Money laundering is the execution of transactions to eventually convert illegally obtained money into legal money. Anti-Money Laundering (AML) legislation is becoming increasingly strict for financial service providers. Learn about the basics of AML with this starter Qstream microlearning course.
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Answer explanation:
Money is “laundered” when it conceals illegal activities, including any crimes that generate the money itself, so that the money can be used without the criminal activity being detected.
Tap into more detail about this topic in this guide from the U.S. Department of the Treasury:
https://www.fincen.gov/sites/default/files/guidance/msb_prevention_guide.pdf
Answer explanation:
The three basic stages of money laundering are:
1. Placement - physically placing the money that was illegally obtained into the retail economy (by purchasing things) or the financial system (through banks, investment firms, etc.).
2. Layering - separating the illegally obtained money from its criminal source (such as illegal drug transactions) through a series of financial transactions to make it difficult to trace.
3. Integration - moving the illegally obtained money into seemingly legitimate and appropriate forms such as businesses, cars, and real estate.
Answer explanation:
Antonio is trying to hide the paper trail of his money laundering scheme by structuring his transactions. In doing so, he coerces his employees not to file accurate accounting reports. At times, he has even bribed his employees to complete required records inaccurately to cover his tracks.
Money launderers also structure their transactions to set up an apparent legitimate “front” business, whereby they open accounts and establish preferred customer relationships.
Answer explanation:
The Bank Secrecy Act (BSA) includes regulations of reporting and record-keeping requirements that law enforcement and others can use in criminal, tax, and regulatory investigations of money laundering. These BSA provisions apply to:
• Banks: banks, savings and loans, credit unions, and other depository institutions
• Non-banks: financial institutions, casinos, brokers, and dealers in securities, and money services businesses
LEARN MORE:
Learn more about how the Internal Revenue Service supports Anti-Money Laundering efforts:
[https://www.irs.gov/businesses/small-businesses-self-employed/bank-secrecy-act]
Answer explanation:
Kim needs to make sure Oceanside Credit Union complies with all Bank Secrecy Act (BSA) regulations since they are a Money Services Business.
The key regulations she needs to address are:
• Registration
• Agent list
• Suspicious Activity Report (SAR)
• Anti-money laundering compliance program
• Currency Transaction Report (CTR)
• Monetary instrument log
• Funds transfer rules
• Currency exchange record
• Record retention
Answer explanation:
As elaborated by the facilitator, any Money Services Business (MSB) that fails to comply with Bank Secrecy Act (BSA) reporting and record-keeping requirements face possible civil penalties.
Under certain circumstances, businesses can also be held criminally liable for the acts of their employees. The maximum criminal penalty for violating a BSA requirement is a fine of up to $500,000, a term of imprisonment of up to 10 years, or both.
Answer explanation:
To prevent Money Services Businesses (MSBs) from being used by money launderers, MSBs need to adopt policies and procedures including:
• Cooperating with all law enforcement agencies
• Ensuring they use high ethical standards and compliance with laws and regulations in all of their financial transactions
• The use of authentic and valid identification for all people conducting financial transactions with their financial institution
• Providing information and training to all staff involved in the financial transactions to ensure they can and do carry out the principles
MSB’s can successfully minimize and prevent money laundering in their organization through a strong commitment from their management to their anti-money laundering compliance program.
LEARN MORE:
Basel Committee Statement of Principles on Money Laundering (3-minute reference)
[https://www.bis.org/list/bcbs/tid_199/index.htm]
Answer explanation:
An organization’s strict customer identification and verification policies and procedures can be an effective deterrent to money laundering. This includes requiring appropriate identification (as Sasha did in the earlier scenario), verifying information in certain cases, and being alert to unusual or suspicious transactions.
Although nothing will guarantee that an organization will not be used for money laundering, these practices substantially minimize the risk that a company may be used for such illegal activities.
Answer explanation:
A Suspicious Activity Report (SAR) must be filed by a Money Services Business (MSB) when a transaction is both suspicious and $2,000 or more. The MSB must file the SAR within 30-days of detection.
As part of an MSB, Michelle and her staff know that it’s illegal to tell anyone involved in the transaction that a SAR has been filed. Maintaining this confidentiality will minimize the suspected individual’s risk of reacting by structuring their transactions to evade detection from law enforcement agencies. It also protects the MSB that files the report. The information in a SAR must only be provided to the Financial Crimes Enforcement Network (FinCEN) or another appropriate law enforcement/supervisory agency when requested.
Answer explanation:
Financial activities must be reported with a Suspicious Activity Report (SAR) if the transaction is suspicious and the amount equals $2,000 or more. A transaction is suspicious if it:
• Involves funds derived from illegal activity or is intended to hide/disguise funds/assets that have been derived from illegal activities.
• Is designed to evade Bank Secrecy Act (BSA) requirements, whether through structuring or other means.
• Appears to serve no business or apparent lawful purpose, and a Money Services Business (MSB) can determine no reasonable explanation for the transaction after examining all available facts.
LEARN MORE:
Watch this short but educational Ted-Ed video about how money laundering works. (5-minute video)
[https://www.youtube.com/watch?v=257wV-AbKaE]
Answer explanation:
When the customer told Herbert that she is using an online auctioning site to buy and sell antique jewelry, that made sense to Herbert. Each auctioned jewelry item was worth several thousand dollars and was being bought and sold to different people. Since the number and value of the items being bought and sold were about the same, there was no suspicious change in the total value in his customer’s account.
Had the customer told Herbert one of the other explanations, it would have raised his suspicions further because it would have resulted in different financial transaction patterns. As a result, Herbert would have submitted a Suspicious Activity Report (SAR) so that the Financial Crimes Enforcement Network (FinCEN) could investigate further.
Answer explanation:
Cash sales of money orders or traveler’s checks of just under $3,000, as well as currency exchanges of just under $1,000, are examples of transactions below reporting or record-keeping thresholds.
Other types of red flags are:
Multiple Persons or Locations
• Two or more people working together to break one transaction into multiple transactions in order to evade the Bank Secrecy Act (BSA) reporting and record-keeping requirements
• A person using multiple locations or cashiers on the same day to evade the BSA reporting and record-keeping requirements
Overt, Illegal Customer Conduct
• A customer offers bribes or cash tips
• A customer admits to criminal conduct during the transaction
Customer ID or Information
• Customers presenting a false ID
• Multiple customers using similar IDs
• Customers altering the transaction when requested to show ID
• Customers altering the spelling of their names
Answer explanation:
Activities that are not consistent with the customer’s business or occupation are considered red flags. For example, typical college students do not have access to cash in large denominations on a consistent basis. Insurance analysts don’t usually need to cash third-party checks; therefore, this number and frequency would be outside the norm. Grocery store clerks may send money to family and friends from other countries but cannot receive funds as well.
Single instances of financial transactions can have a common reason, like a principal preparing for a summer vacation trip.
Answer explanation:
Money is “laundered” when it conceals illegal activities, including any crimes that generate the money itself, so that the money can be used without the criminal activity being detected.
Tap into more detail about this topic in this guide from the U.S. Department of the Treasury:
https://www.fincen.gov/sites/default/files/guidance/msb_prevention_guide.pdf
Answer explanation:
The three basic stages of money laundering are:
1. Placement - physically placing the money that was illegally obtained into the retail economy (by purchasing things) or the financial system (through banks, investment firms, etc.).
2. Layering - separating the illegally obtained money from its criminal source (such as illegal drug transactions) through a series of financial transactions to make it difficult to trace.
3. Integration - moving the illegally obtained money into seemingly legitimate and appropriate forms such as businesses, cars, and real estate.
Answer explanation:
Antonio is trying to hide the paper trail of his money laundering scheme by structuring his transactions. In doing so, he coerces his employees not to file accurate accounting reports. At times, he has even bribed his employees to complete required records inaccurately to cover his tracks.
Money launderers also structure their transactions to set up an apparent legitimate “front” business, whereby they open accounts and establish preferred customer relationships.
Answer explanation:
The Bank Secrecy Act (BSA) includes regulations of reporting and record-keeping requirements that law enforcement and others can use in criminal, tax, and regulatory investigations of money laundering. These BSA provisions apply to:
• Banks: banks, savings and loans, credit unions, and other depository institutions
• Non-banks: financial institutions, casinos, brokers, and dealers in securities, and money services businesses
LEARN MORE:
Learn more about how the Internal Revenue Service supports Anti-Money Laundering efforts:
[https://www.irs.gov/businesses/small-businesses-self-employed/bank-secrecy-act]
Answer explanation:
Kim needs to make sure Oceanside Credit Union complies with all Bank Secrecy Act (BSA) regulations since they are a Money Services Business.
The key regulations she needs to address are:
• Registration
• Agent list
• Suspicious Activity Report (SAR)
• Anti-money laundering compliance program
• Currency Transaction Report (CTR)
• Monetary instrument log
• Funds transfer rules
• Currency exchange record
• Record retention
Answer explanation:
As elaborated by the facilitator, any Money Services Business (MSB) that fails to comply with Bank Secrecy Act (BSA) reporting and record-keeping requirements face possible civil penalties.
Under certain circumstances, businesses can also be held criminally liable for the acts of their employees. The maximum criminal penalty for violating a BSA requirement is a fine of up to $500,000, a term of imprisonment of up to 10 years, or both.
Answer explanation:
To prevent Money Services Businesses (MSBs) from being used by money launderers, MSBs need to adopt policies and procedures including:
• Cooperating with all law enforcement agencies
• Ensuring they use high ethical standards and compliance with laws and regulations in all of their financial transactions
• The use of authentic and valid identification for all people conducting financial transactions with their financial institution
• Providing information and training to all staff involved in the financial transactions to ensure they can and do carry out the principles
MSB’s can successfully minimize and prevent money laundering in their organization through a strong commitment from their management to their anti-money laundering compliance program.
LEARN MORE:
Basel Committee Statement of Principles on Money Laundering (3-minute reference)
[https://www.bis.org/list/bcbs/tid_199/index.htm]
Answer explanation:
An organization’s strict customer identification and verification policies and procedures can be an effective deterrent to money laundering. This includes requiring appropriate identification (as Sasha did in the earlier scenario), verifying information in certain cases, and being alert to unusual or suspicious transactions.
Although nothing will guarantee that an organization will not be used for money laundering, these practices substantially minimize the risk that a company may be used for such illegal activities.
Answer explanation:
A Suspicious Activity Report (SAR) must be filed by a Money Services Business (MSB) when a transaction is both suspicious and $2,000 or more. The MSB must file the SAR within 30-days of detection.
As part of an MSB, Michelle and her staff know that it’s illegal to tell anyone involved in the transaction that a SAR has been filed. Maintaining this confidentiality will minimize the suspected individual’s risk of reacting by structuring their transactions to evade detection from law enforcement agencies. It also protects the MSB that files the report. The information in a SAR must only be provided to the Financial Crimes Enforcement Network (FinCEN) or another appropriate law enforcement/supervisory agency when requested.
Answer explanation:
Financial activities must be reported with a Suspicious Activity Report (SAR) if the transaction is suspicious and the amount equals $2,000 or more. A transaction is suspicious if it:
• Involves funds derived from illegal activity or is intended to hide/disguise funds/assets that have been derived from illegal activities.
• Is designed to evade Bank Secrecy Act (BSA) requirements, whether through structuring or other means.
• Appears to serve no business or apparent lawful purpose, and a Money Services Business (MSB) can determine no reasonable explanation for the transaction after examining all available facts.
LEARN MORE:
Watch this short but educational Ted-Ed video about how money laundering works. (5-minute video)
[https://www.youtube.com/watch?v=257wV-AbKaE]
Answer explanation:
When the customer told Herbert that she is using an online auctioning site to buy and sell antique jewelry, that made sense to Herbert. Each auctioned jewelry item was worth several thousand dollars and was being bought and sold to different people. Since the number and value of the items being bought and sold were about the same, there was no suspicious change in the total value in his customer’s account.
Had the customer told Herbert one of the other explanations, it would have raised his suspicions further because it would have resulted in different financial transaction patterns. As a result, Herbert would have submitted a Suspicious Activity Report (SAR) so that the Financial Crimes Enforcement Network (FinCEN) could investigate further.
Answer explanation:
Cash sales of money orders or traveler’s checks of just under $3,000, as well as currency exchanges of just under $1,000, are examples of transactions below reporting or record-keeping thresholds.
Other types of red flags are:
Multiple Persons or Locations
• Two or more people working together to break one transaction into multiple transactions in order to evade the Bank Secrecy Act (BSA) reporting and record-keeping requirements
• A person using multiple locations or cashiers on the same day to evade the BSA reporting and record-keeping requirements
Overt, Illegal Customer Conduct
• A customer offers bribes or cash tips
• A customer admits to criminal conduct during the transaction
Customer ID or Information
• Customers presenting a false ID
• Multiple customers using similar IDs
• Customers altering the transaction when requested to show ID
• Customers altering the spelling of their names
Answer explanation:
Activities that are not consistent with the customer’s business or occupation are considered red flags. For example, typical college students do not have access to cash in large denominations on a consistent basis. Insurance analysts don’t usually need to cash third-party checks; therefore, this number and frequency would be outside the norm. Grocery store clerks may send money to family and friends from other countries but cannot receive funds as well.
Single instances of financial transactions can have a common reason, like a principal preparing for a summer vacation trip.
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