Anti-money Laundering and

Corporate Governance
Nearchos A. Ioannou BAcc(Hons) U.k, MSc U.k, FCCA, CFE
AML
Seminar Agenda
• What is money laudering
• Offences linked with money laundering
• The regulatory frame work relating to anti-money laundering
• Disclosure requirements
• Discuss real Money Laundering cases and identify red flag indicators.
• How to perform AML risk assessment.
• How to apply risk appetite to risk assessment – risk Tolerance and risk
treatment.
• What are risk variables and their use for client classification.
• How to identify aspects of the Company that may be susceptible to ML/FT.
What is money laundering
• “Money laundering is any action taken to conceal, arrange, use or
possess the proceeds of any criminal conduct”

• Serious Organised Crime Agency, UK

What is money laundering

• Money laundering is the name given to the process by which

illegally obtained funds are given the appearance of having
been legitimately obtained”

• Australian Transaction Reports and Analysis Centre

“I am like any other man. All I do is supply a demand”

Al Capone
Funds laundered in the world could range
between two and five per cent of the world’s
gross domestic product.

Using 1996 statistics, these percentages would

Approximate between US $ 590 billion and
U.S. $ 1.5 trillion”

International Monetary Fund

Money laundering stages
Money laundering stages

Placement

Money
Laundering
Stages
Integration Layering
Placement

At this stage, illegal funds or assets are first brought into the financial
system.
This ‘placement’ makes the funds more liquid.
For example, if cash is converted into a bank deposit, it becomes
easier to transfer and manipulate.
Money launderers place illegal funds using a variety of techniques,
which include depositing cash into bank accounts and using cash to
purchase assets.
Placement techniques

Placement techniques:
◦ smurfing and structuring
◦ alternative remittance
◦ electronic transfer
◦ asset conversion
◦ bulk movement
◦ gambling
◦ insurance purchase.
 Placement techniques
Smurfing and structuring
 Smurfing is a common placement technique. Cash
from illegal sources is divided between 'deposit
specialists' or 'smurfs' who make multiple deposits
into multiple accounts (often using various aliases) at
any number of financial institutions. In this way,
money enters the financial system and is then
available for layering. Suspicion is often avoided as it
is difficult to detect any connection between the
smurfs, deposits and accounts.

 Structuring involves splitting transactions into

separate amounts under Eur10,000 to avoid the
transaction reporting requirements of the AML Act.
Placement techniques
Alternative remittance
• ‘Alternative remittance’ refers to funds transfer
services usually provided within ethnic community
groups and known by names particular to each
culture. Generally such services accept cash, cheques
or monetary instruments in one location and pay an
equivalent amount to a beneficiary in another
location. In some communities this form of money
transfer is commonly known as hawala, hundi, chuyen
tien, yok song geum, or pera padala.
Placement techniques
Alternative remittance is a common placement technique. For
example:
 David brings a large sum of illegal cash to an alternative remittance
provider. Larry specifies the identity and location of the recipient and
the alternative remittance provider arranges for the funds to be sent
overseas. David may or may not receive a receipt for the transaction.
 The recipient, Mark, goes to the counterpart of the alternative
remittance provider in the overseas location. The counterpart
provides the specified amount of cash (less any transfer charges) to
Mark. Again, no documents may be involved.
Placement techniques
Electronic transfer

 Electronic transfer is a common placement

technique.
◦ Onyancha takes cash to an electronic funds transfer agency
such as Western Union/M-Pesa/ZAP/YU-Cash etc and
requests a transfer of funds to Sukuma Wiki in the Uganda.
◦ Sukuma Wiki goes to the Transfers branch in Uganda,
presents her identification and collects the funds.

 In the money laundering context, this technique

involves the transfer of money through electronic
payment systems that do not require sending funds
through formal bank accounts. This method is also
known as wire transfer.
Placement techniques
Electronic transfer

• Electronic transfers can be compared to alternative

remittances in that both are person-to-person
transfers that do not require sending funds through
the formal banking system.

• Criminals make use of the electronic financial system

because it enables the transfer of large
denominations of money instantly locally or to
offshore jurisdictions. This speedy disbursement of
funds to and between foreign jurisdictions makes the
transactions difficult to investigate and trace back to
the source.
Placement techniques
Asset conversion
 Asset conversion is a common placement technique.
◦ Onyancha gives cash from his illegal operations to a trusted
friend.
◦ The friend uses the cash to purchase diamonds from his friendly
jeweller and hands these diamonds over to Onyancha.

 Asset conversion simply involves the purchase of goods.

Illegal money is converted into other assets, such as real
estate, diamonds, gold and vehicles, which can then be
sold.

 Generally, money launderers prefer to purchase high-

value items that are small and easy to sell or transport to
another country. Often these assets will be purchased in
the name of a friend to avert suspicion.
Placement techniques
Bulk movement
 Bulk movement is a common placement technique.
◦ Onyancha generates a large amount of cash from his illegal
business in Kenya. He boxes a large stack of cash in Computer
CPU’s.
◦ The cash and watermelons are transported across to the Tanzania
as part of a larger export shipment of Computers.

 Bulk movement involves the physical transportation and

smuggling of cash and monetary instruments, such as
money orders and cheques.

 Often money launderers use their cash to purchase less

bulky items such as jewellery and other expensive goods.
The criterion is that the items must be of high value and
small, making them physically easy to smuggle as well as
relatively easy to reconvert into cash at the point of
destination.
Placement techniques
Bulk movement
 Bulk shipments of illegally
obtained funds (or goods
acquired with the funds)
are smuggled across
borders concealed in
private vehicles,
commercial trucks and air
and maritime cargo. They
may also be carried by
couriers travelling on
commercial airlines, trains
and buses. Further, they
can also be sent through
parcel delivery and express
mail services.
Placement techniques
Gambling
• Gambling is a common placement technique.
• Fraudulent Onyancha and friends make periodic visits to a
local club where they insert illegal money into gaming
machines.
• After spending an evening enjoying the local band and
night life, they cash out their money. This money can now
be justified as ‘winnings’ from the local club.

• Gambling is used to launder money by inserting illegal

money into gaming machines and cashed out as
proceeds from gambling. Funds that appear to be
winnings can easily be used to justify unusual spikes
in income.
Placement techniques
Other types of gambling techniques include:
• claiming gaming machine prizes/payouts whilst not being
the legitimate prize-winner (that is, not the player who has
accumulated the subject credits or turnover)

• exchanging cash for or purchased gaming prizes/payouts

from legitimate prize winners

• exchanging cash for prize-winning cheques. This may be

coordinated by ‘spotters’ who look for winners. They target
problem gamblers who may want their winnings straight
away and are willing to receive 95% of the face value of the
ticket
Placement techniques
Other types of gambling techniques include:
• exchanging cash for prize-winning gaming machine tickets.
• negotiating cash loans to other members/patrons for the
purposes of gambling.
• engaging in activity that may otherwise be considered
illegal or contrary to responsible gambling activities. For
example, some machines pay a 98% return. Patrons may
work in groups on networked machines, cover as many
betting options as possible and win as a group.
Placement techniques
Insurance purchase
• Insurance purchase is a common placement
technique.
• Maembe Life Insurance sells life insurance products
through a large number of independent agents including
Twisted Spoon Insurance Brokers. Onyancha buys life
insurance policies from Twisted Spoon Insurance Brokers.
• Onyancha later redeems these policies and requests that
the funds be transferred to a bank account.
Placement techniques
Insurance purchase
• Illegal money is used
to buy insurance
policies and
instruments, which
can be 'cashed in' at a
later date. The end
result is that the illegal
funds have been
legitimised by being
‘washed’ through a
legitimate insurance
business.
Placement techniques
Insurance purchase
• ‘Single premium’ insurance products can be
particularly vulnerable. They involve a single payment
'up-front' and the ability to immediately purchase a
fully paid instrument. To a money launderer, these
products are attractive because they:
• involve a one-time payment
• have a cash surrender value
• may be transferable

• Insurance is sold through many channels. Any of

these channels may be tapped by money launderers
to place illegal funds.
Other Unique Placement techniques

• School fees deposited in school bank

account for relatives;
• ‘Chama’ contributions;
• Financing small businesses such as
butcheries, kiosks, Mtumba business;
• Proceeds of corruption;
• Proceeds of violent crime.
Layering
To conceal the illegal origin of the placed funds and
thereby make them more useful, the funds must be
moved, dispersed and disguised i.e. Layering.

At this stage, money launderers use many different

techniques to layer the funds. These include using
multiple banks and accounts, having professionals act as
intermediaries and transacting through corporations and
trusts. Funds may be shuttled through a web of many
accounts, companies and countries in order to disguise
their origins.
Layering techniques
Funds can be hidden in the financial system through a
web of complicated transactions using different
techniques of layering including:
◦ electronic funds transfers
◦ offshore banks
◦ shell corporations
◦ trusts
◦ walking accounts
◦ intermediaries.
Layering techniques
Electronic funds transfers
 Typically, layers are created by moving money
through electronic funds transfers into and out of
domestic and offshore bank accounts of fictitious
individuals and shell companies.

 Given the large number of electronic funds transfers

daily and the sometimes limited information
disclosed about each transfer, it is often difficult for
authorities to distinguish between clean and dirty
money.
Layering techniques
Offshore banks
• Offshore banks are banks that allow for the
establishment of accounts from non-resident
individuals and corporations. A number of countries
have well-developed offshore banking sectors. In
some cases, these banking sectors follow loose anti-
money laundering regulations.
Layering techniques
Offshore banks
 Offshore banks are popular with money launderers
(for layering funds), tax evaders and corrupt officials.
Money launderers also like to keep funds in offshore
banks because their fixed term deposit accounts
provide interest income.

 Some offshore centres combine loose anti-money

laundering procedures with strict bank secrecy rules.
Criminals can easily maintain and transfer funds from
banks in these centres because details of client
activities are generally denied to third parties,
including most law enforcement agencies.
Layering techniques
Shell corporations
 Using shell corporations is a common layering technique.

◦ Onyancha sets up Mama Mboga Trading Co. under the laws of Kenya.
◦ Mama Mboga Trading Co. opens bank accounts with various banks.
◦ Smurfs working for Onyancha transfer illegal funds to the Mama Mboga
Trading Co. accounts.
◦ Mama Mboga Trading Co. transfers these funds to other accounts or
invests them in securities.

 A shell corporation is a company that is formally established under

applicable corporate laws but does not actually conduct a business.
Instead, it is used to engage in fictitious transactions or hold accounts and
assets to disguise the actual ownership of these accounts and assets.
Layering techniques
Shell corporations
 Sophisticated money launderers use a complex maze of shell corporations
in different countries. Most money transfers take place through these
shell corporations. At times, money is transferred through numbered
accounts rather than through named accounts.

 To further avoid unwanted attention, money launderers build the

transaction history of the shell corporation so that it looks as if it has been
in business for a long time.

 In many countries (particularly offshore banking centres), the reporting

and record-keeping requirements for corporations are quite minimal,
which makes it easy to disguise ownership of the corporation.

 In a number of countries, ownership in corporations can be represented

by 'bearer shares’. In these corporations, the holder of the bearer share
certificate is regarded as the owner of the shares. This makes it easy to
disguise and transfer ownership.
Layering techniques
Trusts
 Using trusts is a common layering technique.

◦ Onyancha establishes a business trust by appointing a

corporate trustee and drawing a deed of trust, which names
Mwenyeji Trading Co. as a beneficiary.
◦ Onyancha transfers funds to the corporate trustee and
under the deed of trust, Mwenyeji Trading Co. is
empowered to directly use and invest the funds.

 Trusts are legal arrangements for holding funds or assets for a

specified purpose. These funds or assets are managed by a
trustee for the benefit of a specified beneficiary or
beneficiaries.
Layering techniques
Trusts
 Trusts can act as layering tools because they enable the creation of
false paper trails and transactions. Trusts are principally governed
by a deed of trust drawn up by the person who establishes the
trust. Trusts are more complex to use than corporations, but they
are less regulated.

 The private nature of trusts makes them attractive to money

launderers. Secrecy and anonymity rules help conceal the identity
of the true owner or beneficiary of trust assets. Also, the presence
of a corporate trustee provides an appearance of legitimacy.

 In addition, offshore trusts may contain a 'flee clause’. This clause

allows the trustee to shift the controlling jurisdiction of the trust if
it is in danger because of war, civil unrest or, more likely, the
activities of law enforcement officers or litigious investors and
consumers.
Layering techniques
Walking accounts
 Using walking accounts is a common layering technique.
◦ Using shell corporations, Onyancha sets up three accounts
with three different banks. He provides instructions to
transfer all funds immediately on receipt to one or more of
the other accounts.
◦ Smurfs deposit cash into the first account. Without the
need for further action, the funds are 'layered' by being
transferred to the third account.

 A walking account is an account for which the account holder

has provided standing instructions that all funds be
transferred immediately on receipt to one or more other
accounts. By setting up a series of walking accounts, criminals
can automatically create several layers as soon as any funds
transfer occurs.
Layering techniques
Intermediaries
 The use of intermediaries is a common layering technique.
◦ Onyancha transfers funds to a special account for client funds
maintained by the law firm called Shady Deals & Co. Advocates.
◦ Shady Deals & Co. Advocates establishes a shell corporation, Mwenyeji
Trading Co. , which opens various bank accounts. Shady Deals & Co.
Advocates now transfers Onyancha's funds into these accounts.

 Lawyers, accountants and other professionals may be used as

intermediaries between the illegal funds and the criminal. Professionals
engage in transactions on behalf of a criminal client who remains
anonymous. These transactions may include the use of shell corporations,
fictitious records and complex paper trails.

 Many countries have realised that criminals are increasingly using non-
financial professionals as intermediaries. To counter these activities, many
countries have included non-financial professionals in new anti-money
laundering legislation.
Integration
• Laundered funds are made available for activities
such as investment in legitimate or illegitimate
businesses, or spent to promote the criminal's
lifestyle. At this stage, the illegal money has achieved
the appearance of legitimacy.
• It should be noted that not all money laundering
transactions go through this three-stage process.
Transactions designed to launder funds can also be
effected in one or two stages, depending on the
money laundering technique being used.
Integration techniques
Integration is the third stage of the money laundering process,
in which the illegal funds or assets are successfully cleansed and
appear legitimate in the financial system, making them available
for investment, saving or expenditure.

Integration techniques include:

◦ credit and debit cards

◦ consultants
◦ corporate financing
◦ asset sales and purchases
◦ business recycling
◦ import/export transactions.
Integration techniques
Credit and debit cards

• Credit and debit cards are efficient ways for money launderers
to integrate illegal money into the financial system. By
maintaining an account in an offshore jurisdiction through
which payments are made, the criminals limit the financial trail
that leads to their country of residence.

• In recent years, authorities have grown more attuned to the

use of offshore credit cards as a money laundering technique.
As a result, certain offshore jurisdictions now enable regulators
to obtain from banks all records of transactions made by their
credit card clients.
Integration techniques
Consultants
 Consultancy arrangements can cover a wide range of non-
quantifiable services and are often used to integrate illegal
funds into the legitimate financial system.

• The consultant might not even exist. For example, the criminal
could actually be the consultant and the money is declared as
income from services performed and can be used as
legitimate funds.

 In many cases, the criminal will employ an actual consultant

(e.g. accountant, lawyer or investment manager) to do some
legitimate work. This could involve purchasing assets. Often,
the criminal transfers funds to the consultant's client account
from where the consultant makes payments on behalf of the
criminal.
Integration techniques
Corporate financing
 Corporate financing offers a flexible way to transfer money between
companies. This technique is often used in sophisticated money
laundering schemes.
◦ Onyancha sets up a shell corporation and a related bank account in an
offshore jurisdiction. He also sets up a legitimate business in his country
of residence.
◦ Using illegal money in the offshore account, the shell corporation
makes a business loan to, or equity investment in, the legitimate
business.

 Corporate financing is typically combined with a number of other

techniques, including the use of offshore banks, consultants, complex
financial arrangements, electronic funds transfers, shell corporations and
actual businesses. This allows money launderers to integrate very large
amounts of money into the legitimate financial system.
Integration techniques
Corporate financing

 Money launderers may also take a tax deduction on interest

payments made by them in corporate financings!

 From appearances alone, such transactions are identical to

legitimate corporate finance transactions. Financial service
professionals serving legitimate businesses need to look
closely to find peculiarities in their dealings, such as:
◦ large loans by unknown entities
◦ financing that appears inconsistent with the underlying
business
◦ unexplained write-offs of debts.
Integration techniques
Asset sales and purchases
• To integrate illegal funds into a legitimate financial system, money
launderers often resort to actual or fictitious sales and purchases of assets.
• Onyancha sets up a shell corporation and a related bank account in an
offshore jurisdiction. He also owns or controls a legitimate business or
real estate asset in his country of residence.
• The shell corporation purchases the business or real estate at an
inflated price. The earnings from this transaction are treated as
legitimate profits.

• This technique can be used directly by the criminal or in combination with

shell corporations, corporate financing and other sophisticated methods.
The end result is that the criminal can treat the earnings from the
transaction as legitimate profits from the sale of the assets.
Integration techniques
Business recycling
 Business recycling is a common integration technique in
which illegal funds are mixed with cash flow from a seemingly
legitimate business.
◦ Onyancha owns or controls a legitimate, cash-intensive car
wash business.
◦ Onyancha deposits illegal funds into the business. These
funds are treated as revenue from the legitimate business.

 Legitimate businesses that also serve as conduits for money

laundering are referred to as 'front businesses’. Cash-intensive
retail businesses are some of the most traditional methods of
laundering money. This technique combines the different
stages of the money laundering process.
Integration techniques
Business recycling
• The principal requirement when using businesses as fronts is
that they have high cash sales and/or high turnover. This way it
becomes easy for criminals to merge illegal funds and difficult
for the authorities to spot the scheme.

• An important indicator of front businesses is the relation

between the size and nature of the business and the amount
of revenue it generates. For example, if a newspaper stand
starts making deposits into its bank account at $1 million a
month, this should alert the bank to the possibility of illegal
activity.
Integration techniques
Import/export transactions
 Import/export transactions are a common integration technique
used by money launderers, especially in order to move illegal funds
between countries.
◦ Onyancha sets up an import company in a foreign country as well
as an export company in his country of residence.
◦ The export company exports goods to the foreign import
company. The import company remits illegal funds to pay for the
goods on an over-invoiced basis.

 To bring 'legal' money into the criminal's country of residence, the

domestic trading company will export goods to the foreign trading
company on an over-invoiced basis. The illegal funds are remitted
and reported as export earnings. The transaction can work in the
reverse direction as well.

 In many cases, there is no actual export of goods or only the export

of fake goods. In such cases, the trading companies may also exist
only on paper. Bankers may be able to spot these transactions if the
underlying trade documentation is inadequate or the underlying
pricing is incorrect.
Video-Stages of money laundering
Activity- Flashcards (15 minutes)
• Match the flashcards with the corresponding answer
Wisleblowing
• Persons making a disclosure will be offered protection against being
sued in cases where their claim is found not to be justified on money
laundering offences.
 Tipping off

An accountant or any other person in a regulatory environment shall

not
disclose that an investigation into allegations that a money laundering
offence (which came to light in the course of the accountancy
practice) has been committed, is being contemplated or is being
carried out and the disclosure is likely to prejudice that investigation.

• The offence will not be committed if the person making the

disclosure does not know or suspect that it is likely to prejudice any
resulting investigation.
Tipping off Activity (time 10 minutes)
• Identify whether the provided scenarios relate to tipping off-page 34
Know
your
customer
Why are KYC procedures important?
• They are important because they help the organisation to scrutinize
and identify on a timely manner any issues that may relate to money
laundering offenders.
Client acceptance guidance
• Key objectives:
• Assess the relationship between the prospective client, previous auditors,
lawyers, bankers etc and
• Assess whether the prospective client's management team standards of
integrity and ethics m
• Key steps:
• Establish client acceptance protocol; and
• Draft client acceptance/rejection forms
The principal objectives of a KYC policy include:
◦ ensuring that only legitimate and bona fide customers are accepted
◦ ensuring that customers are properly identified and that they understand the
risks they may pose
◦ verifying the identity of customers using reliable and independent
documentation
◦ monitoring customer accounts and transactions to prevent or detect illegal
activities
◦ implementing processes to effectively manage the risks posed by customers
trying to misuse facilities.
What risks are mitigated by KYC?

There are five types of risks that an effective KYC policy can help to
mitigate:
 reputational
 operational
 legal
 financial
 concentration.
What risks are mitigated by KYC?

Reputational risk:
The reputation of a business is usually at the core of its success. The
ability to attract good employees, customers, funding and business is
dependant on reputation. Even if a business is otherwise doing all the
right things, if customers are permitted to undertake illegal
transactions through that business, its reputation could be irreparably
damaged. A strong KYC policy helps to prevent a business from being
used as a vehicle for illegal activities.
What risks are mitigated by KYC?

Operational risk:
This is the risk of direct or indirect loss from faulty or failed internal
processes, management and systems. In today's competitive
environment, operational excellence is critical for competitive
advantage. If a KYC policy is faulty or poorly implemented, then
operational resources are wasted, there is an increased chance of
being used by criminals for illegal purposes, time and money is then
spent on legal and investigative actions and the business will be
viewed as operationally unsound.
What risks are mitigated by KYC?
Legal risk:
If a business is used as a vehicle for illegal activity by
customers, it faces the risk of fines, penalties, injunctions and
even forced discontinuance of operations.

Apart from regulatory risk, involvement in illegal activities

could lead to third-party judgments and unenforceable
contracts. In addition, professionals working within many
financial and other professional sectors may also personally be
subject to legal action or prosecution.

Due to the nature of business, these risks can never entirely be

eliminated. However, if a business does not have an effective
KYC policy, it will be inviting legal risk. By strictly implementing
and following a KYC policy, a business can mitigate legal risk to
itself and its staff.
What risks are mitigated by KYC?

Financial risk:
If a business does not adequately identify and verify customers, it may
run the risk of unwittingly allowing a customer to pose as someone
they are not. The consequences of this may be far reaching. If a
business does not know the true identity of its customers, it will also
be difficult to retrieve any money that the customer owes.
What risks are mitigated by KYC?

Concentration risk:
This type of risk occurs on the assets side of a business if there is too
much exposure to one customer or a group of related customers. It
also occurs on the liabilities side if the business holds large
concentrations of funds from one customer or group (in which case it
faces liquidity risk if these funds are suddenly withdrawn).
KYC policy elements
KYC policy has five major elements:

 Customer acceptance: The point at which a new

customer is accepted or rejected is the easiest point at
which the risk of dealing with illegal money can be
avoided. By following good customer acceptance
policies, dealing with entities and individuals who might
engage in illegal transactions can be avoided.

 Customer identification: Establishing the identity of

customers is central to the KYC policy both for the
customer acceptance or rejection decision and for the
ongoing monitoring of customer accounts and
transactions. By identifying customers effectively, the
business is able to deal with them in the appropriate
manner.
KYC policy elements

 Customer verification: Verifying that customers are who they

say they are is vital to any customer identification procedure.
Merely collecting customer information is not enough for an
effective KYC policy. Reliable and independent documentation
should be used to support and confirm the identification
details a customer provides. For example, citing an original
primary photographic identification document such as a
passport or drivers licence.

 Accounts and transactions monitoring: In an effective KYC

policy, customer accounts and transactions are properly
classified in terms of risk and are regularly monitored.
Through checks and thresholds, unusual activities, activities
by high-risk customers, or suspicious behaviour can be
detected and reviewed.
KYC policy elements
 Risk management: To ensure that the risks posed by
money laundering and other criminal activities are
identified, mitigated and managed good risk
management practices are essential.

 Another objective of the KYC policy is to look past

the appearance of the customer and obtain visibility
into the sources of the customer's money. The basic
objective is to obtain an understanding of the risk
the customer poses to business. Could the customer
use the business to facilitate money laundering?
 Client identification documents
 Client Identification Documents – for individuals:
 Passport
 Birth Certificate
 National Identity Card
 Driving licence
 Country of residence
 Full Residential Address (Not PO Box)
 Proof of address (recent utility bills)
 Key banking relationships and legal advisers
 Family status, incl. family names/ ages etc

• Notes:
•
• At least one official document must include a recent photograph. A valid passport or
national identity card should be requested at the outset.
• Customers must be filtered against known lists to establish whether they are under any
sanctions or have any negative press information or are Political Exposed Persons
(PEPs).
Face to face meetings
 A face-to-face interview with a new client should be carried out
whenever it is possible, as part of the identity verification procedure
and in order to better understand the nature of the client’s business.
 For those who are initially assessed as high risk, the senior
management of the local jurisdiction should ask the client to make
himself available for a face-to-face interview.
 The interview may take place at the service provider’s office or at the
client's office when dealing with a high risk case. In such a case, all
the documentation submitted by the client may be certified by the
employee of the service provider firm.
 It is acceptable for the service provider to allow the interview to be
undertaken by the professional intermediaries where the service
provider is satisfied that their due diligence policies and procedures
are acceptable to the service provider.
 Due diligence procedures- Face to face

o Conducted as part of KYC procedures for all prospective

individual clients and prospective legal entity clients.

o By face to face meetings the identity of the client can be

o verified directly and the copies of the identity document can
o be certified whether the result of verification allows this.
Client identification documents- Legal
entities(1 of 2)

 Client Identification Documents – for legal entities:

 Certificate of Incorporation

 Articles and Memoranda of Incorporation

 Certificates of Officers/ Directors/ Shareholders/ Beneficial

Owners
 Certificate of Registered Office and Address

 Certificate of Good Standing

 List of Authorized signatories

 Signature Card
Client identification documents- Legal
entities(2 of 2)
 List of Legal and other advisers/Auditors/ Business partners/
Suppliers/ Others
 Business and Operational Profile (industry/ market-share/ locations/
revenue sources/ key clients/ suppliers etc)
 Business references (a credit reference agency or a reference from a
bank or another professional adviser)
 Recent audited accounts, incl. auditors’ report
 Business website
 Client Due diligence documents (1 of 2)

 Supporting documentation must be provided for the declared source of wealth

 Personal interviews
 Proof of place of work (employer confirmation)
 Proof of salary (recent pay slip etc)
 Contact details (home and work)
 World Check (passport ref) for prospective individual client, as well as all
stakeholders/ directors/ officers/ controllers of prospective legal entity client
 The economic profile of the customer should be prepared
 Business location visits (without appointment)
•

 Own profile (travelling frequency, main sources of income/ commitments etc)

 Management profile
 Business Reference interviews
Client due diligence- Trusts
o Copy of Trust Deed where the names of the trust, trustees and
o beneficiaries are evident
o The relevant registry of the Trust
o Type of Trust/ Nature of Trust/ Reason for Trust Establishment
o Trustees’ and settlors' personal details (as for individual client
identification and due diligence)
o Where Trustee is legal entity (as for legal entity client identification
o and due diligence)
o A notice issued by the Inland Revenue within the last 12 months (e.g.
o Notice of Assessment)
o Identification documents for all beneficiaries under the Trust
o Recent Audited accounts
o Recent Bank statements
•
Client due diligence- Funds
o Fund incorporation certificates
o Related statutory documents
o Fund subscription documents
o Customer Identification Policy and Procedures
o Fund managers' personal details
Client due diligence- Partnerships
o Copy of the Partnership agreement
o Country of Partnership Establishment
o All Partner – client identification and due diligence
o Full name and residential address of each partner
•
o Industry
o Identification documents for Ultimate Beneficial Owners if different from
o the above
o A copy of the latest report and accounts (audited where applicable)
o Identification documents of all partners
o Identification documents of a minimum of 2 individual
principals/authorized persons empowered to conduct business with the
service provider.
•
Certification of all documents
• It should be clarified that certified true copies should be obtained
of all original documents for identity verification.
• Certification MUST only be accepted from approved
certifiers/notaries.
 Due diligence procedures- Intermediaries

• Reliance may be made on persons who are Regulated credit or

financial institutions (excluding money service businesses) and
professional lawyers, auditors, accountants that are regulated by
EU state or a third country equivalent holding a valid license
certificate.
• The Company may rely on third parties for the implementation
of Client identification and due diligence procedures, as these
are prescribed by the AML legislation, provided that the third
person makes immediately available all data and information,
which must be certified as true copies of the originals that were
collected in the course of applying client identification and due
diligence procedures.
•
 Due diligence procedures- Intermediaries

o Periodic assessment of intermediary

•The Company obtains data and information so as to verify that the third person
maintains his professional registration in accordance with the competent law of its
country of incorporation and/or operation as well as supervision for the purposes of
compliance with the measures for the prevention of money laundering and terrorist
financing according to EU and third party equivalent regulations.

• The periodic assessments and lists issued by Financial Action Task Force should be
taken into consideration.

• For those not registered in Cyprus they need to have in force anti-money laundering
laws and procedures that are equivalent to the Republic of Cyprus and are member
countries of FATF or CFATF and also be appropriately regulated, with good reputation
and maintain memberships of professional bodies.
Documents to be provided- Due diligence

• Certificate of Incorporation or business registration or equivalent depending of the status

of the professional service client

• Validity of the business address and communication numbers of the Professional service
client

• List of authorised signatories (if applicable)

• Names of principals or professionals involved in the professional service client and

persons authorised to conduct business with the service provider. Applicable business
cards may be obtained from such individuals with identification documents from a
minimum of 2 persons (if applicable) from whom the service provider would normally
accept instructions

• Consideration as to the jurisdiction of the vehicle

• It has to be assessed / determined whether the jurisdiction of the vehicle applies
requirements equivalent to those stated in the European Union Directive.
 Enhanced due diligence

• The enhanced due diligence measures for customers who aren't physically
present and other higher risk situations are broadly the same and include:
o obtaining further information to establish the customer's identity (for example
o two officials documents could be requested instead of one for
o establishing his identity);

o applying extra measures to check documents supplied by a credit or financial

institution;
o making sure that the first payment is made from an account that was opened
with a credit institution in the customer's name; and
o finding out where funds have come from and what the purpose of the
transaction.
•
Situations for enhanced due diligence – Legal
entities
• For Legal entities these situations may include:
•
o When the customer isn't physically present when carrying out identification
o checks. (Non Face to Face customers)
o When the business relationship involves a 'politically exposed person'.
o Companies whose shares are in the form of Bearer
o Electronic gambling/gaming entities through internet
o Trusts
o Persons connected with countries subject to sanctions/restrictive measures
o Non profit organizations/charities/foundations registered in Cyprus or EU and
the majority of the donators/sponsors are not from the country of registration
o Legal entities with complex corporate structures
o Foreign government organizations provided there is reasonable ground/business
jurisdiction for establishing a business relationship
o Any other situation where there's a higher risk of money laundering.
 Situations for enhanced due diligence –
individuals
o Production and/or trading cigarettes, oil and alcoholic products
o Online Trading
o Gaming
o Prize Competitions
o Gambling online related services (software providers,
payment processing services, card acquirers)
o Providers of financial, brokerage, insurance services including
money
transmission services and currency exchange services
o Investment schemes and hedge funds
o Precious metals/stones
o Sporting guns
Ongoing Customer Due
Diligence
Ongoing customer due diligence
• Reporting entities must monitor their customers to
identify, mitigate and manage any Money Laundering
risk that may be posed by providing a designated
service. OCDD obligations apply to all customers,
including pre-commencement customers and also
those who were identified by another reporting
entity. There are three mandatory components of
OCDD:
• KYC information
• a transaction monitoring program
• an enhanced customer due diligence program.
Ongoing customer due diligence

 Reporting entities need to determine when and in

what circumstances additional KYC information
should be collected, updated or verified.

 A transaction monitoring program that sets out how

customer transactions will be monitored, how the
reporting entity will identify transactions that are
unusual or suspicious and how such transactions will
be managed once they are identified as unusual or
suspicious is a requirement of an effective AML
program.
What are PEPs?
• “Politically-Exposed Persons” (PEPs) are individuals who, by virtue of
their position in public life, may be vulnerable to corruption
 Enhanced due diligence-PEP
o having risk management procedures to determine whether the
o customer is
a PEP;
o having senior management giving approval for a new business
o relationship;
o taking measures to establish whether the person's wealth and
the funds involved in the business relationship come from
legitimate businesses;
o carrying out ongoing monitoring of the business relationship.
Internal procedures and reporting to MOKAS.
• Persons engaged in financial or other business activities apply the
following internal reporting procedures:
• Internal procedures and reporting to MOKAS.
• (a) Appoint a senior staff member who has the ability, the knowledge and
the expertise on financial or other business activities, according to each
case, as a money laundering compliance officer to whom a report is to be
made about any information or other matter which comes to the attention
of the person handling financial or other business activities

• another person is engaged in a money laundering offence or

terrorist financing.
Internal procedures and reporting to MOKAS.
• (b) requiring that, any such report to be considered in the light of all other relevant information
by the money laundering compliance officer, for the purpose of determining whether or not the
information or other matter contained in the report proves this fact or creates such a suspicion.

• (c) allowing the money laundering compliance officer in accordance with paragraph (b) above to
have direct and timely access to other information, data and documents which may be of
assistance to him and which is available to the person engaged in financial or other business
activities.
• (d) Securing that the information or other matter contained in the report is transmitted to the
Unit when the person who has considered the report under the above procedures, ascertains or
has reasonable suspicions that another person is engaged in money laundering or terrorist
financing or that the transaction may be connected to such activities.

• It is provided that, the obligation to report to the Unit includes also the attempt to execute such
suspicious transactions.
Obligations of the internal audit department
• 6. The internal audit department of the Financial Organisation reviews
and evaluates, at least on an annual basis, the appropriateness,
effectiveness and adequacy of the policy, practices, measures, procedures
and control mechanisms applied for the prevention of money laundering
and terrorist financing.
• The findings and observations of the internal auditor are submitted, in a
written report form, to the board of directors which decides the necessary
measures that need to be taken to ensure the rectification of any
weaknesses and/or deficiencies which have been detected.
• The minutes of the abovementioned decision of the board of directors and
the internal auditor’s report are submitted to the Commission at the
frequency specified in paragraph 9(4) of the Directive DI144- 2007-01 of
the Commission of 2011
Customers’ acceptance policy
• The customers’ acceptance policy is prepared after detailed
assessment of the risks faced by the Financial Organisation from its
customers and/or their transactions and/or their countries of origin
or operations
• All customers should be classified as:
• Low
• Normal
• High risk
Appointment of compliance officer- assistants
of compliance officer (section 69 of the Law)
• A compliance officer is appointed, who belongs to the management of the
Financial Organisation so as to command the necessary authority.

where it is deemed necessary due to the volume and/or the geographic

spread of the services/activities, assistants of the compliance officer are
appointed, by geographical district or otherwise for the purpose of assisting
the compliance officer and passing internal suspicion reports to him.

• (3) The Financial Organisation communicates immediately to the

Commission, the names and positions of the persons it appoints as
compliance officer and assistants of the compliance officer.
Compliance officer’s duties
• Designs the internal practices
• Prepares a risk management and procedures manual
• Monitors and assesses the correct and effective implementation of
the policy
• Receives all information from the companies’ employees on
suspicions of money laundering.
• Acts as the first point to contact MOKAS.
• Detects, records, and evaluates, at least on an annual basis, all risks
arising from existing and new customers,
Record Keeping
Record keeping
• Under the AML Act, a reporting entity must make and
retain a record of its applicable customer
identification procedures.

• The records must be retained for seven years after

the end of the reporting entity's relationship with the
relevant customers.
Activity-10 minutes- Duty to disclose
• Page 25
risk assessment
 What is a Risk Assessment?

• Reporting entities are required to assess the money laundering and financing of
terrorism risk that they may reasonably expect to face in the course of their
business.
• In making this assessment, the Act requires that a reporting entity considers:
• the nature, size and complexity of its business;
• the products and services it offers;
• the methods by which it delivers products and services to its customers;
• the types of customers it deals with;
• the countries it deals with;
• the institutions it deals with;
• any guidance material produced by supervisors; and
• any other factors that are set out in regulations.
Risk assessment

Key factors in assessing risk (emphasis on determination of source of

wealth)
All customers should be classified in three categories:

-Low risk
-Normal risk
-High risk
Countries classified as high risk- FATF
• Afghanistan
• Bosnia and Herzegovina
• Democratic Peoples’ Republic of Korea
• Guyana
• Iran
• Iraq
• Lao People’ Democratic Republic
Countries classified as high risk
• Myanmar
• Papua New Guinea
• Syria
• Uganda
• Vanuatu
• Yemen
Key factors (1 of 2)
 The economic/ financial profile of the client;
 The jurisdiction (client’s jurisdiction and the jurisdictions of the related
entities and/or source and/or destination of funds). Jurisdictions subject to
sanctions and embargoes should be excluded;
 The possibility of the client being a politically exposed person (pep);
 The industry of operation;
 The mode of operation;
 The complexity of group structures and whether this is done in order to
obscure the ultimate beneficial owner(s);
 The inclusion of trusts and foundations;
 The possibility of the individuals having criminal records;
 Non-face-to-face business relationships;
Key Factors (2 of 2)
 Negative publicity/ press articles;
 Invisible ultimate beneficial owners;
 Frequent changes in the legal structures of a client’s company which has no
clear justifications;
 Customer has a history of changing bookkeepers or accountants;
 New customer carrying out large one-off transactions;
 Clients involved in business that handles large amounts of cash;
 Foreign clients;
 A customer who makes regular transactions with same individual or company;
•
Red flags (1 of 2)
 High cash-generating business;
 Stock turnover ratios etc not in line with industry standards;
 Promotion arrangement with significant number of agents/ individual/
representatives/ sales persons/ principals (usually people sign up to take advantage
of discounts);
•
 Frequent rotation of professional service providers;
 Poor financial record history;
 Prior failed business or bankruptcy;
 Sudden revenue jumps/ peaks, not justified by the production levels etc;
 Business/ employment history;
 Unstable addresses, professional or employment history;
 Significant prior litigation history as a plaintiff or defendant;
Red flags (2 of 2)
 High turnover in senior management;
 Short operations history; sudden growth;
 No prior track record for top executive and senior management in the
business e.g. Nobody has heard of them before this company;
 Foreign operations or plants. E.g. Hoping you won’t check whether there is a
factory in Ireland, or whether the production volumes p.a. Justify the
revenues p.a.
 Reluctance to provide references;
 Pressure to get deals done quickly;
 Have past/ pending regulatory, disciplinary and other actions filed against
them.
•
Characteristics of a risk based approach( 1 of 2)
A risk-based approach:

• (a) recognises that the money laundering or terrorist financing threat varies
across customers, countries, services and financial instruments;

• (b) allows the board of directors to differentiate between customers of the

Financial Organisation in a way that matches the risk of their particular business;

• (c) allows the board of directors to apply its own approach in the formulation
of policies, procedures and controls in response to the Financial Organisation’s
particular circumstances and characteristics;
 Identification, recording and evaluation of
risks(1 of 5)

• The identification, recording and evaluation of risk that the Financial Organisation face
presupposes the finding of answers to the following questions:

• (a) What risk is posed by the Financial Organisation’s customers? For example:

• i. complexity of ownership structure of legal persons,

• ii. companies with bearer shares,
• iii. companies incorporated in offshore centres,
• iv. politically exposed persons,
• v. customers engaged in transactions which involves significant amounts of cash,
• vi. customers from high risk countries or from countries known for high level of
corruption or organized crime or drug trafficking;
Monitoring and improving the measures and
procedures Dynamic risk management
• The Financial Organisation monitors and evaluates, on an on going
basis, the effectiveness of the measures and procedures that have
been introduced for compliance purposes

• Risk management is a continuous process, carried out on a dynamic

basis. Risk assessment is not an isolated event of a limited duration.
Customers’ activities
Risk management process
Compliance and risk management(Continued)
Compliance
Compliance is about meeting obligations, which in
this case are mandated by the AML Act.
Compliance is about meeting obligations that may
have a mandatory component.
All compliance risks must be dealt with.
Compliance identifies all the obligations an
organisation has.
Risk management
Risk management involves:
• the identification of different types of risk
• assessing the impact of these risks
• determining the risk appetite of the organisation
• putting in place risk management procedures and
controls.
Risk management does not have a mandatory
component as the organisation determines how to
deal with the various risks it faces.
However, risk management may have to deal with
both mandatory and non-mandatory elements.
Risk management is used to prioritise the compliance
risks.
Risk management techniques are used to prioritise the
response to the obligations in terms of control
procedures and processes, levels of monitoring and
reporting requirements.
Shift in nature of activities
 Regular activity or occasional activity

 Normal course of business or one off transaction

 Obtain an understanding of the origin and source of Funds
 Review of transactions

 The Compliance Officer (or other designated officer) reviews the client
transactions taking place during the evaluation period as well as the
instructions given and the supporting documentation.

 Warning signs that may indicate that a transaction might be suspicious are:

1. Size of transaction
2. Complexity of transaction
3. Rationality of transaction
4. International transaction with no obvious reason
Undertaking a database check
• The Compliance Officer undertakes a database search for all:
•
 Registered shareholders owning more than 10%,
 Ultimate beneficial owners owning more than 10%,
 Directors,
 Bank signatories,
 Attorneys and
 Authorized persons.
For all documents do the following

 Keep original document where appropriate.

 Record the fact that you have seen the original document from which the photocopy was
taken and sign and date the copy.
 Request that all documents for which we receive photocopies only, be apostilled
 by a notary or consulate or request confirmatory certification by a credit or financial
institution within the EU Directive.
Transaction documentation
 The name and address of its client and copies or records of official
identification documents (like passports, identity cards, or driving
licenses),
 The name and address (or identification code) of the counterparty,
 The form of instruction or authority,
 The account details from which any funds were paid,
 The form and destination of payment made by the business to the client,
and
 Business correspondence.
 General Powers of attorney should not be issued.
 The directors should have access to all the company’s bank accounts.
•
Time frames for documentation keeping
 The Law requires documentation to be kept for at least 5 years from the date
that the relationship with the client has been terminated or completed.
 All necessary records on transactions must be maintained for at least five
years and must be sufficient to permit reconstruction of individual
transactions (including the amounts and types of currencies involved) so as
to provide, if necessary, evidence for prosecution of criminal activity.
Reporting of suspicious transactions to
MOKAS
• 30. The Financial Organisation ensures that in the case of a suspicious transaction
investigation by MOKAS, will be able to provide without delay the following information:

• (a) the identity of the account holders;

• (b) the identity of the beneficial owners of the account;

• (c) the identity of the persons authorised to manage the account;

• (d) data of the volume of funds or level of transactions flowing through the account;

• (e) connected accounts;

Examples of suspicious transactions- Money
laundering
• Α. MONEY LAUNDERING
• 1. Transactions with no discernible purpose or are unnecessarily
complex.
• 2. Use of foreign accounts of companies or group of companies with
complicated ownership structure which is not justified based on the needs
and economic profile of the customer.
• 3. The transactions or the size of the transactions requested by the
customer do not comply with his usual practice and business activity.
• 4. Large volume of transactions and/or money deposited or credited
into, an account when the nature of the customer’s business activities
would not appear to justify such activity.
Examples of suspicious transactions- Money
laundering
• 5. The business relationship involves only one transaction or it has
a short duration.
• 6. There is no visible justification for a customer using the services
of a particular Financial Organisation. For example the customer is
situated far away from the particular Financial Organisation and in a
place where he could be provided services by another Financial
Organisation.
• 7. There are frequent transactions in the same financial instrument
without obvious reason and in conditions that appear unusual
(churning).
Examples of suspicious transactions- Money
laundering
• 8. There are frequent small purchases of a particular financial
instrument by a customer who settles in cash, and then the total
number of the financial instrument is sold in one transaction with
settlement in cash or with the proceeds being transferred, with the
customer’s instructions, in an account other than his usual account.
• 9. Any transaction the nature, size or frequency appear to be
unusual, e.g. cancellation of an order, particularly after the deposit of
the consideration.
Examples of suspicious transactions- Money
laundering
• 10. Transactions which are not in line with the conditions prevailing
in the market, in relation, particularly, with the size of the order and
the frequency.
• 11. The settlement of any transaction but mainly large transactions,
in cash.
• 12. Settlement of the transaction by a third person which is different
than the customer which gave the order.
• 13. Instructions of payment to a third person that does not seem to
be related with the instructor
Examples of suspicious transactions- Money
laundering
• 14. Transfer of funds to and from countries or geographical areas which
do not apply or they apply inadequately FATF’s recommendations on
money laundering and terrorist financing.
• 15. A customer is reluctant to provide complete information when
establishes a business relationship about the nature and purpose of its
business activities, anticipated account activity, prior relationships with
Financial Organisations, names of its officers and directors, or information
on its business location. The customer usually provides minimum or
misleading information that is difficult or expensive for the Financial
Organisation to verify.
• 16. A customer provides unusual or suspicious identification documents
that cannot be readily verified.
• 17. A customer’s home/business telephone is disconnected.
Examples of suspicious transactions- Money
laundering
• 18. A customer that makes frequent or large transactions and has no
record of past or present employment experience.
• 19. Difficulties or delays on the submission of the financial statements or
other identification documents, of a customer/legal person.
• 20. A customer who has been introduced by a foreign Financial
Organisation, or by a third person whose countries or geographical areas of
origin do not apply or they apply inadequately FATF’s recommendations on
money laundering and terrorist financing.
• 21. Shared address for individuals involved in cash transactions,
particularly when the address is also a business location and/or does not
seem to correspond to the stated occupation (e.g. student, unemployed,
self-employed, etc).
Examples of suspicious transactions- Money
laundering
• 22. The stated occupation of the customer is not commensurate
with the level or size of the executed transactions.
• 23. Financial transactions from non-profit or charitable organisations
for which there appears to be no logical economic purpose or in
which there appears to be no link between the stated activity of the
organisation and the other parties in the transaction.
• 24. Unexplained inconsistencies arising during the process of
identifying and verifying the customer (e.g. previous or current
country of residence, country of issue of the passport, countries
visited according to the passport, documents furnished to confirm
name, address and date of birth etc).
Examples of suspicious transactions- Money
laundering
• 25. Complex trust or nominee network.
• 26. Transactions or company structures established or working with an
unneeded commercial way. e.g. companies with bearer shares or bearer
financial instruments or use of a postal box.
• 27. Use of general nominee documents in a way that restricts the control
exercised by the company’s board of directors.
• 28. Changes in the lifestyle of employees of the Financial Organisation,
e.g. luxurious way of life or avoiding being out of office due to holidays.
• 29. Changes the performance and the behaviour of the employees of the
Financial Organisation.
Examples of suspicious transactions-Terrorist
Financing
• B. TERRORIST FINANCING

• 1. Sources and methods

• The funding of terrorist organisations is made from both legal and illegal
revenue generating activities. Criminal activities generating such proceeds
include kidnappings (requiring ransom), extortion (demanding “protection”
money), smuggling, thefts, robbery and narcotics trafficking. Legal fund
raising methods used by terrorist groups include:
• i. collection of membership dues and/or subscriptions,
• ii. sale of books and other publications,
Examples of suspicious transactions-Terrorist
Financing
• iii. cultural and social events,
• iv. donations,
• v. community solicitations and fund raising appeals.
• Funds obtained from illegal sources are laundered by terrorist groups by
the same methods used by criminal groups. These include cash smuggling
by couriers or bulk cash shipments, structured deposits to or withdrawals
from bank accounts, purchases of financial instruments, wire transfers by
using “straw men”, false identities, front and shell companies as well as
nominees from among their close family members, friends and associates.
Examples of suspicious transactions
• 2. Non-profit organisations
• Non–profit and charitable organisations are also used by terrorist groups as a
means of raising funds and/or serving as cover for transferring funds in support of
terrorist acts. The potential misuse of non-profit and charitable organisations can
be made in the following ways:
• i. Establishing a non-profit organisation with a specific charitable purpose but
which actually exists only to channel funds to a terrorist organisation.
• ii. A non-profit organisation with a legitimate humanitarian or charitable
purpose is infiltrated by terrorists who divert funds collected for an ostensibly
legitimate charitable purpose for the support of a terrorist group.
• iii. The non-profit organisation serves as an intermediary or cover for the
movement of funds on an international basis.
• iv. The non-profit organisation provides administrative support to the terrorist
movement.
Examples of suspicious transactions-Terrorist
Financing
• Unusual characteristics of non-profit organisations indicating that the they
may be used for an unlawful purpose are the following:
• i. Inconsistencies between the apparent sources and amount of funds
raised or moved.
• ii. A mismatch between the type and size of financial transactions and
the stated purpose and activity of the non-profit organisation.
• iii. A sudden increase in the frequency and amounts of financial
transactions for the account of a non-profit organisation.
• iv. Large and unexplained cash transactions by non-profit organisations.
• v. The absence of contributions from donors located within the country
of origin of the non-profit organisation.
Case studies of money laundering
• Director and Treasurer of Black Nurses Association Sentenced for Fraud Scheme
• On October 15, 2013, in Springfield, Ill., Margaret Davis and Tonja Cook, both
from Chicago, Ill., were sentenced for their participation in a scheme to defraud
state grant programs. Davis was sentenced to 41 months in prison, three years of
supervised release and ordered to pay $377,573 in restitution. Cook was
sentenced to 19 months in prison, two years of supervised release and ordered to
pay $137,111 in restitution. Davis previously pleaded guilty to mail fraud and
money laundering; Cook previously pleaded guilty to mail fraud. According to the
indictment, from December 2005 to June 2009, Davis, with the assistance of
Cook, solicited and received 15 different grants and contracts totaling $1,062,000
by representing herself as acting on behalf of the Chicago Chapter of the Black
Nurses Association. The fraudulent grants and contracts were received from
various Illinois state agencies. Instead of using the grant funds for their intended
purposes, Davis and Cook used a large amount of the funds for their personal
use.
 Questions on money laundering

• Which of the following scenarios will most likely require the filing of a Suspicious Activity Report
• I – A dance nightclub located near a Midwestern community college, makes $9,000 cash deposits
every day. The deposited items are solely $50 and $100 bills.
• II – A check casher makes $9,000 cash deposits every day. The deposited items are primarily $10
and $20 bills.
• III – A grocery store makes multiple ATM deposits each day at around the same time. The deposits
are a combination of checks and cash – mostly smaller bills. In total, there are usually 400-500
items deposited each day.
• IV – A busy around the clock gas station / convenience store, located at a major intersection,
makes three deposits each calendar day, utilizing tellers, night drops and ATMs. The total cash
deposited on weekdays often comes near the currency reporting threshold. Monday deposits
require the bank to file Currency Transaction Reports due to the aggregation of the weekend
deposits – however, this is done in the back office without the customer’s knowledge.
• A) All of the above
• B) I and II C) I, III and IV D) III and IV
Answer
• The correct answer being “B – I and II.”
• I is suspicious as it would be unlikely that a bunch of Midwestern
community college students going out dancing would only have fifty and
one hundred dollar bills.
• II is suspicious primarily because a check casher is a consumer of cash, not
a depositor, unless there is another substantial cash generating activity
going on at the business, which was not presented in the scenario.
• III – OK, this one requires some logic. Yes there are multiple ATM deposits
made at the same time each day, but the key element here is the
statement that there are 400-500 items total in the daily deposits. Very few
ATM machines can handle an envelope that thick. Therefore your
institution’s machines force the customer to split the deposits into multiple
envelopes.
Answer
• Sometimes, there are conditions that you may assume, that prove to be
false and will reverse your view on suspicion. All that being said, I would
not view this as suspicious.
• IV – OK, a little more real world understanding. It is stated that the store
operates 24 / 7 and that it makes 3 deposits every calendar day. Many
multi-shift businesses make it a point to have a deposit made for every
shift, so, the three daily deposits would likely not be a case of structuring,
but that of a valid business decision. Also, just because the bank files the
CTRs without the customer’s knowledge, it is not suspicious. Indeed, it can
and does happen every day in the real world. To recap, I and II are
suspicious and would most likely have a SAR filed. III and IV, as presented,
would not require a SAR (in this investigator’s view).
Study questions-1 hour
• Attempt the study questions provided
Questions?