ACAMS Certification exam

1. Risks and Methods of Money Laudering and Terrorist Financing

Parti
cular
s Details Details
- Concealing/disguising illicit
source/assisting/evading-
ilegal consequences
- Concealment of
Location/disposition/moveme
nt/rights of property
United nations 2000 conventions - Acquisition/possession/use-
against transnational organized property-crime
1 Definition of Money Laundering crime aka “Palermo convention”

FATF 40 Recommendation on
Money laundering and terrorist
financing/ 4th European Union
Directive on prevention and use of - Knowlegedge/intent-prove
the financial system for the purpose money laundering offence—
of money laundering and terrorist based on factual
financing (2015) circumstances.
-prerequisite-money laundering
definition-"Knowledge" that money
derived from criminal offence
"Willful blindness"="Deliberate
avoidance of Knowledge of illegal
sources of funds"/actual knowledge of
illegal source of fund-intentions of
- Legal principle of “willful customers
blindness” to prove Willful blindness = Purposeful
knowledge indifference
 funds from perfectly legitimate
sources
Hide the purpose and destination
rather than source
funds-operating expenses of
2 Terrorist Financing terrorist/terrorist acts.
funds in circulation through financial
institutions
Blending of funds-commingling
3 illegitimate and legitimate funds
stage foreign exchange- buy with illegal
s of -physical disposal of cash/other funds
Mon assets-criminal activity Breaking up amounts-small amount-
ey - introduce funds-FIs depositing-under threshold
Laun - place in funds circulation via Currency Smuggling-physical -cross
derin FIs/casinos/legitimate border
3 g Placement businesses(national-international) Loans- repayment - cash

Electronicall moving funds-

countries/dividing financial
options/market
- Moving FIs- accounts
- Converting cash-monetary
instruments
- Reselling high value goods
- Reselling-prepaid cards/store
value products
- Investing real
- Conceal origin/separate – estate/legitimate business
illicit source –layers of - Stocks/bonds/life insurance
financial transaction - Shell companies-obscure
- Converting proceeds- ultimate benfeciary/assets
4 Layering another form
 - illicit wealth legitimate
- Re-enter funds in economy as spot integration disparity in person
business/personal txn source of income and person income
- difficult -legal vs illegal wealth eg:-
- increase wealth byproceeds of buy luxury properties
5 Integration crime investments into business
-ML haven- attract criminals
-low number of predicate
crime(criminal offences) for money
launder
-limited types of institutions/persons
covered by money laundering laws
-No enforcement of laws/penalties-
free
-limited supervising compliance to
money laundering laws
- increase in corruption
The Economic and Social Consequence of -weaker laws and enforcement-
6 Money Laundering Increase Crime and Corruption corruption-money laundering.
Use Front Companies-legitimate
business-commingle funds
-Subsidize products and services
below market rates difficult to
compete against

misallocation of resources from

artificial distortion prices of
assets/commodity prices-control
whole industries/sector
Undermining the Legitimate Private -front companies-vehicle for evading
7 Sector taxes

8 Weakening Financial Institutions -first internet bank-European union

 bank-riggs
Significant civil money penalties
loss of charter
Commercial and financial sectors are
perceived to be
Dampening effect on Foreign compromised/influence by organized
9 Investments crime
-dwarf government budgets
measurement errors in
macroeconomic statistics-control or
mistakes in economic policy
volatility in exchange and interest
rates due to unanticipated cross-
border transfers of funds as a result
money shifts from one country to
another-resulting in misleading
monetary data
threat of monetary instability due to
the misallocation fo resources from
Loss of control/mistakes/decisions artificial distortions in assets and
10 regarding economic policy commodit prices
 -not profit generation from the
investment-protecting/hiding
proceeds.
- invest not economically beneficial-
Economic distortion and instability economic growth suffer
- Tax evasion-macro economic
impact
- Honest taxpayers-higher tax
- Government collection
11 loss of tax revenue difficult

- corruption/insider dealings govt

award privatization tender to criminal
org.
- criminals purchase
ports/resorts/casinos hide illicit
12 Risks to privatization proceeds
 - Loss global opportunities-
extra scrutiny-too expensive
- Legitimate business-loss
market access-extra scrutiny
and controls
- Financial reputation damage-
Reputation risk for the -country huge costs-restore
-Office of Foreign Assets
Controls(OFAC) of us department of
the treasury] administers economic
and trade sanctions
-Comprehensive sanctions: prohibits
virtually all transaction with specific
country
-Targeted Sanctions: prohibit txn
-specified indiv., entity, OFAC
specifically designated ind. and
blocked parties list
- OFAC list- high risk-non-cooperative
jusrisdictions
- FATC-countermeasure -jurisdiction-
EDD to business
relations/transactions-natural/legal
13 Risk of International Sanctions person-improve AML/CFT regime
-increase govt. exp--increased law
enforcement/treat drug patients
Other adverse consequences incl.
concetration risk for FIs.
14 social costs -loss-profitable biz
 -liquidity prob.- withdrawal of funds
-termination of corresponding
banking facilities
-investigation costs and fines
-asset seizures
-loan losses
-reduce stock value of FIs

-loss of public confidence-

organization
-loss-high quality borrowers-reduce
loans portfolio
-unaticipated withdrawals-liquidity
15 Reputational risk crisis

-terminated inter-bank or
correspondent banking services
-increased borrowing and funding
16 Operational risk costs
-Legal risks:lawsuits, adverse
judgements, unenforceable contracts,
fines and penalties
-unenforceable contracts by the fraud
of criminal customer
17 legal risk -fines/penalties
18 Concentration risk -too much loan/credit -one/group
borrower
-not knowing benefecial owner of the
large borrower--may be criminally
linked.--aggravated when common
source of income/assets for
repayment
-loss-unenforceable contract-fictitious
person
 Financial Crimes Enforcement Strong culture of compliance
Network(FinCEN) of US department of - Entire staff responsible for
2014 Treasury and US FIU Advisory to FIs AML/CFT compliance
- Investigations- corporate
misconduct- focus-individual
Memorandum on “Individual Accountability wrongdoing
and Corporate Wrongdoing” from US - Resolution of corporate case-
Department of Justice’s Deputy Attorney no protection individual-
2015 General, Sally Quillian Yates criminal/civil liability
- Individual accountability in
banking sector
- Money Laundering Reporting
Officer(MLRO)= senior
United Kingdom, the Financial Conduct manager or excecutive level
Authority(FCA) published financial rules for - Senior manager personally
19 2015 Senior Manager Regime accoutable
New York Specific
Applies to-banks/trusts/private
banks/saving banks/saving and
loans ---chartered pursuant -New
York banking law
All branches and agencies of foreign - Monitor txn- compliance Bank
banking corporations licensed- Secrecy Act/ AML- SAR
under banking law- conduct banking - Prevent unlawful txn-
operations New York economic sanctions-OFAC
New York State of Department of Financial - Non-banking FIs with BOD and senior officers - annual
June services(DFS) issued Final rule requiring Banking Law License- check certification-taken necessary steps-
30, related Institutions to maintain”Transaction cashers and money comply trasaction monitoring and
20 2016 Monitoring and Filtering Program” transmitters filtering program by jan 1 , 2017
21 Meth FATF and FATF-style Regional bodies publish - Key methods and trend in these
ods periodic typology reports to “monitor areas
of changes and better understand the - FATF 40 recommendation remain
effective and relevant
Mon underlying mechanism of money laundering
 ey
Laun
derin
g and terrorist financing”
- Electronic means
- ACH, ATM, electronic
terminals, mobile phones,
telephone or magnetice tapes
- Federal Reserver Wire
Network(FedWire), Society for
worldwide Interbank Financial
Telecommunication(SWIFT),
Clearing House Interbank
Payments System(CHIPS)
- Commingle funds
22 Electronic Transfers of Fund
23 Indicators of Money laundering - cash advance- stolen credit card-put
in a/c to receive funds
- layering stage- varying amount sent-
under threshold-using reputable org
-fund transfer--financial secrecy
haven/high geographical location no
apparent biz reason-incosistent
pattern with customer history
-large incoming fund transfers- behalf
of foreign client-no reason
-small, incoming fund transfers-
deposits by checks/money orders--
tranfer to different geographical
location--inconsistent pattern with
customer business or history
-payments/reciepts-not link –
contracts goods/services
-sent/reciept same person--different
 persons
24
-scan check-electronic image to bank
-deposit
-also with mobile phones
- banks -decrease cost-not paper
based
--ML-set up multiple imaging
devices(scanners/mobiles phones)--
allow others to process checks
--ML-set up account for others and
ability to deposit checks
-- lead-violations of sanctions
requirement- txn in sanction countries
--Fraud-altered check or multiple
deposits of same- as no human
25 Remote Deposit Capture intervention
-reviewed sequential number
cheques
-money order without payees
-total volume of activity-an account-
via RDC--overall txn monitoring Money order is
-limits on check deposit prepaid financial
26 Mitigations -facility to appropirate customer instrument
-provision of banking services by one
bank(correspondent bank) to another
bank(respoendent)
-check clearing , fcy exchage
services/payable through a/c, wire trf
- respondent banks- international
financial txn-for
themselves/customers-jurisdiction no
27 Correspondent Bank physical presence
28 Due diligence of Respondent bank -who owners are
 -nature of regulatory oversight
-based on credit risks for letters of
credit/business account for credit card
--provide non-credit, only cash
management-less known respondent
bank
TWO MAIN REASONS
-indirect relationship-services to
individuals/entities-niether verified
identities nor obtain first hand
knowledge
-large volume of txn-not have Credit union- small
information on actual parties cooperative- non
conducting txn- difficult to identify profit-return given to
suspicious member

Additional risks MSB has specific

meanings in
-difficult to determine-degree and
different jurisdictions,
effectiveness of supervisory regime of but generally includes
respondent bank but can know what any business
laws govern respondent bank that transmits
-effectiveness of respondent bank's money or
AML controls- have rely on representatives of
respondent bank for due diligence on money,
the customers- questionnaire may provides foreign
give some confort currency
exchangesuch
-respondent bank acting as
as Bureaux de
correspondent bank for other change, or
institutions known as nesting- not cashes cheques or
know about sub-respondents/type of other money related
29 Vulnerable Money Laundering financial services instruments.

-respondent bank's customer doing

own txn(wire trf,deposit and
30 Payable through accounts withdraw, maintaining checking
 accounts)-via correspondent account-
without clearing txn in responsdent
bank
- directly control funds-corresponding
account
Risks:
-unlimited number-sub-account
holder
- sub-account holder not identified
-PTAs with licensed offshore-nascent
supervision
-respondent bank sole cusomer-fail
CDD policies-respondent bank
customer
-PTA arrangement where currency
deposit and withdrawal by sub
account holder
-PTAs used by respondent banks’
subsidiary, representative or other
31 Money laundering perspective office
-internal accounts-processing and
settlement-multiple and individual
customer txns within bank-same day
-know as special use, omnibus,
settlement, suspense, intraday, sweep
or collection
-aggregate funds -centralized account
-used for private banking, trust and
custody accounts, fund trf and
32 Concentration Account international facilities
-Customer-identifying information
like txn amt& account
number,seperated from financial txn-
33 Money laundering perspective audit trial lost-misuse a/c
 -dual signatures-general ledger
ticket(approve by, prepared by)
-prohibit direct access
-customer txn shown in customer
statement
-no knowledge to customers
- information on txn and customer
identifying information
-independent reconciliation
-timely discrepancy resolution
34 control policies -monitoring recurring names
-highly personalized- confidential-
wealthy client- at fees-under "assets
under management"
- semi-autonomous
- competitive
- compensation based on assests
35 Private Banking under management
-high profitability
-intense competition
-powerful clientele
-high confidentiality
-close trust -clients
-commission based compensation
-culture of secrecy and discretion-
relationship manager
-RM advocate-client
-using private investment companies-
of reduce transparency of beneficial
owner
-client-personal/business wealth in
numerous jurisdictions
-client control legal entities for estate
36 Money laundering perspective planning
 -private banking customer
-international financial centres or
offshore-non-residents
-assets moved overseas-corporate
vehicles-PIC- secrecy havens
-established by bank customers and
others -offshore-hold assets
-are shell companies-client Hold mail services
The Bank
confidentiality-tax or trust related
-conceal beneficial owner maintains a
-company formation agent-nominee registry with all
director-hold title to company
related bank
-attorney-client privilege-undisclosed
beneficial owners documents for
-private bank establish PICs enrolled clients,
through affiliated trust company- who have the
offshore secrecy haven option of
-complex shell company networks- collecting them
Shell company-hold assets-in offshore-for
tax/trust relate matters-client confidentiality company in one offshore linked to at their
37 /conceal beneficial owner via nominee/a Private investment companies other offshore company. convenience.
Politi -prominent public functions
cally -heads of state orgovernment, senior
expo FATF’s International Standards on politicians, senior government, judicial
sed Combating Money Laundering and the or military officials,seniour executives
pers Financing of Terrorism and state owne corporations, important
38 on Proliferation(2012) Foreigns PEPs political party officials
-prominent public functions domestic
country
-government, senior politicians,
senior government, judicial or military
officials,seniour executives state owne
corporations, important political party
39 Domestic PEPS officials
40 Structuring -evade triggering reporting/record
 keeping
-reported by filing STR
-depositing cash/purchase monetary
inst.
- done in banking, MSB, casinos
- Multiple individuals-multiple
cash deposits or purchasing
monetary instruments-
smurfing reporting thresholder
Foreign money broker-numerous
checking accounts-fictitious names-
identification of dead people.
-open accounts -inconspicous
amounts
-deposit funds to cover living exp
-account opened-blank check signed-
leaving payee, date, amt blanks
-send checks money broker in other
country-by courier
- Lot of checking account two
dozen or more
-accumulated -withdrawn to
41 Foreign Money Brokers pay exports
Microstructuring -breaking large txn very small
42 amounts
43 Detecting -counter deposit slips instead of
preprinted deposit slips(identifying
customer)
-frequent activity -account with
incomplete documentation
-frequent cash deposits-nominal
account-inconsistent pattern
-cash deposit-ATM withdrawals-high
risk
 -cash deposit by third party-business
acccount-no relation to company
-multiple persons-multiple cash
deposits-multiple purchase monetary
44 Smurfing inst under reporting
-not-for-profit, member-
owned,democratic financial
cooperatives
-members are owners
-financial needs of members
-one member-one vote
-member purchase initial capital
shares- accessing product/services
- common bond-linked by depositing
and borrowing-particular community,
organization, religion, place of
employement
-few to hundred members-thousands
of dollars in assets under management
- personal banking relationship but
may include—small to medium
corporations
-no trade-based, correspondent
banking, large corporate relationship
with international financial needs
45 Credit Unions and Building Societies
46 Credit Union central -trade associations for credit unions
-owned by member trade credit
unions
-services like capital liquidity,
research, training, advocacy
-shared operational, back-offices
processes check clearing, electronic
fund transfers
 -shared contracts for common services
-included in FATF definition of
Financial institution ,
-national AML/CFT regime that follow
FATF recommendations will treat
credit union similar to banks
47
- Credit union vulnerable to ML
- large financial services-high
risk
- large clientele-large range
UK Joint Money Laundering Steering conceal funds
2006 November Group(JMLSG)

High risk transactions:

- money trf to third parties
- third party paying cash to
someone else
- reluctance to provide identity
information- opening account
- erratic behavior
- txn larger than usual amounts.
- Unusal activity in minor
account-account draw less
48 2014 November JMLSG guidance attention
49 Non-Bank Financial Institutions(financial intermediaries)
- License member bank to issue
bank cards
Credit card association(Americal - Authorize merchant to accept
Credit Card Insdustry Express/Master card/Visa) the card
50 Issuing Bank -solicit customers -issue cards
-process transactions for merchants-
51 Acquiring bank accept credit cards
52 Third-party payment -contract with issuing or acquiring Not subject to
 banks
- provide payment processing-
merchants/biz enitities -no relation AML/CFT
processors(TPPP) with TTPS's FI -bank customers requirements
Not in placement stage-restricts cash
payment-layering and integration
phase
- Prepaying card -illicit funds
already in banking system-
creating credit balance-credit
refund-obscure origin of
funds(layering)
-putting money in offshore
funds-accessing via
debit/credit cards
- - credit card txn- done via
TPPP or FIs don’t have to be
significant amount-suspicious-
like large or small dollars
payments- Need strong CDD
Money laundering perspective and txn monitoring
- Illicit deposit in front biz-
assess via credit cards in other
countries- money deposited in
Extent of money laundering through credit cards
is unknown, US Government Accountability a/c-used to pay credit card
Office, the congressional watchdog of United loan or prepays credit
2002 states Money laundering perspective -
Third party payment processors - Merchant/biz entities- use
commercial bank accounts- of
TPP-conduct payment
processing
- Conduct merchant transaction
like credit card payments,
ACH, creating and depositing
 RCC, demand drafts,retail or
internet based
establishments, prepaid and
internet gaming
- FI no relation-underlying merchant-
on whose behalf txn being done
- types of merchant- vulnerability
money laundering, identity theft,
fraud like telemarking, internet
gaming,
-TPP maintain accounts-multiple
institution FIs-not see-customer entire
txn||Done on purpose-TPP-hide
suspicious
-send funds from foreign jurisdiction
-directly to FI by international ACH||
done in large number- not detected)
-high average rate of returns for
unauthorized txn-at merchant level-
criminal merchant average rate of
return will proportionate toTPPP txn
volume, but at individual originator-it
TPPP Money Laundering Perspective will be higer.
 - FATF def- transmits or converts
currencies
-currency exchange, money
transmission, check-cashing ,money
Money Service Business/ Money or value order services,
55 Transfer Services(MVTS)
United States, FinCEN Defines MSB Person or business -whether or not on
a regular basis doing following
business:--
1. Dealer in Foreing exchange:
convert currency-operates @
international borders,
airports, communities with
foreign individuals
2. Check casher: also services for
paying bills
3. Issuer of Traveler’s Checks or
Money orders: may use agent
4. Money transmitter:
electronically
like paypal, western union
5. Seller of prepaid access/store
value: funds paid in advance-
retrieved via card,code,
electronic serial number,
mobile identification number,
personal ID
 - Open loop prepaid
cards:any
merchant/use on
Payment network
associated with card-
access cash via ATM
connected to affiliated
ATM network(like
American express,
visa)
- Closed loop:sepicifi
merchant issuing card
6. US postal service
MSB -registered with FinCEN- even not
physically located in US but providing
MSB type services(FinCEN final rule
2012) without exception
Business like grocery, drug store,
restaurant bars- ancilliary MSB
services-
MSB- region- limited/no banking
services—lower cost of services in
relation to FI

-provide service like payday

lending(advance salary),

-prinicipal and agent relationship

-principal provide MSB services like
check cashing services
-AML policies/internal controls, BSA
officer/education and training,
audit/monitor
Agent-MSB services-in addition to
 existing product services-may be
principal MSB if check cashing-primary
services. Money transmission via
principal MSB.
Agent-helps increase market less
overhead
Agent-follow state and federal
regulations as principal MSB
Mass-marketing
fraud (or mass
-present fraud check-not ask payee market fraud) is a
identity-not file currency transaction scheme that
reports-bribe customers-compromised uses mass-
by insider employee- business friendly communication
-low cost workers compensation media – including
insurance policy -deflating payroll- telephones, the
renting policies other for fee||payroll Internet, mass
mailings, television,
amount by cashing checks
radio, and personal
-trf money-via money contact – to contact,
remitters/currency exchange- fund solicit, and obtain
available criminal org-destination money, funds, or
country at local currency by other items of value
transmitting dollars and selling it to from multiple victims
legitimate company for purchase of in one or more
goods of export jurisdictions. The
-misconception-minimal oversight frauds where victims
part with their money
- MSB set up easily-small-not sufficient
by promising cash,
AML program prizes, and services
-confirm- have AML/CFT program, and high returns on
licensed, registered investment are part of
56 ML and Fraud perspective to MSB mass market fraud
-business done via intermediaries-
agents/independent brokers Title Insurance.
-Susceptibility not high as Fis once a property
57 Insurance Companies -property/casualty/title/health-not owner purchases
 and takes
investment features-cash build-ups/trf possession of a
of funds/hide fund property, title
-life insurance/annuities primary insurance will
target defend against
-ML risks- similar security sector any litigation
- life insurance with no cash surrender
that challenges
value-leas attaractive
-cash surrender value and nominate
the validity and
benefeciaries first day--most attractive legality of the
-annuities- exchange illicit funds- new property
immediate/deferred income owner.
- policy holder-interest in cancellation
than benefits
1. Lack of oversight/controls over
intermediaries: great control and
freedom to agents regarding policies
2.Decentralized oversight over aspects
of the sales force: employees(captive
agents)
-agents work -multiple insurance
companies-lack of oversight-prefer to
work with weak AML oversight
3. Sales-driven object
58 ML perspective -agents work for comission
59 Examples of money laundering -overfund policy-withdrawal
penalties-insurance pay checks-similar
as unit trust or mutual funds
- purchase and redemption-single
premium insurance bonds-redeem at
discount- balance paid at sanitized
cheques
-Free look period- short period after
policy signed policy-premium paid-
 back out policy without penalty-
insurance check-more readily
detected and reported
- -policyholder interested-policy
cancellation than benefits paying
penalty-
- life insurance attractive to ML-high
degree flexible-non-negligible returns-
whole/permanent life insurance-
investment value-cash value above
original investment-cancelled by
policy holder
-funding by unidentified third party-
source of fund and relationship
between policyholder and third party
not clear.
-substantial payment in life insurance
single premium policies-investment
opportunity rather insurance
coverage||large premium deposit—
fund annual premiiums||annual
2004-2005 FATF Money Laundering premiums paid from account –funded
60 Typologies with total amount
-cash -purchase-insurance products
-purchase-single or lump sum
payments
61 Assessing ML and TF risks -lending against insurance
-provide anominity
- world capital markets dwarfing
deposit banking
little currency
-run by electronic transfer/paper
62 Securities Broker-Dealers -layering stage
 - Little currency
involved
- Run by electronic trf
FATF inconjunction with Montreal-based
and paper
International Organization of Securities
Commissions(IOSCO), global association of - Layering stage-after
governmental bodies that includes the commodity money in financial
1992 futures trading commission(CFTC) Difficulty in dealing ML system.
63 Money laundering perspective -international nature A securities
-speed of txn account sometimes
ease -conversion of holding-cash known as
-withouth significant loss of principal a brokerage
account is an
- routine wire trfs-multiple
account that
jurisdictions hold financial
-competitive,comission-disregard assets such
source of client funds as securities on
-brokerage-maintaining securities behalf of an investor
account as nominees/trustees-hide with a bank, broker or
true benefeciaries custodian. Investors
-weak AML programs and traders typically
have a securities
account with the
Illicit money to laundered generated
broker or bank they
from outside sector:security use to buy and sell
transaction via legal entities/shell securities.
-obscure source of funds
Inside sector: embezzlement, insider
trading, securities fraud, market
manipulation
Dual advantage: laundering and
acquire additional profit
ML=hold fund in customer account
 not used for trading-avoid banking
channels

-wash trading/offsetting transactions-

involve entry of matching buys and
sells in particular securities-illusion of
trading-offsetting profit/losses-trf
position to diff accounts-not appear
to be commonly controlled

-wholesale markets
-unregulated funds
-wealth management
-Investment funds
FATF-greatest money laundering -Bearer Securities
64 vulnerabilities -Bills of exchange
-customized security product—
complex and esoteric

-under-regulated/illegitimate
securities -sold over-the-counter-pink
sheets-minimal reporting-obscure
A transfer agent is
beneficial owner-difficult to determine
a trust company,
association with sanction
bank or similar
jurisdictions//trading many platforms financial institution
assigned by a
-many intermediaries-financial corporation to
institutions, broker-dealers,financial maintain records of
advisors, transfer agents, securities investors and
lenders, custodians, brokers and sales account balances. 
agent- cross border and standardized
65 ML Challenges control not applicable.
66 FATF -supicious indicators -long standing client-liquidates all- When a
remove wealth jurisdiction reverse1:50 split
happens, the
 market systems
adjust the stock
price upward by a
factor of 50. While
the company
valuation remains
the same, the
-purchase product for number of
loss/commission-including early outstanding shares
cancellation is reduced.
-appear as depository a/c-wire Shareholders who
transfers/payment-not security end up with less
activity than a share after a
- customer txn-sustained loss-trfing reverse split may
value be automatically
-txn with loss(buy-high&sell-low)-trf cashed out of their
value holding by their
-invest without knowledge- but want broker.
to invest
-insider trading-close relatives-held Restrictive legend: buy
non-public information shares in
-two or more unrelated accounts unregistered, private
dealing illiquid-low price security- sale from issuing
suddenly and simultaneously company of from
-deposit physical securities affiliate issuers. Bear
---large quantities restrictive legend that
---title in diff name from the account it can be sell in public
---not bear restrictive legend market only if no
---aquiring securities lack sense objection is raised by
-Case study: stock issuers-promotional SEC.
campaign-customers trading
67 case study -pump and dump- fraudulent reports Over-the-counter 
about company prospects- sharp (OTC) or off-
increase value-launder funds via sale exchange trading is
done directly
 between two parties,
of shares -dumping of shares by sale without the
at artificial price supervision of
-settlement in certified checks an exchange. 
A certified
check or certified
cheque is a form
of cheque for which
the bank verifies that
sufficient funds exist
-Retail Brokers-frontline defense-
in the account to
most vulnerable access point- cover the cheque,
commission driven as client base and and so certifies, at
manage more assets the time the cheque
68 control policies is written.
United States, SEC and Financial AML programs
Industry Regulatory ---appoint BSA officer:perfom CDD,
Authority(FINRA) directed by BSA STR monitoring, independent audit

69 Non-Financial Business and Professions

-proficient cash-generating business
-bookmaking(betting)
-excuse-large wealth-no legitimate
source
-placement stage- buy chips-illicit
funds-repayment from cheque drawn
on casino’s account or use casino
credit-withdrawn from other
jurisdiction
-layering stage- cash to checks, casino
credit for layering of txn and
eventually transferring
-use casino line of credit-illicit funds to
repay credit
70 Casinos -horse and gaming(FATF 1997-
 98typologies)
--gamble all-recover his stake-
checks/fund transfers-verifiable
winnings from gaming
-Junkets-casino-based tourism-
---move funds across borders- work
multiple casinos
--obscurity-source of funds/identities
of players
--pool funds-obscure spending lsof
individua
--licensed junket operator acting
front-other operator in another
country
--unlicense sub-junket operator
incountry of gambling
--unlincesed sub-junket operator-
unlicense collector of credit-tie with
criminal

1.Attempt to evade AML reporting or $3,000

recordkeeping
record-keeping requirement
threshold for the
-pays large credit debit/markers/bad currency purchase
checks via currency txn -not exceeding of monetary
threshold instruments(cashier
-purchase small chips-minimal ’s cheque, money
orders, travelers
gaming-request check checks or foreign
-recieves large payout-but requests drafts) to avoid
payment below threshold and balance having to produce
in chips-redeems chips less threshold identification in the
process
FINCEN's 2008 Guidance and FATF's -structuring with other customer-
2009 report on casions and gaming avoid CTR/filing tax form $10,000 CTR filing
71 sector -reduces no of chips—when asked for threshold to
ID FINCEN for each
2.Use cage solely for financial services deposit,
withdrawal,
--wire trf non-gaming proceed-country exchange of
not residence/place of biz currency, other
--temporary repository funds- payment or transfer
deposits into casino account- wire trf to FIs
to domestic and foreign based
accounts
3.Minimal gaming activity-no
reasonable explanation
--purchase large chips-minimal
gaming-redeems chips-casino checks
--casino credit-buy chips-minimal
gaming-pays credit in currency--
redeem chips for checks
--large deposit in small denomination-
withdraws chips-minimal game-
exchange chips in large denomination
--bill stuffing(small denominations in
slot machine)-minimal/no play-
exchange voucher at kiosk/cage-large
denomination or casino checks
--purchase chips-minimal-walks away-
no cashing checks
--transfer funds-deposit-front money
account-withdraws chips-minimal
play-chips into checks
4. Unusual gaming and transaction
patterns
-betting -offset profit/loss
--roulete(black/white, odd/evem)
--baccarat(with, against)
--craps(pass line/come line and
don’t pass line/don’t come line)
 -hedging(offsetting)
-casino check payable-third parties-
specified payee
-large deposits or pay large markers-
with multiple instruments-below
threshold $3000
-large withdraw-multiple casino
checks-below threshold
-high value deposit-dormant-
withdraw
-structuring with other customer
-

-don't allow play --accept revenue-

without verifying source of funds- in
case of high rollers
- no explicit requirement that source
of funds to be known—casinos more
information regarding high risk txn like
international wire transfers, large
cash deposit
-identify source of funds/CDD -at time
funds accepted
-share information, criminal and
judicial, securities and exchange,
financial, governmental, worldwide
list, political exposure, negative news,
business association- for ID
verification/CDD by frontline
73 controls operations
74 casa de cambios Mexican money exchange houses
- regulated in UK, gambling
commission if operate in UK, any
75 online gamin ML riks equipment in UK, even not done via
 British facing business.
- regulated in Antigua and
Barbuda(under Interactive Gaming
and Interactive Wagering Regulations)
-cyber criminals-txn through credit or
debit cards
-site operators-unregulated offshore
firms- offshore bank a/cs use domestic
correspondent banks
Detection: merchant code-type of
business accepting credit
card/transaction code-whether
physically present in casinos or not
-online gaming funded via pre paid
cards, wire transfer, peer to peer
transfer, virtual currency, mobile
phone carrrier billing(sms banking)
Colludes with online gaming-deposits
illicit funds in gambling account-
withdraws winnings-tax authorities-
operator gets commission
The Use of Online Gaming For colludes with professional gambler-
Money Laundering and The money in account-takes winnings-
MONEYVAL(Committee of Experts on the Financing of Terrorism Purpose”--- after comission
Evaluation of Anti Money Laundering identified typologies for money - deposit illicit money with stolen
2013 Measures and Financing of terrorism) laundering identity- bets-obtain winings
-use code in card-type of txn-
76 control cards presence of customers

Januay 2006, USA patriot act- certain

dealers -implement Anti Money
Dealers in High value Items(Precious Metals, laundering programs
77 jewelry, art tec)
July FATF Money laundering/Terrorist -Gold-high instrinsic value-portable-
 --buy and sell easy-anonymity for
currency
-- acceptable than precious stones
--readily accepted --melted in diff
forms
-- holds value-regardless of form-
facilitating trf of wealth
--high demand-religious value
Two major Findings:
--extremely attractive--convert illicit
cash-anonymous, transferable gold
--gold market target--very lucrative

Financing risks and voulnerabilities --owner/seller -gold-divert cash-third

associated with gold—typology party
2015 report
ML risks 1. Payments or retursn to persons
other than the owner:
--delivers/assert ownership/authority-
sell-but direct payment third party||
tranfer asset in one form to another or
one person to another-internation
finance
2.Precious Metal pool accounts
--receive and hold precious metal
credits-drawn by customer- Carousel
withdraw/deposit and tranfer scheme=moving in
78 circle

Diamonds Direct purchase from ill gotten money

--retaill foreign exchange txns, fruad
and fraudulent invoicing
79 FATF indication to ML --commingling of legitimate and illicit
 proceeds in accounts of diamond
trading--internation fund trf in these
accounts
--money laundering of both illicit
diamond trafficking or diamond
trading used as money laundering
ART Industry ML risks -anonymous agent-bids millions of
dollars-auction houses
-payments-wired-these agents'
80 principals-offshore havens.
-art vendors-names & addresses-self
declaration(dated and sign) that are
not stolen/authorized to sell
-verify IDs and address of vendors and
customers. Suspect -art item-asking
price not consistent- market price
-suspect art stolen-contac the Art Loss
Register(www.artloss.com)
-skeptical to customer paying cash-
accept cash if strong and reputable
reason
-aware of money laundering
regulations
Controls by art dealers and -senior staff member -reporting
81 auctioneers Suspicious activities
-commingle illegal funds with clean
-purchsing high price airline tickets,
82 Travel Agency other vaccation exp.
83 ML risks --Buy High price ticket for another-
then ask for refund
--structuring wire transfers from
foreign countries
--establish tour operator networsks-
false bookings and documents-justify
 payment from foreign travel group
- Include seller of Vehicle/fixed wing
airplanes, helicopter, new boats

-structuring cash deposits or

purchase vehicle-sequential number
checks/money orders
-complex trading of used and new
cars creating layering of txns-layering
stage
-third party payments- high risk
jurisdiction
-unreported currency to pay
automobiles-common money
laundering element

-criminal trading expensive car for

cheap model and getting difference in
checks
84 Vehicle Sellers ML risks
-either block or faciliate entry
-illegitimate money in financial system
- repsonsiblity-identify clients,
conduct due diligence, maintain
Gatekeepers:Notaries, Accountants, records, report suspicious activities,
85 Auditors and Lawyers not tipping off

-creating/managing corporate
vehicles or complex legal
arrangements(trust)-obscure link
between criminal proceeds and
perprtator
- Buing and selling property. Use in
laying(cover for transfer) and
86 2013 Typology report FAFT indicators to ML risk integration stage(ivnestment)
 - performing financial txns:issuing
checks,deposits,retail foreign
exchange, stocks, international fund
transfers
- providing tax evasion advice
-introducer to FIs.
-undertaking litigation
-managing charity
-provides respectability-dissuade
questioning-or added step in chain of
investigation
-misuse client's account

87 2013 Typology report of FATF Red flags of ML and TF 1.Client

--secretive
--using agent/intermediary-avoid
personal contact unreasonably
-- refuse give information-txn
execution
--PEP
acquis
--subject of investigation-acquisitive
crime
-- ties to criminals
itive
crime
-- unusual interest – ordinary
standards
2.Parties
--belong to High risk countries
--interconnect without no business
reason a crime committed to
--ties create doubt-txn gain possessions.
Examples of acquisitive
--multiple txns-short time
crimes include theft,
--incapaciated-under age- burglary, and robbery.
unreasonable involvement
--attempt to disguise benefecial
owner
--not directing txn
--unsuitable representative
3.Source of funds
--provided byUnusual payment
arrangements
--is collateral-high risk country
--significant increase in
capital/foreign capital for rencently
established-no logical
--Relatively high capital-similar
business
--from stocks with very high and low
price
--from unjustifiable large txns.
4.Lawyer
--significant distance from client/txn-
no reason
--no experience in providing
particular service
--higly paid-unusually
--frequently changed orclient with
multiple advisors
--doing refused services
5.Retainer
--unusual txn-type, size, frequency,
execution
--no knowledge of the job
---complicated ownership structure-
dealing high risky countries
---client txn inconsistent not related
company activities
--abrupt changes to instruction
---no
 sensible(commercial/financial/tax) for
complicationg txn that raised high tax
rates
--exclusively keeping
documents/goods-holding large
deposits-using client account without
any services
--abandon txn without concern for
fee after receipt of fund
--no logical reason -getting authority-
disposal of assets
--litigation settled easily-no
involvement of legarl profession
--payment -third parties-no reason
--attorney client priviledges
Way out for this
 Deferring regulation
 Imposing CDD/internal control-
regard to non-privileged
 Join govt.-pvt sector-regulate
laywers require registration-
involved in financial txn
 Hybrid approach-guidance from
89 Controversial issue FATF
90 Investment and Commodity Advisors Vehicles -Commodities: goods traded via An Omnibus
futures contract account is a stock
-Commodity pool:combines fund holding account ge
various investors to trade nerally held by
infuture/options contract multiple brokers or
-futures/futures contract: buy or sell- merchants. The
set quantity of commodity-future date broker or merchant
holds the stock for
at set price
multiple clients and
-Options contract: create right not
transact on their
obligation-buy/sell -set price- after set holdings, thereby
 date
-Omnibus accounts: a/cs by futures
commission merchant(FCM) for making it easier for
another—transaction of multiple them to
accounts holder combine-identities manage accounts f
unknown to holding FCM or clients
-advises on various securities
derivatives- responsible for managing
future contract- know money
laundering activities-implement
91 Commodity Trading Advisors(CTA) compliance program
1.Commodity pool operator-combines
fund members- trades futures/options
contracts
2. Future commission
merchant(FCM):firm/person accepts
orders on future contracts- accepts
fund for execution
3.Introducing broker-dealers in
commodities(IB-Cs):firm/person-
accept future oders but no funds
a.Guaranteed Introducing
broker:FCM responsible for broker
performance-there is agrement
b.Independent Introducing
broker:mimimal capital and financial
reporting requirements—introduce
accounts to any FCM
4.Investment advisor:also hold client
assets
92 Other actors
93 ML risks -asset trf to unrelated a/c or high-risk
-frequent deposit/withdrawals
-wire trf -unrelated party
 - clients- asking custodial
arrangements-remain anonymous
-trf fund to advisor then another
-investing illegal proceeds for a client
- movement funds -disguise origin

-formation agent of legal persons

-acting/arranging-
director/secretary/partner of
company
-providing registered
office/correspondence
have confidentiality privileges with a
client
-acting/making other to act as trustee Express trust = trust
-acting nominee shareholder for formed without
94 Trust and Company Service Providers(TCSPs) another intervention of court
-tcps-not recognized in jurisdiction
-provided by lawyer(can hold asset
outside client’s jurisdiction)
- tcps-confidentialiyt and privileges to
client
Red flags
-no applying AML
-limited market restriction for
practitioners with lack of
skills/competence/integrity
-inconsistent record keeping
Money laundering Using Trust and Company -Unlicensed operation
95 2010 Services FATF suggestions to ML -TCPS’s CDD performed by third party

-use of complex legal entities

-consultancy fees payment to shell
companies.
96 Other ML risks -use of TCSP in high risk jurisdictions-
 not provide information on beneficial
owenrs
-use of TCSP in weak jurisdiction
-use legal persons-tax haven
jurisdiction
-multiple intercompany loan txn or
multi-jurisdictional wire transfer
need to regulate service provider as
they provide tools for money
launderer
Regulation -regarding- operation and
select directors
Gilbratar-first to regulate- 1989
AML compliance-necessary-
requirement for licensing
Difficulty:
Legislation-bars-gaining access-client
permission
97 control Different standards for regulation
Real Estate - Classical money . When sellers are
laundering- looking for an all-
political/economical/ cash offer, they are
monetary stability looking for an offer
that does not
require financing
from the seller, and
that does not
contain any
contingency for
financing from any
other source. It
means that if the
buyer does not
deliver all cash to
 the seller on or
before the
stipulated closing
date, then the
buyer agrees to
forfeit their good-
faith deposit to the
seller.
-held by brocker, real estate agents,
other fudiciaries
-fund entrusted to someone-
protection and disbursement
-large diverse txns via multiple
instruments
-easily disguise illicit proceeds-
account
- money can be paid-straw men/shell
company
-different legitimate txn: sales
proceeds, mortgage payment,
comiision
-size and volume of routine escrow
account-smooths ups and downs in
98 Escrow Accounts the account
-multiple cash deposit-under
threshold related to non-existent
Title insurance agent closing deals
-buy propery -lower price(to stay
under radar)-pay difference under
99 Reverse Flip table -sell at original price
-criminal gives money- loan or
mortgage to trafficker same amount-
10 necessary documentation. Schedule
0 Loan Back legitimate payments
 - About SAR
- File SAR only related
mortgage fraud
schmes
- Not relating money
laundering-since
launderer integrate
illicit funds through
April Suspected Money Launderingin the regular and timely
2008 FinCEN Real estate Industry payments
-purchased with cash
-beneficial owner disguised
-stable, reliable investment
-value increase
Australian Transaction Reports and renovations/improvement
10 Analysis Centre(AUSTRAC) real - not complicated
1 2015 estate attrative to money laundering - used in all 3 stages
10 Money Laundering methods in -straw buyers/cleanskins Solicitor:a member
2 australia -loan and mortgages/lump sum of the legal
payments profession qualified
-property flipping-disguise to deal with
undisclosed cash payments by conveyancing, the
manipulating prices drawing up of wills,
- structuring- purchase and other legal
matters
-disguise illicit funds as rental income
conveyancing is
-criminal activity(drugs) in purchase
the transfer of legal
house title of real property
-illicit cash for propery improvement- from one person to
reselling at high value another, or the
-front companies/shell/trust-hide granting of an
benefecial owner encumbrance such
-use of gatekeepers(agents, as a mortgage or a
conveyancers, solicitors)-conceal lien.
criminal involvement, complicated ML
 process-give legitimacy
-investment by overseas criminals-
hide/avoid confiscation
-use of LLPs
- various ways of accumulation of
cash for purchae/downpayment/repay
loans
-multiple buy and sell-short time, over
and under valuation,straw buyers
-off-shore lending
- unknown source fund via wire trf-
originator and beneficiary same
10 Red flags of ML when real estate -non-resident cutomer-purchase real
3 deal with FIS estate only
-Order by United States Secretary of
Treasury
-Require United States domestic Fis
that exist within geographic area-
report transaction greater than
specified value
-last for limited period of time
-helped law enforcement identify
individuals -acquiring luxury
residential via limited liability
companies. Other opaque structures
without use of bank financing

-title insurance companies-identify

natural person behind shell
10 companies-purchasing-highend real
4 FINCEN Geographic Targeting Oders(GTO) estate
10 International Trade Activity ML via currency exchange, FTZ, cross-
5 border payment, shell companies
-trade based money laundering and
 black market peso exchange
-successful -illicit financing- both
manipurate FTZ
-3000 free trade zones (FTZs) in over
135 countries,
-designated geographic areas with
special regulatory and tax treatments
for certain trade-related goods and
services
- located in developing countries near
ports of entry but are separate from
traditional ports of entry
-located in regional fnancial centers
10 that link international trade hubs with
6 Free Trade Zones access to global fnancial markets

1. Inadequate AML/CFT safeguards.

2. Minimal oversight by local
authorities.
3. Weak procedures in inspect goods
and legal entities, lack of appropriate
record-keeping and
information technology systems.
4. Lack of cooperation between FTZs
and local customs authorities
FTZ large in size-difficulty in monitor
10 Marc Report on the Money Laundering Vulnerabilities incoming and outgoing
7 2010 in Free Trade Zones FATF suggestions to ML cargo/repacking and relabelling
10 TRADE-BASED MONEY LAUNDERING Money laundering, tax evasion, Used in integration
8 TECHNIQUES terrorist financing phases
June 2006, Trade based Money - process of disguising the proceeds of
Laundering crime-moving value using trade
transactions -legitimize their illicit
origins
 -done via misrepresentation of the
price, quantity or quality of imports or
exports
-vary in complexity-used in
combination with other ML
techniques2
Feb Guidance paper on Combating Trade based Understand commercial purpose of
2016 money laundering developed by Hongkong underlying txn
association of banks - invoicing the goods or service at a
10 price above the fair market price-seller
9 Methods Over-invoicing: receive value from the buyer
-invoicing the goods or service at a
11 price below thshelfe fair market price-
0 Under-invoicing: seller transfer value to the buyer
-difference in the invoiced quantity of
11 goods and the quantity of goods that
1 Over-shipping or Short-shipping: are shipped
-Fictitious trades where a buyer and
seller prepare all the documentation
indicating goods were sold, shipped
11 and payments were made
2 Ghost-shipping: -no goods were actually shipped.
11 reduce the transparency of ownership
3 Shell companies in the transaction.
numerous invoices are issued for the
11 same shipment of goods-money
4 Multiple Invoicing: launderer -make numerous payments
Black Market Peso Exchange
11 -domestic transfer of funds is used to
5 Black market trades: pay for goods by a foreign importer
Used to finance export Exchange controls a
-money laundering to trf fund from lax re governmental
exchange controls limitations on the
Letter of credit - using wire transfer with LC to show purchase and/or
 sale of
currencies. These
controls allow
countries a greater
degree of economic
stability by limiting
legitimancy the amount of
-july 2012, asia/pacific group on exchange rate
money laundering”APG typology volatility due to
report on trade based money currency
laundering” inflows/outflows. 
Great obstacle- lack of statistics in
TBML for advising strategies
-an individual or business account in
one geographic area that receives
multiple cash deposits-cash reporting
threshold - Funds are withdrawn in a
different geographic area-With little
11 time elapsing between the
6 funnel account deposits and withdrawals
11 How to identify funnel account -account-receives numerous cash
7 activity deposits of less than-currency
reporting requirement-unidentifed
persons at branches outside of the
geographic region where account is
domiciled.
-account deposits take place in a
different geographic region from
where the business
operates.
- Individuals opening or making
deposits to funnel accounts-lack
information -activity of the account,
the account owner, or the source of
the cash
 business account recieves- out-of-
state deposits with debits- not related
to its business purpose
-notable difference in handwriting on
payee, amount that of signature-
check issued from an account that
receives out-of-state cash deposits
-Wire transfers or checks issued from
a funnel account -deposited into, or
cleared through-US correspondent
account of a Mexican bank.
1st stage: Columbian
cartel receive drug
proceeds in US dollar
-reduce risk of seizures- trf money 2nd Stage: cartel
transfer contact peso broker to
-money launderers utilize individuals launder dollars
or businesses that have control over 3rd stage:broker
numerous bank accounts at numerous exchange dollar for
banks - bulk cash smuggle from the pesos.
United States 4rt stage: broker
-smuggled US dollars are deposited deposits US dollars in
into foreign US banks
institutions(Mexico,Central and South 5th stage: Broker offer
American countries) Columbian importer
-wired back to the US and other dollar for pesos
prominent trade countries as 6th stage:importer
payments for international trade uses drug US dollar
11 goods money to pay for
8 BLACK MARKET PESO EXCHANGE and services. import.
11 New Payment Product and services like -Risk related:functionaliy of services Digital precious metals, a
relatively new way of
9 Prepaid Cards, Mobile Payments and funding mechanism transferring value online,
And Internet-Based Payment Services, digital enable users to secure
precious metals Prepaid card same as cash cash deposits against
precious metals held
 -portable,valuable, exchangeable and
anonymous.
-either open loop or closed
loop(limited online or physical
location)
- reloadable or non-reloadable
-linked to one accounts or pooled
account
- issued by depository institution or
non-bank organization
offshore
- Market where
legitimate demand-
ML and TF risk exists
- Cross border -new
payment service- high
October 2006, FATF report risk
-network branded by American
Express, Visa or MasterCard
-purchased and loaded with money
by one person
12 -like regular debit cards
0 Open-loop prepaid cards - make purchases or ATM withdrawals
-limited use for a specifc purpose or
service
-with a certain merchant or retailer,
12 whether online or at a physical
1 Closed-loop prepaid location

• Anonymous cardholders.
• Anonymous funding.
• Anonymous access to funds.
12 • High value limits and no limits on the
2 Risk factor pre-paid cards number of cards individuals can
 acquire.
• Global access to cash through ATMs.
• Offshore card issuers - high
jurisdictions.
• Substitute for bulk-cash smuggling
-ectronically store value on integrated
12 Electronic purses(e-purses or stored- circuit chips.
3 value or smart cards) -store funds on memory chips

• Limiting the functions and capacity

of the cards maximum value/
turnover
limits/no of vstf per customer).
• Linking to financial institutions and
bank accounts.
• Requiring standard documentation
and record-keeping
• Allowing access to records by by
investigating authorities.
12 • Estab0lishing international standards
4 Measures- limit the vulnerability for these measures.
12 2012 Joint Money Laundeering Steering Group’s Electric money products(prepaid - electronic money:prepaid means of UK e-money
5 Guidance on E-Money Guidance cards, virtual purses) payment-used to make payments to institutions are
multiple persons(legal or ntural regulated by UK
entities Financial Conduct
-card-based or online account-based Authority(FCA) and
-issued by banks, building societies, governed under
and specialist electronic money Electronic Money
institutions Regulations(2011)
-prepaid cards - pay for goods at a that required
range of retailers, or virtual purses - compliance with all
pay for goods or services online. AML/CFT and
sanctions
requirements.
 building society
noun
BRITISH
1. a financial
organization which
pays interest on
investments by its
members and
lends capital for
the purchase or
improvement of
houses.

12 risk factors inherent in e-money

6 • High, or no, transaction limits.
Joint Money Laundeering Steering Group’s • Frequent cross border transactions.
Guidance on E-Money Guidance • higher risk businesses such as
gambling.
• Funding with unverifed persons.
• Funding with cash that leaves no
electronic trail to the source of funds.
• Funding with other electronic money
that lacks verifed persons and/or
source of funds.
• Non-face to face transactional
activity.
• Features that increase the
functionality of the card in terms of
executing transactions such
as person to person, business to
person, business to business, person
to business.
• Ability of customer to hold
 numerous purses.
• Segmentation of the business value
chain.
Non face-to-face relationships and
anonymity:
- quickly move funds around the
world-purchase and access cash
through ATM network
-anonymity while purchasing,
registering, loading,reloading
inherent risks with what it called
-easily be passed on to unrelated
new payment methods (NPMs)
third parties
-Customers established through
agents, online or through a mobile
Typology report, FATF”Guidance for a risk- payment system.
based approach prepaid cards,mobile -customers providing inaccurate
12 payments and Internet-based payment information -identity fraud-disguise
7 2006 services” illegal activity
Geographical reach:
-Open-loop prepaid cards-permit l
payments-global payment networks.
-Prepaid card providers - sell their
product internationally through agents
or online
-compact size of prepaid cards-
vulnerable to misuse than cash in
cross-border transportations.
-Mobile and online payment services
can transfer funds globally
-different regulatory AML/CFT
12 regimes-where payments originate
8 versus where ultimately received.

12 Methods of funding:
9 -allowing cash funding
 -possibility of reloading without any
limit
-alternative to the physical cross-
border transportation of cash
-funded using numerous methods
such as banks accounts, non bank
methods money transmitters,
electronic monies, virtual currencies

Access to cash:
-prepaid cards-allow funding in one
country-cash withdrawals in another-
via ATM networks
-Increasing connectivity-mobile and
13 online payment methods with prepaid
0 card-fund or withdraw in cash
Segmentation of services:
-require several parties to execute
transactions like program manager,
issuer, acquirer, payment network,
distributor and agent
-Mobile and online services-
oordination with numerous
interrelated service providers-partner
with international counterparts to
provide cross-border transactions
-Use agents and unaffliated third
parties - customer acquisition
- NPM provider maintain bank
accounts-ettle accounts with agents or
13 partners -banks do no know ultimate
1 customer

13 Customer due diligence (CDD): -based on level of risk posed by the

2 Mitigatio of Risks as suggested by guidance product.
 -greater the functionality of the NPM-
enhanced CDD
-non face-to-face verifcation using
third party databases/ open-source
information

— Setting initial load limits.

— Setting geographical or reloading
limitations.
— Limiting the functionality of a
product to certain geographical areas.
— Limiting the functionality of a
product for the purchase of certain
goods and services.
— establishing individual tiers of
service provided to customers.
Loading, value and geographical — For prepaid cards:
limits: > Limits on loading, duration, and
ability to make cash withdrawals.
> Limitations on the amount that is
prepaid and accessible.
— For Mobile:
> Maximum amount allowed per
single transaction.
> Maximum cash withdrawals.
> Frequency or cumulative value of
transactions.
13 > Limits based on day/week /month/
3 year or a combination thereof
-limited allowable sources of funding
for a specifc product.
Source of funding:
13 -identifcation for cash-based funding
4 depending upon load or account limits

13 Record-keeping, transaction
 — Retain transaction records of
payments and funds transfers.
— Retain identifying information on
the parties to the transaction.
— Retain and identify any account(s)
involved.
— Retain the date of the transaction
and the amount involved.
— For Mobile, obtain the phone
number of the sender and receiver.
— Implement and utilize transaction
5 monitoring and reporting: monitoring
13 Virtual Currency - medium of exchange in digital space
6 - converted into either a fat (e.g., a
government-issued currency) or it can
be a substitute for real currency
- two types: centralized and
decentralized
- Decentralized (e.g., Bitcoin) VCs have
no repositories or administrators but
work as peer-to-peer media of
exchange as cryptographic protocal
without any need for an intermediary
- non-convertible VCs (i.e., Q Coins
and World of Warcraft meGold) that
are intended to be specifc to a
particular domain.
-value to be able to be transmitted
anywhere in the world without the
requirement of a centralized bank or
institutional authority
-Bitcoin derives its value from what
another party is willing to trade for
that item
 - Bitcoins, there is a value that is
expressed in fiat currency
that is based upon economic and
market forces.
-Bitcoin, in a transfer
between two individuals, no
personally identifable information is
disclosed to the two individuals or to
any third-party intermediaries.
-each transaction is registered in the
blockchain and the
publicly available distributed ledger-
valuable information than cash-to-
cash exchange-not actual identities-
behind the corresponding wallets.
VC businesses facilitate -use,
purchase, transfer of VCs- provide
wallet ownership and source of fund
information.
User:person that obtains virtual
currency to purchase goods or
services
Exchanger: person engaged as a
business in the exchange of virtual
currency for real currency, funds, or
other virtual currency.
Administrator :person engaged as a
business in issuing a virtual currency
-authority to redeem such virtual
currency
Marc Administrator and exchanger are
13 h FinCEN-participants in VCs based on usually MSB- comply with registration,
7 2013 interpretative guidance on VCs reporting, record-keeping
13 Corporate Vehicles Used to Facilitate Illicit Sheltering assest -hiding
8 Finance - Anominity to ownership and protecting asset
Public traded- information available
freely-significant regulation
-private limited companies are not
publicly traded, restrictive in the
number of shares, ownership can be
13 Public Companies and Private Limited one or many, and are subject to
9 Companies minimal regulatory oversight.
-corporate vehicle subject to misuse is
the limited liability company (LLC)
-virtually anyone can own or manage
an LLC, including foreign persons and
other business entities.
-A member of an LLC is equivalent to
a shareholder in a corporation.
-A manager, is equivalent to an
executive offcer or a member of the
board of directors
14 - An LLC may lack managers in which
0 limited liability company (LLC) case the members manage the LLC
14 International business corporations (IBCs) -International Business
1 Corporation(IBC)entities formed
outside of a person or businesses’
country of residence, typically in
offshore jurisdictions
-for confdentially or asset protection
purposes.
- reduce transparency between its
owner in his/her home country and
that of the offshore entity where the
company is registered
-asset protection, access to multiple
investment markets, estate planning,
 legitimate tax benefts and serving as
holding companies.
- created in a tax haven and usually
require incorporation with a local
agent, who may further reducethe
transparency of the IBC (e.g., serving
as a nominee owner or director) and
facilitate opening accounts in the
name of the IBC.
-established and used in a similar
manner as IBCs
- they are typically limited to holding
14 investment assets in tax-neutral
2 Private investment companies (PICs) offshore fnancial jurisdictions.
-Bearer bonds and bearer stock
certifcates or bearer shares
-prime money laundering vehicles
belong on the surface to the “bearer.”
- transfer physically handing over the
bonds or share certifcates no registry
for owners.
- person who holds the bonds or
shares gets to claim wnership.
14 - concealing ownership for tax
3 BEARER SHARES IN CORPORATE FORMATION optimization purposes. anominity
-ask questions about the identity of
benefcial owners before issuing,
accepting or creating bearer shares
and trusts
14 -keep registries of this information-
4 Mitigations book entry transfer
- may established to commingle
14 October 2006, fatf,”The criminal proceeds with legitimate
5 Shell and Shelf Companies misuse of corporate revenue or claim proceeds at
 legitimate revenue
- easily created and dissolved
- conceal the sources of funds while
keeping their ownership concealed.
- shell- set up in onshore as well as
offshore locations -ownership
structure different forms
-shares can be issued to a natural or
legal person or in registered or bearer
form.
-single purpose and multiple purpose
- legally incorporated and registered
by criminal
- . Often purchased “off the shelf”
from lawyers, accountants or
secretarial companies
- stock of these shell corporations is
issued in bearer shares
- tax haven/strict secrecy laws-
vehicles, including conceal true ownership
- information held by professional who
trust,and company service claim secrecy
providers”
- no activity
- created and put on the shelf
- sold to one who prefers a previously
14 registered corporation over a new
6 Shelf company one.
at the time of incorporation has no
14 signifcant
7 Shell company/corporation: assets or operations.

- converting the cash proceeds of

14 “Money Laundering in Canada: An analysis of crime into alternative assets.
8 2001 RCMP cases” Reason to establish shell/shelf - can create the perception that illicit
 funds have been generated from a
legitimate source.- commercial
accounts can be created at banks or
other fnancial institutions. Illicit
revenues can then be deposited into
bank accounts as legitimate revenue
- shell companies are businesses that
customarily handle a high volume of
cash transactions, such as retail stores,
restaurants, bars, video arcades, gas
stations or food markets. - offer
criminals legitimate sources of
employment in the community
14 - wide range of legitimate and/or
9 bogus business transactions can be
used to further the laundering
process.-These include lending money
betweencriminally-controlled frms,
paying out fctitious expenses or
salaries, disguising the transfer of
illicit funds under the guise of
payment for goods or services, or
purchasing real estate with the
proceeds of crime or disguising
payments for real estate as mortgages
issued by a shell company.- are
flexible and can be tailored to a
launderer’s specifc needs. - criminal
organizations laundering money
through real estate can incorporate
real estate agencies,

-concealing criminal ownership.

- Nominees can be used as owners,
 directors, offcers or shareholders.
- Companies in one country can also
be incorporated
as subsidiaries of corporations based
in another country (especially a tax
haven country with strict secrecy and
disclosure laws), inhibiting
investigations into their ownership.
- used to hide criminal ownership in
assets, by registering these
assets, such as real estate, in the
name of a company

15
0
- use real businesses to launder illicit
money
- businesses differ from shell
companies in that they operate
15 legitimately, offering industrial,
1 criminally controlled companies: wholesale or retail goods or services.
-Nominees will often used as
owener/officer/director,but not
“Money Laundering in Canada: An analysis of
RCMP cases” :following money laundering necessarily, have no criminal record.
15 techniques used in conjuction with criminally Using Nominees as Owners or -established by lawyers in lawyers
2 controlled enterprises Directors: name

15 - many companies are connected

3 Layering through a complex hierarchy of
 ownership
- conceal criminal ownership
- transfer of illicit funds between
companies, muddying any paper trail.
- lending money between criminally-
controlled companies.
15 - properly integrated into the
4 Loans economy.
- criminal enterprise controls
corporate entities in different
jurisdictions
- laundering technique known as
“double invoicing.”- one company
selling goods and receiving money
15 Fictitious business expenses/False from other both owned by criminal
5 invoicing agencies. Tax saving purpose
- legitimate source of capital
15 - ostensibly exhibit signifcant cash
6 Sale of the business flow
- Criminal proceeds from offshore are
used to buy a company that is already
owned
by the criminal enterprise
15 Buying a company already owned by - returns a large sum of money that
7 the criminal enterprise had been secreted out of the country.
- makes certain criminal participants
15 legitimate by providing them with
8 Paying out fctitious salaries: salaries.
15
9
- private fduciary arrangements
- allow grantor/settlor to place assets
16 for future distribution to benefciaries
0 Trusts - grantor/settlor will usually appoint a
third party, a trustee--dminister the
assets in accordance with the
instructions provided in the trust
document
Trust assets= principal
- first stage(placement) of converting
illicit cash into less suspicious assets
- Trusts fall into one of two
categories: revocable, irrevocable
- Trusts will also name remaindermen
who are designated to receive any
residual assets after the conclusion of
the trust’s term

- disguise the criminal ownership of

funds
- conceal the identity of the true
owner or benefciary of the trust
property
- hide assets from legitimate
creditors, to protect property from
seizure under judicial action
- link between other ML vehicles like
real estate, shell,nominees
- asset protection trusts (APTs) are a
special form of irrevocable trust
usually created (i.e., settled) offshore
-- protecting part of one’s wealth from
creditors- tax neutral
-ML by Payments to the benefciaries -
money laundering - payments do not
have to be justifed
- llicit money is placed in a law frm’s
general trust account in a fle set up in
 the name of the client, a nominee, or
a company controlled by the client
-trust are formed in strict secrecy laws
to conceal ultimate beneficiary 0r hide
the links of ML and tax evasion
G-7 nations marshaled FATF to hold
an “extraordinary plenary session”
on October 20, 2001, Washington to Issued first eight special
addres terroris financing recommendation
- criminalize terrorist fnancing and
the fnancing of terrorist organizations
and individual terrorists with or
without a link to a specifc terrorist act
- terrorist crimes are designated as
16 money laundering predicate offenses-
1 Terrorist Financing Recommendation 5 FATF increase prosecution and deterrence

DIFFERENCES AND SIMILARITIES BETWEEN

16 TERRORIST FINANCING AND MONEY
2 LAUNDERING Money laundering terrorist fnancing
 - proceeds of illegal
activity
- purpose of
laundering is to
enable the money to
uses funds for an illegal political be used legally.
purpose-money is not necessarily - individuals
derived from illicit proceeds responsible for the
- support terrorist activities illegal activity-
- individuals responsible for raising ultimate benefciaries
16 origin the funds are not the benefciaries of of the laundered
3 of the funds. the laundered funds funds
16
4
16 - need for the terrorist group to Hawala system:
5 SIMILARITIES Same technical perspective disguise the link between it and its informal value
 legitimate funding sources
--continued and uncompromised
future use of that source
-- use methods: cash smuggling,
structuring, purchase of monetary
instruments, wire transfers, and use of
debit, credit and/or prepaid cards. The
hawala system,
-- money raised for terrorist groups is transfer-
also used for mundane expenses like internationally-
food and rent, and is not always outside legitimate
strictly banking system-based
used for just the terrorist acts on trusted network of
themselves. individuals
During 9/11: money laundering control
16 focused on drug trafficking and large scale
6 2004 “Monograph on Terrorist financing” financial fraud.
- Identifcation used to open the
accounts were visas issued through
foreign governments.
- Accounts were opened within 30
days after entry into the United States.
- Some of the accounts were joint
accounts.
- Addresses used usually were not
permanent addresses, but rather were
mail boxes and were
changed frequently
- The hijackers often used the same
address and telephone numbers on
the accounts.
Transaction profiles:
--directly received and sent wire
16 DETECTING TERRORIST transfers of small amounts to and
7 FINANCING Case study:september 9/11 from foreign
 countries such as United Arab
Emirates (UAE), Saudi Arabia and
Germany.
--numerous attempts to withdraw
cash in excess of the limit of the debit
card.
-- Numerous balance inquiries were
made.
-- After a deposit was made,
withdrawals occurred immediately.
-- Overall transactions were below
reporting requirements.
-- Funding of the accounts was by
cash and overseas wire transfers.
-- ATM transactions occurred with
more than one hijacker present
-- Debit cards were used by hijackers
who did not own the accounts
International activity:
--deposits made on hijackers behalf
by unknown individuals.
--purchased traveler’s checks
overseas and brought them into the
US
--same hijacker opened an account in
UAE, giving a power of attorney over
the
account to the same individual who
had been wiring money to his German
account.--More than $100,000 was
wired from the UAE account of the
hijacker to the German account of the
same hijacker in a 15-month period.

16 24 FATF”Guidance for Financial institution in Susceptible to Terrorist Financing =FIs to exercise “reasonable
 judgment”evaluating potential
suspicious activiyt
- Use of an account as a front for a
person with suspected terrorist links.
- Appearance of an account holder’s
name on a list of suspected terrorists.
- Frequent large cash deposits in
accounts of non-proft organizations.
- High volume of transactions in the
account
- Lack of a clear relationship between
the banking activity and the nature of
the account holder’s
business.
- dormant, low-sum accounts that
suddenly receive wire transfer
deposits followed by daily cash
withdrawals that continue until the
transferred sum
is removed, and lack of cooperation by
april the client in providing required
8 2002 detecting terrorism financing” information.
-Global sanction efforts reduce-state
sponsor terror
- forged destructive and very proftable
links with drug and criminal syndicates

- they abuse charitable causes to trick

individuals to contribute
- raising money through the oil trade,
extortion, undetected cash couriers,
kidnapping for ransom,
16 traffcking of humans and arms, and
9 HOW TERRORISTS RAISE, MOVE AND STORE FUNDS racketeering.
 - associated with ethnic groups from
Africa, Asia and the Middle East
- international transfer of value
Use outside the legitimate banking system
of and are based on trust.
- Hawala (an Arabic word
Ha meaning “change” or “transform”),
wal Hundi (a Hindi word meaning
a “collect”), Chiti banking (referring
and to the way the system operates), Chop
Shop banking (China), and Poey Kuan
Oth (Thailand)
er - There is usually no physical
Inf movement of currency and a lack of
formality with regard to verifcation
orm
and record-keeping
al - money transfer takes place by coded
Val information that is passed through Reason for legitimate
ue chits, couriers, letters, faxes, emails, use of Hawala:
text -cheap and faster
Tra messages, or online chat systems,-- money transfer
nsf followed by some form of -lacking banking
er telecommunications confrmation. access in remittance
Sys - document that carries an identifable receiving company,
number can be used by the receiver to cultural preference
17 tem pick up -lack of trust in
0 s Alternative remittance systems (ARSs) or informal value transfer systems (IVTSs) the values in the other country. banking system

-leaves little to no paper trail --details

of the customers who will receive the
funds are communicated to the
receiving brokers via
telephone, fax and e-mail
17 - effective means of placement: when
1 Money laundering risk the hawaladar receives cash, he can
 deposit the
cash in bank accounts.
- He will justify these deposits to bank
offcials as the proceeds of legitimate
business. He may also use some of the
cash received to pay for his business
expenses, reducing
his need to deposit the cash into the
bank accoun
- Hawaladars often operate w
legitimate or front business to provide
cover for the activity and commingle
the funds in the
business accounts
- Layering: Following the money even
more diffcult. This can be done by
using
hawaladars in several countries, and
by distributing the transfers over time.
-transform money in any form
Integration phase=reinvested in
legitimate business.
- No formal
government oversight
- Recordkeeping in
idiosyncratic
shorthand-maintained
for short time
17
2 Use of Charities or Non-Proft Organizations (NPOs)
17 Terrorist Finance After the September 11, 2001, United
3 Tracking Program (TFTP) States government initiative
17 FATF “Risk of Terrorist Abuse in Non-Profit vulnerable to misuse for terrorist
4 2014 Organizations(NPO) fnancing • Enjoying the public trust.
 • Having access to considerable
sources of funds.
• Being cash-intensive.
- global presence, often in or next to
areas exposed to terrorist activity.
- subject to little or no regulation
and/or having few obstacles to their
creation
- prevemt Terrorist organizations
posing as legitimate entities
- prevent Exploiting legitimate
entities as conduits for terrorist
fnancing
- Concealing or obscuring the
clandestine diversion of funds
17 FATF best practices for charities in combating intended for legitimate purposes to
5 2002 the abuse of non-profit organizations objective of Recommendation 8 terrorist organizations
- full program budgets that account
for all expenses
- Conduct independent internal audits
and external feld audits,--funds ued
for intended purposes.
- use formal bank accounts--subject to
17 FATF best practices for charities in combating the bank’s regulations and controls-
6 the abuse of non-profit organizations FATF Recommends NPOs KYC and montioring
- protect the public’s interest in
charities
- work for the public beneft
Charities Commission -regulator of charities - charities remain independent from
17 in England and Wales private, government or political
7 Their role interests
four-strand approach to preventing - Co-operation with government
17 Charities Commission “counterterrorism abuse of charities regulators and law enforcement
8 strategy report” by terrorist fnanciers: nationally and internationally.
 • Raising awareness in the sector of
the risks charities face from terrorism.
• Oversight and supervision-via
proactive monitoring- areas of higher
risk.
• Intervention when abuse, or the risk
of abuse, related to terrorist activity is
apparent.
- Advent social media,
FTF(Foreign terrorist
fighters) and terrorist Straw purchase: agent
sympathizers agrees to acquire
communincate goods or service for
terrorist organization someone who is
at low cost unable or unwilling to
- Terrorist act on soft purchase the good or
targe(civilian, non service themselves
military-unprotected)- and agent transfers
self funded the goods or services
- Self funding-sources to that person after
employment income, purchasing them.
social assistance,
family support, bank
loan- impossible to Online peer to peer
Emerging Risks for Terrorist Financing Self-funding by FTFs detect lender
Raising funds through the use of - Raise money Crowdfunding- group
social media - Crowdfunding, sharing of people contributing
virtual or prepaid small money
account information
- Difficult for law
enforcement-
increased due to
dispersion of the
activity -need
 cooperation from FIs
and social media
platforms

New payment product and services

-take control of natural resources –
poor government control
-extort companies-extract resources
to fund terrorist activity
-sold to black market-complicit
companies who integrate them in
global trade sector

-identify geography where terrorist

control, determine current commodity
prices
-strong multi-jurisdictional partnership
Exploitation of natural resources necessary.