Money Laundering

The stages, schemes and vehicles of money laundering and the components of an anti-money laundering program.

5 minutes 5 Questions

Money laundering is the process of disguising the origin, ownership, or destination of illegally obtained funds so that they appear to come from legitimate sources. For a Certified Fraud Examiner (CFE), understanding money laundering is essential because it is the mechanism criminals use to enjoy t…

Concepts covered
Suspicious Reporting, Terrorism Financing, TraffickingMoney Laundering Methods and VehiclesMoney Laundering Defined and Its StagesCustomer Due Diligence and Beneficial OwnershipFATF Recommendations and AML FrameworksMoney Laundering Schemes
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CFE - Money Laundering Example Questions

Test your knowledge of Money Laundering

Question 1

While reviewing the records of a small grocery store, a fraud examiner learns that the owner accepts cash from customers who want money sent to relatives overseas. The owner then telephones a contact abroad, who pays the relatives in local currency from his own funds. The two men settle the balance between them every few months. No money passes through any bank between the two countries. Which money laundering vehicle does this arrangement BEST illustrate?

Correct Answer: Alternative remittance system

This is an alternative remittance system, such as hawala, because value moves through a network of trusted brokers. The owner takes cash locally, his overseas contact pays the relatives from his own funds, and the two settle up later, so no money crosses borders through banks.
Front business cash commingling means mixing illicit cash with a legitimate business's receipts, not transferring funds abroad. A money mule network uses individuals to move funds through their own accounts or by carrying cash. Trade-based value transfer disguises value through mispriced invoices or shipments of goods, and no trade is involved here.
Key concept: informal value transfer through trust-based broker networks without moving funds.

Question 2

In an alternative remittance system such as hawala, value moves across borders through offsetting balances between brokers rather than through a physical or electronic transfer of the customer's funds.

Correct Answer: True

In hawala, a broker in one country takes the customer's money and a partner broker in another country pays the recipient out of local funds. The two brokers later settle the debt between themselves, for example through trade invoices, cash couriers or offsetting transactions. Because the customer's money never moves directly, the system leaves little paper trail and is attractive to money launderers.

Question 3

In anti-money laundering programs, the beneficial owner of a legal entity customer is the natural person who ultimately owns or controls it, even when a nominee holds legal title to its shares.

Correct Answer: True

Customer due diligence requires institutions to look through legal ownership to the natural person who ultimately owns or exercises control over a legal entity customer. Under FATF standards, that person is the beneficial owner even if a nominee shareholder, a trustee or another intermediary is the registered holder of the shares. This is why nominee arrangements are a recognized money laundering vulnerability.

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