CISI IoI Anti-Money Laundering and Financial Crime 1 — Questions and Answers
Question 1: What are the three stages of the money laundering process in the correct order?
- Placement, Layering, Integration (Correct answer)
- Integration, Placement, Layering
- Layering, Placement, Integration
- Placement, Integration, Layering
Correct answer: Placement, Layering, Integration
The three stages are Placement (introducing illegal funds into the financial system), Layering (disguising the trail through complex transactions), and Integration (making funds appear legitimate).
Question 2: Which UK legislation is the primary statute used to prosecute money laundering offences?
- Financial Services and Markets Act 2000
- Proceeds of Crime Act 2002 (Correct answer)
- Money Laundering Regulations 2017
- Terrorism Act 2000
Correct answer: Proceeds of Crime Act 2002
The Proceeds of Crime Act 2002 (POCA) defines the principal money laundering offences and grants law enforcement powers to recover criminal assets.
Question 3: What is a Suspicious Activity Report (SAR)?
- A report filed with HMRC about suspected tax evasion
- A disclosure made to the National Crime Agency regarding suspected money laundering or terrorist financing (Correct answer)
- A regulatory report submitted to the FCA about suspicious market trading
- An internal compliance report about elevated client risk levels
Correct answer: A disclosure made to the National Crime Agency regarding suspected money laundering or terrorist financing
A SAR is a disclosure made to the National Crime Agency (NCA) when a person knows or suspects that another is engaged in money laundering or terrorist financing.
Question 4: What is 'tipping off' in the context of anti-money laundering legislation?
- Providing anonymous information to law enforcement about money laundering activity
- Disclosing to a suspect that a SAR has been filed or that an investigation is underway (Correct answer)
- Alerting clients to upcoming changes in AML regulations
- Notifying the FCA about a colleague's suspicious behaviour
Correct answer: Disclosing to a suspect that a SAR has been filed or that an investigation is underway
Tipping off is a criminal offence under POCA 2002, committed by disclosing to a suspect that a SAR has been filed or an investigation is underway, thereby prejudicing the investigation.
Question 5: What does Customer Due Diligence (CDD) primarily require a regulated firm to do?
- Assess the creditworthiness of a client for lending purposes
- Verify the identity of customers and understand the nature and purpose of the business relationship (Correct answer)
- Monitor client portfolios for underperformance against benchmarks
- Ensure clients have read and understood all product disclosure documents
Correct answer: Verify the identity of customers and understand the nature and purpose of the business relationship
CDD requires firms to verify customer identity, understand the nature and purpose of the business relationship, and conduct ongoing monitoring of transactions and the relationship.
Question 6: Who within a regulated firm is responsible for receiving internal suspicion reports and deciding whether to submit a SAR to the NCA?
- The Chief Executive Officer
- The Money Laundering Reporting Officer (MLRO) (Correct answer)
- The Chief Risk Officer
- The Head of Internal Audit
Correct answer: The Money Laundering Reporting Officer (MLRO)
The Money Laundering Reporting Officer (MLRO) is a mandatory senior management function in regulated firms, responsible for receiving internal disclosures and deciding whether to submit SARs to the NCA.
Question 7: What is 'layering' in the context of money laundering?
- Placing criminal proceeds into the banking system for the first time
- Conducting a series of complex financial transactions to obscure the origin of funds (Correct answer)
- Investing criminal proceeds into legitimate businesses to appear lawful
- Opening multiple bank accounts to deposit cash in small amounts
Correct answer: Conducting a series of complex financial transactions to obscure the origin of funds
Layering is the second stage of money laundering, involving complex transactions designed to create a confusing audit trail and conceal the criminal source of the funds.
CISI IoI Anti-Money Laundering and Financial Crime 1
What are the three stages of the money laundering process in the correct order?