are integrated into the financial
system. This money goes through many transactions and is incorporated into the economy, and criminals
bypass rules and systems. Criminals hide, wash, and launder money to generate more money.
Money laundering works to point out the source of funds legally. For example, the money collected from
crimes such as drugs, bribery, and human trafficking is hidden by various transactions to be introduced
into the economy and then re-included in the financial system by laundering. As a result, when it seems
legitimate, this money is reused for other illegal activities to generate more illegal funds, and the process
repeats constantly.
Stages of Money Laundering:
The following are the stages used by money launderers to launder funds:
● Placement is the first stage, where the illegal funds are placed in the financial system, either
directly or indirectly. During placement, illicit funds are placed into the legitimate financial system.
The illicit funds may be present in two different forms. First, the illicit funds can already exist in the
form of currency. For example, if the criminal sells drugs and narcotics online and gets paid in
cryptocurrencies right away. Secondly, illicit cash can also exist in digital currency, which is then
used to purchase other digital assets such as cryptocurrencies. Either way, the placement stage
establishes that a criminal has funds and money.
● Layering is the second stage, also known as the hiding stage. It is where a series of accounts are
used to transfer funds or assets from one account to another account. Very complex layers of
transactions are created to disguise the trail and origin of funds. In this stage, the criminal facilitates
transactions to disguise the illegal origin of the funds. Having said this, money laundering, by its
nature, is hard on the fact that transactions made may be pseudonymous. However, criminals often
use additional means of anonymizing to disguise the funds' illegal origin further, breaking the links
between different transactions.
● Integration is the third stage, where the illegal funds are utilized to purchase different assets, or
the funds are invested in a legitimate enterprise to convert the black money into white. Suppose
the criminal feels confident enough that it is impossible to trace back the dirty currency to the
criminal's activity. In that case, he seeks to use the funds for legitimate purposes, such as buying
luxury cars, real estate, or jewellery. However, despite the fact that the currency is no longer
directly tied to a crime, criminals and money launderers still need a way to explain how they came
into possession of the currency.
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1.4 Exemplary Methods of Money Laundering (Banks & Financial

Institutions)
Banks and financial institutions are exposed to money laundering activities and risks because they offer
their services to a wide range of customers, who may be from diversified backgrounds and jurisdictions.
The money launderers attract banks and FIs because they find it easier to hide, use or transfer their black
money.
Money laundering may be committed by anyone, including the senior management or employees of the
organization, customers, other stakeholders, the general public, or declared criminals. Usually, money
laundering is performed by organized criminals to hide illegal money or support other criminals. Money
launderers approach banks to inject and transfer their illegal funds, causing the banks to process the
transactions.
Banks are aware of the time and resources required to combat laundering activities in traditional banking,
so they diligently oversee investments in these areas. However, the loopholes of online banking are often
undermined in the banking systems of many countries. This weakness is a thriving ground for criminals
who use these loose standards for money laundering and terror financing purposes. Online banking is
currently the playground of many fraudsters using social engineering methods to access other people’s
bank accounts in their favour. For money laundering purposes, a criminal may transfer money directly to
a victim’s account and trick the person into sharing sensitive information such as passwords or getting
remote access to the victim’s computer. Then, the criminal can make an unauthorized payment from the
victim’s account.
Money launderers also utilize these channels for transferring digital currencies using the banking channels
and their online banking support. They make payments through their bank accounts and buy or sell digital
currencies. Cryptocurrencies such as bitcoin are one the most convenient ways to wash money due to their
inherent anonymity feature. These currencies are not connected to a person’s identity and only depend on
the private key connected to an account. In addition, individuals, who use digital currencies, do not have
to rely on intermediaries for value transfers. Digital currency platforms often do not carry out checks for
the source of money, politically exposed persons or PEPs, and sanctions.
In other FIs, such as money service businesses or remittance companies, the money launderers approach
them and open their accounts to avail the products and services offered by these institutions. Using FIs,
the money launderers inject their money by buying foreign currencies and selling them later to generate
more funds. Alternatively, they may transfer the illegal funds to another location or country using the
remittance methods provided by FI.
Other FIs like leasing companies are also used by money launderers who invest illegal funds into assets
such as cars, property, etc. Money transfer and receiving are a few of the core objectives of money
launderers regarding FIs
Many regulators have restricted FIs from dealing with cryptocurrency exchanges, and banks have restricted
customers transacting in virtual currencies. However, both these transactions are happening in many
countries, and there is a mounting risk of financial crimes. These modern money laundering methods and
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their rising transaction volumes are becoming a major headache for regulators across the globe. Given the
complexity involved in their technology and the difficulties in regulating them, many governments have
blocked dealings in cryptocurrencies. The regulators must improve their oversight to counter money
laundering via these modern methods. Holding the general hostility of central banks towards
cryptocurrencies, some prominent global banks have started active cooperation with it.
1.5 Exemplary Methods of Money Laundering (Non-Banks)
Cash Intensive Businesses
The cash business scheme is the first money laundering example. The cash business scheme is one of the
most classic schemes for laundering large amounts of physical cash. Even today, many businesses handle
most of their transactions in cash. Illicit cash can be inserted into these transactions quickly or slowly.
Gangsters evaded investigators for years by funnelling the money his crimes generated through his small
empire of laundromats. The term "money laundering" was coined by the agents investigating him.
Placement for a cash-intensive business scheme involves direct cash payments to the owner or manager
of the establishment. The money to be laundered for the day is brought to the business's premises. It stays
in a safe location until it can be added to profits for the day through several methods.
When the money is laundered through cash businesses, such as car washes and strip clubs, the layering
stage occurs when dozens of fake transactions are slipped into the books throughout the day. These
transactions may take the form of fake customers or through extra services tacked onto legitimate
transactions, with the difference added from the placed money.
Cash-intensive business schemes often extract money through daily profits. This scheme requires the
money to be laundered somewhat slowly, but some amount is ready every day, making it more liquid for
the launderer. Taxes are paid on the reported profits, and the money can now be used for any purpose.
Casino Money Laundering
Secondly, let's look at the casino scheme as the second money laundering example. The casino scheme
works by funnelling money through gaming. The money is converted to casino chips, briefly played, and
then transferred back into cash. The chips may be converted by the launderer or by a proxy.
In many cases, the casino where money laundering occurs is in a nation other than the launderer's nation
of origin, making it difficult for law enforcement in either country to gather evidence that might reveal proof
of money laundering.
The placement stage occurs when the money is delivered to the proxy, who will take payment in cash and
then exchange it for chips. In some countries, travel agencies provide casino chips as part of their packages.
Paying for these packages in cash can be an effective way to place the cash without electronic records.
When the money is laundered through gambling, the layering stage takes place when the cash or chips
purchased through an intermediary are carried into the casino and used for gambling. In most cases, very
few of the chips are used for gambling because of the risk of loss. Instead, the chips are lightly used for
several hours and then converted back into cash.
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The receipts from the cashout are used as evidence of the cash's legitimacy. There is no record of how
many chips were carried into the casino, so the launderer can plausibly claim that small amounts were
carried in and the larger sum comes from winnings.
Money laundered through casinos is relatively easy to integrate. Once reporting winnings and paying taxes,
the money can be used for other purposes.
1.6 What is Terrorist Financing?
The financing of terrorism involves the provision of funds to individuals and groups to commit terrorist acts.
Terrorism financing resembles money laundering because it often requires criminals to conceal the transfer
of funds within the legitimate financial system.
Terrorists may use high-profile people of the country to support them in their terrorist activities and for
private gain. Terrorists may use public officials, who may abuse the authority of their public office for
personal gain, which interferes with democracy and the rule of law. Corruption also may be committed by
private individuals who abuse their positions for personal gain, which can hinder fair market operations and
distort competition.
There is a song called "Money makes the world go around," which is true for terrorists and terror
organizations. Money is the lifeblood of terrorism. Terrorist organizations require significant funding for the
actual undertaking of terrorist acts and other issues. In particular, to maintain the organization's
functioning, provide for its basic technical necessities, and cover costs related to the spreading of their
ideologies.
Terrorist financing can be described simply as financing terrorist acts, terrorists, and terrorist organizations.
But terrorist financing is more than just providing the money to them. Terrorist financing can also facilitate
terrorist acts using other assets or stores of value such as oil and natural resources, property, legal
documents, financial instruments, and others. But terrorist financing does not stop there. Terrorists also
make more and more use of modern technologies, including the block chain and cryptocurrencies. They
use channels to help fund attacks more easily than they could ever do with fiat currencies.
Terrorist financing is the provision or collection of funds with the intention that they should be used to carry
out acts that support terrorists or terrorist organizations or to commit acts of terrorism. Terrorist financing
includes the financing or aiding, abetting, and facilitating of terrorist acts and terrorists and terrorist
organizations. It is a collection of funds, by any means, directly or indirectly, intending to be used, in full
or in part, to carry out terrorist activities.
The motivation behind terrorist financing is generally ideological as opposed to profit-seeking, which is
generally the motivation for most crimes associated with ML. Terrorism may be financed through illegal
activity or using legitimately derived and owned funds. The purpose of terrorist financing is not to hide
illegal money but to suppress a population or state through violence and coercion and raise funds to finance
criminal acts.
Criminals may use the financial system or channels to perform terrorist financing activities. Therefore,
organizations must ensure that such activities are prohibited through a robust system of controls.
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Understanding the sources and methods of money laundering and terrorist financing in a jurisdiction is
essential for competent authorities to develop and implement an effective anti-money laundering/counter-
terrorist financing or AML/CTF program. A national money laundering/terrorist financing or ML/TF risk
assessment should be considered the foundation for setting AML/CTF policy priorities and resource
allocation.
Financing terrorism, on the other hand, refers to an illegal action in the future; the purpose of terrorism
financing is not to collect, profit, or accumulate in the future. Its purpose is to finance terrorist acts, whether
legal or illegal, for their terrorist activities; that is, the purpose is purely ideological. At this point, the
motivation for the two crimes is completely different.
1.7 Stages of Terrorist Financing
Terrorist organizations and even individual terrorists and insurgents require financial support. This money
is generated by either lawful or unlawful means and is usually transferred through illegal means like money
laundering, which makes it another form of financial crime. Terrorist financing using cryptocurrencies
follows four stages: Collecting, Storing, Moving, and Using.
The first stage, the collecting stage, refers to the generation of funds intended for a terrorist or terror
organization. The most common sources of terrorist funding are state sponsorship, charitable or personal
donations, illegal activities, and legal business activities. Illegal activities include drug trafficking and other
smuggling, fraud, extortion, and petty crime. Legal activities include salaried employment, legitimate
businesses, and personal or credit-based loans. A terrorist group's choice of source varies greatly according
to availability and group preferences and may evolve. The success of intelligence and law enforcement
agencies in constraining the ability of terrorist groups to raise money can lead terrorist organizations to
search for alternative fundraising methods, which in turn leads authorities to develop new
countermeasures.
Terrorists may be supported in the receipt of funding through various means. For example, many terrorist
organization supporters have not been donating as much to terrorist groups as they did in the past because
of increased legal and financial risks involved in doing so. Paying donations is a significant source of terrorist
financing. Supporters might donate their money to transfer funds through broker intermediaries.
In addition, the sale of illegal goods and drug trafficking also may be critically assisted by funds. In the
trafficking of goods, especially drugs, terrorist groups are usually found involved.
The second stage involves that terrorist organizations must store and manage the money once funds are
generated. To understand this, put yourself in the shoes of a fundraiser of a terrorist organization for a
moment. You have received some money from direct donations in amounts large and small, given by
individuals, legal entities, non-profit organizations, or businesses, and, in some cases, foreign countries.
What do you do with this? You bundle it to make it easier to handle and store it.
Funds can be stored through means such as Bank and other accounts, high-value commodities such as oil,
art and antiquities, agricultural products, precious metals and gems, and even used vehicles. Large terrorist
organizations often rely on relatively sophisticated financial infrastructure with multiple levels of
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management, reporting, accounting, and financial planning. Especially terrorist organizations under attack,
like ISIS or the Islamic State of Iraq and Syria, must pay attention to the robustness of their financial
systems to limit or prevent losses of personnel, sites, or records.
The third stage is moving the funds. When the terror group has as many funds as required and an
operational need, they move funds from the store to somewhere else. If the money received is not yet
under the direct control of the terrorist organization or if it cannot be transferred because of operational
security concerns, they use money laundering and other transfer mechanisms.
Useful ways in which terrorist organizations transfer money includes cash couriers, informal transfer
systems, money service businesses, formal banking, false trade invoicing, and high-value commodities.
Although these are important to terrorist organizations, transaction volume is particularly critical because
most transactions occur within a few specific countries and are either internal fund transfers or settlements
between known parties. Large transactions may therefore be difficult and noticeable.
Finally, terrorist groups use the funds they have collected. We can differentiate between operating costs
and costs to produce violence for our purposes. The same mechanisms typically fund both categories.
Different terrorist groups will budget differently based on their needs and goals, and the operations to track
and disrupt the activities of such groups will have different effects, depending on the choices made. It is
difficult to separate licit operations and expenses, such as salaries and social services, from clearly illicit
spending, such as terrorism recruitment and training. For example, operating costs, such as propaganda,
recruitment, salaries, and social services, indirectly contribute to an organization's ability to produce
violence.
Most terrorist groups are currently constrained in their ability to use cryptocurrency since the regions where
they operate have limited acceptability and usability. Even if a group receives and manages these funds,
they cannot easily be used to pay for expenses where vendors and members expect cash, either in stable
currencies like dollars, euros, or local currencies. For instance, few Bitcoin ATMs exist in the Middle East,
making it difficult to exchange Bitcoins for fiat currencies. Bitcoin ATMs tend to be more prevalent in Europe
and the United States, where local banking and currency laws deter illicit use.
1.8 Exemplary Methods of Terrorist Financing
Terrorists and terrorist groups exploit legitimate trade transactions in their bid to collect and transfer funds
to support their activities and to support the larger terrorist organization. They are involved in the complex
and transnational nature of terrorist financing through trade, as terrorists and their financiers conduct
various trade transactions in different countries to disguise the identity and origin of the funds they receive.
Importantly, it requires strengthening international cooperation and collaboration against terrorist financing
and monitoring international trade transactions. Cases highlight the reliance of terrorist groups not only on
criminal proceeds but also on proceeds from legal sources in funding their operations. It also explains the
constant changing of communication channels such as mobile cards and mobile phones by the sect
members to evade detection and arrest by security operatives. Furthermore, the TF cases bring to light the
ease with which legitimate businesses can be established in countries to finance terrorism.
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TF cases may indicate the operational vulnerabilities associated with the weaknesses in the registration of
companies and highlight how terrorists can use fictitious companies to raise and move funds to terrorists
and terrorist organizations across national borders.
The following are some cases reported as terrorist financing in the region of Africa:
● Case 1: Mr. T, a confirmed member of Boko Haram, was apprehended by security operatives
when conducting surveillance on possible targets of attack in Abuja. Upon interrogation, Mr. T
revealed that one of the ways through which Boko Haram funds its activities is by purchasing and
sending items to its members in other locations. These items are sold at inflated prices, and the
proceeds are used to finance the activities of the terrorist organization, including renting
apartments and procuring Improvised Explosive Devices or IED materials for their operations.
● Case 2: In 2011, security operatives apprehended Mr. H, a member of Boko Haram and owner
of a Nigerian telecommunications company in northern Nigeria. Upon interrogation, he confessed
to using part of his business's profit to support Boko Haram's activities. He also confessed to
supplying the group with pre-registered Subscriber Identity Module or SIM cards and mobile
phones.
1.9 Similarities and Differences Between Money Laundering and Terrorist

Financing
There are similarities between money laundering and terrorist financing. However, the methods and
objectives differ from each other. Here are some similarities and differences discussed between the two.
Money laundering varies slightly in each country where it is recognized in the criminal law and varies
according to relevant organizations and standard-setting bodies. Money laundering is the processing of
criminal proceeds to disguise their illegal origin. Money laundering enables criminals to enjoy profits and
funds without jeopardizing their source. When a criminal activity generates substantial profits, the
individual or group involved must find a way to control the funds without attracting attention to the
underlying activity or the persons involved. Criminals do this by disguising the sources, changing the form,
or moving the funds to a place where they are less likely to attract attention. Money laundering describes
the activity of concealing or disguising the identity of illegally obtained proceeds. This activity aims to make
the illegally obtained proceeds appear to have originated from legitimate sources.
On the other hand, the financing of terrorism involves the provision of funds to individuals and groups to
commit terrorist acts. Terrorism financing resembles money laundering because it often requires criminals
to conceal the transfer of funds within the legitimate financial system.
Terrorists may use high-profile people of the country to support them in their terrorist activities and for
private gain. Terrorists may use public officials, who may abuse the authority of their public office for
personal gain, which interferes with democracy and the rule of law. Corruption also may be committed by
private individuals who abuse their positions for personal gain, which can hinder fair market operations and
distort competition.
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In money laundering, when criminals derive funds from illegal activities, that money must be disguised
before it can be introduced into the legitimate financial system. Money laundering is the illegal process of
disguising the profits of financial crime, typically by using the services of banks and businesses. Criminals
transfer their illegal funds from one place to another through a country's financial system, such as banking
channels. The transfer of illegal money may support other criminals in various jurisdictions or countries.
In terrorist financing, it is the provision or collection of funds with the intention that they should be used
to carry out acts that support terrorists or terrorist organizations or to commit acts of terrorism. Terrorist
financing includes the financing or aiding, abetting, and facilitating of terrorist acts and terrorists and
terrorist organizations. It is a collection of funds, by any means, directly or indirectly, intending to be used,
in full or in part, to carry out terrorist activities.
The motivation behind terrorist financing is generally ideological as opposed to profit-seeking, which is
generally the motivation for most crimes associated with ML. Terrorism may be financed through illegal
activity or using legitimately derived and owned funds. The purpose of terrorist financing is not to hide
illegal money but to suppress a population or state through violence and coercion and raise funds to finance
criminal acts.
Criminal activity is usually undertaken to generate revenue or provide a benefit to those undertaking the
activity. Organized groups undertake significant criminal activity, and laundering is the process of disguising
the illegal origins and ownership of the criminal property to enable the criminals to use and enjoy it without
jeopardizing themselves or attracting unwelcome attention, such as from law enforcement. The main
purpose of money laundering is to take advantage of criminal activities. Money laundering is the result of
almost all profitable crimes.
To give you a few examples of different definitions of money laundering, the German Criminal Code keeps
it rather simple and describes money laundering as "concealing unlawfully acquired assets."
In money laundering:
● Funds or assets were obtained through criminal or illegal activities
● Disguising the illegal origin of these funds are assets
● For the first element, it is, therefore, necessary to conduct a crime first and make money from it.
These crimes that build the basis for money laundering are called predicate offenses.
● Predicate offenses vary in each country and are usually codified in a country's criminal code.
● Exemplary predicate offenses may include narcotrafficking, tax evasion, murder, grievous bodily
harm, corruption, fraud, smuggling, human trafficking, illegal wildlife trafficking, and forgery.
● If one conducts such a predicate offense, makes money from it, and tries to hide the illegal origin
of the funds, this makes for money laundering.
Terrorist financing can be described simply as financing terrorist acts, terrorists, and terrorist organizations.
But terrorist financing is more than just providing the money to them. Terrorist financing can also facilitate
terrorist acts using other assets or stores of value such as oil and natural resources, property, legal
documents, financial instruments, and others.
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Criminals may use the financial system or channels to perform terrorist financing activities. Therefore,
organizations are required to ensure that such activities are prohibited through a robust system of controls.
Understanding the sources and methods of money laundering and terrorist financing in a jurisdiction is
essential for competent authorities to develop and implement an effective AML/CTF program. A national
ML/TF risk assessment should be considered the foundation for setting AML/CTF policy priorities and
resource allocation.
1.10 Case Study – Terrorist Financing Using Real Estate
Mr. M is a Canadian citizen of Somali origin residing in Dakar. He established a real estate company,
Company A, in conjunction with Mr. D, a Senegalese. An account was opened for Company A at a bank in
Senegal.
Shortly afterward, this account received a wire transfer of approximately 106,000 US dollars from Mr. S, a
Somali based in the United States. A financial institution based in Dubai executed the transfer.
Based on the suspicious circumstances of the transaction, including the country of origin of funds, lack of
adequate information documenting the identity of the new customer, and the destination of the funds,
Senegalese Bank APLHA filed a Suspicious Transaction Report or STRs to the Senegalese Financial
Intelligence Unit or FIU.
During the subsequent FIU investigation, it was revealed that Company A had no legal status in Senegal
and was established specifically for laundering illicit funds through selling imported goods. Mr. M, Mr. D,
and Mr. S were in contact with extremist groups involved in terrorist activities in East Africa, North America,
Europe, and Mauritania. Mr. M, Mr. D, and Mr. S established a related company, Company B, together with
other Senegalese nationals, to import used goods, some of which were sold locally and the remainder
exported to a third country for re-sale. The proceeds of these sales were sent to several terrorist groups
through different channels.
1.11 Module Summary
In the first lesson, you learned about the concepts of one of the most important categories of criminal
activities, money laundering or ML. You also learned the concept of predicate offenses in this lesson.
In the second lesson, we discussed the different stages of ML activities used by criminals to hide, transfer,
or utilize illegal money to hide the true origin of illegal money or their own identity.
In the third lesson, you learned the different methods money launderers use to perform money laundering
activities using the banks and FIs, such as those doing money service businesses.
In the fourth lesson, we discussed how money laundering activities are performed by money launderers
using the channel of non-bank institutions.
In the fifth lesson, you learned about concepts related to terrorist financing activities, who perform these
activities, and the potential negative impacts this criminal activity may have on the institutions.
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In the sixth lesson, we discussed the different stages of terrorist financing or TF activities that criminals
use to transfer or help other terrorists located in different places or jurisdictions.
In the seventh lesson, you learned about how terrorist financing activities are performed by the terrorists
using illegal money to support the terrorist activities and the people involved in those activities.
In the eighth lesson, we discussed that money laundering and terrorist financing are criminal activities.
Still, they have differences and similarities, which shall clarify why some criminals are involved in money
laundering and some in terrorist financing.
Lastly, in the ninth lesson, we discussed a case study on how criminals plan and perform criminal activity
to gain financial benefits at the expense of the economy or an institution.
1.12 Multiple Choice Quiz
Question 1: Which of the following statement is correct for Money laundering:
a. Money laundering is the processing of money that may be laundered by criminals, for which
source of origin is clear.
b. Money laundering is the processing of criminal proceeds to disguise their illegal origin. The
money laundering process enables criminals to enjoy profits and funds without jeopardizing
their source.
c. Money laundering is the processing of criminal proceeds to disguise their illegal origin. The
Source of money laundering is declared by the criminals at the time of opening the bank
account.
d. All of the above.
Question 2: Money laundering has different stages, which are:
a. Placement, Layering, and Integration

b. Placement and Integration
c. Placement and Layering
d. Placement, Integration, and Disclosure
Question 3: Which of the following statement is correct for Terrorist Financing:
a. Terrorist financing is the provision or collection of funds that may or may not be used to
carry out acts that support terrorists or terrorist organizations or to commit acts of
terrorism.
b. Terrorist financing is the provision or collection of funds with the intention not to use to
carry out acts that support terrorists or terrorist organizations or to commit acts of
terrorism.
c. Terrorist financing is the provision or collection of funds with the intention that they should
be used to carry out acts that support terrorists or terrorist organizations or to commit acts
of terrorism.
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d. Terrorist financing is the provision or collection of funds with the intention that they should
be used to carry out acts that support money launderers to increase their wealth.
Question 4: Which one is responsible to perform the KYC in the organization, as the first line of
defense?
a. Regulatory authorities
b. Customer onboarding or account opening team
c. AML team
d. None of the above
Question 5: The main risks that the AML and KYC framework and policies address, are:
a. Brand and reputational risks
b. Health and safety risks
c. Money laundering and terrorist financing risks
d. Technology risks
1.13 Further Reading and References
Ref.
Author Title Link
No.
1 Financial Crime Academy Methods Criminals Use to Launder Money Hyperlink
2 FCA Handbook Money Laundering and Terrorist Financing Hyperlink
3 FATF Types of Financial Crime - Terrorist Financing Hyperlink
4 Financial Crime Academy Predicate Offenses in Money Laundering Hyperlink
5 FATF Types of Financial Crime - Money Laundering Hyperlink
6 FATF Some Terrorist Financing Cases Hyperlink
7 Sanction Scanner Negative Effects of ML Hyperlink
8 Financial Crime Academy Money Laundering and Terrorist Financing Hyperlink
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Similarities and Differences between Money

9 Financial Crime Academy Hyperlink
Laundering and Terrorist Financing
10 Financial Crime Academy Effects of ML on Economy Hyperlink
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2 Module 2: Overview of Relevant AML/CTF Laws and Regulations
In the second module, you will learn about the AML/CTF laws and regulations prescribed by various
AML/CTF regulatory bodies or authorities of different countries and jurisdictions. You will also learn about
the AML/CTF broader requirements prescribed by Financial Action Task Force or FATF, United Nations,
International Monetary Fund, World Bank, Wolfsberg Group, Basel Committee, Egmont Group, and the
AML/CTF legislation in the US and EU.
This module is structured into the following lessons:
Lesson 1 – Financial Action Task Force
In the first lesson, you will gain foundational knowledge about the most important and influential of the
international bodies, FATF. FATF is an intergovernmental body whose purpose is to establish international
standards and develop and promote policies, both at national and international levels, to combat money
laundering and the financing of terrorism.
Lesson 2 – United Nations, International Monetary Fund, and World Bank
In the second lesson, you will gain a deeper understanding of the United Nations Global Programme against
Money Laundering, or GPML, the International Monetary Fund, and the World Bank's role in preventing
money laundering and terrorist financing.
Lesson 3 – Wolfsberg Group
In the third lesson, you will learn about the Wolfsberg Group initiatives, their role in the prevention of
ML/TF, and the AML guidelines for the private banking sector.
Lesson 4 – Basel Committee
In the fourth lesson, you will acquire relevant knowledge about Basel Committee's role in preventing ML/TF.
Basel is headquartered in Basel, Switzerland, at the Bank for International Settlements or BIS and is a
group of bank supervisory authorities from 28 countries.
Lesson 5 – Egmont Group
In the fifth lesson, you will gain a deeper understanding of the Egmont Group of Financial Intelligence Units
or FIUs, an international FIUs network. Egmont Group's primary purpose is to help countries develop their
national anti-money laundering systems. Egmont Group is a unified structure that ensures secure financial
transfer between Financial Intelligence Units at local and international levels.
Lesson 6 – US AML/CTF Legislation
In the sixth lesson, you will learn about the most significant AML laws and regulations in the US, such as
the Bank Secrecy Act of 1970 or BSA and the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001, more commonly known as the USA
PATRIOT Act, or just Patriot Act.
Lesson 7 – EU AML/CTF Legislation
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In the seventh lesson, you will acquire further knowledge about the EU member states and their
contribution to strengthening the AML/KYC framework and developing efficient and robust customer due
diligence or CDD and Know Your Customer or KYC. All these can be achieved by opening up mutualization
opportunities and fostering a digital economy within EU member states.
Lesson 8 – Case Study: Role of FATF in the Prevention of Money Laundering and Terrorist
Financing
In the eighth lesson, you will hear a case study where you will gain a deeper understanding of the FATF's
role in preventing ML/TF activities.
2.2 Financial Action Task Force (FATF)
FATF is an intergovernmental body whose purpose is to establish international standards and develop and
promote policies, both at national and international levels, to combat money laundering and the financing
of terrorism.
The objectives of FATF are to set global standards and promote effective implementation of legal,
regulatory, and operational measures for combating money laundering, terrorist financing, and other
related threats to the integrity of the international financial system.
The FATF Recommendations
In 1990, FATF first issued 40 recommendations, which set out a basic framework for fighting money
laundering. In 1996, the 40 recommendations were revised to strengthen the AML measures in response
to identifying emerging risks. In October 2001, in response to the September 11 attacks in the US, FATF's
mandate was expanded to include measures to combat terrorist financing. FATF immediately issued eight
special recommendations on terrorist financing. These were expanded in 2004 to cover a ninth
recommendation on managing cross-border currency movements.
Following consultation with governments and the financial sector, a revised set of 40 recommendations
was published in February 2012. The previous nine special recommendations were amalgamated into the
new 40 recommendations, designed to strengthen global safeguards and further protect the financial
system's integrity by providing governments with stronger tools for taking action against financial crime.
At the same time, they now address new priority areas such as corruption, international transparency,
proliferation financing, and tax crimes.
The principles in the recommendations are unique in that they apply to all key stakeholders engaged in
combating money laundering, including regulators, law enforcement agencies, regulated firms, and
lawmakers.
The FATF recommendations do not have the force of law, and their application is not mandatory, even for
their principal members. The recommendations must be transposed into national or regional law before
they have any effect. Nevertheless, as an essential criterion for membership, each FATF member country
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undertakes to endorse and implement the Recommendations and then submit to a mutual evaluation by
other members to assess the effectiveness of their implementation.
Other countries and jurisdictions have a powerful incentive for implementing the FATF recommendations.
Being assessed against them confirms that they have the necessary AML/CTF strategies and standards to
protect their financial systems and other businesses from criminal abuse. Countries and jurisdictions that
do not have such measures in place find it increasingly difficult to undertake financial business with those
countries that have put the necessary measures in place.
The international AML/CTF standards comprise the 40 recommendations and the detailed 'Interpretive
Notes.' Although the recommendations remain static for several years, FATF publishes a regularly updated
range of best practice guidance on specific issues, which builds on the recommendations. Another of FATF's
important activities is studying the methods and trends of money laundering and terrorist financing. FATF
continuously examines current typologies to ensure that AML/CTF policymaking is relevant and appropriate
for responding to evolving threats.
The FATF is the global standard-setter for measures to fight money laundering and terrorist financing. In
2003, the FATF became the first international body to set global standards on beneficial ownership. It
required countries to ensure that their authorities could obtain up-to-date and accurate information about
the persons behind companies' foundations and other legal persons. The FATF further strengthened and
clarified its beneficial ownership requirements in 2012.
The FATF has finalized best practices with examples from the global network of FATF and FATF-style
regional bodies' members, which will help countries implement the FATF's requirements. The report
highlights that jurisdictions using a multi-pronged approach with several sources of information are often
more effective in preventing the misuse of legal persons for criminal purposes.
There are currently 39 members of FATF: 37 jurisdictions and two regional organizations such as the Gulf
Cooperation Council and the European Commission. These 39 members are at the core of global efforts to
combat money laundering and terrorist financing.
2.3 United Nations, International Monetary Fund, and World Bank
United Nations
The United Nations Global Programme against Money Laundering or GPML, part of the United Nations Office
on Drugs and Crime or UNODC, was established in 1997 to assist member states in complying with the UN
Conventions and other instruments that deal with money laundering and terrorist financing. The GPML
helps member states to:
● Introduce legislation against money laundering;
● Develop and maintain strategies to combat money laundering;
● Encourage AML policy development;
● Raise public awareness about money laundering; and
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● Act as a coordinator of joint AML initiatives by the UN with other international organizations.
In collaboration with the United Nations Drug Control Programme or UNDCP's Legal Advisory Section, the
GPML has developed model laws for both common law and civil law legal systems to assist countries in
setting up their AML legislation in full compliance with international legal instruments against money
laundering.
The UN Conventions
Several UN conventions and other instruments have been developed over the past two decades to deal
with money laundering and terrorist financing. These now include:
● The United Nations Convention against Trafficking in Narcotics and Psychotropic Substances or
the Vienna Convention;
● The United Nations Convention against Transnational Organised Crime or the Palermo Convention;
● The United Nations Convention against Corruption or UNCAC; and
● The United Nations Convention for the Suppression of the Financing of Terrorism
In the context of the UN's efforts to prevent and combat terrorism, the UNODC has an expanded work
program for technical assistance to counter-terrorism. This program is based on mandates recommended
by the UN Commission on Crime Prevention and Criminal Justice and approved by the UN General Assembly.
These mandates, carried out by UNODC's Terrorism Prevention Branch or TPB within the Division for Treaty
Affairs or DTA, include the provision of technical assistance and advisory services to countries in their fight
against terrorism. Consequently, UNODC's operational activities focus on strengthening the legal regime
against terrorism, which involves providing legislative assistance that enables countries to become parties
to, and implement the universal anti-terrorism conventions and protocols and Security Council Resolution
1373 of 2001.
UNODC aims to assist member states in their struggle against illicit drugs, crime, and terrorism. It is also
resolved to intensify efforts to fight transnational crime in all its manifestations, increase efforts to
implement the commitment to counter the world drug problem, and take concerted action against
international terrorism.
UNODC's three main objectives are to:
● Provide field-based technical cooperation projects to enhance the capacity of member states to
counteract illicit drugs, crime, and terrorism;
● Conduct research and analytical work to increase knowledge and understanding of drugs and
crime issues; and
● Expand the evidence base for policy and operational decisions.
International Monetary Fund
The International Monetary Fund or IMF is an intergovernmental organization of 187 countries that
promotes global monetary cooperation. The IMF aims to facilitate international trade, secure financial
stability, increase employment, reduce poverty, and promote sustainable economic growth through its
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activities. Like the World Bank, the IMF was created at Bretton Woods following the Great Depression to
avoid a repeat of the financial calamity that had characterized the preceding decade. Its founders
envisioned the IMF as an institution that could manage national trade deficits to avoid devaluation, monitor
participating states' financial systems, and provide loans to stabilize exchange rates.
In response to increased international concern over criminal and terrorist groups using legitimate financial
institutions to move and store assets, the IMF has broadened its work to include countering the AML/CTF.
The IMF defines terrorism financing as "the financial support, in any form, of terrorism or those who
encourage, plan or engage in it." According to the IMF, the potential negative impact of terrorist financing
and money laundering on member states' financial systems gives the organization a particular interest in
addressing these issues. These illegal activities, they say, can undermine the integrity and stability of
financial institutions and systems, discourage foreign investment, and distort international capital flows.
Before 2001, the IMF's counter-terrorism work focused predominantly on anti-money laundering
operations. In 2000, the fund was developing a module for the Anti-Money Laundering Report on Standards
and Codes and expanding its work on countering money laundering.
IMF pointed out that there are difficulties and potential dangers to applying international standards to all
domestic situations without due regard for the circumstances and legal systems within respective countries.
Enforcing these regulations can be difficult in systems that lack a supervisory capacity to monitor these
regulations or in countries experiencing conflict. Moreover, these informal systems must be considered
since they often provide financial services to the poor, for whom the formal banking system can be
prohibitively expensive. Therefore, the IMF has tried to work with national governments to be flexible in
dealing with compliance of the unregulated banking systems to avoid depleting societies of a vital
component of survival.
World Bank
In countries where an unregulated banking system known as hawala exists alongside a conventional
banking system, the World Bank has been trying to register dealers and keep records to minimize abuse
of these systems by terrorists and other actors.
The Financial Integrity unit helps countries build the capacity to pursue the 'dirty money' that flows through
the global financial system, imposing a high cost on national security, economic opportunity, and the rule
of law in developing countries. As criminals gain new abilities to move funds across borders without
detection, we are working to bolster the capacity of societies to uncover, prosecute, and prevent such
movements in the future, as well as to restitute official funds stolen in corruption back to public coffers.
The Financial Integrity team provides client countries with tools for increasing transparency and preventing
and pursuing illicit financial flows or IFF to reinforce the financial system's integrity. Our technical assistance
in anti-money laundering/counter-terrorism financing or AML/CTF offers innovative avenues for fighting
crime and addressing the intersections of IFF and development—including as it pertains to human security,
corruption, financial inclusion, and the ease of doing business. The World Bank support countries by:
● Keeping assessments around the risks and impacts of money laundering and terrorist financing
in their jurisdictions
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● Implementing a risk-based approach to AML/CTF based on the assessment and developing

counter-measures
● Reviewing the effectiveness of laws, regulations, and institutional frameworks and recommending
improvements
● Building capacity for the systematic data collection on proceeds of crimes and associated financial
flows
● Building the capacity of financial-sector supervisors for risk-based and effective supervision of the
financial sector's AML/CTF controls
● Building the investigative capacity of investigators, prosecutors, and judges for ML and TF cases,
regarding international information exchange
● Promoting financial inclusion by simplifying the customer due diligence and AML/CTF requirements
in low-risk financial products and services, as appropriate
2.4 Wolfsberg Group
The Wolfsberg Group shot to prominence in October 2000 with the release of a well-publicized set of global
AML guidelines for the private banking sector. The rationale for the initiative, which followed a series of
scandals involving high-net-worth individuals and PEPs, was the avoidance of further money laundering
within the private banking sector. The initiative was launched with the cooperation and assistance of
Transparency International.
The Wolfsberg Group comprises various private banking institutions. The Wolfsberg Group has no official
status, and its standards are not binding, even on its members. Still, its statements of good practice have
received international recognition throughout the financial sector, to the point of being used by regulators
to benchmark good and poor practice.
The Wolfsberg standards consist of the various sets of AML Principles and related Statements issued by the
Group since its inception, which are considered best practices and measures to be adopted by the
organizations, such as financial institutions. Some of the sets of AML principles and related statements are
the following:
● Wolfsberg AML Principles on Private Banking
● Wolfsberg Statement on the Suppression of the Financing of Terrorism
● Wolfsberg Statement on Monitoring, Screening, and Searching
● Wolfsberg Statement – Anti-Money Laundering Guidance for Mutual Funds and Other Pooled
Investment Vehicles
● Wolfsberg Statement – Guidance on a Risk-Based Approach for Managing Money Laundering

Risks
● The Wolfsberg Statement against Corruption
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● Wolfsberg Group, Notification for Correspondent Bank Customers
● Wolfsberg AML Guidance on Credit/Charge Card Issuing and Merchant Acquiring Activities
● Wolfsberg Statement on AML Screening, Monitoring, and Searching
● Wolfsberg Anti-Corruption Guidance
● Wolfsberg Guidance on Prepaid and Stored Value Cards
The continuous threat of money laundering is most effectively managed by understanding the potential and
emerging ML risks associated with the customers and the products an organization deals with. The goal of
Wolfsberg is to assist the organizations in managing the ML risks and to endeavor to prevent the use of a
financial system of the organization by criminals. The Wolfsberg emphasis is also on the money laundering
risk assessment to improve financial crime risk management through identifying the general and specific
money laundering risks an organization faces.
Determining how these ML risks are mitigated by the organization’s AML program and undertaking an
enterprise-wide AML compliance risk assessment may be a complex task. Still, it is necessary to understand
an organization’s compliance culture. The periodicity of the compliance risk assessment depends upon
several factors, including the methodology employed, the type and extent of interim validation or
verification, the results of the risk assessment, and internal or external risk events. An assessment of ML
risks results in applying appropriate due diligence when entering a business relationship with the
prospective customer.
The Wolfsberg Group believes that a reasonable risk-based approach adopted by the organizations to
assess the ML risks, including the country risk, customer risk, and services risk, results in implementing
the relevant compliance controls to manage ML risks effectively. Further, organizations must design and
implement appropriate AML measures to mitigate the potential ML risks associated with high-risk category
customers, such as politically exposed persons or PEPs. Wolfsberg emphasizes the performance of
enhanced due diligence in cases of high-risk scenarios and customers.
2.5 Basel Committee
The Basel Committee, headquartered in Basel, Switzerland, at the Bank for International Settlements or
BIS, is a group of bank supervisory authorities from 28 countries. The committee, which comprises a
representative of each central bank and a representative of the body with formal responsibility for the
prudential supervision of banking business is different in each country, meets four times a year. It also has
about 30 technical working groups and task forces, which meet regularly. It has no authority to make
legally binding pronouncements but formulates broad supervisory standards and guidelines and
recommends best practices.
The committee has a long-standing commitment to promoting the implementation of sound AML/CTF
policies and procedures that are critical in protecting the safety and soundness of banks and the integrity
of the international financial system. Following an initial statement in 1988, it has published several
documents supporting this commitment. In September 2012, the committee reaffirmed its stance by
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publishing the revised version of the core principles for effective banking supervision. A dedicated principle
or BCP 29 deals with the abuse of financial services.
While reviewing the findings of an internal survey of cross-border banking, the Basel Committee identified
various deficiencies in many countries' KYC policies. From a supervisory perspective, KYC policies in some
countries had significant gaps, and in various cases, the policies were missing. Consequently, the Basel
Committee asked the Working Group on Cross-border Banking to examine the KYC procedures and draw
up recommended standards that applied to the banks in different countries. The resulting paper was issued
as a consultative document in January 2001.
Following the review of the comments received, the Working Group revised the paper, and the Basel
Committee distributed it worldwide with the expectation that the KYC framework presented will become
the benchmark for supervisors, to establish national practices. For banks to design their programs, these
were considered. KYC is most closely associated with the fight against money laundering, essentially the
FATF province. It is not the committee's intention to duplicate the efforts of the FATF. Instead, the
committee's interest is from a wider prudential perspective. Sound KYC policies and procedures are critical
in protecting banks' safety and soundness and the banking systems' integrity.
The Basel Committee and the Offshore Group of Banking Supervisors continue to strongly support the
adoption and implementation of the recommendations of FATF, particularly those relating to the banks.
The Committee and the Offshore Group of Banking Supervisors will also consider adopting any higher
standards introduced by the FATF due to its current review of the 40 recommendations.
The Basel committee issued a new set of guidelines that describe how banks should include risks related
to money laundering and financing of terrorism within their overall risk management framework. The
guidelines are drawn up to be consistent with FATF's 2012 standards and Recommendations and to
supplement their goals and objectives. They supersede two previously issued Basel Committee publications,
Customer Due Diligence for Banks in October 2001 and Consolidated KYC Management in October 2004.
An updated version of the guidelines was published in 2017.
The Basel Committee's approach to the KYC is from a wider perspective, not just from the AML perspective.
It is emphasized that robust KYC procedures must be a critical part of the effective management of ML/TF
risks faced by the banks. KYC safeguards go beyond simple account opening and record-keeping. It requires
banks to design and implement the customer acceptance policy and a customer identification program that
involves more extensive due diligence for higher-risk customers and includes the proactive approach of
monitoring accounts for suspicious activities.
2.6 Egmont Group
The Egmont Group of Financial Intelligence Units or FIUs is an international network of FIUs. The Egmont
Group is designed to improve its FIU members' communication, information sharing, and training
coordination. Egmont Group's primary purpose is to help countries develop their national anti-money
laundering systems. Egmont Group was established in 1995, and this unit is a unified structure that ensures
secure financial transfer between Financial Intelligence Units at local and international levels. It consists of
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159 FIUs. Subject to international standards regarding AML/CTF and other binding rules applicable to
Egmont Group members, both should engage in activities encouraging and facilitating international
cooperation, such as the approved Basic Charter and Guidelines for Information Exchange Principles.
Egmont Group's FIU information are businesses that must collect, analyze, and forward financial
information regarding money laundering and terrorist financing to the relevant departments. However, the
jurisdiction and duties of these units are not limited to this. Some financial intelligence units have the power
to investigate and conduct money laundering investigations. Egmont Group guides financial intelligence
units to ensure secure information exchange following AML/CTF obligations.
Egmont Group has formed working groups to take concrete steps in achieving the goals. Egmont working
groups and their duties are as follows;
The Legal Working Group examines all legal regulations and discusses the candidacy of potential members.
It also leads the preparation of official documents belonging to the Egmont Group.
It is the group that collaborates with other organizations to coordinate technical assistance around the
world. It organizes international and regional seminars for the needs of the financial intelligence units of
the member countries.
It conducts studies to expand and develop the global financial intelligence unit network. This unit's Egmont
provides the preliminary communication of the financial intelligence units that it will host. It makes
evaluations that determine whether it is ready for membership.
It develops working methods by using the information gathered by financial intelligence units. It also plays
a central role in promoting cooperation between operational divisions of member financial intelligence units.
The Information Technology Working Group is a group that provides technical support to financial
intelligence units. Carries out activities to facilitate electronic information exchange between these units.
2.7 US AML/CTF Legislation
The US's most significant AML laws and regulations are the Bank Secrecy Act of 1970 or BSA and the
Uniting and Strengthening America by Providing Appropriate Tools Require to Intercept and Obstruct
Terrorism Act of 2001, more commonly known as the USA PATRIOT Act, or just Patriot Act.
Bank Secrecy Act of 1970
The Currency and Foreign Transactions Reporting Act of 1970, commonly referred to as the Bank Secrecy
Act or BSA, which the Patriot Act substantially amended in 2001, provides the basis for most of the
preventative measures applied to the financial sector and other businesses. The Bank Secrecy Act was
intended to prevent the use of secret foreign bank accounts and assist law enforcement agencies by
legislating for regulatory reporting and record keeping by financial institutions.
The act requires US organizations, especially financial institutions, including branches and subsidiaries of
foreign banks working in the US, to do the following:
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● File reports of cash transactions exceeding 10,000 US dollars of the daily aggregate amount or
cash transaction reports or CTRs;
● Report suspicious activity that might signify money laundering, tax evasion, or other criminal
activities, suspicious activity reports or SARs; and
● Maintain a paper trail by keeping appropriate records for financial transactions. It is interesting to
note that the BSA's definition of a financial institution includes casinos.
The BSA introduced the CTR requirements for financial institutions. The CTR is a report that must be filed,
in the appropriate format, on transactions greater than 10,000 US dollars made by one person in one
business day, which include aggregated transactions where the financial institution believes they are on
behalf of the same person.
The types of transactions required to be reported include:
● Cash withdrawals and deposits;
● Foreign currency exchange;
● Cashing a cheque;
● Cash payments;
● Cash purchase of monetary instruments;
● ATM cash transactions; and
● Incoming or outgoing wire transfers paid in cash.
President George W. Bush signed the Uniting and Strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act 2001 or USA PATRIOT Act or just the 'Patriot Act' on
October 26th, 2001, barely seven weeks after the September 11th terrorist attacks. A powerful, unusually
speedy reaction to the attacks, the Patriot Act, which comprises over 900 pages of legislation, has had far-
reaching consequences for financial institutions both within the US and throughout the world.
The Patriot Act introduced the need for certain financial institutions to have customer identification
programs or CIPs for new customers and specified enhanced due diligence or EDD measures for
correspondent banking and private banking customers, especially non-US persons. The act made several
significant enhancements to pre-existing US AML legislation. It imposed new obligations about customer
due diligence or CDD procedures for US private banking and correspondent bank accounts involving non-
US persons.
The most significant requirements relating to AML/CTF and the provision of financial services covered in
the Patriot Act concern a variety of special measures, the facilitation of cooperative AML measures, the
prohibition of unlicensed money transmitters, and the creation of significant extraterritorial powers.
The act confers on the US Treasury the power to name foreign jurisdictions, financial institutions, and
transactions of primary money laundering concern. It requires financial institutions to implement 'special
measures' for them. These special measures include:
● Additional record keeping for and reporting of certain transactions;

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● The collection of information relating to beneficial ownership of accounts;
● The collection of information relating to certain 'payable through' accounts, an account maintained
by a respondent that permits the respondent's customers to engage either directly or through a
sub-account in banking activities;
● The collection of information relating to certain correspondent accounts; and
● The prohibition of, or imposition of conditions on, the opening of correspondent or 'payable-
through' accounts.
These sections of the act encourage and create a formal process to enable government agencies and
financial institutions to share information on suspected money launderers and terrorists. The formal process
enables the US Financial Intelligence Unit or FIU of FinCEN to advise financial institutions about such
suspects and require searches to be conducted for accounts of such persons. Additionally, it enables a
financial institution to advise FinCEN of intentions to share information on suspected money laundering or
terrorist financing with other financial institutions. It does not allow a financial institution to disclose the
filing of a SAR, although the underlying customer information and transactional data can be shared.
Perhaps the most significant aspects of the Patriot Act for non-US institutions and persons are as follows:
● US banks must take reasonable steps to identify the beneficial owners of accounts beneficially
owned by foreign persons.
● US banks must identify foreign persons whose funds move through payable or their correspondent
bank accounts.
● US banks must sever correspondent banking relationships with all foreign shell banks.
● International correspondent accounts and correspondent relationships with offshore banks and
banks in jurisdictions deemed non-cooperative in the international effort against money
laundering.
● The act extends the 'long-arm jurisdiction' of the US courts over any person or organization that
commits a money laundering offense involving a financial transaction in the US.
The act extends the extraterritorial criminal jurisdiction of the US over any person outside the jurisdiction
who engages in any act involving US currency which, if it had been committed in the US, would constitute
an offense.
The Financial Crimes Enforcement Network (FinCEN), delegated by the Secretary of the Treasury and the
other primary federal regulators or self-regulatory organizations, such as the Financial Industry Regulatory
Authority or FINRA, and the US Securities Exchange Commission or SEC, have the authority to assess civil
penalties.
2.8 EU AML/CTF Legislation
The EU member states contributing to strengthening the AML/KYC framework are developing efficient and
robust means of customer due diligence or CDD and Know Your Customer or KYC by opening up
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mutualization opportunities and fostering a digital economy within EU member states. The customers'
electronic identification and remote KYC processes are the subject domain for the EU Member States. The
scope for portable CDD solutions is particularly the core area of consideration by the EU member states for
the banking sector. The targets for the EU member states are to curtail money laundering, drug-trafficking-
related proceeds, tax evasion, terrorist financing, human trafficking, and state-sponsored and corporate
bribery.
The measures are taken to consider the key challenges of building on the electronic ID interoperability
framework with additional attributes to enhance the CDD and KYC framework. It includes assessing the
necessary set of measures for CDD purposes in the banking sector and the appropriate level of required
assurance for the implementation of CDD processes.
Three broad topics are considered: First is how CDD attributes can meaningfully be related to the defined
levels of assurance in general. Then, the second and third are what benefits the KYC, and CDD framework
can bring to the financial sector to achieve desired regulatory objectives. It is acknowledged that the multi-
dimensional impact of KYC processes in the digital age has been aimed at the KYC solutions to enhance
process improvements, facilitate KYC-related services within the EU, and financial inclusion.
Money laundering has been criminalized in Europe, and the predicate offenses have widened from drug
trafficking to the proceeds of all crimes. Europol has established itself internationally in AML practices. The
Egmont Group has grown into a large international organization consisting of various financial intelligence
units, representing the operational arm of AML/CTF to complement the strategic arm of the FATF. Fifteen
EU member states are direct FATF members, and the remaining thirteen are members of Moneyval, the
European regional version of FATF.
It is strengthening the existing ML/TF framework and adjusting it to digital or remote onboarding
interaction, reducing the fragmentation of the EU KYC landscape, and ensuring a level playing field for
cross-border services eliminating regulatory arbitrage opportunities.
The three dimensions must not be viewed in isolation nor as intrinsically in conflict, as it is believed that
progress can be achieved in all areas simultaneously. The high level of customer onboarding practices can
be attributed to the deployment of digital ID solutions. It may help reduce the AML/CTF risk factors
emphasized by the EU regulatory authorities.
There is no doubt that all EU member states recognize the EU approach to combat money laundering. The
scope of AML/CTF action is expanded greatly to implement effective AML policies, and the success of AML
policies has been minimal. EU regulatory authorities recognized that the money launderers and criminals
are aided by technology, which has necessitated continual adaptation of the AML/KYC regulatory
framework.
Given the ongoing monitoring and law enforcement challenges, the EU Commission and some member
states have come out in favour of creating an EU-wide AML supervisory agency to assist in reducing the
coordination and cooperation issues in the AML enforcement process, particularly across borders.
Based on the EU's principles of proportionality, a thorough cost and benefit analysis for the AML rules could
guide the way to a more measured and effective AML/KYC approach.
29
The EU member states recognize that the Europe-wide supervisory agency is the sole solution. The AML
supervision requires the cooperation of a multitude of supervisory entities, financial and non-financial
supervisors, FIUs, law enforcement officials, and the obliged entities themselves. In the EU context, this
means more than 100 supervisory agencies and tens of thousands of obliged entities. It raises the issue of
EU competence, certainly in the law enforcement domains. The European Banking Authority or EBA, with
a distinct and more effective governance structure, is enhancing to cater to the AML affairs and issues faced
by the institutions.
Joint action regarding the proper functioning of FIUs at the EU level and cooperation of the EU Member
States is strongly recommended, and the nature and tasks of the FIUs are better harmonized. Europol
hosts the EU-wide interconnection of the FIUs because of data protection reasons. Policymakers are
addressing FIU cooperation at the EU level.
The EU member states established a uniform template for the suspicious transaction reports STRs to be
integrated into the centralized platform. The focus of the regulatory authorities is to take appropriate
measures to improve the data sharing process between the enforcement bodies in the EU, including across
national borders. It relates not just to types of data but amounts to the speed of data sharing and its
security.
2.9 Case Study: Role of Financial Action Task Force in Prevention of ML/TF
The Financial Action Task Force or FATF is the global money laundering and terrorist financing body. FATF
is an inter-governmental body that sets international standards to prevent illegal activities and harm to
society. The FATF works to generate the necessary political will to bring about national legislative and
regulatory reforms. The FATF was established in July 1989 by a Group of Seven or G-7 Summit in Paris to
examine and develop measures to combat ML.
In October 2001, the FATF expanded its mandate to incorporate efforts to combat TF and ML. In April 2012,
it added efforts to counter the financing of proliferation of weapons of mass destruction.
Since its inception, the FATF has operated under a fixed lifespan, requiring a specific decision by its
ministers to continue. Three decades after its creation, in April 2019, FATF Ministers adopted a new, open-
ended mandate for the FATF.
The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory,
and operational measures for combating money laundering, terrorist financing, and other related threats
to the integrity of the international financial system. Starting with its members, the FATF monitors
countries' progress in implementing the FATF recommendations, reviews money laundering and terrorist
financing techniques and counter-measures, and promotes adopting and implementing the FATF
Recommendations globally.
The FATF's decision-making body, the FATF Plenary, meets three times per year. With more than 200
countries and jurisdictions committed to implementing them. The FATF has developed the
FATF Recommendations, or FATF Standards, which ensure a coordinated global response to prevent
organized crime, corruption, and terrorism. They help authorities go after the money of criminals dealing
30
with illegal drugs, human trafficking, and other crimes. The FATF also works to stop funding for weapons
of mass destruction.
The FATF reviews money laundering and terrorist financing techniques and continuously strengthens its
standards to address new risks, such as regulating virtual assets, which have spread as cryptocurrencies
gain popularity. The FATF monitors countries to ensure they implement the FATF Standards fully and
effectively and holds countries to account that does not comply.
2.10 Module Summary
In the first lesson, we discussed the most important and influential of the international bodies, which is
FATF. FATF is an intergovernmental body whose purpose is to establish international standards and develop
and promote policies, both at national and international levels, to combat money laundering and the
financing of terrorism.
In the second lesson, we discussed the United Nations Global Programme, International Monetary Fund,
and World Bank. We discussed contributions against money laundering, which is part of the United Nations
Office on Drugs and Crime, established in 1997 to assist member states in complying with the UN
Conventions and other instruments dealing with money laundering and terrorist financing.
In the third lesson, we discussed the Wolfsberg Group's role in setting the global AML guidelines for the
private banking sector. The rationale for the initiative, which followed a series of scandals involving high-
net-worth individuals and PEPs, was the avoidance of further money laundering within the private banking
sector. The initiative was launched with the cooperation and assistance of Transparency International. The
Wolfsberg Group comprises 13 private banking institutions.
In the fourth lesson, we discussed the Basel Committee, headquartered in Basel, Switzerland, at the Bank
for International Settlements, a group of bank supervisory authorities from 28 countries. The committee,
which comprises a representative of each central bank and a representative of the body with formal
responsibility for the prudential supervision of banking business is different in each country, meets four
times a year.
In the fifth lesson, we discussed the Egmont Group of Financial Intelligence Units, an international FIU
network. Egmont Group's primary purpose is to help countries develop their national anti-money laundering
systems. Egmont Group is a unified structure that ensures secure financial transfer between Financial
Intelligence Units at local and international levels.
In the sixth lesson, we discussed the most significant AML laws and regulations in the US, which are the
Bank Secrecy Act of 1970 and the USA PATRIOT Act.
In the seventh lesson, we discussed the EU member states, to contribute to strengthening the AML/KYC
framework, are developing efficient and robust means of CDD and KYC by opening up mutualization
opportunities and fostering a digital economy within the EU member states.
In the eighth lesson, we discussed a case study about FATF's role in preventing ML/TF activities.
31
Question 1: Which of the following statement is correct for FATF objectives regarding AML/CTF?
a. Set global standards and promote effective implementation of legal, regulatory, and
operational measures for combating money laundering, terrorist financing, and other related
threats to the integrity of the international financial system
b. To set global standards and promote effective implementation of legal, regulatory, and
threats to the integrity of the United States
c. To set global standards and promote effective implementation of legal, regulatory, and
threats to the integrity of the United Kingdom and European countries
d. To set global standards and promote effective implementation of legal, regulatory, and
threats to the integrity of the Asian countries.
Question 2: Which of the following statements is related to the Wolfsberg Group?
a. The Wolfsberg Group has an official status, and its standards are binding, on its members,
as well as to all the countries
b. The Wolfsberg Group has no official status, and its standards are not binding, even on its
members, but its statements of good practice have received international recognition
throughout the financial sector;
c. The Wolfsberg Group is a regulatory body of the United States, and its standards are
binding on the US financial institutions
Question 3: Which of the following statements is correct for the Basel Committee?
a. Basel Committee, which is headquartered in the United Kingdom, London at the Bank for
International Settlements (BIS), is a group of bank supervisory authorities from 28
countries
b. Basel Committee, which is headquartered in, Europe at the Bank for International
Settlements (BIS), is a group of bank supervisory authorities from 28 countries
c. Basel Committee, which is headquartered in Basel, Switzerland at the Bank for
International Settlements (BIS), is a group of bank supervisory authorities from 28
countries
Question 4: The Wolfsberg standards consist of the various sets of AML Principles and related
Statements issued by the Group since its inception. Such AML principles and related statements
are laid down as:
a. Wolfsberg Statement on Monitoring, Screening and Searching

b. Wolfsberg AML Principles on Private Banking
c. Wolfsberg Statement on the Suppression of the Financing of Terrorism
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d. All of the above
Question 5: UNODC’s main objective include:
a. Provide field-based technical cooperation projects to enhance the capacity of member

states to counteract illicit drugs, crime, and terrorism
b. Conduct research and analytical work to increase knowledge and understanding of drugs
and crime issues and expand the evidence base for policy and operational decisions
c. Work to assist States in the ratification and implementation of the relevant international
treaties, the development of domestic legislation on drugs, crime, and terrorism, and the
provision of secretariat and substantive services to the treaty-based and governing bodies
d. All of the above
Ref.
Author Title Link
No.
Financial Crime
1 BASEL and AML Hyperlink
Academy
2 Sanction Scanner AML Regulations in USA Hyperlink
Financial Crime
3 United Nations to Combat Terrorist Financing Hyperlink
Academy
International Monetary
4 AML and International Monetary Fund (IMF) Hyperlink
Fund IMF
EU AML/CTF Global
5 EU at the forefront of AML/CTF in 2020 Hyperlink
Facility Blog
EU AML/CTF Global
6 Tightening the net on hidden criminals Hyperlink
Facility Blog
7 Institute of Governance BASEL AML Index Hyperlink
8 BIS BASEL Committee Finalizes AML Guideline Hyperlink
9 Sanction Scanner Negative effects of ML on Economy Hyperlink
10 Sanction Scanner Wolfsberg Group AML/CTF Contributions Hyperlink
33
3 Module 3: Organizational AML/CTF and Risk Mitigation Measures
In this module, you will learn about the AML/CTF measures and programs which are the set of rules,
policies, processes, the appointment of a money laundering reporting officer or MLRO, and monitoring
activities, to prevent the occurrence of ML/TF. At the end of the module, we will also discuss a case study
where you will learn about the broader steps required by an institution to develop the overall compliance
program.
Lesson 1 – AML/CTF Governance (Function and MLRO)
In the first lesson, you will acquire fundamental knowledge about the AML/CTF governance and the role of
the Money Laundering Reporting Officer or MLRO in preventing and detecting ML/TF risks through the
implementation of the AML/CTF framework in an organization. MLRO serves as a second line of defense to
ensure that transactions are monitored and AML/CTF regulations are implemented.
Lesson 2 – AML/CTF Risk Identification and Risk Assessment
In the second lesson, you will gain a deeper understanding of the ML/TF risk identification and the
assessment process performed periodically to assess the impact and likelihood of potential ML/TF risks.
These steps help prevent ML/TF risk occurrence by applying relevant AML/CTF controls.
Lesson 3 – AML/CTF Policies, Procedures, and Controls Framework
In the third lesson, you will learn about the AML/CTF components, which include the policies, processes,
and structures necessary for an organization to develop and implement to prevent ML/TF risks or incidents.
Lesson 4 – AML/CTF Employee Training
In the fourth lesson, you will acquire further knowledge about the importance of periodic AML/CTF training
for the employees and the related broader regulatory requirements that are mandatory for implementing
an AML/CTF framework and regulatory requirements.
Lesson 5 – Independent AML/CTF Audit and Review
In the fifth lesson, you will gain a deeper understanding of the role and objective of an internal audit
function, the third line of defense in an organization, in the performance of periodic AML/CTF system and
controls audit and review.
Lesson 6 – Transaction Monitoring
In the sixth lesson, you will learn about one of the most important requirements of AML/CTF regulatory
requirements, which is the performance of regular transaction monitoring of customers to identify any
suspicious activity or transaction for further investigation.
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Lesson 7 – KYC and CDD
In the seventh lesson, you will acquire relevant knowledge about the concepts behind the know your
customer or KYC and customer due diligence CDD measures to prevent risks related to onboarding and
developing relationships with criminals, including money launderers and terrorists.
Lesson 8 - Case Study: Design and Implementation of the Anti-Money Laundering Framework
In the eighth lesson, you will hear about a case study related to an organization's design and
implementation of the AML framework.
3.2 AML/CTF Governance (Function and MLRO)
A sound governance structure is the foundation of an effective AML/CTF program. It will include the board
of directors and senior management setting the tone at the top, hiring a qualified chief AML/CTF officer,
and properly resourcing the three lines of defense. In an organization such as a bank or a financial
institution, the board of directors is primarily responsible for setting a strong compliance culture and
implementing the compliance program.
The "tone at the top" is a public commitment at the bank's highest levels to comply with AML/CTF
requirements as part of its core mission and recognition that this is critical to the overall risk management
framework of the bank.
To ensure appropriate oversight of the compliance culture, the board of directors forms a board-level sub-
committee to periodically monitor the compliance practices and measures taken by the management.
The board of directors may delegate the responsibility to the Board Compliance Committee or BCC. The
members of BCC periodically conduct compliance meetings, where significant compliance issues, breaches,
and new regulatory requirements are reviewed and discussed.
The board ensures that a strong compliance culture and control environment is maintained. The board
provides oversight and guidance to the compliance committee and senior management to implement the
compliance program and policies approved by the board. The management forms the set of processes,
reporting lines, systems, and structures that provide the basis for carrying out regulatory requirements
across the organization. The control environment relates to the commitment of management and
employees to integrity and ethical values.
For internal controls to be effective, an appropriate control environment should demonstrate the following
behaviors:
● The board reviews policies and procedures periodically and ensures their compliance;
● The board determines whether there is an audit and control system in place to periodically test
and monitor compliance with internal control policies or procedures and to report to the board
instances of noncompliance;
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● The board ensures independence of internal and external auditors such that the internal audit
directly reports to the audit committee of the board, which is responsible to the board, and that
the external auditor interacts with the said committee and presents a management letter to the
board directly;
● The board ensures that appropriate remedial action has been taken when the instance of
noncompliance is reported and that system has been improved to avoid recurring errors or
mistakes;
● Management information systems provide adequate information to the board so that the board
can have access to records if the need arises; and
● The board and management ensure communication of compliance policies down the line within
the organization.
The board forms a board sub-committee, known as the BCC, to provide strong oversight to the Compliance
Committee and the Management, to ensure effective and continued implementation of applicable regulatory
requirements.
The BCC ensures the management implements the board-approved Compliance Program for effective
compliance. The BCC forms a Management level Compliance Committee known as the "Central Compliance
Committee or CCC. The CCC works on behalf of the BCC to regularly review and provide appropriate
feedback to the management and employees regarding the organization's overall compliance profile.
MCC comprises all the departmental heads as members of the MCC, and they meet periodically to discuss
the compliance status of their respective departments. The Chief Compliance Officer or CCO serves as the
secretary to the BCC. The CCO prepares and presents the agenda of the BCC meeting before the BCC's
members before each periodic meeting.
The Money Laundering Reporting Officer or MLRO, part of the compliance function, serves as the second
line of defense. The MLRO works in coordination with the first line of defense, which include business and
operation managers, who are responsible for establishing the business relationships and processing the
transactions of the clients and customers. MLRO is mainly responsible for adopting the risk-based approach
towards managing the AML and Regulatory Compliance-related roles and responsibilities.
As a best practice, the MLRO of a larger organization or business should not be directly involved in the
business operations, receipt, transfer, or payment of funds. The appointed MLRO should also have
independent oversight and communicate directly with those parties who make decisions about the business,
such as senior management or the board of directors.
An MLRO needs to:
● Have the necessary authority and access to resources to implement an effective compliance
program and make any desired changes;
● Know your business's functions and structure;
● Have knowledge of your business sector's ML/TF risks and vulnerabilities as well as ML/TF trends
and typologies; and
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● Understand your business sector's requirements under the Proceeds of Crime (Money Laundering)
and Terrorist Financing Act or PCMLTFA and associated regulations.
MLRO is mainly responsible to:
● Ensure compliance with applicable AML/CTF and KYC laws, rules, regulations, and instructions;
● Develop end-to-end compliance programs and all AML/KYC policies, procedures, methods, tools,
etc. in the light of these guidelines and ensure, monitor, or oversee their entity-wide
implementation;
● Determine the resources required to perform compliance roles and responsibilities professionally
and of desired quality;
● Ensure appropriate AML/KYC policies and processes are developed and implemented to ensure
that all the customers are identified, screened, and verified before opening an account or
establishing a business relationship with them;
● Provide summary data and report findings on compliance issues to the board or its subcommittee
and CCM periodically;
● Report to the MCC and the BCC promptly on any material regulatory noncompliance (For example,
failures that may attract a significant penalty);
● Ensure that customer accounts are regularly monitored to identify suspicious activities and
transactions;
● Review the compliance policies and procedures to ensure that AML/CTF/KYC-related regulatory
requirements are incorporated for meticulous compliance;
● Coordinate with senior management to implement the overall compliance program;
● Respond and facilitate regulatory authorities or agencies in performing inspections or

investigations;
● Apprise the board of directors and senior management on AML/KYC initiatives;
● Ensure that the employees are provided with AML/KYC training; and
● Timely and accurately report the Suspicious Activity Report or SAR to the relevant regulatory
authority.
3.3 AML/CTF Risk Identification and Risk Assessment
The ML/TF risk identification is a process that involves the review of historical financial transactions and
other related information to identify the financial crime risk indicators in a particular department or function
of the entity. It involves the analysis of various conditions that highlight the breaches of internal controls
and any possible management bias for the actual financial crime incident. The identification process is also
a forward-looking activity to assess the possibility of reoccurring financial crime incidents. To assess the
reoccurrence of financial crime in the future in any particular department or function of the company, the
37
investigators analyze the historical and current financial crime trends and incidents to establish the inter-
connections between them. This connection assessment helps in the prediction of possible future fraud
incidents.
To detect the incidents of money laundering or terrorist financing, all the processes and activities are
studied to find the controls, weaknesses, and possible avenues which the employees or other stakeholders
exploit. ML/TF risk detection is an ongoing process that is performed to assess the possibilities of the
occurrence of fraud in any particular area of the department.
Through a whistle-blower program, the entity demonstrates its commitment to good corporate governance
and establishing an anti-financial crime risk management culture that promotes a high degree of ethics and
belief in its stated corporate values. The compliance framework and policies highlight the responsibility of
the management and employees to report any identified financial crime risk or incident to the senior
management of the company or the assigned financial crime management team.
ML/TF risk assessment is defined as the 'process of understanding and analysis of financial crime risks that
the organization is certainly exposed to.'
The possibility of occurrence of ML/TF risks necessitates the fraud risk assessment periodically. ML/TF
incidents and cases in organizations have resulted in depletion of profits, operating inefficiencies, and
reputational losses. For an organization, ML/TF risks are potential incidents and events that could occur
and influence the achievement of the organization's core objectives and goals. ML/TF risk assessment is
about understanding the nature of such incidents and events and taking appropriate measures to address
the threats posed by such potential risks. Devising risk mitigation strategies based on a risk assessment is
important because unaddressed risk incidents negatively hit the different profiles of the organizations, such
as financial, operational, and reputational. Fraud risk assessment frameworks help perform, evaluate, and
report the results of the fraud risk assessment. The organizational culture and its specific needs must be
considered for fraud risk assessment.
The knowledge base is created to identify potential financial crime risks in the business and operations of
the organization. The knowledge base is created through meetings and coordination with people in the
organization, which may include interviews, discussions, and observations of the processes and activities.
Process owners are the people who possess the actual knowledge base of the operations and activities in
their relevant departments.
External sources such as customer information in the form of complaints or inquiries may also indicate the
possibility of fraud risks in a particular department or function. Regulatory authorities may also enquire
about potential frauds, which serves as the identification point for fraud risks in a particular area of the
organization.
Once the risks are identified from different sources, the likelihood of the occurrence of fraud is assessed.
Assessing the likelihood is a subjective process because usually relevant data or information is unavailable
to the organization that accurately predicts the likelihood of a particular financial crime risk.
To assess the likelihood of the financial crime risks, the organization may consider various factors such as
past incidents, the prevalence of risk in the industry, internal control environment, available resources to
38
address financial crime, prevention efforts by management, ethical standards followed, unexplained losses,
customer complaints, etc.
Based on general assessment and utilization of available information, the risk assessor develops or designs
the preventive and detective controls in various processes and activities of the organization. Once the
likelihood of financial crime risks is assessed, then the frequency of occurrence of the risks is to be assessed.
The frequency is assessed based on past or historical information about the fraud incidents. Once the
impact and likelihood are defined for risk assessment purposes, the inherent impact risk assessment is
performed for identified fraud risks. Impact means the financial loss the organization may face if the fraud
risk occurs. The impact may also be linked to the organization's reputation, but usually, quantification
elements are considered to assess the inherent impact of the fraud risks.
3.4 AML/CTF Policies, Procedures, and Controls Framework
AML/CTF compliance program of different interrelated components that together form a set of rules and
principles for the board and management to ensure that they form relevant policies and processes to
prevent financial crime.
The broader components of the program include:
● Strong compliance culture and tone from the top;
● Development of effective and relevant compliance policies and processes;
● Hiring of a dedicated anti-financial compliance officer;
● Performance of financial crime risk assessment to identify different categories of financial crime
risks with their relevant impacts on the entity’s system and reputation; and
● Education and training of employees regarding identifying, understanding, and preventing

financial crime risk.
The obligation to prevent financial crime by management and all employees, the executive leadership, and
the members of governance are required to develop and implement the relevant AML/CTF policies,
procedures, and controls. The application of AML/CTF policies, procedures, and controls helps in the
prevention of ML/TF risks and ensures that regulatory requirements are complied with by the employees.
AML/CTF policies, procedures, and controls must be appropriately defined by the management and
reviewed by the board of directors, considering the ML/TF risks to which the organization is exposed. The
board to define the framework requires understanding the structure, complexity of products and services,
customer jurisdictions, and other operational aspects. These are needed to be understood because ML/TF
risks also relate to these factors.
Setting zero tolerance level for customers, suppliers, employees, contractors, or other third parties, and all
transactions that could be related to financial crime, including the failure to comply with the requirements
and principles established in this framework.
39
AML/CTF policies, procedures, and controls are prepared based on the risk-based approach to prioritize the
ML/TF risks and apply the relevant AML/CTF controls to fight against ML/TF by:
1. Establishing requirements and designing controls based on their demonstrated ability to identify
and mitigate the specific ML/TF risks faced by the organization; and
2. Providing highly useful information on ML/TF activities to relevant competent authorities as

prescribed.
Anyone may commit ML/TF activities, including the employees, customers, other stakeholders, the general
public, etc. Therefore, criminal activities need to be identified, such as the exploitation of insider information
or the acquisition of another person’s property by committing fraud. Not all financial crimes do not involve
the dishonest taking of a benefit. Still, it may protect a benefit that has already been obtained or may
facilitate the taking of such benefit. The anti-financial crime policies ensure consistent implementation of
minimum requirements and robust and effective management of financial crime risk.
3.5 AML/CTF Employee Training
The compliance officer of an organization is required to arrange periodic AML/CTF and KYC training sessions
for the relevant employees. The operation of the AML/CTF and KYC processes and procedures in companies
mainly depends on employees' degree of awareness, experience, and knowledge. Therefore, adequate
awareness, knowledge, and experience of the company's employees concerning control of the risks of
money laundering and terrorist financing are important preconditions for an effective control framework.
Compliance officers provide training courses to all the relevant employees to enable them to perform full
and proper customer due diligence, recognize unusual transactions and ensure effective compliance with
sanctions regulations.
Staff training is important to communicate and safeguard the knowledge of the AML/CTF and KYC
requirements.
The training courses must cover, for example, money laundering and terrorist financing techniques,
methods and trends, the international context and standards, and new developments in the field. The AML
and KYC training should, at a minimum, cover the following broader areas:
● Identification and reporting of transactions that must be reported to regulator or government

authorities;
● Different forms of money laundering and terrorist financing involving a company's products and
services; and
● Information on AML/CTF and KYC regulatory compliance requirements and internal policies to
prevent money laundering or terrorist financing, escalate suspicious activity and red flags, etc.
An appropriate record of the training provided to employees on an ongoing basis shall be maintained to
highlight the training provision, the training sessions attended by employees, the frequency of training,
and participants who attended the training sessions.
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The organization may consider, for example, certified training courses, in-house training, e-learning
modules, and awareness sessions. The management and compliance officer shall ensure that AML/CTF laws
or changes to existing AML/CTF policies or practices are communicated to relevant employees.
3.6 Independent AML/CTF Audit and Review
The performance of periodic financial crime audits and reviews by independent departments or functions
such as internal audits require appropriate AML/CTF audit planning and monitoring. The audit procedures
adopted should be standardized, relevant, and sufficiently consistent on an entity-wide basis enabling it to
aggregate money laundering or other crime information in a systemic way to identify any patterns or trends
of weak AML/CTF controls.
Anti-money laundering controls review processes should include verification of key information used in
compliance reports to management and the board. Periodic ML/TF-related risk and controls exercise is
reviewed to check the identified ML/TF risks by the compliance team, and the measures are taken to
address those risks. The audit team checks the health of controls, where controls are tested for selected
samples of transactions.
The audit department performs an independent review based on a risk-based sample of the material and
high-risk activities to assess the cases or areas where non-compliance may have serious financial and
compliance implications resulting in reputation and financial and operational losses. The audit also covers
the areas like awareness of AML/CTF laws and regulations by the department heads, employees, and
process owners.
The head of the audit function reviews all the audits and reviews performed during the period. The
significant compliance issues and observations are segregated and analyzed in detail with management
feedback, which requires discussion with stakeholders such as departmental heads, heads of legal affairs,
etc. The responses are consolidated and discussed with the departmental heads and the CEO of the entity.
The material risks and issues are placed before the board audit committee meeting for review and feedback.
Based on the facts presented, the committee issues further instructions and feedback to ensure that weak
internal controls are strengthened, and measures are taken to protect the entity from the consequences of
ML/TF risks and issues. The management follows the committee's instructions and guidance, applies the
instructions received, and reports to the committee back in its next meeting through the head of the audit
function.
3.7 Transaction Monitoring
All transactions, including those initiated by customers, third parties, correspondent banking, or wire
transfers, must be monitored appropriately. Customer profiles are used to monitor the transactions and
activities undertaken by the customers; therefore, current and updated customer profiles must be
maintained. The transaction monitoring process includes comparing customer-specific data with risk scoring
models.
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For high-risk category customers, transaction monitoring is a rigorous and detailed process to identify the
patterns of unusual or inconsistent transactions.
For transaction monitoring, comparisons are made between the account activity volume and value and the
historical transaction trend within the customer account. Account volume and activity are compared to a
set of pre-defined thresholds and rules.
The variance of a transaction or activity from normal threshold or activity levels causes the generation of
"alerts," which are scored and totaled at the account or customer levels. When a score crosses a defined
threshold, the alert is generated for the review and investigation of the AML team. AML team focuses solely
on studying and understanding transaction data and trends to perform the monitoring effectively.
Red Flags – Transaction Monitoring
All the activities and transactions that fall outside the expected customer activity or certain predefined
threshold should generate a "red flag" or alert, for review and investigation by the MLRO or AML team, in
coordination with other relevant staff. MLRO must ensure that the red flag mechanism incorporates the
possible risk factors considering the customers' risk profiles. Red alert thresholds are set for transaction
monitoring purposes, and the thresholds are marked in the automated transaction monitoring system.
Alerts are generated on the breach of the thresholds or occurrence of unusual transaction/ activity, and
the AML analyst investigates such transaction and activity, in which an alert is generated.
Responses are sought from the customer on alert generation and the satisfactory provision of information
from the respective customer. Then, the AML analyst or reviewer marks the alert closed.
Transaction monitoring is an ongoing process performed by the MLRO through the defined monitoring
processes and review mechanisms. Transactions or activities of the customers are also monitored through
the trigger of the red flag or red alert.
Monitoring a transaction or an activity due to the generation of the red flag is an event-based monitoring
process. Such event-based monitoring is needed because of a breach of transaction threshold or irregular
patterns of inflows or outflows, which may indicate the occurrence of money laundering, corruption, bribery,
tax evasion, or terrorist financing risk incidents. Trigger event monitoring of the customer relationship is
likely to be based on a considered identification of transaction characteristics, such as:
● The unusual nature of a transaction, such as abnormal size or frequency of the customer
transaction or peer group;
● The nature of a series of transactions; and
● The geographical destination or origin of payment or transaction, such as from or to the high-risk
country.
Certain high-risk indicators must be highlighted, reviewed, and investigated when the related activities and
transactions fall outside the expected customer activity or breach the predefined transactions threshold.
Red flags should be generated irrespective of the amount, customer type, and nature of the transaction.
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The number of alerts generated within each bank varies based on several factors, including the number of
transactions running through the monitoring system and the rules and thresholds the bank employs within
the system to generate the alerts.
Banks typically score alerts based on elements contained in the alert, which determines the alert's priority.
Banks typically review and re-optimize their alert programs every 12-18 months. Banks noted that a
significant number of alerts are ultimately determined to be "noise" generated by the software. One bank
noted that it is working continuously to reduce the "noise" generated by the software and to develop
typologies to enrich the data and reveal the most critical information.
Banks focus extensively on the narrative part of the SAR. In some cases, the managers and investigators
usually are from the background of the regulatory job and have experience with ML and financial
investigations. They possess knowledge about the relevant regulatory requirements.
A good SAR process is to tell a clear story of the suspicious activity and then construct the narratives.
Different tools are used to track the relevant information for preparing SAR and its filing. The information
may be the transaction data, customer profile data, and related account activity and information. The
system allows the monitoring analyst to check other information databases to pull all available information
into a concise form for analysis, management review, and approval. Investigators focus on determining
where the money came from, what happened to it while at the bank and where it went when it left.
After filing of SAR, the bank conducts a post-investigation to determine if suspicious activity continues and
if a supplemental SAR is required. The account closure process must be initiated in case of a second SAR.
The bank uses the suggested SAR filing tool to include investigative details before proceeding and/or
submitting the SAR.
Transaction investigators also participate in monthly group meetings that provide the ability to discuss
issues across various channels. A business group discusses cases or new trends, allowing cross-training to
understand the ML risks that exist within the different processes. Once the monitoring system generates a
transaction alert, six months of account activity is reviewed. Once a decision is made to initiate an
investigation, the alert is entered into the bank's case management system. At this point, the timeline for
filing a SAR starts.
If a SAR is not filed, the investigator reflects this as an "unfiled case." The respective customer file includes
supporting documentation as to why the SAR is not to be filed. For reference purposes, an indication as to
whether or not the account will continue to be monitored is also mentioned.
3.8 Know Your Customer and Customer Due Diligence
Know Your Customer or KYC is part of the Customer Due Diligence or CDD measures, which enables the
organization to know the credentials, and background of the prospective customer. Organizations such as
financial institutions must perform the KYC process before onboarding the customer and update the KYC
at different stages, such as during periodic compliance reviews or investigations.
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The KYC process protects an organization from being used for money laundering or terrorist financing
activities, which the customer may perform after getting onboarded by the organization, such as a financial
institution. KYC enables the organization to avoid the risk of onboarding the criminals such as money
launderers or persons associated with criminals. Onboarding the criminals causes the entity to face
reputational losses and penalties from the regulator. KYC is a mandatory process that is followed when the
customer contacts the organization physically or through online portals to open an account or to provide
any services.
A customer or business relationship is formed when two or more parties conduct regular business or
perform a 'one-off' transaction. The term' business relationship' applies where a professional, commercial
relationship will exist with an expectation by the firm that it will have an element of duration. The application
of CDD is required when a firm covered by money laundering regulations 'enters into a business
relationship' with a customer or a potential customer.
KYC process is also performed when the customer or walk-in customer conducts a random transaction,
international wire transfer, or when there is a suspect of money laundering or when there is a doubt
regarding the accuracy of previously collected consumer's identity data or information.
Organizations develop the KYC policy, approved by the Board of Directors and implemented down the line
for compliance purposes. KYC policy serves as part of the overall Compliance Program of the organization,
the purpose of which is to ensure that the organization takes appropriate measures to prevent the
onboarding of unknown customers or persons from any jurisdiction.
KYC process usually is a detailed process that may use the technology to combat financial crimes such as
money laundering, fraud, and related scams. KYC procedures help better understand the prospective
customers and their intentions for opening an account with the organization. KYC regulatory requirements
apply to various organizations, including banks, money service businesses or MSBs, payment gateways,
remittance businesses, real estate agents, dealers of precious stones, etc.
The KYC regulatory requirements help detect the risk of suspicious intentions and transactions at a very
early stage, which may be the stage before onboarding the customer and providing the services. KYC is
the customer identification procedure verifying that they are who they claim to be, which involves
understanding a customer's identity, financial activity, and the risk they face.
In the broader sense, the KYC process includes the following:
● Client's identification using initial documents provided by the customer.
● Identifying the true beneficial owner of the customer and taking appropriate measures to verify
their identification. Suppose a beneficial owner is a legal person, trust, company, foundation, or
similar legal arrangement. In that case, the organizations must take reasonable measures to
understand the ownership and control structure of that legal person, trust, company, foundation,
or similar legal arrangement.
● Understanding the objective of opening the account or establishing the relationship
Customer Due Diligence or CDD is a process performed by the organization to obtain the facts about a
customer that should enable an organization to assess the extent to which the customer exposes to a range
44
of risks. These risks include money laundering and terrorist financing risks. Due diligence identifies and
verifies prospective customers before onboarding or establishing business relationships.
A customer or business relationship is formed when two or more parties conduct regular business or
perform a 'one-off' transaction.
The term' business relationship' applies where a professional, commercial relationship will exist with an
expectation by the firm that it will have an element of duration. The application of CDD is required when a
firm covered by money laundering regulations 'enters into a business relationship' with a customer or a
potential customer.
Organizations need to know their customers for several reasons, which are mentioned as follows:
● To comply with the requirements of relevant AML/KYC legislation and regulations;
● To be reasonably certain that the customers are who they say they are and that it is appropriate
to provide them with the products or services requested;
● To guard against fraud, including impersonation and identity fraud;
● To help the organization identify what is unusual and enable the unusual to be examined during
a continuing relationship; and
● To enable the organization to assist law enforcement by providing information on customers being
investigated following a suspicion report to the FIU.
Knowing a customer enables the organization to satisfy the legitimate needs of honest customers pro-
actively, and good compliance also equates to good business.
Organizations must, however, be able to demonstrate to the supervising authorities that the extent of the
measures is appropriate to the perceived risks of money laundering and terrorist financing. In line with the
Financial Action Task Force (FATF) requirements, the 4MLD outlines the four parts of CDD, including an
explicit requirement for 'ongoing monitoring.'
The organization must apply the customer due diligence measures if the person:
● Establishes a business relationship;
● Carries out an occasional or significant transaction that amounts to a transfer of funds exceeding
1,000 dollars;
● Suspects of money laundering or terrorist financing; or
● Doubts the veracity or adequacy of documents or information previously obtained for identification
or verification.
An organization must also apply the customer due diligence measures if the person carries out an occasional
transaction that is significant or unusual, whether the transaction is executed in a single operation or in
several operations which appear to be linked.
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A high-value dealer must also apply the customer due diligence measures if that dealer carries out an
occasional transaction in cash that amounts to 10,000 dollars or more, whether the transaction is executed
in a single operation or in several operations which appear to be linked.
The organization must identify the customer unless the customer's identity is known and verified by the
organization. The appropriate measures must be taken to verify the customer's identity unless the
organization has already verified the customer's identity either at the time of onboarding or during the
process of a previous occasional transaction.
The organization must assess and, where appropriate, obtain information on the purpose and intended
nature of the business relationship or occasional transaction.
Where the customer is a body corporate, then the organization is required to obtain and verify:
● The name of the body corporate, its company number, or another registration number; and
● The address of its registered office, and if different, its principal place of business.
The organizations are required to take reasonable measures to determine and verify the following:
● The law to which the body corporate is subject;
● Its constitution, whether set out in its articles of association or other governing documents, the
full names of the board of directors or, if there is no board, the members of the equivalent
management body; and
● The senior persons responsible for the operations of the body corporate.
Where another person beneficially owns the customer, the organization must:
● Identify the beneficial owner; and
● Take reasonable measures to verify the beneficial owner's identity so that the relevant person is
satisfied that it knows who the beneficial owner is.
When the organization cannot perform CDD measures to identify the customer, then the account should
not be opened for that particular customer. Organizations are required not to open anonymous accounts in
any case.
3.9 Case Study: AML/CTF Compliance Program Implementation

Requirements
Suppose that a large foreign investor is interested in establishing an electronic money institution in another
country, and the purpose is to provide services of payments and receipts of money using a digital platform.
The country's regulator informs the investor to develop a compliance program that should be implemented
in the proposed company to ensure that all applicable AML/CTF-related laws and regulations are complied
with in letter and spirit.
To develop the compliance program following broader steps shall be required to develop and implement a
compliance program at the initial stage of the company's formation:
46
1. Identification of Applicable Laws and Regulatory Requirements: Firstly, the investors

should understand that all applicable laws and regulations are identified before launching
operations. Identifying such laws and regulations is important because non-compliance may result
in financial and reputational losses.
2. Development of AML/CTF Compliance Program: AML/CTF compliance program shall be

developed considering the applicable AML/KYC and other regulatory requirements prescribed by
the regulator of the proposed company. Accordingly, allied compliance policies shall be defined,
developed, and implemented, including the AML/CTF and KYC policies. Risk assessment and
monitoring of transactions and activities shall also be defined and documented.
3. Hiring of Money Laundering Reporting Officer: A dedicated MLRO, the subject matter expert,
shall be required to ensure that all applicable AML/CTF-related laws and regulations are identified
and complied with by the employees in letter and spirit.
4. Prevention of Money Laundering Risks: All the customers are onboarded after performing
CDD and KYC measures and the risk assessment process to prevent money laundering risks. The
customers must be assessed from an ML/TF risk point of view to develop a risk profile and to
ensure that no criminal is onboarded.
5. Ongoing Monitoring and Training: Ongoing monitoring is an important part of the AML/CTF
system to ensure that the accounts and activities of the customers are monitored periodically.
Such action will help identify any suspicious transaction or activity that needs to be investigated
on a timely basis by the AML team or MLRO. MLRO shall ensure that periodic AML/CTF-related
training sessions are provided to the company's employees.
3.10 Module Summary
In the first lesson, we discussed AML/CTF governance and the role of the Money Laundering Reporting
Officer or MLRO in preventing and detecting ML/TF risks through implementing the AML/CTF framework in
an organization. MLRO serves as a second line of defense to ensure that transactions are monitored and
AML/CTF regulations are implemented.
In the second lesson, we covered ML/TF risk identification, and the assessment process performed
periodically to assess the impact and likelihood of potential ML/TF risks. These steps help prevent ML/TF
risk by applying relevant AML/CTF controls.
In the third lesson, we discussed the AML/CTF components, which include the policies, processes, and
structures necessary for an organization to develop and implement to prevent ML/TF risks or incidents.
In the fourth lesson, we covered the importance of periodic AML/CTF training for the employees and the
related broader regulatory requirements that are mandatory for implementing an AML/CTF framework and
regulatory requirements.
In the fifth lesson, we discussed the role and objective of an internal audit function, the third line of defense
in an organization, in the performance of periodic AML/CTF system and controls audit and review.
47
In the sixth lesson, we covered one of the most important requirements of AML/CTF regulatory
requirements, which is the performance of regular transaction monitoring of customers to identify any
In the seventh lesson, we discussed the concepts behind the know your customer or KYC and customer
due diligence CDD measures to prevent risks related to onboarding and developing relationships with
criminals, including money launderers and terrorists.
In the eighth lesson, we discussed a case study related to an organization's design and implementation of
the AML framework.
Question 1: Which of the following committee is formed to oversee the regulatory compliance
culture in the organization:
a. Management Compliance Committee (MCC)
b. Board Compliance Committee (BCC)
c. Management and Board Compliance Committee (MBCC)
d. Board and Management Compliance Committee BMCC)
Question 2: Which of the following statement is correct:
a. In an organization such as a bank or financial institution, the Board of Directors is primarily

responsible for setting a strong compliance culture and implementing the compliance
program.
b. In an organization such as a bank or financial institution, the Senior Management including

CEO is primarily responsible for setting the strong compliance culture and implementing
the compliance program.
c. In an organization such as a bank or financial institution, the Account Opening Officers are
primarily responsible for setting a strong compliance culture and implementing the
compliance program.
d. In an organization such as a bank or financial institution, the Chief Compliance Officer

(CCO) is primarily responsible for setting a strong compliance culture and implementing
the compliance program.
Question 3: Which of the following are the roles of the Management Compliance Committee:
a. Oversee the entity-wide compliance risks and ensure that management understands the
compliance risks to which the organization is exposed.
b. Promote a high compliance culture, and assist compliance function in discharging of its
compliance duties.
48
c. Facilitate compliance team in successful and effective implementation of the compliance

program and establish a mechanism to ensure that the desired regulatory compliance
results are achieved as envisaged in the compliance program. Assist and facilitate
compliance team in implementing policies, processes and procedures to manage
compliance risk.
d. All of the above
Question 4: Which of the following statement is correct:
a. In an organization such as a bank or financial institution, the CEO is primarily responsible

for implementation of AML policy and perform the transaction monitoring.
b. In an organization such as a bank or financial institution, the MLRO is primarily responsible

for implementation of AML policy and perform the transaction monitoring.
c. In an organization such as a bank or financial institution, the Board of Directors is primarily

responsible for implementation of AML policy and perform the transaction monitoring.
d. In an organization such as a bank or financial institution, the head of IT is primarily

responsible for implementation of AML policy and perform the transaction monitoring.
Question 5: Which of the following is the element of the Compliance Program:
a. Appointing a MLRO, who is responsible for implementing the overall compliance program
in the organization?
b. Appointing a CEO, who is responsible for implementing the overall compliance program in
the organization?
c. Appointing a Head of Human Resource, who is responsible for implementing the overall
compliance program in the organization?
d. All of the above
49
Ref.
Author Title Link
No.
Financial Crime
1 Ani Money Laundering (AML) Risk Assessment Hyperlink
Academy
Roles of the Chief Compliance Officer in the Prevention

2 Utmost JD Hyperlink
of Financial Crime
European Institute
3 of Management and Roles of the Chief Compliance Officer / MLRO Hyperlink
Finance
Financial Crime
4 Transaction Monitoring Hyperlink
Academy
Anti-Financial Crime Committee and its Roles and

5 Ebray.net Hyperlink
Responsibilities
6 GAN Integrity Role of Compliance Committee Hyperlink
Financial Crime
7 KYC and CDD Hyperlink
Academy
Financial Crime
8 AML/CTF Policies and Procedures Hyperlink
Academy
9 V-Comply Elements of Effective Compliance Program Hyperlink
10 Investopedia What is Compliance Department Hyperlink
50
4 Module 4: AML/CTF Investigations
In this module, you will learn the role of the Financial Intelligence Unit or FIU, Suspicious Activities and
Alerts, Investigation of Suspicious Activities, Suspicious Activity Reports or SAR, and its filing. A case study
will also be discussed at the end of this module related to the AML/CTF documentation requirement for an
institution.
Lesson 1 – Indicators for Money Laundering and Terrorist Financing
In the first lesson, you will acquire foundational knowledge about the indicators of money laundering and
terrorist financing activities considered high risk for any organization. These indicators are alerts that
require investigation by the MLRO and AML teams to ensure that ML/TF activity is reported to a regulatory
authority.
Lesson 2 – Performing an AML/CTF Investigation
In the second lesson, you will acquire relevant knowledge about the performance of an investigation of
ML/TF risk indicators that may be generated as red alerts by the AML system or identified during transaction
monitoring by the AML team of MLRO.
Lesson 3 – Possible AML/CTF Investigation Outcomes
In the third lesson, you will gain a deeper understanding of the possible outcomes of investigating ML/TF
alerts and suspicious activities. Possible outcomes may include the MLRO reporting the transaction as
suspicious or closure of generated alerts based on the availability of true and reliable information about the
transaction.
Lesson 4 – Filing Suspicious Activity Reports
In the fourth lesson, you will learn about suspicious activity report or SAR and the filing of SAR to the
regulatory authority after the performance of an investigation of suspicious activities or transactions by the
MLRO.
Lesson 5 – Record Keeping and Documentation Requirements
In the fifth lesson, you will acquire relevant knowledge about the AML/CTF record keeping and
documentation requirements and types of information to be kept as documents and records to comply with
relevant AML/CTF regulatory requirements.
Lesson 6 – Role of the Financial Investigation Unit and International Cooperation
In the sixth lesson, you will gain a deeper understanding of the Financial Intelligence Unit or FIU and its
role in receiving and performing a further investigation of SARs being reported by financial institutions from
time to time.
Lesson 7- Case Study: AML/CTF Documentation Requirements
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In the seventh lesson, we will discuss a case study where we will look into the information that is required
to be maintained by a company as part of its obligation to comply with AML/CTF regulatory requirements.
4.2 Indicators for Money Laundering and Terrorist Financing
MLRO and the account opening team ensure that enhanced due diligence measures are applied for high-
risk category customers. Before obtaining the high-risk category customer, the board of directors or senior
management approval is obtained formally. No account of high-risk category customer shall be opened
without Enhanced Customer Due Diligence or EDD and approval.
When entering into a business relationship, the MLRO checks whether the customer or the Ultimate
Beneficial Owner of UBO of the customer is a Politically Exposed Person or PEP. Suppose the customer or
UBO becomes or is found to be a PEP during the business relationship. In that case, the MLRO and relevant
employees must take additional measures as quickly as possible such as establishing the source of wealth
of a UBO who is a PEP. In cases where it proves impossible to establish the source of the wealth, the MLRO
and relevant employees must be able to demonstrate that it has made sufficient efforts to discover the
source. EDD measures mean obtaining more detailed information for the identification and verification of
customers. For all high-risk category customers, including the PEPs, in addition to basic KYC information,
the EDD measures are applied where detailed information is asked from the customers, including the source
of financing for proper identification and verification of the category of customers.
The organizations shall do more than check whether the customer or other stakeholders appear on the
sanctions lists. They should check whether they are creditworthy, such as through the appropriate credit
registration agency, whether their identity documents are genuine, and whether the customer appears in
institutions' internal or external warning systems. Such additional information may relate to the customer's
or the UBO's reputation and the persons with whom they are associated. Such includes acquiring and
assessing information on business activities, including negative information. As part of enhanced customer
due diligence, the institution must also conduct a deeper investigation into the source of the funds.
Risk score-based criteria include the expected number of transactions, the amount involved, customer
profile information, age of the person, country, etc., to assess the category of the customer as high. All
identified high-risk category customers are to be marked as high-risk customers or clients, and approval is
to be obtained from Senior Management to open their accounts. The enhanced customer due diligence
must occur if there is a heightened risk of money laundering and terrorist financing. Enhanced customer
due diligence must always be applied in the following cases:
● If the business relationship or transaction by its nature entails a higher risk of money laundering
or terrorist financing or,
● If the customer is resident, established, or has its registered office in a state designated by the
European Commission under the anti-money laundering directive as carrying a higher risk of
money laundering or terrorist financing.
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ML/TF risks being faced or possible ML/TF activity:
● Complex structured financing transactions or collateral arrangements with private customers
● PEPs or customers conducting transactions involving PEPs
● Bank products and services that, by their nature, are susceptible to inappropriate use, such as
back-to-back loans, large cash deposits, commercial real-estate activities
● Customers with transactions to or from countries that are subject to sanctions, including trade
sanctions, free trade zones, offshore centers, tax havens, and countries that appear on the FATF
watch list
● Customers with frequent, non-routine, complex treasury and private banking products and
services
● Non-routine, cross-border payments by non-customers
● Correspondent bank accounts with banks in jurisdictions with weak laws to combat money
laundering and terrorist financing
● The business relationship is conducted in unusual circumstances
● Customers that are resident in geographical areas of higher risk
● Legal persons or arrangements that are personal asset-holding vehicles
● Companies that have nominee shareholders or shares in bearer form
● Cash-intensive businesses
● The ownership structure of the company appears unusual or excessively complex given the nature
of the company's business
● A customer is a third country national who applies for residence rights or citizenship in the member
state in exchange for capital transfers, purchase of property or government bonds, or investment
in corporate entities in that member state
● Transactions related to oil, arms, precious metals, tobacco products, cultural artifacts, and other
items of archaeological, historical, cultural, and religious importance or of rare scientific value, as
well as ivory and protected species
● Non-face-to-face business relationships or transactions
● New products and new business practices, including new delivery mechanisms and the use of new
or developing technologies for both new and pre-existing products
● Countries subject to sanctions, embargoes, or similar measures issued by, for example, the Union
or the United Nations
● Countries providing funding or support for terrorist activities or that have designated terrorist
organizations operating within their country
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● Countries identified by credible sources as having significant levels of corruption or other criminal
activity
4.3 Performing an AML/CTF Investigation
Banks focus extensively on the narrative part of the SAR. In some cases, the managers and investigators
usually are from the background of the regulatory job and have experience with ML and financial
investigations. They also possess knowledge about the relevant regulatory requirements.
The ML/TF case investigation is a process that involves the review of historical financial transactions and
other related information to identify the root causes of the ML/TF event that occurred in the entity. It
involves the analysis of various conditions that highlight the breaches of internal controls and any possible
management bias for the actual financial crime incident. The identification process is also a forward-looking
activity to assess the possibility of reoccurring financial crime incidents. To assess the reoccurrence of
ML/TF activities in the future in any particular department or function of the company, the investigators
analyze the historical and current financial crime trends and incidents to establish the inter-connections
between them. This connection assessment helps in the prediction of possible future fraud incidents.
Investigation of transaction alerts generated during the period is performed by the compliance AML team,
which checks the risk profile of the customer against the transaction generated as an alert. If the risk
profile's detail is not matched with the transaction, the customer obtains information about the nature and
purpose of the transaction. If the customer provides appropriate feedback that matches the transaction,
the AML team marks the alert as close. The transaction is considered suspicious if the customer doesn't
respond satisfactorily or hides the information.
Transaction investigators also participate in monthly group meetings that provide the ability to discuss
issues across various channels. A business group discusses cases or new trends, allowing cross-training to
understand the ML risks that exist within the different processes. Once the monitoring system generates a
transaction alert, six months of account activity is reviewed. Once a decision is made to initiate an
investigation, the alert is entered into the bank's case management system. At this point, the timeline for
filing a SAR starts.
Different tools are used to track the relevant information for preparing SAR and its filing. The information
may be the transaction data, customer profile data, and related account activity and information. The
system allows the monitoring analyst to check other information databases to pull all available information
into a concise form for analysis, management review, and approval. Investigators focus on determining
where the money came from, what happened to it while at the bank and where it went when it left. After
filing of SAR, the bank conducts a post-investigation to determine if suspicious activity continues and if a
supplemental SAR is required. The account closure process must be initiated in case of a second SAR. The
bank uses the suggested SAR filing tool to include investigative details before proceeding and/or submitting
the SAR.
54
If a SAR is not filed, the investigator reflects this as an "unfiled case." The respective customer file includes
supporting documentation as to why the SAR is not to be filed. For reference purposes, an indication as to
whether or not the account will continue to be monitored is also mentioned.
All the processes and activities are studied to find the controls, weaknesses, and possible avenues the
employees or other stakeholders exploit to detect fraud. Financial crime detection is an ongoing process
that is performed to assess the possibility of the occurrence of fraud in any particular area of the
department.
For investigation purposes, the investigation team may use a database built to record the details of ML/TF
risks and incidents, including the progress of their previous investigations. Such databases must be
analyzed and monitored on an ongoing basis, which helps management understand the reasons and causes
of ML/TF incidents. Therefore, management establishes and implements relevant processes and procedures
to prevent the occurrence of similar ML/TF activities. The compliance team may be held responsible for
periodically reviewing and updating the database to ensure that it remains current and relevant for future
ML/TF risk identification and management. The database may be based on different parameters to highlight
the criticality of the ML/TF risks and incidents.
4.4 Possible AML/CTF Investigation Outcomes
Investigations begin with a mere suspicion that a financial crime has occurred. ML/TF investigation process
is not a standard police-type process because there is little initial available evidence that financial crime
has occurred. However, in most cases, the financial crime leaves a trail or a series of indicators highlighting
that a financial crime has occurred. Outcomes of the investigation process vary from case to case and
depend on the availability of evidence and the appropriateness of feedback from the customers to whom
suspicious transaction relates.
Investigation outcomes depend on the nature of the alert generated or the transaction identified as
suspicious. Investigation of transaction alerts generated during the period is performed by the Compliance
AML team, which checks the risk profile of the customer against the transaction generated as an alert. If
the risk profile's detail is not matched with the transaction, the customer obtains information about the
nature and purpose of the transaction. If the customer provides appropriate feedback that matches the
transaction, the AML team marks the alert as close. If the customer does not respond satisfactorily or hides
the information, the transaction is considered suspicious.
For the appropriate outcome of the investigation, the identification of ML/TF risk indicators and the history
of similar cases play essential roles. There are different categories of skill sets that are used during the
investigation. Law enforcement authorities may also investigate the financial crime where applicable legal
provisions are breached. Law enforcement authorities perform various tasks such as collecting pieces of
evidence and testifying the shreds of evidence in the relevant courts. Law enforcement authorities may
work for the federal government or the state. Police departments may also be involved in the fraud
investigation process depending on the applicable local laws of the state and federal governments. There
may be situations where law enforcement agencies and police work together undercover. The nature of the
55
investigation and involvement of agencies and police depend on the location of the fraud, the organization's
size, the fraudsters' profile, and the legal provisions breached.
The investigation outcome depends on the team involved in investigating the transaction or alert. Subject
matter experts must be involved so that proper analysis and investigation may be performed per AML/CTF
laws and regulations. During investigations, performing the research is an essential skill set required from
the investigation team. It requires the experts to publicly source the required information concerning the
individuals, employees, and entities suspected of involvement in the financial crime incident or activities.
Identifying the right suspects makes the financial crime identification process easier and more structured.
The crime investigation team must identify ownership structure, directors and management profiles,
negative media searches, bankruptcy and disqualifications, previous court cases and judgments, asset
profile and locations, internal controls, and processes.
Transaction analysis or forensic audit is an important component of the financial crime investigation.
Quantified and experienced professionals perform transaction analysis. It becomes a challenge when the
suspects are skilled accountants or professionals with sound knowledge of the company's internal controls,
processes, and financial system. Forensic accountants will be needed to analyze the activities in
organizations where such types of professional fraudsters work. Forensic accountants not only analyze the
activities of professional fraudsters but also calculate the estimated losses and damages caused by the
fraudulent acts of professional and skilled fraudsters.
The search, seizure, and analysis of the electronic evidence stored in personal computers or information
devices are utilized and used as computer forensic investigations. Computer forensic data can also be
obtained from remote locations where the company uses cloud services. The forensic investigators get
access to the financial and other information virtually to analyze and assess the evidence and information.
It is rare for modern-day fraud incidents to be identified without using data storage devices and computers,
and for these reasons, computer forensics is a vital skill-set.
The investigation's possible outcome may include identifying real culprits, patterns or similarities identified
as linked with other transactions, identifying real but hidden ultimate beneficial owners, links of a customer
with criminals such as money launderers, etc. The outcomes must be reported to the relevant authority or
body authorized in the country to receive suspicious activity reports.
4.5 Filing Suspicious Activity Reports
Suspicious Activity Reports or SARs alert law enforcement to potential instances of money laundering or
terrorist financing. SARs are made by financial institutions and other professionals such as solicitors,
accountants, and estate agents. They are a vital source of intelligence on economic crime and a wide range
of criminal activity. They provide information and intelligence from the private sector that would otherwise
not be visible to law enforcement. SARs can also be submitted by private individuals who have suspicion
or knowledge of money laundering or terrorist financing.
56
To comply with the suspicious activity reporting regulation, a process must be in place to identify the kinds
of transactions and accounts that may exhibit indicia of suspicious activity. Otherwise, a bank cannot assure
that it is reporting suspicious transactions as required by the Bank Secrecy Act.
Suspicious Activity Report
The extent to which financial institutions must establish programs to review currency transactions to detect
and report "structuring" when the conduct does not require filing a currency transaction report.
The extent and parameters under which multiple-day monitoring for the potentially suspicious activity
should be positively initiated.
Banks generally must file a SAR if a transaction involves or aggregates at least 5,000 US dollars in funds
or other assets. Also, in cases where the bank knows, suspects, or has reason to suspect that the
transaction is designed to evade any requirements of the Bank Secrecy Act, such as structuring, the bank
should also make a report. SAR must be reported merely on suspicion in some countries, so it depends
from country to country. Relevant laws and regulations of the country should be considered and referred
to.
To comply with the suspicious activity reporting regulation, a bank must have systems to identify the kinds
of transactions and accounts that may exhibit indicia of suspicious activity. Otherwise, a bank cannot assure
that it is reporting suspicious transactions as required by the Bank Secrecy Act.
Structuring refers to breaking transactions to evade the Bank Secrecy Act reporting and recordkeeping
requirements and, if appropriate thresholds are met, should be reported as a suspicious transaction.
Forms of Structuring
Structuring can take two basic forms. First, a customer might deposit currency on multiple days in amounts
under 10,000 US dollars, for example, 9,990 US dollars, to circumvent a financial institution's obligation to
report any cash deposit over 10,000 US dollars on a currency transaction report. Although such deposits
do not require aggregation for currency transaction reporting, since they occur on different business days,
they nonetheless meet the definition of structuring under the Bank Secrecy Act, implementing regulations,
and relevant case law.
In another variation on basic structuring, a customer or customers may engage in multiple transactions
during one day or over several days or more, in one or more branches of a bank, in a manner intended to
circumvent either the currency transaction reporting requirement or some other Bank Secrecy Act
requirement, such as the recordkeeping requirements for funds transfers of 3,000 US dollars or more.
Structuring may indicate underlying illegal activity; further, structuring itself is unlawful under the Bank
Secrecy Act. A financial institution's anti-money laundering program should be designed to detect and
report both categories of structuring to guard against the institution's use for money laundering and ensure
the institution complies with the suspicious activity reporting requirements of the Bank Secrecy Act.
The extent and specific parameters under which a financial institution must monitor accounts and
transactions for suspicious activity should be commensurate with the institution's money laundering and
57
terrorist financing risk level. It should also consider the type of products and services it offers, the locations
it serves, and the nature of its customers.
In other words, suspicious activity monitoring and reporting systems cannot be "one size fits all."
The bank is responsible for establishing and implementing risk-based policies, procedures, and processes
to comply with the Bank Secrecy Act and safeguard its operations from money laundering and terrorist
financing.
Certain financial institutions operating in the United States must file a report of any suspicious transaction
relevant to a possible violation of law or regulation with FinCEN.
The following financial institutions are required to file a FinCEN SAR:
● Banks, including Bank and Financial Holding Companies;
● Casinos and Card Clubs;
● Money Services Businesses;
● Brokers or Dealers in Securities;
● Mutual Funds;
● Insurance Companies;
● Futures Commission Merchants and Introducing Brokers in Commodities; and
● Residential Mortgage Lenders and Originators.
A SAR may be required to be filed no later than 30 calendar days after the date of the initial detection by
the reporting financial institution of facts that may constitute a basis for filing a report. Suppose no suspect
is identified on the date of such initial detection. In that case, a financial institution may delay filing a
FinCEN SAR for an additional 30 calendar days to identify a suspect, but in no case shall reporting be
delayed more than 60 calendar days after the date of such initial detection.
General Filing Requirements for Financial Institutions
A financial institution must report any transaction conducted or attempted by, at, or through the financial
institution and involves or aggregates at least 5,000 US dollars, such as 2,000 US dollars for money services
businesses, and the financial institution knows, suspects, or has reason to suspect that the transaction or
pattern of transactions of which the transaction is a part:
● Involves funds derived from illegal activity or is intended or conducted to hide or disguise funds
or assets derived from illegal activity;
● Is designed, whether through structuring or other means, to evade any relevant requirement of
the Bank Secrecy Act;
● Has no business or apparent lawful purpose or is not the sort in which the particular customer
would normally be expected to engage, and the financial institution knows of no reasonable
explanation for the transaction after examining the available facts, including the background and
possible purpose of the transaction, or
58
● Involves the use of the financial institution to facilitate criminal activity.
The statute forbids any filing institution or its personnel from notifying anyone involved in the transaction
regarding the report to protect the reports' confidentiality. This prohibition extends to any government
employee or officer unless the notification is necessary to fulfill the official duties of the employee or officer.
In addition, the statute contains a "safe harbor," which protects any financial institution and its personnel
filing a SAR, whether the filing is mandatory or voluntary. It protects them from liability on the report
account or for failing to give the report notice to any person identified in the report.
4.6 Record Keeping and Documentation Requirements
Firms must keep records of customer identity and transactions as proof of work performed to comply with
local regulatory and legal obligations. In suspicious cases, the records are forwarded to law enforcement,
and law enforcement can investigate the records. Companies can use these records as evidence if law
enforcement investigates suspicious activities. Therefore, in the records kept, companies should keep
adequate records appropriate to the business's complexity, scale, and nature and make them accessible as
required by local regulations. At the same time, companies should keep such records up-to-date, so they
should also manage their communication with their customers to update their information.
AML regulations require that transactions made throughout the business relationship be kept as part of the
firm's records. Transaction records can be as follows; credit and debit notes, checks, and correspondence.
Firms must ensure that a satisfactory audit trail is maintained in a form that can be compiled and a financial
profile created for suspicious accounts or customers.
Organizations must prepare and maintain the AML and CTF-related records properly. Organizations usually
maintain records for AML and CTF purposes, including the reports sent to regulatory authorities about
suspicious transactions, terrorist property, large cash transaction reports, large virtual currency transaction
reports, and electronic funds transfer reports.
In addition, the organizations may be required to maintain large cash transaction records, large virtual
currency transaction records, records of transactions in specified amounts, records of electronic funds
transfers of specified amount, records of virtual currency transfers, foreign currency exchange transaction
tickets, virtual currency exchange transaction tickets, etc.
The records of accounts are also maintained, including records for account holders, their signature cards,
the intended use of an account, applications, account operating agreements, deposit slips, account
statements, cleared cheque records, etc.
The records of clients are required to be maintained as descriptive as possible. Being descriptive when
recording the nature of a client's principal business or occupation will help determine whether a transaction
or activity is consistent with what would be expected of that client. For example, when the client's
occupation is "manager," the record should reflect the area of management, such as "hotel reservations
manager" or "retail clothing store manager." When an entity's principal business area is "sales," the record
should specify the type of sales, such as "pharmaceutical sales" or "retail sales."
59
4.7 Role of the Financial Intelligence Unit and International Cooperation
The Financial Intelligence Units or FIU usually have a national responsibility for receiving, analyzing, and
disseminating intelligence submitted through the SARs regime to share with law enforcement agencies at
home and internationally.
The international cooperations collaborate to ensure that the country's overall AML/CTF system is
maintained and criminal activities and transactions are identified and investigated appropriately.
Illicit finance and money laundering underpin and enable most forms of organized crime. This activity allows
criminals to further their operations and conceal their assets, which impacts the country's national security.
The FIU works on SARs and is critical in alerting law enforcement to potential money laundering and
terrorist financing. SARs are a vital source of intelligence on economic crime and a wide range of criminal
activity. They are instrumental in and have helped identify fraud victims, murder suspects, missing persons,
people traffickers, fugitives, and terrorist financing.
FIU plays a role in tackling illicit finance to disrupt serious and organized crime. To do this, they require
officers with various backgrounds, skills, and experience to help the FIU stay one step ahead of criminals.
FIR looks for a rewarding and challenging opportunity as a typical FIU officer. FIU comprises a diverse team
from a wide range of backgrounds, and each individual brings something unique, enabling FIU to perform
its responsibilities efficiently.
FIUs develop a communication channel for the organizations, where they are required to report suspicious
activities in a prescribed manner. When they identify suspicious activities or transactions or have doubts
about the veracity of the transaction, report them to the FIU after performing necessary internal
investigations.
FIU also works with relevant law enforcement authorities to counter the country's risk of ML/TF. To work
in the FIU, it is not necessary to have a background in law enforcement or finance. However, if a person
desires to protect the public, is adaptable, and can prioritize in a fast-paced environment, with a keen eye
for detail. That person is suitable to work in the FIU of the country.
In FIU, teams are formed to work on different crimes, such as money laundering. To work on a team that
specifically deals with money laundering, the person must be able to quickly learn about a wide range of
different crimes and ways of dealing with them. The ML team deals with intelligence that generally comes
from the public. Sometimes the intelligence will be completely brand new, and it might require me or
someone else on the team working on that to show someone why they should look into it.
4.8 Case Study: AML/CTF Documentation to be Maintained
Suppose a financial institution that is newly formed and licensed to operate as a remittance business is
required to broadly identify the AML/CTF-related records that should be maintained appropriately.
The company's Money Laundering Reporting Officer or MLRO is asked to identify such documentation
requirements. The MLRO identifies the following broader documents that should be maintained to ensure
that AML/CTF records are maintained:
60
● Reports sent to regulatory authorities about suspicious activities or transactions,
● Compliance with AML program and policy,
● Terrorist property,
● Large remittance transactions and reports,
● Electronic funds transfer reports,
● Foreign currency-wise transactions and reports,
● Currency transaction records,
● Records of transactions in specified amounts,
● Records of electronic funds transfers of specified amount, and
● Virtual currency exchange transaction tickets etc.
The records of accounts are also maintained, including records for account holders, their signature cards,
the intended use of an account, applications, account operating agreements, deposit slips, account
statements, cleared cheque records, etc.
4.9 Module Summary
In the first lesson, we discussed the indicators of money laundering and terrorist financing activities
considered high risk for any organization. These indicators are alerts that require investigation by the MLRO
and AML teams to ensure that ML/TF activity is reported to a regulatory authority.
In the second lesson, we covered the performance of an investigation of ML/TF risk indicators that may be
generated as red alerts by the AML system or identified during transaction monitoring by the AML team of
MLRO.
In the third lesson, we discussed the possible outcomes of investigating ML/TF alerts and suspicious
activities. Possible outcomes may include the MLRO reporting the transaction as suspicious or closure of
generated alerts based on the availability of true and reliable information about the transaction.
In the fourth lesson, we covered the suspicious activity report or SAR and the filing of SAR to the regulatory
authority after the performance of an investigation of suspicious activities or transactions by the MLRO.
In the fifth lesson, we discussed the AML/CTF record keeping and documentation requirements and types
of information to be kept as documents and records to comply with relevant AML/CTF regulatory
requirements.
In the sixth lesson, we covered the Financial Intelligence Unit or FIU and its role in receiving and performing
a further investigation of SARs being reported by financial institutions from time to time.
In the seventh lesson, we discussed a case study where we looked into the information that is required to
be maintained by a company as part of its obligation to comply with AML/CTF regulatory requirements.
61
Question 1: Which of the following statements is correct:
a. Suspicious Activity Report (SAR) is to be prepared by the institution and submitted to the
Government of the country.
b. Suspicious Activity Report (SAR) is to be prepared by the institution and submitted to the
Financial Intelligence Unit (FIU) of the country.
c. Suspicious Activity Report (SAR) is to be prepared by the institution and submitted to the
CEO of the institution.
Question 2: Suspicious Activity Report is prepared by the:
a. Human Resource Team

b. Money Laundering Reporting Officer (MLRO)
c. Internal auditors
d. All of the above
Question 3: After the conclusion of the suspicious activity investigation, the suspicious activity
report (SAR) is prepared by the AML Team, which is first presented to:
a. MLRO
b. Customer
c. Shareholders
d. All of the above
Question 4: The purpose of preparing the Suspicious Activity Report (SAR) report is to:
a. Document the background, history, customer risk profile, reasons, and root cause of the
transaction for reporting to FIU.
b. Document the background, history, customer risk profile, reasons, and root cause of the
transaction for internal reporting only.
c. Document the background, history, customer risk profile, reasons, and root cause of the
transaction for reporting to the shareholders of the company in annual general meeting.
Question 5: which of the following statements is correct for Investigation:
a. Investigation is performed of the alerts generated.
b. Investigation is performed of the suspicious activity identified during monitoring.
c. Investigation is performed of the transaction whistle-blowed by an employee.
d. All of the above
62
Ref.
Author Title Link
No.
Financial Crime
1 Suspicious Activity Reports (SAR) Hyperlink
Academy
2 Sanction Scanner Record Keeping Requirements Hyperlink
3 Wikipedia Role of Financial Intelligence Unit Hyperlink
Financial Crime
4 Record Retention AML/KYC Hyperlink
Academy
5 Investopedia Understanding Suspicious Activity Report (SAR) Hyperlink
6 Wikipedia Suspicious Activity Report Hyperlink
7 Wikipedia Purpose of SARs Hyperlink
8 Wikipedia Reporters of SARs Hyperlink
Financial Crime
9 AML/CTF Red Flags Hyperlink
Academy
10 Deloitte Money Laundering Risks for Investigation Hyperlink
63
5 Completing the Program

In the first module, we discussed the concepts of one of the most important categories of criminal
activities, Money Laundering (ML). The concept of predicate offenses was also discussed in this
lesson.
We covered the different stages of money laundering ML activities used by criminals to hide,
transfer or utilize the illegal money, to hide the true origin of illegal money or their own identity.
Then, we discussed different methods money launderers use to perform money laundering
activities using the banks and financial institutions (FIs), such as FIs doing money service
businesses. Additionally, we covered how money laundering activities are performed by the
money launderer using the channel of non-bank institutions.
Moreover, we discussed concepts related to terrorist financing activities, who perform these
activities, and the potential negative impacts this criminal activity may have on the institutions.
We covered the different stages of Terrorist Financing (TF) activities used by criminals to transfer
or help other terrorists who are located in other places or jurisdictions.
Furthermore, we discussed how terrorist financing activities are performed by the terrorists,
using the illegal money to support the terrorist activities and the people involved in those
activities. Although both are criminal activities, there are differences and similarities, which shall
clarify why some criminals are involved in money laundering and some in terrorist financing. We
also discussed a case study where you will learn how the criminals plan and perform the criminal
activity to gain financial benefits at the expense of the economy or an institution.
In the second module, we discussed the most important and influential of the international
bodies, which is FATF. FATF is an intergovernmental body whose purpose is to establish
international standards and develop and promote policies, both at national and international
levels, to combat money laundering and the financing of terrorism. The objectives of FATF are
to set global standards and promote effective implementation of legal, regulatory, and
threats to the integrity of the international financial system.
In addition, we discussed the United Nations Global Programme, International Monetary Fund,
and World Bank. We also covered the contributions against money laundering, which is part of
the United Nations Office on Drugs and Crime or UNODC, established in 1997 to assist member
states in complying with the UN Conventions and other instruments that deal with money
laundering and terrorist financing. It helps member states to:
● Introduce legislation against money laundering
● Develop and maintain strategies to combat money laundering

64
● Encourage AML policy development
● Raise public awareness about money laundering, and
● Act as a coordinator of joint AML initiatives by the UN with other international

organizations.
Furthermore, we discussed the Wolfsberg Group's role in setting the global AML guidelines for
the private banking sector. The rationale for the initiative, which followed a series of scandals
involving high-net-worth individuals and PEPs, was the avoidance of further money laundering
within the private banking sector. The initiative was launched with the cooperation and
assistance of Transparency International. The Wolfsberg Group comprises 13 private banking
institutions. The Wolfsberg Group has no official status, and its standards are not binding, even
on its members. Still, its statements of good practice have received international recognition
throughout the financial sector, to the point of being used by regulators to benchmark good and
poor practices, such as in the UK Regulator's thematic review TR13/3: 'Banks' control of financial
crime risk in trade finance.
Additionally, we covered the Basel Committee, headquartered in Basel, Switzerland, at the Bank
for International Settlements or BIS, a group of bank supervisory authorities from 28 countries.
The committee, which comprises a representative of each central bank and a representative of
the body with formal responsibility for the prudential supervision of banking business is different
in each country, meets four times a year. The committee has a long-standing commitment to
promoting the implementation of sound AML/CTF policies and procedures that are critical in
protecting the safety and soundness of banks and the integrity of the international financial
system.
We also discussed Egmont Group of Financial Intelligence Units or FIUs, an international network
of FIUs. Egmont Group's primary purpose is to help countries develop their national anti-money
laundering systems. Egmont Group is a unified structure that ensures secure financial transfer
between Financial Intelligence Units at local and international levels.
Moreover, we covered one of the most significant AML laws and regulations in the US, the Bank
Secrecy Act of 1970 or BSA and the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001, more commonly known as the
USA PATRIOT Act, or just Patriot Act. The Currency and Foreign Transactions Reporting Act of
1970, commonly referred to as the BSA, which the Patriot Act substantially amended in 2001,
provides the basis for most preventative measures applied to the financial sector and other
businesses. The Bank Secrecy Act was intended to prevent the use of secret foreign bank
accounts and assist law enforcement agencies by legislating for regulatory reporting and record
keeping by financial institutions. You will learn about the key requirements of the act apply to
65
US financial institutions, including branches and subsidiaries of foreign banks operating within
the US.
In addition, we discussed the EU member states, to contribute to strengthening the AML/KYC

framework, are developing efficient and robust means of CDD and KYC by opening up
mutualization opportunities and fostering a digital economy within the EU member states. The
customers' electronic identification and remote KYC processes are the subject domain for the EU
member states. The scope for portable CDD solutions is particularly the core area of
consideration by the EU member states for the banking sector. The targets for the EU member
states are to curtail money laundering, drug-trafficking-related proceeds, tax evasion, terrorist
financing, human trafficking, and state-sponsored and corporate bribery.
In the third module, we discussed the AML/CTF governance and the role of the Money Laundering
Reporting Officer or MLRO in preventing and detecting ML/TF risks through implementing the
AML/CTF framework in an organization. MLRO serves as a second line of defense to ensure that
transactions are monitored and AML/CTF regulations are implemented.
We also covered the ML/TF risk identification, and assessment process performed periodically to
assess the impact and likelihood of potential ML/TF risks. These steps help prevent ML/TF risk
occurrence by applying relevant AML/CTF controls.
Moreover, we discussed the AML/CTF components, which include the policies, processes, and
structures necessary for an organization to develop and implement to prevent ML/TF risks or
incidents.
We also discussed the importance of periodic AML/CTF training for the employees and the related
broader regulatory requirements that are mandatory for implementing an AML/CTF framework
and regulatory requirements.
Additionally, we discussed the role and objective of an internal audit function, the third line of
defense in an organization, in the performance of periodic AML/CTF system and controls audit
and review.
We also covered one of the most important requirements of AML/CTF regulatory requirements,
which is the performance of regular transaction monitoring of customers to identify any
Further, we discussed the concepts behind the KYC and CDD measures to prevent risk related
to onboarding and developing relationships with criminals, including money launderers and
terrorists.
We also discussed a case study related to the design and implementation of the AML framework
in an organization.
66
In the fourth module, we discussed the indicators of money laundering and terrorist financing
activities considered high risks for any organization. These indicators are alerts that require
investigation by the MLRO and AML teams to ensure that ML/TF activity is reported to a
regulatory authority.
Additionally, we covered the performance of an investigation of ML/TF risk indicators that may
be generated as red alerts by the AML system or identified during the performance of transaction
monitoring by the AML team of MLRO. We discussed the different possible outcomes of
performing the investigation of ML/TF alerts and suspicious activities. Possible outcomes may
include the MLRO reporting the transaction as suspicious or closure of generated alerts based on
the availability of true and reliable information about the transaction.
Then, we discussed the suspicious activity report or SAR and the filing of SAR to the regulatory
authority after an investigation of suspicious activities or transactions by the MLRO. We discussed
the AML/CTF record keeping and documentation requirements and types of information to be
kept as documents and records to comply with relevant AML/CTF regulatory requirements.
Further, we covered the Financial Intelligence Unit or FIU and its role in receiving and
investigating SARs being reported by financial institutions from time to time. We also discussed
a case study in which we shall look into the information that is required to be maintained by a
company as part of its obligation to comply with AML/CTF regulatory requirements.
67

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3.11 Multiple Choice Quiz ................................................................................................. 48

0 Introduction to this Program

Who can Benefit from this Course?

What will You Learn, and How is this Course Structured?

Module 1: Introduction to AML/CTF

Module 2: Overview of Relevant AML/CTF Laws and Regulations

Module 3: Organizational AML/CTF and Risk Mitigation Measures

Module 4: AML/CTF Investigations

1 Financial Crime Academy Money Laundering Methods used by Criminals Hyperlink

3 Financial Crime Academy Transaction Monitoring Hyperlink

European Institute of Management

Anti-Money Laundering and Know Your

1 Module 1: Introduction to AML/CTF

1.1 Introduction to this Module

Lesson 1 – What is Money Laundering? What are Predicate Offenses?

Lesson 2 – Stages of Money Laundering

Lesson 3 – Exemplary Methods of Money Laundering (Banks & Financial Institutions)

Lesson 4 – Exemplary Methods of Money Laundering (Non-Banks)

Lesson 5 – What is Terrorist Financing?

Lesson 6 – Stages of Terrorist Financing

Lesson 7 – Exemplary Methods of Terrorist Financing

Lesson 9 - Case Study

1.2 What is Money Laundering? What are Predicate Offenses?

● Fund or assets obtained through criminal or illegal activities

● Disguising the illegal origin of these funds are assets

1.3 Stages of Money Laundering

Stages of Money Laundering:

1.4 Exemplary Methods of Money Laundering (Banks & Financial

1.5 Exemplary Methods of Money Laundering (Non-Banks)

Cash Intensive Businesses

Casino Money Laundering

1.6 What is Terrorist Financing?

1.7 Stages of Terrorist Financing

1.8 Exemplary Methods of Terrorist Financing

1.9 Similarities and Differences Between Money Laundering and Terrorist

● Funds or assets were obtained through criminal or illegal activities

● Disguising the illegal origin of these funds are assets

1.10 Case Study – Terrorist Financing Using Real Estate

1.11 Module Summary

1.12 Multiple Choice Quiz

Question 1: Which of the following statement is correct for Money laundering:

Question 2: Money laundering has different stages, which are:

a. Placement, Layering, and Integration

Question 3: Which of the following statement is correct for Terrorist Financing:

d. None of the above

a. Brand and reputational risks

b. Health and safety risks

c. Money laundering and terrorist financing risks

1.13 Further Reading and References

1 Financial Crime Academy Methods Criminals Use to Launder Money Hyperlink

2 FCA Handbook Money Laundering and Terrorist Financing Hyperlink

3 FATF Types of Financial Crime - Terrorist Financing Hyperlink

4 Financial Crime Academy Predicate Offenses in Money Laundering Hyperlink

5 FATF Types of Financial Crime - Money Laundering Hyperlink

6 FATF Some Terrorist Financing Cases Hyperlink

7 Sanction Scanner Negative Effects of ML Hyperlink

8 Financial Crime Academy Money Laundering and Terrorist Financing Hyperlink

Similarities and Differences between Money

10 Financial Crime Academy Effects of ML on Economy Hyperlink

2 Module 2: Overview of Relevant AML/CTF Laws and Regulations

2.1 Introduction to this Module

This module is structured into the following lessons: