Module 3 (Part 2)

Question 1

What are the 4 pillars

Answer 1

1. A system of internal controls
2. compliance function/designated BSA officer
3. Employee training
4. Independent Review

Question 2

What is the first line of defense

Answer 2

effective policies, procedures, and internal controls

Question 3

what do these three parts do

Answer 3

define and support the entire AML/CFT program, while at the same time, act as a blueprint that outlines how an institution is fulfilling its regulatory requirements

Question 4

What is the second line of defense

Answer 4

the compliance function/designated BSA officer

Question 5

Why is it the second line of defense

Answer 5

the compliance function is responsible for monitoring the controls of the business

Question 6

can the compliance function be designated with a one size fits all mentality

Answer 6

no

Question 7

why

Answer 7

no two institutions will have exactly the same compliance structure because the risk facing each institution is going to be different as identified in their respective risk assessments

Question 8

what are the five factors in which the sophistication of the compliance function should be based upon

Answer 8

the institutions:

1. nature
2. Size
3. Complexity
4. Regulatory environment
5. Specific risk associated with the products, services and clientele

Question 9

in most cases what is the BOD responsible for

Answer 9

appointing a qualified individual as an institution’s AML/CFT Officer

Question 10

what is this compliance officer responsible for

Answer 10

managing all aspects of the AML/CFT compliance program

Question 11

what can these duties consist of (5 items)

Answer 11

1. designing and implementing the program
2. making necessary changes and updates to the program
3. disseminating information about the program’s successes and failures to key staff members
4. constructing AML/CFT related content for staff training programs
5. managing adherence to applicable AML/CFT laws and regulations

Question 12

what should an effective AML/CFT training program do

Answer 12

explain the relevant AML/CFT laws and regulations

Cover the institutions’ policies and procedures used to mitigate money laundering risks

Question 13

what is the first steep in designing an effective AML/CFT training program

Answer 13

identify the target audience

Question 14

will the topics to train be the same at every institution?

Answer 14

no, they will vary

Question 15

what are the matters that should be factored into training

Answer 15

general background and history pertaining to money laundering controls, including the definitions of money laundering and terrorist financing, why criminals do it, and why stopping them is important

legal framework on what aml/cft laws aply to institutions and their employees

penalties for violations

Question 16

how should training occur

What are the three key aspects of training to determine

Answer 16

it should be ongoing and on a regular schedule

1. how to provide the training
2. what to focus the training on
3. who to train

Question 17

What is the third line of defense

Answer 17

independent audit

Question 18

who must perform it

Answer 18

people not involved with the organizations AML/CFT compliance staff

Question 19

why must it be independent

Answer 19

to ensure its effectiveness and to look for new risk factors

Question 20

who should those performing the audit report to

Answer 20

BOD or to a designated board committee composed primarily/completely of outside directors

Question 21

what must be created at a company

Answer 21

a culture of compliance

Question 22

What are the four measures that FATF recommends institutions incorporate into their CDD programs

Answer 22

1. Identifying the customer and verifying the customer’s identity using reliable independent source documents, data, or information
2. identifying the beneficial owner and taking reasonable measures to verify the identity of the beneficial owner
3. Understanding and as appropriate, obtaining information on the purpose and intended nature of the business relationship
4. Conducting ongoing due diligence on the business relationship and scrutiny of transactions undertaken throughout the course of the relationship to ensure that the transactions being conducted are consistent with the institution’s knowledge of the customer, their business, risk profile and, where necessary, the source of funds

Question 23

what should occur with higher risk customers and their transactions

Answer 23

should be reviewed even more closely at account opening and more frequently during their account relationships

Question 24

what should the bank do to verify the identify of the customer

Answer 24

use reliable, independent source documents, data or information

Question 25

what can be utilized for the verification

Answer 25

documentary or non documentary methods

Question 26

what do documentary verifications include

Answer 26

obtaining a copy of the certificate of incorporation, memorandum and articles of association, partnership agreement, or any other document certifying the existence of the entity

Question 27

what about for established corporate entities

Answer 27

reviewing a copy of financial statements

Question 28

what do non documentary verification methods include

Answer 28

1. Undertaking a company search and/or other commercial inquiries to ascertain that the legal person has not been, or is not in the process of being, dissolved or terminated 2. using an independent information verification process, such as by accessing public corporate registers, private databases or other reliable independent sources (lawyers and accountants) 3. validating the legal entity identifier and associated data in the public access service 4. obtaining prior bank references 5. visiting the corporate entity, where practical 6. contacting the corporate entity by telephone, mail, or e-mail

Question 29

what is a way to financially isolate a target

Answer 29

Economic Sanctions

Question 30

what are the 3 categories that sanctions can fall within

Answer 30

1. Targeted sanctions 2. Sectoral sanctions 3. Comprehensive sanctions

Question 31

What are targeted sanctions

Answer 31

aimed at specifically named individuals

Question 32

what do these sanctions often include

Answer 32

the freezing of assets and travel bans where possible

Question 33

what are sectoral sanctions

Answer 33

aimed at key sectors of an economy to prohibit a very specific subset of financial dealings within those sectors to impede future growth

Question 34

what are comprehensive sanctions

Answer 34

generally prohibit all direct or indirect import/export, trade brokering etc.

Question 35

what are they often aimed at

Answer 35

regimes responsible for gross human rights violations and nuclear proliferation

Question 36

what should be done before a financial institution starts doing business with a new customer

Answer 36

review the various country sanction program requirements as well as published lists of known or suspected terrorists, narcotics traffickers, and other criminal actors for potential matches

Question 37

what does KYE stand for

Answer 37

know your employee

Question 38

what does this program mean

Answer 38

that the institution has a program in place that allows it to understand an employee's background, conflicts of interest, and susceptibility to money laundering complicity

Question 39

what is the deal with the sheer number of people and volume of regulations

Answer 39

makes manual compliance difficult, if not impossible

Question 40

what have most institutions done

Answer 40

have designated technology systems to automate their compliance activities,

Question 41

what should the automated system have the ability to do (5 items)

Answer 41

1. Monitor transactions and identify anomalies that might indicate suspicious activity 2. gather CDD information for new and existing customers, score customer responses, and store CDD data for subsequent use 3. conduct advanced evaluation and analysis of suspicious/unusual transactions identified by the monitoring system in the context of each client's risk profile and that of their peer group 4. view individual alerts within the broader context of the client's total activity at the institution 5. use data from the institution's core customer and transaction systems and databases to inform/update monitoring and case management services

Question 42

what are the 5 ML/TF red flags

Answer 42

1. Unusual customer identification circumstances 2. Unusual cash transactions 3. Unusual wire transfer transactions 4. Unusual activity indicative of trade based money laundering 5. unusual activity indicative of human trafficking

Question 43

what are some examples of an unusual customer identification circumstance

Answer 43

customer furnishes unusual or suspicious ID documents or declines to produce originals for verification customer is unwilling to provide personal background info when opening an account customer does not wish a statement of his account or any mail sent to him customer's internet protocol (IP) address does not match the identifying info provided during online registration

Question 44

what are some unsual cash transactions

Answer 44

customer makes large cash deposit containing many larger denomination bills customer withdraws cash In amounts under the reporting threshold customer makes frequent deposits or withdrawals of large amounts of currency for no apparent business reason, or for a business that generally does not generate large amounts of cash

Question 45

what are some unusual wire transfer transactions

Answer 45

wire transfers are sent or received from the same person to or from different accounts wire transfer activity to and from secrecy havens or higher risk geographic locations without apparent business reason or is inconsistent with customer's transaction history an increase in international wire transfer activity in an account with no history of such activity or where the stated business of the customer does not warrant it

Question 46

what are unusual activity indicative of trade based money laundering

Answer 46

discrepancies in the description of goods or commodity in the invoice or of the actual goods shipped no apparent business relationship between the parties and transactions frequent transactions in round or whole dollars lack of appropriate documentation to support transactions

Question 47

what are examples of activity indicative of human trafficking

Answer 47

a business customer does not exhibit normal payroll expenditures pay roll costs can be non existent or extremely low for the size of the customers alleged operations, workforce and/or business line/model multiple, apparently unrelated, customers sending wire transfers to the same beneficiary payments to employment or student recruitment agencies that are not licensed/registered or that have labor violations a customer establishes an account or visits a branch to conduct transactions while escorted by a third party inflows are largely received in cash where substantial cash receipts are inconsistent with the customer's line of business, extensive use of cash to purchase assets and to conduct transactions