Questions and Answers

1. Which of the following acts is not considered to be a money laundering offence?

a) Dealing with any assets, knowing the property is proceeds of a crime.

b) Dealing with any assets, believing the property is proceeds of a crime.
c) Dealing with any assets, not knowing the property is proceeds of a crime.

2. Which of the following is a regulatory requirement of Corporate Service Provider

employees?

a) Reporting a suspicious transaction

b) Reporting corruption
c) Reporting a crime

3. When should a Suspicious Transaction Report (STR) be made to the Authorities when you
deal with your customer?

a) Whenever there are suspicious activity indicators making the transaction with the
customer suspicious
b) Whenever there are suspicious activity indicators and the transaction with the customer
remains suspicious, after all the information has been reviewed and the attempt to clarify
the issues with the customer has failed.
c) For all transactions of US$1,000,000 and above

4. Which of the following is not normally required for Customer Due Diligence (CDD)?

a) Know the spouse of the customer.

b) Know the customer.
c) Know the transaction.

5. A walk-in customer, Mr. Roberts, came to our company and asked to set up a limited
company, Company A. He asked this to be done quickly because he will be returning to the
UAE soon. He provided the name of his wife as another shareholder of the company to be set
up. He claimed that he would supply copies of both his and the wife’s passport at a later
stage. What is the most appropriate course of action?

a) Refuse Mr. Roberts’ business as the circumstances are suspicious.

b) Proceed with the business and conduct CDD on Mr. Roberts and his wife.
c) Proceed with the business but make a suspicious transaction report because it looks
suspicious.
6. Following upon Q.6, you interviewed Mr. Roberts with a view to conducting Customer Due
Diligence (CDD). He stated that he was a company director in the UAE (with no further
details provided) and claimed that he had not had his passport or picture ID with him. His
wife was busy in the UAE and could not travel to Cyprus to sign the documents for setting up
the company. Mr. Roberts stated that a “Power of Attorney” will be sent to your office by
courier tomorrow so that he is properly authorized to act for his wife. He requested that
action be taken now to set up a company in Cyprus. What should you do?

a) Ask Mr. Roberts to be patient and come back tomorrow with proof of ID of himself and
his wife as well as documentary proof of his directorship in the UAE company.
b) Refuse the transaction as the circumstances are suspicious.
c) Make a Suspicious Transaction Report in order to report your suspicion.

7. Following upon Q.7, Mr. Roberts told you that he came from the UAE and would stay in
Cyprus for a few days only. He claimed that he wanted to deposit the funds of a declared
dividend he obtained in the UAE and invest in real estate in Cyprus. As he is too busy to
open a bank account, he requested to deposit the money in cash into the bank account of our
company so that the money could be transferred to the bank account of Company A for
property investment. What should you do?

a) Ask your staff to deposit the cash into the bank account and wait for further instruction
from Mr. Roberts.
b) Make an STR as the circumstances are suspicious.
c) Refuse to proceed with the transaction but no need to make an STR.

8. Mr. Roberts now has succeeded in opening a bank account and transferring funds into this
account. Further to Q.8, Mr. Roberts sent you a letter from the UAE saying that as the
Cyprus property market seemed to go down, he had decided to change his investment plan.
He requested your company to transfer the money to his friend's bank accounts in the UAE.
What is the best course of action?

a) Proceed with the transfer as the money belongs to Mr. Roberts and do not make an STR.
b) Refuse the request as you suspect that it is a money laundering scheme.
c) Make an STR to the Competent Authorities to explain the suspicion you have in this case.

9. Mr. Smith came to your office and asked to set up a trust for charitable purposes. The aim is
to help poor children in Africa with their education. After the trust is formed, donations were
received from overseas countries and money was sent to various African countries for
building schools. A few months later, Mr. Smith instructed you to transfer US$100,000 to a
personal bank account opened in a country known to be of a terrorist concern / under
sanction. Mr. Smith said that the money is to buy material to build schools in Africa. What
should you do?

a) Proceed with the transaction which you consider is relevant to the purpose of the trust.
b) Refuse the transaction but do not report.
c) Make a STR because the transaction relates to a country under terrorist concern /
sanctions.
10. One of the important steps of money laundering is:

a) Depositing; withdrawing.
b) Placement; layering
c) Backward, forward integration
d) Organization; controlling.

1. Which of the following is not an example of layering

a) Using cash deposited in a bank account to purchase an asset
b) Exchanging cash for a monetary instrument
c) Using an inbound wire transfer to purchase an asset
d) Using an inbound wire transfer to purchase a monetary instrument

The correct answer is B 

This answer uses physical cash to purchase an asset and is  a feature of placement. All other
answers use money that is already in the financial system and are thus examples of layering.

2. What are key effects of money laundering on countries? Choose three.

i) Reputation risk
ii) Losing control of regulatory policy
iii) Being forced into adverse fiscal policies
iv) Losing control of monetary policy

A) i, iii, iv
B) ii, iii, iv
C) i, ii, iv
D) i, ii, iii

The correct answer is A 

Counties can suffer reputational risk if they are known as a haven for money laundering, they
may be forced to make adverse fiscal (tax and budget) policy to compensate for the tax revenue
lost to criminal laundering, and  they may lose control of monetary policy as currency flows are
directed by launderers out of the country. The country should use regulatory policy to enforce
anti-money laundering.

3. Risks of correspondent banking include the following. Choose three.

i) The effectiveness of the regulatory regime may be unknown
ii) The ultimate customers are at arm’s length
iii) The USA Patriot Act did not address correspondent banking risks
iv) The volumes of transactions are high

A) i, iii, iv
B) ii, iii, iv
C) i, ii, iv
D) i, ii, iii

The correct answer is C  

While the regulatory regime may be known, the effectiveness of that regime on any one
institution may be difficult to assess beyond  standard checklists. The arms-length nature of
correspondent banking means that customer  due diligence of the ultimate customer is difficult or
impossible, and the transaction volumes are high, so suspicious transactions are hidden in the
noise. The USA Patriot act contained specific provisions concerning correspondent banking in
sections 312, 313, 319a & b

4. Which of the following are most vulnerable to the placement stage of money laundering?
Choose two.
i) Purchasing diamonds
ii) Overpaying a credit card balance
iii) Obtaining cashiers cheques
iv) Internet casinos

A) i, ii
B) i, iii
C) i, iv
D) ii, iii

The correct answer is B 

Gemstones and cashiers’ cheques can be purchased using cash, making them vulnerable to
placement. Credit cards and internet casinos do not usually allow cash payments, and so are
less likely to be used as part of  the placement phase.
 
5. Which of the following describes a payable through account.
a) A numbered account where the customer is unknown
b) A correspondent account that can be used directly by the respondent's customers without the
respondent's oversight
c) Internal bank accounts used to assist in the settlement and processing of customer transactions.
Also known as omnibus, settlement, or collection account.
d) A system where a bank offers accounts to another bank to enable it to perform transactions in
a location where it does not have a physical presence

The correct answer is B 

C describes a concentration account, D is a correspondent account, A is numbered account

6. What is a risk of concentration accounts?

a) the underlying customer identification can be lost
b) co-mingling of clean and dirty funds can occur
c) customers may be unaware they are using them
d) confidentiality and secrecy between client and banker
The correct answer is A 
The internal accounts used by the bank may be set up so that the audit trail is lost when they are
used. The other answers are not relevant risks to the use of concentration accounts.

7. What are two risks associated with private banking?

i) The area was not covered by the Wolfsburg group
ii) politically exposed persons
iii) Private investment companies
iv) Lack of competition

 A) i, ii
B) i, iv
C) ii, iii
D) ii, iv
 
The correct answer is C  
  Politically exposed persons (PEPs) use private banking and may have access to funds derived
from embezzlement or bribes. Wealthy users of private banking often use private investment
companies (PICs) to manage their wealth which may hide the beneficial owners. The Wolfsburg
group did cover private banking, and there is intense competition in private banking, making
those answers incorrect.

8. Which of the following is a correct statement?

a) smurfs travel from bank-to-bank withdrawing cash from ATMs
b) smurfing is a way to avoid triggering a currency reporting threshold
c) smurfs are dead people whose accounts have been taken over by money launderers
d) smurfing requires an insider at a financial institution

The correct answer is B 

Smurfing is used to deposit cash at a financial institution below the reporting threshold. A is
incorrect because smurfs deposit cash, rather than withdrawing it. C is incorrect, smurfs often
use accounts set up using dead people’s identities, but the term does not refer to them. D is
incorrect because this is relating to cuckoo smurfing

9. Which one of the following might indicate micro structuring?

a) converting $800 of traveler’s cheques to a wire transfer
b) using counter deposit slips
c) large cash deposits
d) using cash to purchase a gold ingot

The correct answer is B 

  Microstructures often use counter deposit slips as they make many small cash deposits and will
have insufficient pre-printed paying in slips. A is incorrect as there is no cash involved, C&D
both mention either large cash amounts or expensive items which would not indicate micro
structuring, which uses small amounts of cash, typically under $1000.

10. Cuckoo smurfing features which three of the following?

i. An unwitting bank account owner
ii. An insider in a financial institution
iii. An accomplice in a foreign country who deposits cash
iv. Concentration of funds

A) i, iii, iv
B) ii, iii, iv
C) i, ii, iv
D) i, ii, iii

The correct answer is D 

  Although the remitter is expecting funds to be sent via an international wire transfer, in a
cuckoo smurfing situation, an accompanied in a financial institution diverts it elsewhere. The
funds are instead deposited as dirty cash by an accomplice in a foreign country into the
unwitting recipient's bank account. There is no concentration of funds as this would cause a
discrepancy between the remittance and receipt which would raise alarm.

11. What is the best way to guard against the risk of money laundering by bank staff?
a. Ensure that key staff are registered with the regulator.
b. Ensure segregation of duties for all tasks.
c. Conduct initial and ongoing criminal background checks.
d. Ensure managers review staff work periodically.

The correct answer is C  

  All of these are methods to guard against money laundering risks, however not all of them are
effective. Registering staff with the regulator is not possible in all jurisdictions, and may only
cover senior roles not all roles that might be at risk of money laundering, segregation of

12. Why are credit unions (building societies) vulnerable to money laundering?
a) They are small in size
b) They have high levels of cash transactions
c) They offer complex products
d) They are not regulated

The correct answer is B 

These financial institutions are low risk because they are small, but they are vulnerable because
of the level of cash transactions. They do not usually offer complex products, and they are
regulated.

13. At which stages of money laundering are credit cards used? Choose two.
i) Layering
ii) Structuring
iii) Integration
iv) Placement

A) i, ii
B) i, iii
C) i, iv
D) ii, iii
 
The correct answer is B 
Structuring and placement are methods of disposing of cash, which many credit cards do not
permit. They are used for structuring and integration.

14. Which of the following are money laundering risks at insurance companies? Choose two:
i) Early cancellation capabilities of car insurance
ii) Salesmen are incentivized
iii) Underpaying insurance and requesting refunds
iv) Cancelling life policies during the 'free look' period

A) i, ii
B) i, iii
C) i, iv
D) ii, iv

The correct answer is D 

Salesmen that are incentivized may overlook their suspicions, and cancelling life insurance
during the free look period enables the launderer to obtain a refund of clean money.
Underpaying insurance does not lead to an excess cash balance and cancelling car insurance
early would not lead to a large refund so is not a significant risk of money laundering.

15. What is wash trading?

a. The ability to launder funds using nominee accounts.
b. The inherent anonymity granted by many broker-dealers.
c. The use of offsetting trades to launder funds.
d. The trading of commodities.

The correct answer is C  

The use of two offsetting trades means that the market can move in either direction and the
principle is safe. The loss of dirty money in one account is compensated for by the creation of
legitimate gains in another trading  account. None of the other  descriptions matches that of a
wash trade.

16. Securities dealers are attractive to money launderers for the following reasons. Choose three:
i. They have information that can be used for insider trading.
ii. They use high-speed wire transfers.
iii. They have a competitive, commission-driven culture.
iv. They use cash accounts that are not subject to banking AML controls.

A) i, iii, iv
B) ii, iii, iv
C) i, ii, iv
D) i, ii, iii

The correct answer is B 

  Broker / dealers are not party to insider information. They do use wire transfers, which are
useful to money launderers, the commission driven culture could cause sales staff to overlook the
source of funds, and their cash accounts are not subject to the same level of AML oversight at
banking accounts.

17. Casinos and other gaming venues are attractive to money launderers for the following
reasons. Choose three:
i. They offer a plausible source of recently acquired wealth.
ii. Gambles can be placed so that there is very little risk to capital.
iii. The variety of gambling opportunities are useful at the integration stage.
iv. Funds can be made available in different jurisdictions.

A) i, iii, iv
B) ii, iii, iv
C) i, ii, iv
D) i, ii, iii

The correct answer is C  

  Broker dealers are not party to insider information. They do use wire transfers, which are
useful to money launderers, the commission driven culture could cause sales staff to overlook the
source of funds, and their cash accounts are not subject to the same level of AML oversight at
banking accounts.

18. Which two of the following makes gold the most attractive to money launderers?
i. It has high demand due to religious or cultural reasons.
ii. It can be used in the placement phase.
iii. It can be easily melted down.
iv. It can be used in the layering phase.

A) i, ii
B) i, iii
C) i, iv
D) ii, iv

The correct answer is D 

Gold can be purchased for dirty cash, meaning it is useful in the placement phase. It can also be
exchanged for cash or other items or physically handed to another person with little or no audit
trail, making it useful in the integration phase. Although gold is in high demand and can be
easily melted down, these are not the most useful features of gold to money launderers.

19. Why are travel agents vulnerable to money launderers? Choose one.
a. They sell hotel rooms in high-risk destinations.
b. Hotels are frequented by politically exposed persons.
c. Refunds can be made to third parties.
d. They are listed in the FATF 40 recommendations.

The correct answer is C  

  Expensive flights and hotels can be purchased for a third party, who can then request a refund
of the cost.