HKIB ECF-AML/CFT Core flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

Placement stage

The first stage of money laundering, in which illicit cash is introduced into the financial system through deposits, purchases, or currency exchange, often split into small amounts to avoid thresholds.

Layering stage

The second stage, where transactions such as transfers, conversions, and corporate structures are used to distance funds from their criminal origin and obscure the audit trail.

Integration stage

The final stage, in which laundered funds re-enter the legitimate economy as apparently lawful assets, investments, or business proceeds, making origin difficult to trace.

JFIU

The Joint Financial Intelligence Unit, operated by the Hong Kong Police Force and Customs and Excise Department, which receives and analyses suspicious transaction reports from financial institutions.

Suspicious transaction report

A disclosure filed with the JFIU when an institution knows or suspects that property represents criminal proceeds or terrorist funds, regardless of the amount involved.

Tipping-off offence

A criminal offence of disclosing to the subject or a third party that a suspicious transaction report has been made, where the disclosure is likely to prejudice an investigation.

Defence against money laundering

Appropriate consent obtained from the authorities allowing an institution to proceed with a transaction or relationship after making a disclosure, protecting it from laundering offences.

Beneficial owner

The natural person who ultimately owns or controls a customer, generally more than 25% of shares or voting rights for legal persons, or who exercises ultimate effective control.

Politically exposed person

An individual entrusted with prominent public functions, together with family members and close associates, who presents higher risk and requires enhanced due diligence.

Enhanced due diligence

Additional measures applied to higher-risk customers, including senior management approval, source-of-wealth and source-of-funds checks, and more frequent ongoing monitoring.

Simplified due diligence

Reduced CDD measures permitted only where the institution has assessed the risk as genuinely low; customer and beneficial owner identification and verification are still required.

Customer due diligence

The process of identifying and verifying the customer and beneficial owner, establishing purpose and intended nature of the relationship, and conducting ongoing monitoring.

Ongoing monitoring

Continuous scrutiny of transactions and account activity against the customer's known profile, combined with periodic CDD reviews triggered by the customer's risk rating.

Shell bank

An institution incorporated in a jurisdiction where it has no physical presence and is unaffiliated with a regulated group; correspondent relationships with such banks are prohibited.

MLRO

The Money Laundering Reporting Officer, the nominated person who receives internal reports, assesses suspicion, and decides whether to file a report with the JFIU.

Structuring

The practice of splitting transactions into amounts below reporting or scrutiny thresholds, or spreading them across branches or days, to avoid detection.

Trade-based laundering

A typology in which goods are over- or under-invoiced, misdescribed, or repeatedly invoiced to move value across borders and disguise the origin of funds.

Targeted financial sanctions

Measures requiring institutions to freeze funds of designated persons without delay and without prior notice, and to report matches to the competent authority.

Risk-based approach

An approach in which customer, product, channel, and geographic risks are assessed and combined to determine the intensity of CDD and monitoring applied.

FATF Recommendations

The international standards on anti-money laundering and counter-financing of terrorism, setting out the framework that national regimes and sector guidelines implement.

Record retention period

A requirement to keep CDD and transaction records for at least five years after the relationship ends or the transaction occurs, retrievable without undue delay.

Source of funds

The origin of the particular funds involved in a transaction or relationship, such as salary, sale proceeds, or a loan, which must be established for higher-risk cases.

Source of wealth

The origin of the customer's total accumulated wealth, such as business ownership or inheritance, examined in enhanced due diligence for PEPs and high-risk customers.

Three-stage model

A common description of money laundering as placement, layering, and integration; the stages may overlap and not every case follows the sequence in order.

Predicate offence

The underlying crime that generates proceeds later laundered; under Hong Kong law these include drug trafficking and other serious offences listed in the relevant ordinances.

OSCO

The Organized and Serious Crimes Ordinance (Cap. 455), a Hong Kong statute creating money laundering offences, disclosure obligations, and related powers.

Cap. 575

The United Nations (Anti-Terrorism Measures) Ordinance, a Hong Kong statute implementing terrorist-financing offences, sanctions, and reporting obligations.

Cap. 615

The Anti-Terrorism and Proliferation Financing of Weapons of Mass Destruction Ordinance, a Hong Kong statute addressing proliferation financing and related sanctions.

DTROP

The Drug Trafficking (Recovery of Proceeds) Ordinance (Cap. 405), a Hong Kong statute dealing with proceeds of drug trafficking, including laundering and disclosure duties.

Correspondent banking

A relationship in which one bank provides services to another; it requires CDD on the respondent institution and prohibits relationships with shell banks.

Wire transfer rules

Requirements that originator and beneficiary information accompany fund transfers, with incomplete information treated as a potential suspicious indicator and reported.

Independent audit function

A separate function that tests the AML/CFT programme, including CDD files, monitoring alerts, STR decisions, and sanctions screening, and reports findings to senior management.

Senior management responsibility

The duty of the board and senior management to approve AML/CFT policy, appoint the MLRO, allocate compliance resources, and receive regular risk information.