Live CAMS Prep

CAMS6 1 Day PPT Master_v3_ (INT-STU) 11-13-17
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CAMS Examination Preparation Outline
1. Risks and Methods of Money Laundering and
Terrorist Financing
2. International AML/CFT Standards
3. AML/CFT Compliance Programs
4. Conducting and Responding to Investigations

Risks and Methods of
Money Laundering and
Terrorist Financing

Money Laundering Definition
The conversion or transfer of property, knowing it is
1
CONVERSION
derived from a criminal offense, for the purpose of
concealing or disguising its illicit origin or of assisting
any person who is involved in the commission of the
crime to evade the legal consequences of his actions.
The concealment or disguising of the true nature,
2
CONCEALMENT
source, location, disposition, movement, rights
with respect to, or ownership of property knowing
that it is derived from a criminal offense
3
ACQUISITION
The acquisition, possession or use of
property, knowing at the time of its receipt
that it was derived from a criminal offense or
from participation in a crime.
Source: The Palermo Convention

4

Willful Blindness = Knowledge
• Mental state and the act of money laundering
• The term willful blindness is a legal principle used in
money laundering and other cases in some jurisdictions
• Willful blindness is the “deliberate avoidance of
knowledge of facts” or “purposeful indifference”
• FATF expanded the willful blindness mandate to
cover the financing of terrorism

Stages of Money Laundering
Placement: Introducing the illegal proceeds into the
financial system
Layering: Converting the proceeds of crime into other
forms, creating complex layers of financial transactions to
disguise audit trails, the source and ownership of funds
Integration: Placement of laundered proceeds back in the
economy creating a perception of legitimacy
Source:The United Nations Office of Drugs & Crime
http://www.unodc.org/unodc/en/money-laundering/laundrycycle.html

Three Stages of Money Laundering

Structuring
Cash Structuring Example
Bank A Bank B Bank C
$40,000
Deposited = $40,000
$9,000 $8,000 $4,000 $9,000 $10,000
Drug Sales

Example of Structuring (“Smurfing”)

Economic and Social Consequences
of Money Laundering
Undermining Social costs
the legitimate
Reputation
risk for the private sector
country
Weakening Increased
Loss of financial crime and
control, institutions corruption
mistakes in
decisions on
Loss of tax Risk of
economic
revenue international
policy
sanctions
Risks to
Dampening
privatization
Economic effect on
efforts
distortion and foreign
instability investments
10

AML/CFT Compliance Programs and
Individual Accountability
2014: FinCEN Advisory to U.S. Financial
Institutions on Promoting a Culture of Compliance
2015: Yates Memo on Individual Accountability

for Corporate Wrongdoing
2016: UK Financial Conduct Authority (FCA)

Senior Managers and Certification Regime
2017: New York State Dept. of Financial Services

Rule 504 requiring annual certification on
Transaction Monitoring and Filtering Programs
11

Methods of Money Laundering
• Illicit money can move through numerous different
commercial channels
• A money launderer will seek to operate in and around the
financial system in a manner that best fits the execution of
the scheme to launder funds to include:
- Banks and other depository institutions
• Mechanisms used to launder funds through banks and other
depository institutions
- Non-bank financial institutions

- Non-financial businesses and professions
12

Electronic Funds Transfers (EFTs)
• Fast channel for moving money between countries and

accounts
• Multiple transfers from accounts, banks and countries

increases the complexity of tracing the origin of the
funds
• EFTs are used by money launderers in layering cycle
13

Correspondent Banking
Correspondent Banking Example
Where is the Risk?
Correspondent Bank
Correspondent Bank
Respondent Bank
Respondent Bank
Respondent Bank Respondent Bank Respondent Bank Respondent Bank

Respondent
Customer Bank Respondent
CustomerBank Respondent
Customer Bank Respondent
Customer Bank
(Individual)
Customer Customer
(Business) Customer
(High Risk) Customer
(Financial
) Instit
u t ion
(Individual) (Business) (High Risk) Financial Institution
Individual
Individual Business
Business High Risk Financial
u
Financial Instit t ion
Institution
Customer Customer
High Risk
Customer Customer
Customer Customer Customer Customer
14

Correspondent Banking
Where
Correspondent Banking is the Risk?
Example
Correspondent Bank
Correspondent Bank
Respondent Bank
Respondent Bank
Respondent
Respondent Bank
Bank Respondent
RespondentBank
Bank RespondentBank
Respondent Bank Respondent
Respondent Bank
Bank
Customer Customer
Customer Customer
Customer Customer
Customer
Customer
(Individual) (Business) (High Risk) (Financial
) Instit
u t ion
(Individual) (Business) (High Risk) Financial Institution Nesting
Individual
Individual Business
Business High Risk
High Risk Financial
Financial
u Institution
Instit t ion
Customer
Customer Customer
Customer Customer
Customer Customer
Customer
15

Correspondent BankingnCorrespondent
Single Transactio Ex ample
(Single Correspondent)
XYZ Corp Bank S Correspondent Bank R GHI Corp

(Country A) (Country A) Bank (Country B) (Country B)
USD (Country B) EUR
USD EUR
16

Correspondent Banking n Transactio
l Ex ample
Multiple Correspondents
(Multipe Cor r espondents)
Poland
n United
Poland United Global Bank,
Bank,
Natioal Bank
National Bank USA
USA
XYZ
XYZHoldings
Holdings Sender
Sender Sender’s
Sender’s
(Warsaw,
Warsaw,Poland)
Poland Financial
u
Financial Institt ion
Institution Correspondent Bank
Correspondent Bank
EUR
EUR (USD Account)
(USD Account)
Regional
RegionalBank,
Bank,
International Bank,
USA
USA INTL Bank, USA
USA
QRS
QRSQRS Export/
Export/Import
Export/Import Receiver
Receiver
Receiver Receiver’s
Receiver’s
Import Corp.
Corp.
Corp. Financial
FinancialInstit
u
Financial t ion
Institution
Institution Correspondent Bank
Bank
(New
(New York,
(New York,NY)
York, NY)
NY) (USD Account)
(USD Account
USD
USD
USD
17

Payable Through Accounts (PTAs)
• A transaction account opened at a depository institution by a foreign
financial institution through which the foreign institution’s customers
engage, either directly or through sub-accounts, in banking activities
and transactions in such a manner that the financial institution’s
customers have direct control over the funds in the account.
• These accounts pose risks to the depository institutions that hold
them because it can be difficult to conduct due diligence on foreign
institution customers who are ultimately using the PTA accounts.
• PTAs differ from correspondent accounts whereby:
– Foreign bank's customers directly control funds at the correspondent
bank
– VERSUS traditional correspondent relationship where respondent
bank takes orders from customers and passes them on to the
correspondent bank.
18

Concentration Accounts
• Also called an “omnibus account”
• Held by a financial institution in its name
• A clearing account used primarily for internal administrative or
bank-to-bank transactions in which funds are transmitted and
commingled without personally identifying the originators
• Frequently used to facilitate transactions for private banking,
trust and custody accounts, funds transfers and international
affiliates
• Money laundering risks may arise if the customer-identifying
information (name, transaction amount and account number) is
separated from the financial transaction leading to lost audit
trails
• Accounts may also be subject to misuse or improper
19 administration
Private Banking Risks
Corrupt
Culture of Culture of Politically
Client Powerful
Secrecy &
Secrecy
Lax AML Exposed
Advocacy Clients
Discretion
Jurisdictions
Controls Persons
(PEPs)
Use of
Use of
Legal Wealth in
Trusted Private
Entities for Numerous
Commission Competitive
Relationship Investment Based Environment
Estate Jurisdictions
Companies
Planning
20

Politically Exposed Persons (PEPs)
 Two types of Politically Exposed Persons (PEPs):
 Foreign PEPs: Individuals who are or have been entrusted

with prominent public functions by a foreign country, for
example: heads of state or of government, senior politicians,
senior government, judicial or military officials, senior
executives of state-owned corporations, important political
party officials.
 Domestic PEPs: Individuals who are or have been

entrusted domestically with prominent public functions, for
example: heads of state or of government, senior politicians,
senior government, judicial or military officials, senior
executives of state owned corporations, important political
party officials.
21

Non Bank Financial Institutions (NBFIs)
• Credit Cards
• Third Party Payment Processors (TPPPs)
• Money Services Businesses (MSBs)
• Money Transfer Services
• Check Cashers
• Money Orders
• Prepaid Card Access
• Insurance Companies
• Securities Broker Dealers
22

Third Party Payment Processors (TPPPs)
• Bank customers that provide payment processing

services to merchants and other business entities
• Use their commercial bank accounts to conduct payment

processing for their merchant clients
• Usually not subject to any AML/CFT requirements
• Service a variety of domestic and international merchants
23

Money Services Businesses (MSB)
• Dealer in Foreign Exchange
• Check Casher
• Issuer of Traveler’s Checks or Money Orders
• Money Transmitter
• Provider and Seller of Prepaid Access
24

Prepaid Card Access
• Open Loop
– Purchased at any merchant that
accepts cards issued on the
payment network associated with the
card.
• Closed Loop
– Limited to buying goods or services
from the merchant issuing the card.
25

Non Financial Businesses and
Professions (NFBFs)
• Casinos
• Gold and Precious Metal Dealers
• Real Estate
• Gatekeepers
• Trade Based Money Laundering
26

Casinos/Gambling Businesses
• Regulatory environment varies by jurisdiction
• May require AML/CFT programs
• Various forms:
– Physical locations such as Las Vegas, Macau, etc.
– Online platforms such as PokerStars.com
– Track betting such as horse-racing or dog tracks
• Cash-intensive for physical sites

• Online gambling use card networks, online payment
systems, etc.
27

Casinos
• Patrons may attempt to
evade AML reporting or
recordkeeping requirements
• Use the cage solely for its

banking-like financial
services
• Minimal gaming activity

without a reasonable
explanation
28

Real Estate
• Purchased with cash or an “all cash” transaction, i.e.
there is no lending involved from a financial institution
• The ultimate beneficial ownership can be disguised

through shell companies
• Can be utilized as an alternative to stock market
investments for flight capital
• Gatekeepers may be used to facilitate the purchase
and sale transaction
29

30

Gatekeepers
• Notaries
• Lawyers
• Accountants
• Investment advisors
• Trust & Company Service Providers (TCSPs)
31

Gatekeepers
• Most vulnerable to money laundering when providing
the following functions:
– Creating corporate vehicles or complex legal
arrangements
– Buying or selling property
– Performing financial transactions for clients
– Providing financial and tax advice
– Providing introductions to financial institutions
– Undertaking litigation
– Setting up and managing a charity
32

Trade Based Money Laundering
• Trade Price Manipulation
• Black Market Peso Exchange (BMPE)
• Hawala
33

Trade Price Manipulation
Sell Something for Nothing
Move $1,000,000 from US to foreign firm
US export at low price (under invoice)
1. US Firm has $1M to Move to Foreign Firm
2. US Firm buys 200 Rolex watches at $5,000/ea (pays $1,000,000)
3. US Firm sells and exports 200 watches to Foreign Firm at $5.00/ea
Exports 200 Rolex watches
US Foreign
Firm Firm
$1,000
4. Foreign Firm sells 200 Rolex watches at $5,000/ea = $1,000,000

www.internationaltradealert.com
34

Trade Price Manipulation
Sell Nothing for Something
Move $1,000,000 from US to foreign firm

US import at high price (over invoice)
1. US Firm has $1M to Move to Foreign Firm
2. Foreign Firm buys 10,000 Pencils at 10 cents ($1,000) locally
3. Foreign Firm sells 10,000 Pencils to US Firm at $100 each
Import 10,000 pencils

US Foreign
Firm
Firm
$1,000,000
4. US Firm pays $1,000,000 to Foreign Firm
www.internationaltradealert.com
35

Black Market Peso Exchange
Broker takes cartel’s U.S. dollars in
exchange for Colombian pesos.
Broker’s U.S. employees

place the dollars in U.S.
To launder banking system
the U.S. dollars,
cartel contacts
immediately call
peso broker
Broker offers the U.S.

dollars to Colombian
importer in exchange
for Colombian pesos.
Colombian cartel sells
drugs to U.S. market for
U.S. dollars
Importer uses the drug U.S.
dollars to buy U.S. goods,
which are shipped to Colombia
36

Hawala
Moving Money
Without
Moving Cash
37

Misuse of Corporate Vehicles
• Public companies
– Shares are freely available and traded publicly
– There is usually no limit to the number of shareholders
– Information on ownership and its board of directors is
publicly available
– Companies are subject to significant regulation
• Private limited companies
– Are not publicly traded
– Restrictive in the number of shares
– Ownership can be one or many
– Subject to minimal regulatory oversight
38

LLCs, IBCs, and PICs
• Limited Liability Companies (LLC)
– Attractive vehicle because can be owned or managed
anonymously
– Virtually anyone can own or manage an LLC, including foreign
persons and other business entities
• International Business Corporations (IBC)
– Formed outside of a person or businesses’ country of residence,
typically in offshore jurisdictions
– Used for confidentially or asset protection purposes
• Private Investment Companies (PIC)
– Established and used in a similar manner as IBC; however, they
are typically limited to holding investment assets in tax-neutral
offshore financial jurisdictions
39

Corporate Vehicles & Beneficial Ownership
Corporate Vehicles Example
Titan Pte Ltd.

(Singapore)
Titanium Pte. Ltd.

(Singapore)
60%
Bob Tom
30% 10%
Titan Trust Cayman Ltd.

(Cayman Islands)
80%
Adam Mary
10% 10%
Bill Ally
10% 90%
40

Terrorist Financing
• Cutting off financial support to terrorists and terrorist organizations is
essential to disrupting their operations and preventing attacks
• Since 9/11, international efforts to detect and deter terrorist financing
have increased significantly
– In response, terrorists and terrorist financiers have adapted,
expanding and varying their methods of raising and moving funds
– Consequently, this requires increased innovation and vigilance by
law enforcement and financial institutions
• Beginning in 2002, FATF began issuing guidance to identify
techniques and mechanisms used in financing terrorism
• Terrorists exploit weaknesses in financial and regulatory regimes to
raise funds
– They circumvent formal channels to avoid detection and exploit
new technologies and tools to transfer resources
• Terrorists continue to adapt their tactics and diversify their funding
41 sources
Money Laundering & Terrorist Financing
• Money laundering always involves the proceeds of illegal activity
– The purpose of laundering the illicit proceeds is to clean it and
give it the appearance of legitimacy
– The individuals responsible for the illegal activity are usually the
ultimate beneficiaries of the laundered funds
• Terrorist financing is derived from both legitimate funding sources

and the proceeds of illegal activity
– The purpose of laundering funds intended for terrorists is to
support terrorist activity
– The individuals responsible for raising the funds are usually not
the ultimate beneficiaries of the laundered funds; the funds
benefit terrorist activity
42

Practice Questions
43

Question 1.1
Which statement is true?
A. Lawyers/attorneys can generally not be used to serve as
formation agents to set up trusts, front companies or
shell corporations.
B. Lawyers, accountants, notaries and other similar
professionals are called money services providers.
C. Lawyers can generally not be used to act as a nominee
shareholder for another person.
D. Launderers can abuse gatekeepers by using their
accounts for the placement and the layering of funds.
44

Question 1.2
• LKM Bank is a well-known community bank providing services to
local residents and businesses.
• The CEO, with the Board of Director’s permission, has launched an
aggressive strategy to increase revenue and considered growing the
business through acquiring clients de-risked from large financial
institutions.
• The bank has the ability to acquire a significant portfolio of clients that
will double revenue within 18 months.
• The clients are of higher risk, require enhanced due diligence, and
the bank does not maintain the appropriate controls to manage the
risk.
• What risks should the compliance officer present to the CEO at their
next meeting?
A. Client risk C. M&A risk
B. Legal, operational, and D. Legal, operational,
concentration risk concentration, and
reputational risk
45

Question 1.3
What method can a bank implement to prevent the smurfing of
funds into an account?
A. Only accept cash deposits with proof of its origin.
B. Request identification of a person making a single cash
deposit into an account held in his/her name.
C. Prohibit cash deposits or more than $5,000 on consecutive
days.
D. Request identification of a person making a cash deposit
into an unrelated account located outside the local area
where the account is located.
46

Question 1.4
Which statement is true?
A. In correspondent accounts, the respondent bank’s customers can conduct their own
transactions: sending wire transfers, making and withdrawing deposits and
maintaining checking accounts through the respondent bank’s correspondent account
without needing to clear the transactions through the respondent bank.
B. In Payable Through Accounts, the respondent bank’s customers can conduct their
own transactions: sending wire transfers, making and withdrawing deposits and
maintaining checking accounts through the respondent bank’s correspondent account
without needing to clear the transactions through the respondent bank.
C. PTAs differ from correspondent accounts whereby: Foreign bank's customers directly
control funds at the correspondent bank VERSUS traditional correspondent
relationship where correspondent bank takes orders from politically exposed persons
and passes them on to the respondent bank.
D. Concentration accounts differ from shell bank accounts whereby: Foreign shell bank's
customers internally control funds at the correspondent bank VERSUS traditional
concentration accounts where respondent bank takes orders from internal employees.
47

Question 1.5
What are open loop prepaid cards?
A. Credit cards that can be used at any merchant at
anytime.
B. Network-branded cards that can be spent anywhere on

the payment network.
C. Store-branded cards that can be spent anywhere at

anytime at any merchant.
D. Store-branded cards that can be spent at any store

location of the issuing store.
48

International AML/CFT
Compliance Standards
49

International AML/CFT
Compliance Standards
• Financial Action Task Force (FATF)
• The Basel Committee on Banking Supervision
• The Wolfsberg AML Principles

• Egmont Group of Financial Intelligence Units
• European Union Directives on Money Laundering
• USA PATRIOT Act and Office of Foreign Assets Control
(OFAC)
50

FATF Objectives
• Spreading the AML/CFT message worldwide
• Monitoring the implementation of the FATF
Recommendations among its members:
– Annual self assessment
– Mutual evaluation process
• Reviewing money laundering trends and
countermeasures
– Sometimes referred to as typologies
51

FATF Members
Argentina China Hong Kong Korea Portugal Sweden

Australia Denmark (China) Luxembourg Russian Switzerland
Austria Finland Iceland Malaysia Federation Turkey
Belgium France India Mexico Singapore United Kingdom
Brazil Germany Ireland Netherlands South United States
Canada Greece Italy New Zealand Africa
Japan Norway Spain
52

FATF Membership Criteria
• Strategic importance of jurisdiction based on quantitative
and qualitative indicators
• Size of GDP, size of banking sector, population
• Impact on global financial system, active participation in
FATF-style regional body, level of commitment to
AML/CFT efforts, level of AML/CFT risks faced and
efforts to combat those risks
• Level of adherence to financial sector standards
• Participation in other relevant international
organizations
• FATF’s geographic balance should be enhanced by the
jurisdiction becoming a member
53
53
Two-Step Process for FATF Membership
• Step 1: Fundamental criteria
– Strategic importance of jurisdiction based on quantitative and
qualitative indicators
• Size of GDP, size of banking sector, impact on global financial
system, etc.
• Step 2: Technical and other criteria

– Provide written political commitment
• Endorse and support FATF 40 Recommendations
• Undergo mutual evaluation during membership process
• Participate actively in FATF
– Launch mutual evaluation process within three years of being
invited to participate as observer
– Membership granted if mutual evaluation satisfactory
54

Overview of FATF 40 Recommendations
Subject Recommendations
AML/CFT Policies and Coordination 1-2
Money Laundering and Confiscation 3-4
Terrorist Financing and Financing of

5-8
Proliferation
Preventive Measures 9-23
Transparency and Beneficial
24-25
Ownership
Powers and Responsibilities of
26-35
Competent Authorities
International Cooperation 36-40
55

FATF 40 Recommendations
Definition of a Financial Institution:

• Accepts deposits
• Provides lending services
• Provides financial leasing
• Transfers value or money
• Issues and manages means of payments
• Issues financial guarantees
• Trades in money market instruments, foreign exchange,
securities, commodities futures
56

FATF 40 Recommendations
Definition of a Financial Institution:
• Participates in securities issues, provision of financial

services related to such issues
• Provides portfolio management services
• Provides safekeeping, administration of cash or liquid
securities
• Invests, manages or administers funds
• Underwrites and places life insurance and other
investment related insurance
• Engages in money and currency changing
57

FATF 40 – Recommendations 22 and 23
Designated Non-Financial Businesses and

Professions
• Casinos
• Real estate agents
• Dealers in precious metals and stones
• Lawyers, notaries and accountants
• Trust & company service providers
58

• Recommendation dealing with need for country-wide
and institution specific risk assessments
• Process to better foster a risk-based approach to

AML/CFT
• Emphasizes need for national cooperation and
coordination
59

FATF 40 – Recommendation 3
• Recommends that countries criminalize money

laundering in accordance with the Vienna Convention
and the Palermo Convention
60

Designated Categories of
Money Laundering Offenses
• Participation in an organized criminal group and

racketeering
• Terrorism, including terrorist financing
• Trafficking in human beings and migrant smuggling
• Sexual exploitation, including that of children
• Illicit trafficking in narcotic drugs
• Illicit arms trafficking
61

• Illicit trafficking in stolen or other goods

• Corruption and bribery
• Fraud
• Counterfeiting currency
• Counterfeiting and piracy of products
• Environmental crimes
• Murder, grievous bodily injury
62

FATF 40 - Recommendation 3
• Kidnapping, illegal restraint and hostage-taking
• Robbery or theft
• Smuggling
• Extortion
• Forgery
• Piracy
• Insider trading and market manipulation
63
• Tax crimes
• The Interpretative Notes to Recommendation 3

indicate that the knowledge required to prove money
laundering must be consistent with the standards set
forth in the Vienna and Palermo Conventions
• The Interpretive Notes indicate that liability should
apply to legal persons as well as to individuals
64

When Financial Institutions Should Undertake

Customer Due Diligence Measures
• Establishing business relations

• Carrying out occasional transactions
• There is a suspicion of money laundering or terrorist
financing
• The financial institution doubts previously obtained
customer identification data
65

Customer Due Diligence (CDD) Measures
• Identifying the customer and verifying customer’s

identity using reliable information
• Identifying the beneficial owner
• Obtaining information regarding the purpose and

intended nature of the business relationship
• Conducting ongoing due diligence
66

Recordkeeping
• Financial institutions should be required to maintain
records for at least 5 years after business relationship
is ended or date of occasional transaction
– All necessary records on transactions, both domestic
and international
67

Due Diligence Regarding PEPs
• Have appropriate risk management systems to
determine whether the customer is a PEP
• Obtain senior management approval for business

relationships
• Take reasonable measures to establish the source of

funds
• Conduct enhanced ongoing monitoring

• Domestic PEPs are now included
68

Cross-Border Correspondent Banking
• Gather sufficient information about a respondent
institution to understand the nature of their business
• Assess respondent institution’s AML and CFT

program and controls
• Obtain approval from Senior Management before

establishing new correspondent relationships
69

Cross-Border Correspondent Banking

• Be satisfied that the respondent bank has verified the
identity of, and has performed on-going due diligence
with regard to, users of Payable Through Accounts
• Shell bank correspondent accounts are prohibited
70

Money or Value Transfer Services (MVTS)
• Countries should make sure they:
– Are licensed or registered
– Subject to the relevant AML measures called for in the

Recommendations
– Agents should also be licensed and/or registered and

the MVTS provider should maintain a list of its agents
– Agents should be included in MVTS provider’s

AML/CFT program and monitor them for compliance
71

Wire Transfers
• Countries should make sure financial institutions:
– Include the required and accurate originator and
beneficiary information
– Ensure the information remains with the wire transfer
throughout the payment chain
• Interpretative Note: The FI should retain the payment

information for all wire transfers over US$/EUR
1,000
72

Reliance on Intermediaries
• Countries may permit financial institutions to rely on
third parties to perform the CDD steps below
(Recommendation 10):
– Identifying customer and verifying identification
– Identifying beneficial owner
– Understanding and, as appropriate, obtaining
information on purpose and intended nature of the
business relationship
• Ultimate responsibility stays with the financial
73
institution
AML Programs Should Include

• Development of internal policies, procedures and
controls
• Appropriate compliance management
• Ongoing employee training program
• Audit function to test the AML/CTF program
74

Reporting of Suspicious Transactions and

Compliance
• Must report to Financial Intelligence Unit (e.g.,
AUSTRAC, FinCEN, FINTRAC) suspected money
laundering or terrorist financing
• Report all suspicious activity and attempted

transactions, regardless of amount
• Report when they are thought to involve tax matters
75

Tipping off and confidentiality
• “Safe harbor”: Protection from liability for breach of any
restriction from disclosure if reporting was done in
good faith.
• Tipping off about reporting a STR (Suspicious
Transaction Report) should be prohibited.
76

Transparency of Legal Persons and
Arrangements
• Information should be available on the beneficial
ownership and control of legal persons, so that it can
be obtained in a timely fashion by authorities
• Bearer shares are not forbidden, but AML controls

should be in place
77

Shell Banks
• Shell Banks are prohibited
• A Shell Bank is one that is incorporated in a jurisdiction

where it has no physical presence and is unaffiliated
with a regulated financial group
• Recommendation 13: No correspondent relationships

with shell banks
78

Regulation and Supervision
• Financial institutions should be subject to adequate
regulation and are effectively implementing the FATF
recommendations
• Countries should take measures to prevent criminals
from owning or managing financial institutions
• MSBs: Should be licensed or registered and subject
to monitoring and compliance
79

Financial Intelligence Units

Countries should establish Financial Intelligence Units
for receiving, requesting, analyzing and disseminating
Suspicious Transaction Reports (STRs) and other
information regarding money laundering and terrorist
financing.
80

Mutual Legal Assistance
• Not prohibit or place unreasonable or unduly
restrictive conditions on the provision of mutual legal
assistance
• Ensure that they have clear and efficient processes

for the execution of mutual legal assistance requests
• Not refuse to execute a request for mutual legal

assistance on the grounds that the offense involves
fiscal matters or on the grounds of secrecy laws
81

Mutual Legal Assistance

• Render mutual legal assistance even in the absence
of dual criminality
• Devise and apply mechanisms for determining best
venue for prosecution of defendants
82

FATF-Style Regional Bodies (FSRBs)
83

FATF-Style Regional Bodies (9)
• Asia/Pacific Group on Money Laundering (APG)
• Caribbean Financial Action Task Force (CFATF)
• Council of Europe Select Committee of Experts on the
Evaluation of AML Measures (Moneyval)
• Eastern and Southern Africa AML Group (ESAAMLG)
• Eurasian Group (EAG)
• Financial Action Task Force of Latin America (GAFILAT)
– Formerly known as Financial Action Task Force on Money
Laundering in South America (GAFISUD)
• Intergovernmental Action Group against ML in West Africa
(GIABA)
• Middle East and North Africa Financial Action Task Force
(MENAFATF)
84
• Task Force on Money Laundering in Central Africa (GABAC)
FATF-Style Regional Bodies
• Affiliated global framework
• Freestanding/autonomous organizations: There is no
organizational hierarchy between the FATF and FSRBs
• They share a common goal:
– This common purpose is best achieved by a collaborative
approach to their activities, in particular the peer review
process
• May issue regional recommendations or regional typologies
• Members are jurisdictions
• Observer members sometimes include international
organizations
– e.g. Interpol are “observer members” in APG
85

Asia/Pacific Group
Afghanistan China, Peoples Japan Mongolia Papua New Thailand

Australia Repub. Lao People’s Myanmar Guinea Timor-Leste
Bangladesh Cook Islands Republic Nauru Philippines Tonga
Bhutan Fiji Macao Nepal Singapore
United
Kingdom of Hong Kong, China New Solomon
States
Brunei (China) Malaysia Zealand Islands
Darussalam India Samoa Niue Sri Lanka Vanuatu
Cambodia Indonesia Maldives Pakistan Chinese Vietnam
Canada Republic of Marshall Palau Taipei
Korea (S. Islands
86 Korea)

Asia/Pacific Group
• Established in 1997
• Associate Member
• Largest FSRB with 41 members
– 10 of which are also members of FATF
• Provides focus for cooperative AML/CFT efforts in Asia-Pacific
region
• Terms of reference recognize that the FATF R40 constitute
the international money laundering control benchmark
• APG members commit to implementing the FATF R40
according to their own values/constitutional framework
• Enable regional and jurisdictional factors to be taken into
account in the implementation of international AML measures
87

88

Basel Committee on Banking
Supervision
• Members are the Central Bank Governors of the G10
– The G10 is actually 11 nations
• Belgium • Netherlands
• Canada • Sweden
• France • Switzerland
• Germany • United Kingdom
• Italy • United States
• Japan
• Objectives:
– Enhance understanding of key supervisory issues and improve the
quality of banking supervision worldwide
– Ensure that banks have procedures in place to avoid involvement
with criminals
– Interest in KYC revolves around use of CDD to mitigate dangers of
undesired customers
89 – Crucial for safety and soundness of banks
Basel Committee
Without Customer Due Diligence,
Banks May Be Exposed to Risks
REPUTATIONAL LEGAL
RISK RISK
CONCENTRATION OPERATIONAL
RISK RISK
90

Basel Committee
Customer Due Diligence (CDD) for Banks
The four Elements of a KYC

Program are:
• Customer Acceptance Policy
• Customer Identification
• Monitoring
• Risk Management
91

Basel Committee
Customer Due Diligence for Banks
CDD should be conducted over:
• A person or entity that maintains an account with bank
or those on whose behalf account is maintained
• Beneficiaries of transactions conducted by
professional intermediaries
• Any person or entity connected with financial

transaction who can pose significant reputational or
other risk to bank
92

Basel Committee
Customer Identification Process:
• Applies at the beginning of the relationship
• Undertake regular reviews of existing records that

should occur:
– When a significant transaction takes place
– Documentation changes substantially
– When there is a material change in the way the

account is operated
93

Basel Committee
Correspondent Relationships Should
Take into Consideration:
• Information about the respondent bank’s management
– Ownership
– Major business activities
– Location
– Money-laundering prevention and detection efforts
• Purpose of the account
• Identity of any third party entities that will use the account
• Condition of bank regulation and supervision in the
94 respondent’s country
Basel Committee
Risk Management and Effective
Know Your Customer Procedures should
incorporate:
• Routines for proper management oversight
• Systems and controls
• Segregation of duties
• Training and policies
95

Basel Committee
Internal Audit:
• Independently evaluates the effectiveness of the risk
management and controls of the AML/CFT program
• Should report to Audit Committee of the Board of

Directors or similar position
• Internal auditors should be proactive in following up
on their findings and criticisms
96

Basel Committee
Sound Management of Risks Related to
Money Laundering & Financing of Terrorism
• Guidelines on management of risks
related to money laundering and the
financing of terrorism
• Describes how banks should
include these risks within their
overall risk management framework
• Prudent management of these
risks, together with effective
supervisory oversight, is critical in
protecting the safety and
soundness of banks as well as the
97
integrity of the financial system
Basel Guidelines on Sound Risk Management
1
Line of Business
2 AML Compliance
Function
3
Audit Function
98

99

Egmont Group of
• Informal network of FIUs around the world for the
stimulation of international cooperation
• Goal is to provide a forum for FIUs around the world to

improve cooperation in the fight against money
laundering and terrorist financing and to foster the
implementation of domestic programs in this field
100

Egmont Group of
• Expanding and systematizing cooperation in the reciprocal
exchange of information
• Increasing the effectiveness of FIUs by offering training and
promoting personnel exchanges to improve the expertise
and capabilities of personnel employed by FIUs
• Fostering better and secure communication among FIUs
through the application of technology, such as the Egmont
Secure Web (ESW)
• Promoting the operational autonomy of FIUs
• Promoting the establishment of FIUs in conjunction with
jurisdictions with an AML/CFT program in place or in areas
where the program is in the early stages of development
101

102

Wolfsberg Group
• The members are the following • The Group develops financial
global banks: services industry standards and
1. Banco Santander principles for AML/CFT policies
2. Bank of America • The Group holds no force of law
3. Bank of Tokyo-Mitsubishi UFJ and cannot enforce its standards
4. Barclays or impose penalties
5. Citigroup • Important principles include:
6. Credit Suisse - AML Guidelines for Private
7. Deutsche Bank Banking
8. Goldman Sachs
- Statement on the Suppression
9. HSBC of the Financing of Terrorism
10. J.P. Morgan Chase
- AML Principles for
11. Société Générale Correspondent Banking
12. Standard Chartered Bank
- Statement on Monitoring,
13. UBS
Screening and Searching
103

Wolfsberg Group
2002 AML Principles for Private Banking
• Recommend controls for private banking
• Ranges from customer identification to enhanced due
diligence such as heightened scrutiny of individuals who
have or have had positions of public trust
• Objective is to make it harder for corrupt people to deposit
their ill-gotten gains in the world’s banking system
• Highlight the need to identify the beneficial owner of funds
for all accounts
• Require further due diligence on public officials, high risk
countries and activities
• At least one person other than the private banker should
104 approve new clients and accounts
Wolfsberg Group
2002 AML Principles for Private Banking
• Banks should have written policies on the identification
and follow up on unusual or suspicious activities
• Address the reporting to management of money
laundering issues
• AML training
• Retention of relevant documents
• Deviations from policy must be approved
• Creation of an AML Policy and Department
105

Wolfsberg Group
2002 Statement on the Suppression
of the Financing of Terrorism
• Providing official lists of suspected terrorists on a globally
coordinated basis by relevant authorities
• Including adequate information in the lists to help institutions
search customer databases efficiently
• Providing prompt feedback to institutions following
circulation of the official lists
• Providing information on the manner, means and methods
used by terrorists
• Developing government guidelines for business sectors and
activities identified as high-risk for terrorism financing
• Developing uniform global formats for funds transfers that
106 assist in the detection of terrorist financing
Wolfsberg Group
2014 AML Principles
for Correspondent Banking
• Due diligence should be risk-based, depending on the
location, type of business, ownership, customer base,
regulatory status and AML controls of the correspondent
banking client or business
• An institution should not offer its products or services to a shell
bank
• Generally, the principles should not apply to central banks and
monetary authorities of member countries of FATF or
multinational institutions, such as the International Monetary
Fund and the World Bank
• All correspondent banking client information should be
107
reviewed and updated periodically based on risk factors
Wolfsberg Group
2009 Statement on Monitoring,
Screening and Searching
• Discusses the need for appropriate monitoring of
transactions and customers to identify potentially
unusual or suspicious activity and transactions, and for
reporting such to competent authorities
• Covered issues related to the development of risk-based
processes for monitoring, screening and searching
transactions and customers
• “Real time screening” should only be required for
screening and filtering related to embargoes or sanctions
and financial institutions
108

EU Directives
109

The European Union Directives
• Objective is to harmonize laws between member
states, to promote cooperation and to maintain an
integrated single market.
• Supremacy of EU law over national law: EU law
prevails over domestic law.
• Primary law = treaties
• Secondary law = regulations, directives, etc.
• Are binding as to the result to be achieved upon
each member state to which it is addressed but shall
leave to the national authorities the choice of form or
method.
110

3rd EU Directive of 2005
These principles in the 3rd Directive survived
with the passing of the 4th Directive in 2015
The Directive applies to:
• Credit institutions, financial institutions
• Auditors, external accountants, tax advisors
• Legal professionals
• Trust and company service providers
• Estate agents
• High value goods dealers who trade in cash over 15,000
Euros
111 • Casinos
3rd EU Directive of 2005
• Defines money laundering and terrorism financing as
separate crimes
• Extends customer identification and suspicious activity
reporting obligations to trusts and company service
providers, life insurance intermediaries and dealers
selling goods for cash payments of more than 15,000
Euros.
• Details a risk-based approach to CDD
• Protects employees reporting suspicions of money
laundering or terrorist financing
• Requires statistics regarding suspicious transaction
reports
• Requires identification and verification of beneficial
ownership
112

4th EU Directive of 2015
• Passed by the European Parliament on June 26,

2015
• Each member country was required to adopt the

principles into their local law by June 26, 2017
113

4th EU Directive of 2015
• Each member country must hold beneficial ownership
information in a central register which must be made
available to competent authorities
• The threshold for entities obliged to report suspicious
transactions decreased from EUR 15,000 to EUR 10,000
• Scope of obliged entities increased from casinos to all
“providers of gambling services”
• CDD for funds transfers exceeding EUR 1,000
• EDD should be applied to every PEP whether the individual is
a domestic or foreign citizen
• Requests that member countries conduct an money
laundering/terrorist financing risk assessment and designate
a responsible authority
114

Summary of International Groups
Group Members Important Document Topic Mandatory?
Group countries Criminalization, role of

FATF and international 40 Recommendations financial system, No
organizations international cooperation
Regional FATF Caribbean, Asia- Focus on regional AML

Recommendations No
Bodies Pacific countries issues
Central bank
Basel CDD for Banks
governors of the KYC No
Committee Consolidated KYC
G-10
CDD
EU member EU Directives on Risk-based
EU Yes
countries AML/CFT Gatekeepers
Knowledge
AML Principles on
Large international private and Customer acceptance,
Wolfsberg No
banks correspondent banking, EDD
etc.
Secure Communication Cooperation among the
using Egmont Secure national FIUs
Egmont Group National FIUs No
Web (ESW) Promoting establishment
Training of FIUs
115

USA PATRIOT Act
U n i t i n g and • Strengthened money laundering laws and the Bank
Strengthening Secrecy Act
A m e r i c a by • A section of the USA PATRIOT Act, which is referred to
Providing as Title III, is called “International Money Laundering
Appropriate Abatement and Anti-Terrorist Financing Act of 2001”
and contains the AML related provisions
T o o ls
R e q u i r e d to • Regulations issued under the USA PATRIOT Act by the
U.S. Treasury Department provide the detailed
I n t e r c e p t and
requirements that financial institutions must follow to
Obstruct comply with the provisions of the Act
Terrorism
Act
USA PATRIOT Act
116

USA PATRIOT Act
Implications for U.S. institutions and non-U.S.
institutions that do business in the U.S.
• Key provisions stem from the premise that international access
points to the U.S. financial system must be controlled.
• Covers a wide range of AML/CFT provisions affecting foreign
businesses, including:
- Section 311: Special measures
- Section 312: CDD/EDD for foreign correspondent account/private
banking accounts
- Section 313: Prohibition correspondent accounts for shell banks
- Section 314(a): Sharing information between Government and FI’s
- Section 314(b): Voluntary sharing of information between FI’s
- Section 319(a): Forfeiture from U.S. correspondent accounts
- Section 319(b): Records related to correspondent accounts of
foreign banks
117

Office of Foreign Assets Control
• Financial institutions and businesses in other countries must
recognize the extraterritorial reach of regulations enforced by
the U.S. Treasury Department’s Office of Foreign Assets
Control (OFAC)
• OFAC administers and enforces economic and trade
sanctions based on U.S. foreign policy and national security
goals against targeted foreign countries, terrorists, international
narcotics traffickers and those engaged in activities related to
the proliferation of weapons of mass destruction
• Many of the sanctions are based on United Nations and other
international mandates, are multilateral in scope, and involve
close cooperation with allied governments
118

Office of Foreign Assets Control
• OFAC rules prohibit transactions and require the
blocking of assets of persons and organizations that
appear on one of a series of lists that OFAC issues
periodically
• OFAC imposes significant penalties on those who are
found to be in violation
• All U.S. persons must comply with OFAC regulations,
including:
- All U.S. citizens and permanent resident aliens,
regardless of where they are located;
- All persons and entities within the United States; and
- All U.S. incorporated entities and their foreign branches
119

Sanctions List Screening
• Sanctions
- In order to conduct business the FI must determine that
the customer does not appear on the sanctions lists
provided by a government or international body
• Politically Exposed Persons (PEPs)
- The FI must determine whether the customer currently
holds, or has previously held, a government position
that meets the statutory or organizational definition of a
PEP
• Negative Media
- A determination must be made as to whether the
customer appears in media publications, in a negative
manner, that a financial institution considers to be an
120
AML/CFT risk
Practice Questions
121

Question 2.1
According to the FATF 40 Recommendations, financial
institutions should apply due diligence to:
A. Domestic PEPs only
B. International PEPs only
C. International and domestic PEPs
D. None of the above
122

Question 2.2
• A bank in Italy holds a business A. Customer sells gold in
account for an Italian company that regions where it carries an
sells gold throughout Europe and important or religious
the Western Hemisphere. significance that adds to
• The bank knows the purpose of this the high intrinsic value
account is to receive payment for B. Payments come from
sales. third-party accounts
• A review of the account shows a
C. Payments received are in
pattern of wire transfers coming the form of wire transfers
from payable through accounts. instead of cash
• There is also a pattern of
purchases of gold bullion held in D. Account holder maintains
Swiss banks. gold bullion rather than
finished pieces of jewelry
• The MOST important factor in
assessing whether money
laundering is a threat is that the:
123

Question 2.3
According to the Basel Committee, banks without due
diligence requirements can be subject to the following?
A. Organizational risk.
B. Transactional risk.
C. Legal risk.
D. Confiscation risk.
124

Question 2.4
According to the Basel Committee, the three lines of
defense in a bank’s AML efforts include?
A. Information technology, line of business, and AML
compliance.
B. Line of business, information technology, and audit.
C. Audit, AML compliance, and board of directors.
D. Line of business, AML compliance and audit.
125

Question 2.5
What is the Office of Foreign Assets Control responsible for?
A. Requiring enhanced due diligence on political exposed
persons from sanctioned jurisdictions.
B. Requiring enhanced due diligence for all foreign
correspondent accounts.
C. Designating a jurisdiction as a primary money laundering
concern.
D. Administering and enforcing US economic and trade
sanctions.
126

AML/CFT
Compliance Programs
127

AML/CFT Program Objectives
• To prevent money laundering and terrorist financing

• To report suspicious activity to the proper authorities
when the law or regulations require it
• To train all employees on the legal and internal
procedures that must be followed
128

AML/CFT Risk Levels
AML/CFT Risk
High Risk Medium Risk
Prohibited Low Risk
129

AML/CFT Risk Factors
130

Summary: High Risk Factors
1
GEOGRAPHICAL
Sanctions, lacking adequate AML/CFT regimes,
terrorist funding countries, corruption, etc.
Casinos, offshore corporations, banks located in tax

havens, embassies, currency exchange houses,
2 money remitters, check cashers, car/boat/plane

dealers, travel agencies, gem dealers, import/export,
cash intensive businesses, accountants, etc.
CUSTOMER
3 Private banking, offshore international

activity, deposit-taking facilities, wire transfer
and cash management functions,
PRODUCT/SERVICE transactions in which beneficiary is
undisclosed, travelers checks, money orders,
etc.
131

Risk-Based Approach
FATF Suggests a Risk-Based Approach:
• Risk-Based Monitoring • Product
• Business - Loan
- Retail - Margin Trading
- Loan - Cash, etc.
- Investment, etc. • Delivery
• Customer - Electronic
- Individual - Mobile phone
- Corporate - Face-to-face, etc.
- PEP
- Trust, etc.
An AML Customer Risk Model will provide a Risk Score based upon
the risks associated with the combination of the Customer type,
Products used and the Geographies where business is conducted.
132

The Basic Elements of a AML/CFT
Compliance Program
INTERNAL
POLICIES,
TRAINING
PROCEDURES, &
CONTROLS
COMPLIANCE INDEPENDENT
OFFICER REVIEW
133

Internal Policies, Procedures & Controls
• Use a risk-based approach
• Provide sufficient controls and monitoring systems for
timely detection of suspicious activity
• Provide for dual controls and segregation of duties
• Comply with all record keeping requirements
• Adequate supervision of employees who handle large
currency transactions, complete records, grant
exemptions
• Train employees to be aware of their responsibilities
• Implement screening programs to ensure high
134
standards over customers and employees
Internal Policies, Procedures & Controls
They must be in writing and include:

• Senior management approval
• An overview of laws and regulations
• A definition of what constitutes suspicious activity and how
to manage it
• Procedures for reporting suspicious activity
• Procedures for responding to regulatory or law
enforcement requests
• A quality assurance program
135

Compliance Officer
• Qualifications
Responsible for:
• Responsibilities • Designing and implementing the
program
• Communication • Making necessary changes and
disseminating the information
• Compliance Organization about the program’s success and
failures to key staff members
• Delegation of Duties • Constructing AML/CFT related
content for staff training programs
and
• Staying current on legal and
regulatory developments in the
field
136

AML/CFT Training
• Who to Train Document all training, even informal training

at staff meetings, etc.
• What to Train on
Ensure training is appropriate for target
• How to Train audience.
Provide training for the AML/CFT officer and

• When to Train staff conducting independent audit and
testing.
• Where to Train
Train senior management and board of
• Why to Train directors on AML/CFT risks to the institution.
137

Independent Review
• Assess the overall integrity and effectiveness of the
AML/CFT compliance program including:
- Risk Assessment
- CDD Policies
- Transaction Monitoring
- Training
- Management Information Systems
- Case Management and Investigation process
- Sanctions Screening process
• Audit and regulatory findings should be tracked and
escalated to senior management
138

Culture of Compliance Advisory
by FinCEN
1. Leadership actively supports
compliance
2. Mitigate AML/CFT risk not
compromised by revenue
interests
3. Internal information sharing
4. Adequate resources for AML/CFT
5. Independent testing by competent
party
6. Understand how STR reporting
is used
139
Customer Due Diligence Program
7 Elements of an Effective CDD Program:

1. Identification
2. Development of profile
3. Assessment + Grading Risks
4. Acceptance
5. Monitoring
6. Investigation
7. Documentation
140

Beneficial Ownership
Be
nef
ica
lOw nershi
pSt
ruc
tureExa
mpl
e
n t
Corpora io AA
Corporation
80%
80% 20%
20%
Corporatio
n
Corporation BB Corporatio
n Ci
Corporation C
80% 20% 40% 60%

B1 B2 C1 C2
141 100% 100% 49% 51%

75% 25%
Be
nef
ica
lOw nershi Beneficial Ownership
pSt
ruc
tureExa
mpl
e
n t
Corpora ioA
Corporation A
80%
80% 20%
20%
Corporatio
n CiC
Corporatio
n
Corporation BB Corporation
80% 20% 40% 60%

B1 B2 C1 C2
75% 25% 100% 100% 49% 51%
142

Know Your Employee
• Knowing a potential “enemy within” is as crucial

as knowing customers and other outsiders
• Understand an employee’s:
- Background
- Conflicts of interest and
- Susceptibility to money laundering
143

Suspicious or Unusual Transaction
Monitoring and Reporting
• An FI must have a risk-based system for monitoring and
reporting suspicious activity to the Financial Intelligence
Unit (FIU) using Suspicious Transaction Reports (STRs)
• Most countries that require suspicious activity reporting
prohibit disclosure to the subject
• Strong recordkeeping procedures are key to managing
regulatory and/or legal requirements
• There is no international clearinghouse for storing STR’s
• The FIUs in various countries often publish summary
reports analyzing STR trends
144

Suspicious Activity Red Flags
Red Flags are indicators of potential suspicious activity
and can be summarized into major categories including:
• Customer Behavior • Trade Financing
• Cash Transactions Transactions
• Non-Cash Deposits • Investment Activity
• Wire Transfers • Employee Activity
• Safe Deposit Box Activity • Activity indicative of
• Credit Transactions - Human

Trafficking/Smuggling
• Commercial Account Activity
- Terrorist Financing
145

Automated AML/CFT Systems
• Information technology can equip FIs with improved
defenses in the fight against financial crime by
providing:
- Customer verification
- Sanction and Watchlist filtering and screening
- Transaction monitoring
- Automated regulatory reporting
- Case management
- Audit Trail
• Need to determine:
- Appropriateness for financial institution
146
- Rules/functionality are risk-based
Practice Questions
147

Question 3.1
During a recent board of directors meeting of Bank X, an
external director inquired with the Bank’s compliance
officer on ways for the Bank to demonstrate a culture of
compliance. Which of the following is an example the
compliance officer can provide to the director?
A. Board approval of the Bank’s AML/CFT procedures.

B. Utilize a team of business line compliance officers to test
the Bank’s AML/CFT program.
C. The last annual Audit report on the effectiveness of the
AML/CFT program
D. Pilot a new product externally to support an
underperforming business line.
148

Question 3.2
Which of the following customers are considered by
many supervisory authorities to maintain a higher
inherent risk of money laundering?
A. Casinos, lawyers and accountants.

B. Accountants, private transportation services, and
precious metal dealers.
C. Precious metal dealers, embassies, and regional
airports.
D. Casinos, embassies, and online concierge services.
149

Question 3.3
What are the three principles of the Egmont Group?

(Choose 3)
A. Expanding and systematizing cooperation
B. Increasing the effectiveness of FIUs
C. Promoting the operational autonomy of FIUs
D. Establishing rules as to what types of information cannot be

shared
150

Question 3.4
• ABC Bank maintains an AML policy that states “For all legal entities, ABC Bank
requires more than 90% ownership of the entity to be identified to individuals.”
• Mr. Jammer seeks to open an account at ABC Bank for his company Golden
Shippers LLC, which is owned as follows: 51% Jay Jammer, 29% Golden
Shipping LLC, 16% Hank Ford, and 4% Liam Neeson.
• A compliance analyst is reviewing the documentation to determine whether to
approve the account opening based on the ownership structure. How should
the analyst proceed?
A. Permit the account to be opened as the documentation identifies 100% of the
owners.
B. Open the account because Golden Shippers and Golden Shipping are similar
entities.
C. Request Mr. Jammer to provide ownership information of Golden Shipping LLC
to further evaluate whether the ownership meets the requirements.
D. None of the above.
151

Question 3.5
• Audrey is reviewing her life insurance firm's AML/CFT
risk assessment.
• She noticed that the key criteria that the firm used to
determine the risk are "customer type" and
"geography".
• Which key factor should be added to complete the risk
assessment?
A. Policy holders’ prior banking relationships.

B. Policy holders' employment and immigration status.
C. Products and services used by the policy holder.
D. The amounts of the premium payments.
152

Conducting and Responding
to Investigations
153

Common Investigation Initiators
• Regulatory recommendations or findings
• Transaction monitoring rules designed to detect
potentially suspicious activity
• Referrals from customer-facing employees regarding
potentially suspicious activity
• Information obtained from internal hotlines
• Negative media information
• Receipt of a governmental subpoena or search
warrant
154

Regulatory Recommendations
or Findings
• Identify remedial measures
• Ongoing reviews
• One-time reviews
• Require internal and external reporting
• Document results of investigations
• Escalate to senior management
• Remediation activities should be addressed within
the timeframe provided by the issuing body
155

Examples of Transaction
Monitoring Rules
• Incoming aggregated cash deposits of more than
$20,000 and outgoing wire transfers of more than
$20,000 within 10 days on individual accounts
• Wire transfer originating from a high-risk country
• Aggregated cash deposits of more than $10,000 within
3 days
• Three or more ATM cash withdrawals in non-domestic
locations
156

Referrals from
Customer-Facing Employees
• The financial institution should maintain an internal
communication system to report potentially suspicious
activities identified by customer-facing employees
• Referral to be completed by employee and sent to the
compliance investigations unit
• Executed transactions may be identified by transaction
monitoring rules, but not the observed customer activity
157

Employee Hotlines
• Permits employees of financial institutions to report
various activities such as fraud, theft, gifts, etc.
• May be used for compliance, ethics, or whistleblower
reports
• Required by policies and procedures
• Prohibition from retaliating against the person making
the report
• Hotlines may permit anonymous submissions
• Investigation may include compliance, legal, corporate
security, or human resources
158

Negative Media
• Investigations can be initiated by information obtained
in the public domain such as:
- Information about a financial institution’s customer
- How a product is used in the market
- Geographic location it serves, or
- Money laundering or terrorist event
• Negative media should be considered in the STR
investigative process
159

160

Receipt of Governmental Subpoena
• Compulsory legal process issued by a court to
compel the appearance of a witness at a judicial
proceeding
• May require the witness to bring specified
documents
• Have senior management and counsel review it
• Comply with the summons or subpoena in a timely
and complete manner
• Do not notify the customer who is being investigated
161

Receipt of a Search Warrant
• A grant of permission from a court for a law
enforcement agency to search certain designated
premises and to seize specific categories of item or
documents
• Generally, the requesting agency is required to
establish that probable cause exists to believe that
evidence of a crime will be located
• The warrant is authorized based on information
contained in an affidavit submitted by a law
enforcement officer to the court
162

Conducting the Internal Investigation
• In the course of conducting an effective internal financial

investigation, include the following steps:
– Review the internal records
– Review external information related to the subjects of the
investigation
– Contact the business line responsible for the account
relationship
– Generate a written report recording the relevant findings
163

Review Internal and
External Information
• Review internal records covering the time frame of
the suspected activity, including time before and
after
- Examples:
• Signature cards
• Account statements
• Transaction records
• IP addresses, login activity
• Review external information for negative media
• Adhere to five year record retention requirement
164

STR Decision-Making Process
• Decision as to whether to file a STR often involves
weighing the aggravating and mitigating factors arising
from the research conducted during the investigation
process
• The final STR filing decision should be documented
and supported by the reasoning used to make the
determination
• File the STR with the national FIU
• Comply with the STR timelines
165

Quality Assurance (QA)
• Financial institutions are required to file timely and
complete STRs and their quality can be an indication
of the quality of an FI’s AML/CFT program
• The QA review helps to ensure that STR filings are
internally consistent, right decisions are being made,
and high priority matters are identified and escalated
to leadership
166

Communicating with Law Enforcement
167

Investigations Initiated by
Law Enforcement
• In most cases, law enforcement contacts financial
institutions in the context of an investigation involving
a customer of the institution
• In a limited number of cases, law enforcement may
initiate investigations against a financial institution
• In either situation, a financial institution should have
policies in place to respond to law enforcement
requests
168

Responding to Law Enforcement
• Designate a contact person responsible for

responding to all law enforcement requests
• Keep senior management informed
• Requests for information can come in several forms
- Subpoenas, search warrants, etc.
• Respond to all requests thoroughly and in a timely

manner
• Never ignore a request or inquiry
169

Decision to Prosecute a
Financial Institution
• The following factors will be considered as part of the decision
to prosecute a financial institution:
- Does the institution have a criminal history?
- Has the institution cooperated with the investigation?
- Has the institution discovered and self-reported the money
laundering related issues?
- Does the institution have a comprehensive and effective
AML/CFT program?
- Has the institution taken timely and effective remedial
action?
- Are there civil remedies available that can serve as
punishment?
170 - Will the prosecution serve as a deterrent to others?
Responding to Investigations
Against Financial Institutions
• If the institution itself is the focus of investigation it should
consider steps to include:
- Cooperating with law enforcement
• Could be most effective way to resolve the investigation
- Strongly consider retaining outside counsel
• Outside counsel represents the institution, not its employees
- Understand attorney-client privilege
- Control dissemination of written report by counsel
- Employees should be advised of investigation
- Prepare employees for interviews
- Understand importance of media relationships
• Reputational risk/ trust toward the institution
171 - Keep Board of Directors apprised
FATF Cooperation Between Countries
Recommendations that pertain to
international money laundering
investigations:
• Recommendation 36: Implementation of Conventions

• Recommendation 37: Mutual Legal Assistance
Treaties (MLATs)
• Recommendation 38: Freezing and confiscation
• Recommendation 39: Extraditable offenses
• Recommendation 40: Other forms of cooperation
172

Mutual Legal Assistance Treaty
• The MLAT is a treaty-based mechanism for seeking
foreign law enforcement cooperation and assistance
in support of an ongoing criminal investigation or
proceeding
• Parties to the treaty negotiate the terms of the mutual
legal assistance
• Available only to government officials, typically law
enforcement and prosecutors
173

Financial Intelligence Unit
RECEIVE ANALYSIS DISSEMINATION
• The three basic functions of a national FIU are:

- Receiving STR’s
- Analyzing STR data
- Disseminating STR information
174

Financial Intelligence Unit
• Participation in the Egmont Group
• Based on a Memorandum of Understanding (MOU)
• Dedicated to obtaining financial intelligence for the
benefit of law enforcement
• Free exchange of information between national FIUs
based on reciprocity
• Exchange of information should be informal and rapid
• Communication between national FIUs should be
direct without intermediaries
175

Practice Questions
176

Question 4.1
What are the three basic functions of a financial
intelligence unit?
A. Lawmaking, analyzing, and reporting.
B. Analyzing, reporting, and dissemination.
C. Receiving, analyzing, and dissemination.
D. Receiving, analyzing, and reporting.
177

Question 4.2
What is “safe harbor” in the context of STR filing?
A. To file a STR even though it is not certain that the
customer was involved in any suspicious activity.
B. To file a STR without tipping off or notifying the customer
subject of the report.
C. Legal protection from liability for disclosing sensitive
customer information as a result of filing an STR.
D. Documenting in writing the reasons for not filing an STR.
178

Question 4.3
A transaction monitoring alert was generated for frequent
incoming round dollar domestic wire transfers. The
customer owns an online luxury consignment
marketplace. What added information could lead to a
STR filing?
A. All the goods listed on the marketplace are listed in

round dollars.
B. The debit card attached to the account is frequently
used at retail locations in a garment district.
C. The customer recently started to make large cash
deposits into his personal account at the same bank.
D. The wire transfer activity increases significantly
November through January.
179

Question 4.4
Which of the following statements is true in respect of the
support provided by the Egmont Group to national FIUs?
The Egmont Group:
A. Requires national FIUs to enforce its mandatory standards.

B. Provides training and promotes personnel exchanges
between national FIUs
C. Provides standards for recording beneficial ownership
information.
D. Has a Know Your Customer Working Group which issues
CDD standards.
180

Question 4.5
Which two of the following statements are correct in
respect of the changes included in the 4th EU Directive?
A. Member states are not permitted any local discretion when

implementing the Directive into local law
B. Enhanced Due Diligence is required for Domestic PEPs
C. Customer due diligence must be applied to all funds
transfers over €25,000
D. Each member state must hold beneficial ownership
information in a central registry for access by competent
authorities
181

Question 4.6
Which one of the following statements describes
“Nesting”?
A. A term used for the sub-accounts of a Payable Through

Account
B. A private bank term for when a senior relationship
manager takes control of the accounts of one of his staff
C. The practice where a respondent bank provides
downstream correspondent services to other financial
institutions and processes these transactions through its
own correspondent account.
182

Question 4.7
Which of the following statements describes a
“Respondent Bank”?
A. A US bank that processes transactions at the request of

the Correspondent Bank
B. A foreign bank that processes transactions at the request
of a US Correspondent Bank
C. A bank that processes transactions for customers without
them having to open an account
D. A bank for which another financial institution establishes,
maintains, administers or manages a correspondent
account
183

Question 4.8
Which of the following statements describes the purpose

of a Hawala?
A. A system to ship currency to a foreign country

B. A system to ship currency to the US from a foreign
country
C. A system to transfer money without money movement
D. An inexpensive method to process correspondent
banking transactions
184

Question 4.9
Which one of the following statements accurately
describes the membership of the Basel Committee on
Banking Supervision?
A. The chief executives of the 10 largest international banks

B. The finance ministers of the G10 member countries
C. The senior managers of the FIUs of the G10 member
countries
D. The governors of the central banks of the G10 member
countries
185

Question 4.10
Which two statements, listed below, describe who is
required to follow the OFAC regulations?
A. All employees of foreign entities located abroad

B. All US incorporated entities and their foreign branches
C. All US citizens and permanent resident aliens,
regardless of where they are located
D. All branches of foreign entities located abroad
186

End of CAMS Examination
Preparation Seminar
Thank You and Good Luck!!
187

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CAMS6 1 Day PPT Master_v3_ (INT-STU) 11-13-17

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2. International AML/CFT Standards

3. AML/CFT Compliance Programs

4. Conducting and Responding to Investigations

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The concealment or disguising of the true nature,

Source: The Palermo Convention

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Source:The United Nations Office of Drugs & Crime

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Bank A Bank B Bank C

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2015: Yates Memo on Individual Accountability

2016: UK Financial Conduct Authority (FCA)

2017: New York State Dept. of Financial Services

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- Non-bank financial institutions

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• Fast channel for moving money between countries and

• Multiple transfers from accounts, banks and countries

• EFTs are used by money launderers in layering cycle

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Respondent Bank Respondent Bank Respondent Bank Respondent Bank

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XYZ Corp Bank S Correspondent Bank R GHI Corp

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 Foreign PEPs: Individuals who are or have been entrusted

 Domestic PEPs: Individuals who are or have been

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• Bank customers that provide payment processing

• Use their commercial bank accounts to conduct payment

• Service a variety of domestic and international merchants

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• Dealer in Foreign Exchange

• Issuer of Traveler’s Checks or Money Orders

• Provider and Seller of Prepaid Access

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• Cash-intensive for physical sites

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• Use the cage solely for its

• Minimal gaming activity

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• The ultimate beneficial ownership can be disguised

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4. Foreign Firm sells 200 Rolex watches at $5,000/ea = $1,000,000

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