Money Laundering Risks in Financial Institutions

Flashcards covering key concepts related to money laundering risks in financial institutions, methods of mitigation, and specific challenges faced by various sectors.

What are some methods investment banks use to mitigate money laundering risks in M&A activities?

They implement enhanced due diligence, transaction monitoring, beneficial ownership verification, jurisdictional risk assessments, and legal and compliance reviews.

Why are trade finance transactions particularly vulnerable to money laundering?

Due to their complexity and global nature, which allows money launderers to move funds across borders using methods like over- or under-invoicing.

What risks are associated with correspondent banking?

Correspondent banking poses risks due to the lack of due diligence on end customers, limited information on transaction patterns, and the potential for nesting accounts.

What is a key difference between primary and secondary markets regarding money laundering risks?

In the primary market, risks involve investing illicit funds in IPOs, while secondary market risks involve high transaction volumes and anonymity that facilitate laundering.

What unique challenges do nonbank financial institutions face in combating money laundering?

They face less regulation compared to banks, making it difficult to identify and mitigate money laundering risks.

What role do payment service providers (PSPs) play in the financial ecosystem?

PSPs facilitate digital payments across various industries, including payment aggregation and card issuance.

What are common red flags for money laundering in e-commerce?

Red flags include inflated prices, attempts to conceal identity, and unusual transaction patterns.

How can insurance products be misused for money laundering?

Criminals might exploit high cash-value insurance products by making irregular premium payments or cashing out policies prematurely.

What is the impact of inadequate KYC governance in nonbank financial institutions?

It increases financial crime risks and operational liabilities, making these institutions vulnerable.

What can be a consequence of a payment service provider's noncompliance with regulations?

It can lead to facilitation of money laundering and create gaps in controls to detect illicit activities.

How might criminals use maritime insurance to facilitate money laundering?

They may misclassify goods or submit fraudulent declarations to trigger insurance payouts, obscuring the true nature of their activities.

What is the significance of transaction monitoring controls in correspondent banking?

These controls help spot unusual patterns and prevent illicit activities, but correspondent banks often lack the necessary transaction data.

What types of customers are often associated with higher risks in corporate and investment banking?

Customers from high-risk sectors, including embassies, SPVs, charities, and the defense sector.

How can electronic payment methods facilitate money laundering?

Criminals may use them to launder funds while obscuring the origins of $10 billion through e-commerce platforms.