AML/Ctf Quiz 2013 (Hong Kong)

Significant money transfer to unknown third parties overseas is considered a high-risk activity because it involves sending a large amount of money to individuals or entities whose identities and intentions may not be known. This activity carries a higher risk of fraud, money laundering, or funding illegal activities compared to the other options listed. The potential for financial loss or involvement in illegal transactions makes it a high-risk activity.

The correct answer is "Customer due diligence." Customer due diligence refers to the process of verifying the identity of customers and assessing the potential risks of doing business with them. It involves gathering relevant information about customers, such as their identity, address, and source of funds, to ensure compliance with anti-money laundering regulations and to prevent financial crimes.

The common sources of terrorist financing include tax evasion, corruption, and drug trafficking. These activities provide a significant amount of funds that can be used to support terrorist organizations and their operations. Tax evasion allows individuals or organizations to hide their income and assets, which can then be used to finance terrorist activities. Corruption within governments and financial institutions can also provide avenues for terrorists to access funds. Drug trafficking is another major source of financing for terrorists, as they can profit from the illegal drug trade. Therefore, all of the options listed are correct sources of terrorist financing.

A PEP refers to a Politically Exposed Person. This term is used to describe individuals who hold prominent public positions or have close associations with such individuals. These individuals are considered to be at a higher risk of being involved in corruption or money laundering due to their access to public funds and influence. Financial institutions and regulatory bodies often have specific guidelines and procedures in place to monitor and manage the risks associated with PEPs.

The Suspicious Transaction Report (STR) should be submitted to the Joint Financial Intelligence Unit (JFIU) when a suspicious transaction is found to be justified. The JFIU is responsible for receiving and analyzing reports of suspicious transactions from various financial institutions and law enforcement agencies. They play a crucial role in combating money laundering, terrorist financing, and other illicit activities by sharing intelligence and coordinating investigations. By submitting the STR to the JFIU, they can further assess the transaction and take appropriate actions if necessary.

The Hong Kong Permanent Identity Card would be considered as a valid and acceptable type identification document because it is a government-issued document specifically designed for identification purposes. It is likely to have security features and is recognized as a valid form of identification in Hong Kong. On the other hand, a credit card, expired driving license, and business name card may not be considered as reliable forms of identification as they may not have the necessary security features or may not be issued by a recognized authority for identification purposes.

For High Risk Category customers, Simplified Due Diligence (SDD) should not be used. Instead, Enhanced Due Diligence (EDD) should be used. EDD involves conducting a more thorough investigation and gathering additional information about the customer's background, transactions, and risk profile. This is necessary because high-risk customers are more likely to be involved in illegal activities such as money laundering or terrorism financing. Therefore, it is important to implement stricter measures to mitigate these risks.

In order to effectively combat money laundering and terrorist financing, it is important for everyone in the company to be vigilant and report any suspicions they may have during their daily work. This collective effort helps in detecting and preventing illicit activities, ensuring compliance with regulations, and protecting the company's reputation and financial stability. Therefore, it is indeed the responsibility of everyone in the company to help detect any suspicions of ML/TF.

Money laundering is a process through which illegally obtained money is made to appear legal. The correct sequence of stages of money laundering is Placement, Layering, and Integration. Placement refers to the initial stage where the illegally obtained money is introduced into the financial system. Layering involves multiple complex transactions to obscure the money's origin and make it difficult to trace. Integration is the final stage where the laundered money is reintroduced into the legitimate economy, appearing as legitimate funds. This sequence ensures that the money's illegal origins are concealed and allows criminals to enjoy the proceeds without raising suspicion.

The correct answer is the "SAFE" approach. The JFIU (Joint Financial Intelligence Unit) suggests using this approach in Suspicious Transaction Reporting (STR). Unfortunately, without further information, it is not possible to provide a detailed explanation of what the "SAFE" approach entails.

Terrorists can indeed obtain money to fund their activities from legitimate organizations, such as charities and religious groups. This is a well-known phenomenon known as "terrorist financing" where terrorists exploit the financial systems and loopholes in order to receive funds from unsuspecting sources. Some individuals or organizations may unknowingly donate money to charities or religious groups that are involved in funding terrorist activities, making it difficult to trace and prevent this type of financing. Therefore, it is important to have strict regulations and monitoring in place to prevent the misuse of funds by terrorists.

All of the above options are likely to be considered suspicious activities. A customer who is reluctant to provide the necessary KYC information or documents may be trying to hide their true identity or engage in illegal activities. Frequent switching of funds within a short period of time without economic reasons can indicate money laundering or fraudulent behavior. Over-payment to a company with a request to refund the excess to third parties overseas is a common tactic used in money laundering schemes. Therefore, all three activities raise suspicion and should be closely monitored.

Tipping off refers to the act of informing a client that a Suspicious Transaction Report (STR) has been filed on their account. This is considered a breach of confidentiality and can hinder investigations into potential money laundering activities. By tipping off the client, the employee compromises the integrity of the reporting system and may allow the client to take actions to evade detection or investigation.

This statement is false because criminals do not always launder money solely through banks and other financial institutions. Money laundering can occur in various ways, such as through shell companies, real estate transactions, and even through legitimate businesses. Therefore, anti-money laundering compliance is a serious issue for all types of businesses, not just banks and financial institutions.

Cash intensive businesses like casinos, convenience stores, and restaurants are considered high risk because they handle large amounts of cash on a regular basis. This makes them attractive targets for theft and fraud. Additionally, the high volume of cash transactions increases the risk of money laundering and other illegal activities. Therefore, it is important for these businesses to have strict security measures in place to mitigate these risks.

Hong Kong is a member of the FATF. The FATF, or Financial Action Task Force, is an intergovernmental organization that sets international standards for combating money laundering, terrorist financing, and other related threats to the integrity of the international financial system. As a major international financial center, Hong Kong plays an active role in implementing these standards and is a member of the FATF.

Whitening is not a stage of money laundering. Money laundering typically involves three stages: placement, layering, and integration. Placement refers to the process of introducing illegal funds into the financial system, layering involves complex transactions to obscure the origin of the funds, and integration is the final stage where the laundered money is integrated back into the legitimate economy. Whitening, on the other hand, refers to the process of legalizing or legitimizing illegally obtained funds through various means, such as declaring them as legal income or assets.

A Suspicious Transaction should be reported to the Money Laundering Reporting Officer (MLRO). The MLRO is responsible for receiving and assessing reports of suspicious transactions and ensuring that appropriate actions are taken. They are trained to identify potential money laundering activities and have the authority to report such transactions to the relevant authorities for further investigation. Reporting to the MLRO helps in maintaining the integrity of the financial system and preventing money laundering activities.

When a staff reports suspicious transactions to the MLRO, it is important not to inform anyone else. This is because the MLRO is responsible for handling and investigating any suspicious activity, and disclosing this information to others could compromise the integrity of the investigation and potentially tip off the individuals involved in the suspicious transactions. Therefore, it is crucial to maintain confidentiality and only share the information with the MLRO to ensure the proper handling of the situation.

An unexpired passport issued by a government department bearing a photograph is considered a proper KYC (Know Your Customer) document because it is an official government-issued identification document that provides proof of the client's identity and can be used for various purposes such as travel and identification verification. It is a reliable and recognized document that meets the requirements for KYC procedures.

According to Section 25 of the Drug Trafficking (Recovery of Proceeds) Ordinance, the maximum penalty for an offense is a HK$5 million fine and 14 years imprisonment.

Placement is the stage of money laundering at which illicit money first enters the financial system. During this stage, criminals physically place their illegal funds into the legitimate financial system, typically through activities such as depositing cash into bank accounts, purchasing assets, or making investments. This initial step allows them to disguise the illicit origins of the funds and begin the process of integrating them into the legal economy.

The correct answer is the Financial Action Task Force (FATF). FATF is an international organization that issues recommendations for dealing with money laundering. They provide guidance and set international standards to combat money laundering and terrorist financing. Their recommendations are widely recognized and followed by countries around the world to strengthen their anti-money laundering measures.

It is necessary for both clients and staff to undergo name screening against lists of politically exposed persons (PEP), high-risk countries (HRC), and sanctions in order to ensure compliance with regulations and mitigate any potential risks associated with money laundering, terrorism financing, or other illicit activities. This screening helps to identify individuals who may pose a higher risk and allows for appropriate due diligence measures to be taken. Therefore, the statement is true.

After a client relationship has ended, the records must be kept for 6 years. This is likely because there may be legal or regulatory requirements to retain client records for a certain period of time. Keeping the records for 6 years ensures that any potential legal or regulatory issues can be addressed and that the organization has access to the necessary information if needed.

The correct answer is "All of the above". This means that all of the ordinances mentioned in the options (i.e., DTROP, OSCO, UNATMO, and AMLO) are in relation to Money Laundering and Terrorist Financing in Hong Kong.

JFIU stands for Joint Financial Intelligence Unit, which is a real organization jointly operated by the Hong Kong Police Force and the Hong Kong Customs and Excise Department. Therefore, the statement is true.

The staff training record of AML/CTF should be kept for a minimum of 3 years in accordance with the Guidelines on AML/CTF. This means that organizations should maintain a record of the training provided to their staff regarding Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) measures for at least 3 years. This is important for compliance purposes and to ensure that staff members are adequately trained and informed about AML/CTF regulations and procedures.

If the client is not present for account opening, an enhanced level of Customer Due Diligence (CDD) must take place. Enhanced CDD involves conducting a more thorough investigation and verification of the client's identity and background. This is necessary to mitigate the higher risk associated with not having the client physically present during the account opening process. Standard CDD would not be sufficient in this case, as it may not provide adequate assurance of the client's identity and intentions. Simplified CDD is a lower level of due diligence that is applicable for low-risk customers, which would not be appropriate in the absence of the client.

The enhanced verification procedures for non face-to-face account opening include two steps. First, the account opening documents need to be certified by a suitable certifier such as a CPA or lawyer. This ensures that the documents are authentic and the information provided is accurate. Second, the client is required to submit a cheque of at least HK$10,000 issued by a licensed bank in Hong Kong, which bears the client's name. This serves as a proof of the client's financial capability and further verifies their identity.