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Introduction to Anti-Money Laundering (AML)

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.

Category: Compliance

Industry: Finance

Questions: 13

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Introduction to Anti-Money Laundering (AML)

Navigate through the Qstream questions below to preview. Each challenge is designed following Qstream’s best practices for maximum knowledge reinforcement and engagement. This Qstream is free for clients to use as a starting point.

1. Money Laundering Definition >
2. Three Stages of Money Laundering >
3. Reporting and Record-Keeping >
4. Government Regulations >
5. Bank Secrecy Act (BSA) Regulations >
6. BSA Compliance and Penalties >
7. The Basel Committee Statement of Principles >
8. Customer Identification >
9. Suspicious Activity Reports (SARs) >
10. Identifying Suspicious Transactions >
11. Identifying Suspicious Transactions >
12. Suspicious Transactions >
13. Red Flags >

Follow the interactions on each screen to answer Qstream questions as a Participant.

Money laundering _______ the source of the proceeds of illegal activity, such as drug trafficking.

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

Jeremy is a financial analyst who is meeting with his friends after work. As they share stories about work, Jeremy mentions that he’s investigating a money laundering scheme. One of Jeremy’s friends asks, “How does money laundering actually work?”

Jeremy replies, “Although it’s often complex, money laundering really boils down to three basic stages, _____, _____, and then _____.”

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.

Antonio is an unscrupulous construction foreman who overcharges his clients for work that has not been performed. He also makes inaccurate invoices, which include items that were never used. To cover his tracks so he can continue to overcharge his clients illegally, he tries to eliminate the “paper trail” of his money laundering scheme.

One way Antonio avoids reporting and record-keeping requirements is by ________ his transactions.

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.

To combat money laundering in the United States, the U.S. Federal Government has issued regulations pursuant to the _____________.

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]

Kim is a senior financial analyst at Oceanside Credit Union. She’s responsible for making sure her organization complies with Bank Secrecy Act (BSA) regulations because Oceanside Credit Union is categorized as a Money Services Business (MSB). So far, she has registered with the Financial Crimes Enforcement Network (FinCEN) and made a list of agents.

As Kim reviews her list of compliance requirements, which of the following additional BSA regulations does she need to meet?

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

Jose was recently hired as a loan processor for TCM Services and is in a new employee orientation class. When the topic shifts to risk mitigation, the facilitator asks Jose if he knows what the penalties are for violating a Bank Secrecy Act (BSA) requirement. Jose answers, “I’m sure the company could be fined… maybe a few thousand dollars?”

The facilitator responds, “You’re on the right track, but there can be civil as well as criminal penalties. In fact, the maximum criminal penalty for violating a BSA requirement is a fine of up to _______ , or a term of imprisonment of up to _______ years, or both.”

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.

The Financial Crimes Enforcement Network (FinCEN) encourages Money Services Businesses (MSBs) to adopt policies and procedures that incorporate the Basel Committee Statement of Principles on Money Laundering.

The Basel Committee Statement of Principles on Money Laundering recommends which of the following?

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]

Sasha is a bank officer at Fox Savings and Loan. As part of her best business practices and when processing large money orders for customers, Sasha adds an additional layer of identity verification by asking the customer to provide her with their ATM card and driver’s license, even if the customer already entered the PIN for their ATM card.

Sasha knows that strict customer identification and verification policies and procedures benefit her organization by:

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.

Michelle is a banking supervisor at MSV Financial and oversees the daily transactions. As part of her responsibilities, she files Suspicious Activity Reports (SARs) to protect her organization from money laundering and other financial crimes. As Michelle reviews the daily transactions involving money transmissions, money orders, and traveler’s checks, she’s on the lookout for any transactions that meet the requirement to file a SAR.

To qualify for a SAR to be filed, a transaction must be both suspicious and of an amount equal to or greater than _______.

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.

A suspicious transaction includes which of the following features?

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]

Herbert, a financial analyst at ETS Financial Group, is reviewing a customer account and investigating something he considers unusual in the customer’s recent transactions. Within the last two months, there have been 17 transfers (nine sending and eight receiving) in the amounts of $2,000-$5,000 to different people. Herbert investigates the file further and discovers that the customer is a retired teacher, which raises his suspicions even more. To Herbert, these transactions appear to “serve no business or apparent lawful purpose,” and there seems to be no legal source for these funds.

What explanation by the customer for these recent transactions would put Herbert’s suspicions at ease? The customer is ____________.

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.

Bank tellers Jamie and Sophia are eating lunch together and sharing stories about customer encounters that raised red flags. “I had a woman come in three days straight and each time asked for a money order that was just under $3,000,” shared Sophia.

Red flags, or single factors that indicate a transaction is suspicious, come in many forms. Sophia’s customer asking for multiple money orders just under $3,000 is an example of what type of red flag?

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

An important type of red flag that Money Services Businesses (MSBs) must be able to identify is financial activity that is not consistent with the customer’s business or occupation. Examples of this include which of the following scenarios?

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.

Money laundering _______ the source of the proceeds of illegal activity, such as drug trafficking.

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

Jeremy is a financial analyst who is meeting with his friends after work. As they share stories about work, Jeremy mentions that he’s investigating a money laundering scheme. One of Jeremy’s friends asks, “How does money laundering actually work?”

Jeremy replies, “Although it’s often complex, money laundering really boils down to three basic stages, _____, _____, and then _____.”

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.

Antonio is an unscrupulous construction foreman who overcharges his clients for work that has not been performed. He also makes inaccurate invoices, which include items that were never used. To cover his tracks so he can continue to overcharge his clients illegally, he tries to eliminate the “paper trail” of his money laundering scheme.

One way Antonio avoids reporting and record-keeping requirements is by ________ his transactions.

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.

To combat money laundering in the United States, the U.S. Federal Government has issued regulations pursuant to the _____________.

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]

Kim is a senior financial analyst at Oceanside Credit Union. She’s responsible for making sure her organization complies with Bank Secrecy Act (BSA) regulations because Oceanside Credit Union is categorized as a Money Services Business (MSB). So far, she has registered with the Financial Crimes Enforcement Network (FinCEN) and made a list of agents.

As Kim reviews her list of compliance requirements, which of the following additional BSA regulations does she need to meet?

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

Jose was recently hired as a loan processor for TCM Services and is in a new employee orientation class. When the topic shifts to risk mitigation, the facilitator asks Jose if he knows what the penalties are for violating a Bank Secrecy Act (BSA) requirement. Jose answers, “I’m sure the company could be fined… maybe a few thousand dollars?”

The facilitator responds, “You’re on the right track, but there can be civil as well as criminal penalties. In fact, the maximum criminal penalty for violating a BSA requirement is a fine of up to _______ , or a term of imprisonment of up to _______ years, or both.”

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.

The Financial Crimes Enforcement Network (FinCEN) encourages Money Services Businesses (MSBs) to adopt policies and procedures that incorporate the Basel Committee Statement of Principles on Money Laundering.

The Basel Committee Statement of Principles on Money Laundering recommends which of the following?

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]

Sasha is a bank officer at Fox Savings and Loan. As part of her best business practices and when processing large money orders for customers, Sasha adds an additional layer of identity verification by asking the customer to provide her with their ATM card and driver’s license, even if the customer already entered the PIN for their ATM card.

Sasha knows that strict customer identification and verification policies and procedures benefit her organization by:

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.

Michelle is a banking supervisor at MSV Financial and oversees the daily transactions. As part of her responsibilities, she files Suspicious Activity Reports (SARs) to protect her organization from money laundering and other financial crimes. As Michelle reviews the daily transactions involving money transmissions, money orders, and traveler’s checks, she’s on the lookout for any transactions that meet the requirement to file a SAR.

To qualify for a SAR to be filed, a transaction must be both suspicious and of an amount equal to or greater than _______.

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.

A suspicious transaction includes which of the following features?

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]

Herbert, a financial analyst at ETS Financial Group, is reviewing a customer account and investigating something he considers unusual in the customer’s recent transactions. Within the last two months, there have been 17 transfers (nine sending and eight receiving) in the amounts of $2,000-$5,000 to different people. Herbert investigates the file further and discovers that the customer is a retired teacher, which raises his suspicions even more. To Herbert, these transactions appear to “serve no business or apparent lawful purpose,” and there seems to be no legal source for these funds.

What explanation by the customer for these recent transactions would put Herbert’s suspicions at ease? The customer is ____________.

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.

Bank tellers Jamie and Sophia are eating lunch together and sharing stories about customer encounters that raised red flags. “I had a woman come in three days straight and each time asked for a money order that was just under $3,000,” shared Sophia.

Red flags, or single factors that indicate a transaction is suspicious, come in many forms. Sophia’s customer asking for multiple money orders just under $3,000 is an example of what type of red flag?

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

An important type of red flag that Money Services Businesses (MSBs) must be able to identify is financial activity that is not consistent with the customer’s business or occupation. Examples of this include which of the following scenarios?

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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