Section 1

What is money laundering?

Financial transactions intended to conceal the source ownership or destination of proceeds of crime and make them appear legitimate

Why do criminals launder money?

To avoid seizure; avoid prosecution; evade taxes; reinvest criminal proceeds; appear legitimate

What constitutes a money laundering offence in Canada?

Concealing converting transferring or dealing with proceeds of crime while knowing or believing they originated from a designated offence

What is a designated offence?

A serious Criminal Code or federal offence that generates proceeds capable of being laundered

What is considered a serious offence for AML purposes?

An indictable offence punishable by five years imprisonment or more; or another offence prescribed by regulation

What are the three stages of money laundering?

Placement; Layering; Integration

What is the primary purpose of placement?

Introduce illicit funds into the financial system; relieve the criminal of holding large amounts of cash

Why is placement considered the riskiest stage for criminals?

The funds are still in cash form and remain closely connected to the original crime

What is layering?

Creating complex financial transactions to disguise the origin ownership and audit trail of illicit funds

What is the primary purpose of layering?

Separate illicit funds from their criminal source by obscuring the audit trail

What is integration?

Reintroducing laundered funds into the legitimate economy so they appear lawful

Why is integration difficult to detect?

Funds appear legitimate and only inconsistencies in wealth income or business activity may reveal them

Which money laundering stage involves international wire transfers?

Layering

Which stage commonly includes purchasing luxury goods with laundered funds?

Integration

Which stage commonly includes depositing criminal cash into the financial system?

Placement

What is structuring?

Breaking transactions into amounts below reporting thresholds to avoid reporting requirements

Why is structuring illegal?

It is intended to evade reporting obligations under the PCMLTFA

What is smurfing?

Using multiple people or nominee accounts to conduct structured transactions on behalf of a money launderer

How are structuring and smurfing related?

Structuring is the technique; smurfing uses multiple people to carry it out

What is refining?

Converting small denomination bank notes into larger denomination bank notes

Why do criminals refine cash?

Large denomination notes are easier to transport conceal and deposit

What are common placement methods?

Structuring; smurfing; cash intensive businesses; casinos; currency exchange; money mules; bulk cash smuggling

What are common layering methods?

Wire transfers; shell companies; offshore accounts; trusts; trade based money laundering; purchase of monetary instruments

What are common integration methods?

Real estate; luxury assets; businesses; investments; high value goods

Why are virtual currency exchanges attractive during placement?

They allow rapid movement of funds and make tracing the origin more difficult

Why are cash intensive businesses attractive to money launderers?

They allow illicit cash to be blended with legitimate revenue

What is a front business?

A legitimate business used to blend illicit funds with legitimate business income

What is a money mule?

A person who receives transfers withdraws funds and forwards them to criminals for payment

Why are casinos attractive for money laundering?

Cash can be converted into chips then redeemed as casino cheques creating an appearance of legitimacy

Which stages of money laundering are most commonly observed in casinos?

Placement; Layering

How are casino chips used in money laundering?

Purchase chips with illicit funds; perform minimal gaming; redeem chips for a casino cheque

Why are gold and diamonds attractive to money launderers?

High value; compact; easily hidden; easily transported; easily resold

What is trade based money laundering?

Using trade transactions invoices or shipping documents to disguise criminal proceeds

What is the Black Market Peso Exchange?

A trade based laundering system that moves criminal value across borders without direct fund transfers

Why are shell companies used in money laundering?

To conceal beneficial ownership and create layers between criminals and illicit funds

What is the purpose of offshore banks in money laundering?

Provide secrecy; conceal ownership; hinder law enforcement investigations

Who are professional money launderers?

Individuals or organizations that specialize in laundering proceeds for criminals but are not usually involved in the predicate crime

What are the three broad categories of money launderers?

Organized Crime Groups; White Collar Professionals; Professional Money Launderers

How do white collar professionals facilitate money laundering?

By using financial expertise; complex structures; global markets; professional services

What is the iron triangle of organized crime?

Collaboration between organized crime; corrupt government officials; corrupt business leaders

Why is corruption important to money laundering?

It allows criminals to bypass controls avoid detection and continue operating

True or False: Canada has one dominant organized crime group.

False; Canada has many significant organized crime groups

Approximately how many organized crime groups operate in Canada?

More than 2000

Why is environmental crime relevant to AML?

It generates significant criminal proceeds that require laundering

Name three examples of environmental crime.

Illegal logging; illegal mining; waste trafficking

What is the main societal impact of money laundering?

Undermines the economy; strengthens organized crime; reduces government revenue; weakens public confidence

Why is fraud closely linked to money laundering?

Fraud generates proceeds that criminals attempt to conceal and legitimize

Why are Politically Exposed Persons considered higher risk?

They are more vulnerable to bribery corruption and misuse of public funds

What level of risk are PEPs generally considered?

High risk

Why must Enhanced Due Diligence be applied to PEPs?

Because of their elevated money laundering and corruption risk

Which concepts should you know cold from Section 1?

Placement; Layering; Integration; Structuring; Smurfing; Refining; PEPs; Serious offence; Casino laundering; Trade based money laundering