Anti Money Laundering AML Test Papers and Answer Sheets | Introduction to Financial Crime and Overview | Assessment Quiz and Answers | Using the Assessment and Marking Sheet | Template for FCA Applications and Authorised Firms

1 Introduction to Financial Crime

Financial crime, as defined by the FCA, HMRC and FSMA is any kind of criminal conduct relating to money or to financial services or markets, including any offence involving: –

a) Fraud or dishonesty; or
b) Misconduct in, or misuse of information relating to, a financial market; or
c) Handling the proceeds of crime; or
d) The financing of terrorism.

You should aim to identify, mitigate against and prevent financial crime within your business activities by implementing policies and procedures that identify, assess, monitor and manage money laundering risks and any other associated financial crime risks. Testing and assessing employee knowledge and understanding in this area is key to compliance and due diligence.

Money laundering is the term used to describe the process or act of disguising or hiding the original ownership of money that has been obtained through criminal acts such as terrorism, corruption or fraud. Such monies are then moved through legitimate businesses and sources to make it appear ‘clean’.

In June 2015, the European Union’s Fourth Anti-Money Laundering Directive (EU) (2015/849) (MLD4) came into force, requiring member states to update their current money laundering regulations and transpose the changes into local law.

In response to this Directive, the UK drafted The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which came into force along with the 4MLD on 26th June 2017. The new regulations place a higher emphasis on a risk-based approach, with risk assessments being pivotal to the prevention of financial crime. In 2019 the MLR17 was further amended to include the requirements set out in 5MLD.

2 Test Paper Overview

Testing, assessing and training employees in the regulatory compliance rules and standards is an essential business practice to ensure compliance, evidence competency and support your staff. We have designed a range of exclusive compliance assessment quiz and answer documents, with a view to assisting regulated firms in the compliance expectations.

2.1 Assessment Quiz & Answers

Our ready-to-use question and answer assessments come with beginner, intermediate and advanced style questions on the specific compliance areas and through detailed and expertly developed answers sheets, also aim to teach as well as test. The assessments are unique in that they do not just provide yes/no answers to the questions. Our compliance experts have provided detailed, relevant and compliant answers to each question so that gaps and understanding can be filed, and staff supported.

Assessments should be a continual part of any organisation and delivered as part of induction programmes, after training and on a rolling basis as part of a standard compliance regime. These assessments allow you to evidence your compliance to the Training and Competency requirements set by regulators and enable the identification of misunderstood areas, before they become a problem.

2.2 Using the Assessment

You are free to edit and use the document however suits your business type and needs, however we would suggest printing the quiz for hard copy use and then using the answer paper to mark the assessment and discuss the answers with the employee where gaps have been identified. You should also add a copy of the assessment and any marking/evaluation logs to the employees training file for future reference and compliance evidence.

2.3 Marking Sheet

Each of the questions come with a marking guide which can be used by the employee to know how many points/answers should be given, and for the marker to score the answer correctly. At the end of the document, you will find a marking sheet to make scoring the tests easier.

3 AML & Financial Crime Test Paper 1

1. Which of the below Acts does not govern money laundering and terrorist funding in the UK?

 a) The Proceeds of Crime Act 2002                                                               ___
b) Serious Organised Crime & Police Act 2005                                              ___
c) Data Protection Act 2018                                                                            ___
d) Terrorism Act 2000                                                                                     ___
                                                                                                                   (1 mark)

2. What do MLRO and SAR stand for?

________________________________________________________

________________________________________________________          (2 marks)

3. List 3 types of financial crime?

________________________________________________________

________________________________________________________

________________________________________________________          (3 marks)

4. NCA is the acronym for?

 a) National Crime Agency                                                                             ___
b) Nationwide Crime Association                                                                   ___
c) National Organised Crime Association                                                      ___
                                                                                                                   (1 mark)

5. Name 3 areas that a Risk Based Approach encompasses?

________________________________________________________

________________________________________________________

________________________________________________________          (3 marks)

6. The Money Laundering Reporting Officer is responsible for sending suspicious activity reports to the NCA?

 a) True                                                                                                           ___
b) False                                                                                                          ___
                                                                                                                   (1 mark)

7. The Financial Action Task Force (FATF) is an: – (fill in the blanks)

‘Independent _________________ organisation that develops ___________ to combat money-laundering and _______________ financing.’

                                                                                                                           (3 marks)

8. Which of the below are stages of money laundering defined by the Proceeds of Crime Act? (You can choose multiple answers)

 a) Integration                                                                                                ___
b) Filtering                                                                                                     ___
c) Placement                                                                                                 ___
d) Cleaning                                                                                                   ___
e) Layering                                                                                                    ___
                                                                                                                 (3 marks)

9. Name 4 ways of helping to prevent Money Laundering?

________________________________________________________

________________________________________________________

________________________________________________________

________________________________________________________          (4 marks)

10. The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 replaced which legislation?

a) The UK Money Laundering Regulations 2007                                          ___
b) The EU Financial Crime Directive (EU295/456E)                                     ___
c) The Money & Terrorist Funding Regulation 2012                                      ___
                                                                                                                   (1 mark)

You have reached the end of test paper 1

3.1 AML & Financial Crime Answer Sheet 1

Below are the answers to the first assessment test paper; the correct answer is provided in red underneath each assessment question. We have then provided detailed information about the question and answer which should be relayed to the assessment taker where any gaps have been identified. Use the mark guidance for scoring each answer.

1. Which of the below Acts does not govern money laundering and terrorist funding in the UK?

 c) Data Protection Act 2018

The UK has four main Acts made by Parliament that govern money laundering, financial crime and terrorist funding. They are: –

• The Proceeds of Crime Act 2002
• Terrorism Act 2000
• Serious Organised Crime & Police Act 2005
• Anti-Terrorism, Crime & Security Act 2001

2. What do MLRO and SAR stand for?

1.MLRO – Money Laundering Reporting Officer

Businesses that are regulated by the Money Laundering Regulations must appoint what is commonly known as a ‘nominated officer’. The nominated officer must be someone in the business and if you are a regulated sole trader with no employees, you must appoint yourself. The appointed person is known as the Money Laundering Reporting Officer (MLRO).

2. SAR – Suspicious Activity Report

A SAR is a Suspicious Activity Report, a piece of information which alerts law enforcement that certain client/customer activity is in some way suspicious and might indicate money laundering or terrorist financing. Submitting a SAR provides law enforcement with valuable information on potential criminality. It also protects you, your organisation and UK financial institutions from the risk of laundering the proceeds of crime. By submitting a SAR to the NCA, you will be complying with any potential obligations you have under the Proceeds of Crime Act 2002 (POCA).

3. List 3 types of financial crime?

• Money Laundering
• Bribery
• Corruption
• Fraud
• Tax Evasion
• Terrorist Funding
• Electronic Crime
• Market Abuse

You should mark this question as you see fit if the answer/s differ from the above. There are many types of financial crime and some responses may be more specific than those provided above (e.g. As appose to answering ‘Fraud’ one may say ‘Taking benefits someone is not entitled to’).

4. NCA is the acronym for?

 a) National Crime Agency

The National Crime Agency (NCA) is a national law enforcement agency in the United Kingdom which replaced the Serious Organised Crime Agency. It became fully operational on 7 October 2013 at which date SOCA was disbanded.

5. Name 3 areas that a Risk Based Approach encompasses?

• Identification of the Risks
• Carrying out Risk Assessments
• Design and Implement Controls & Procedures for Risk Mitigation
• Monitor Controls to Improve Effectiveness & Efficiency
• Good Record Keeping Methods

A risk-based approach is where a company or authority, identify, assess, and understand any money laundering or terrorist financing risk to which they are or could be exposed. They then develop and implement the appropriate mitigation measures, procedures and controls in accordance with the rated level of risk. Such identification usually involves the risk being scored using a Risk Matrix and determinations made as to the level of impact such a risk would have, as well as the likelihood of it occurring.

 6. The Money Laundering Reporting Officer is responsible for sending suspicious activity reports to the NCA?

 a) True

A Money Laundering Reporting Officer (MLRO) is the officer nominated within a firm to make disclosures to the National Crime Agency (NCA) under the Proceeds of Crime Act 2002 and the Terrorism Act 2000.

7. The Financial Action Task Force (FATF) is an: – (fill in the blanks)

Independent inter-governmental organisation that develops policies to combat money laundering and terrorist financing.’

The Financial Action Task Force (FATF) is an inter-governmental body. It was established in 1989 and has set objectives and standards to promote the effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system.

The FATF have developed numerous standards, recommendations and guidelines that are used and recognised as the international standard for combating of money laundering and terrorist financing and are also deferred to by regulating bodies such as the FCA when considering what controls, measures and procedures regulated firms should have in place for AML and CFT.

8. Which of the below are stages of money laundering defined by the Proceeds of Crime Act? (Multiple answers are accepted)

a) Integration
c) Placement
e) Layering

• Placement – the process of getting criminal money into the financial system. This is where the ‘dirty’ money enters the financial system, enabling it to transfer from the hands of the criminals and into legitimate businesses. This happens through a variety of sources such as cash businesses, false invoicing, offshore companies and cancelled transactions.
• Layering – where large and/or complex laundering schemes are involved, layering is often essential due to the large quantities of money being placed and moved. Layering is the process of moving money into the financial system through complex webs of transactions. This involves multiple purchases and transactions as oppose to using the illegal funds in just one placement. Often varying the amounts of the transactions that take place each time make tracing the money much more difficult.
• Integration – the final stage in the process where the money is either returned to the source and/or criminal or to the end recipient (such as a creditor when the funds have been used to pay off debts or loans). This is when the money becomes absorbed into the economy and can get lost in the system as legitimate funds. The aim is to get the money out (known as extraction), without alerting the authorities or law enforcement.

9. Name 4 ways of helping to prevent Money Laundering?

• Checklists & Audits
• Due Diligence Re-checks
• Management Information (MI)
• Transaction Monitoring
• Gap Analysis
• Spot Checks
• Staff Assessments, Training & Tests
• Ongoing Risk Assessments
• Updating Procedures & Manuals

Due diligence is one of the best and most important ways of preventing and mitigating against money laundering and terrorist financing. Checking who you are doing business with, their background and their status is an essential business practice and a legal requirement.

Training and assessing staff knowledge and understanding is another pivotal prevention measure, it is usually down to human intervention that suspicious transactions or identity checks are spotted. Those in roles such as accounting and new business must be especially aware and vigilant and understand what to look out for and who to report any issue to.

Where are the gaps in your business? Auditing and monitoring processes and activities is the main way of seeing where you have gas – gaps which are likely to allow non-compliance or suspicious transactions to slip through. Tightening controls and measures and ensuring that all areas are spot checked and monitored is pivotal.

Risk assessment mitigate many risks, especially those associated with terrorist funding and money laundering. Knowing what the risks are before they happen and putting corrective actions or mitigating controls into place is a pre-emptive action and one that is a legal and regulatory requirement.

MARKER NOTE: You should mark this question as you see fit if the answer/s differ or are in addition to the above. There are many controls, measures and processes for preventing and mitigating against money laundering and those taking the assessment may refer to your own firm’s measures – which may be in addition to the above answers.

10. The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 replace which legislation?

 a) The UK Money Laundering Regulations 2007

In the UK, relevant laws and regulations regarding money laundering became effective in 1994 (subsequently amended in 2003, 2007 and 2017). The Money Laundering Regulations 2007 came into force in the UK on 15/12/2007 and The Money Laundering (Amendment) Regulations 2012 extended the scope of the Regulations. However, with the progression of technology and the digital age, a more risk-based approach was needed to combat terrorist financing and financial crime.

In June 2015, the European Union’s Fourth Anti-Money Laundering Directive (EU) (2015/849) (MLD4) came into force, requiring member states to update their current money laundering regulations and transpose the changes into local law. In response to this Directive, the UK drafted The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 which came into effect on 26th June 2017.

The new regulations place a higher emphasis on a risk-based approach, with risk assessments being pivotal to the prevention of financial crime. It also expands upon the previous customer due diligence requirements, providing extensive details of the measures to be taken and further clarification on enhanced and simplified due diligence.

This is the end of the test 1 answer paper. Where you have identified any gaps or misunderstandings in an assessment, you should use the additional answers provided to teach and support the respondent. You should also scan/save a copy of the completed quiz and marking sheet and complete any assessment/evaluations forms that you use for training and development and record these in the employees training file.

4 AML & Financial Crime Test Paper 2

You have 30 minutes to complete the quiz on Anti-Money Laundering and Financial Crime. This quiz has been designed to test your knowledge and understanding in this compliance area. Please make sure that you read each question carefully – the marks available for each question are noted on the bottom right.

1. The NCA was formed after SOCA was disbanded – what date did the NCA become fully operational?

a) 17^th October 2011                                                                                               ___
b) 7^th October 2013                                                                                                 ___
c) 27^th December 2012                                                                                           ___
                                                                                                                          (1 mark)

2. Name 3 Acts, laws or regulators who refer to, set or impose money-laundering regulations?

________________________________________________________

________________________________________________________

________________________________________________________          (3 marks)

3. The FCA and HMRC note that a business must maintain effective systems and controls to counter the risk of being used for financial crime. Complete the below suggested measures: –

(Fill in the blanks)

a) Deterrence by applying appropriate customer _____ _________________ measures
b) Detection as a result of monitoring _______________ and reporting _____________ activity to the NCA
c) Carrying out ______ _______________ that identify areas vulnerable to money laundering and terrorist financing

                                                                                                                           (4 marks)

4. Performing due diligence on all commercial and individual clients and/or suppliers is an essential control for counteracting financial crime. List 3 forms of identification that an individual or company could be asked for during verification?

________________________________________________________

________________________________________________________

________________________________________________________          (3 marks)

5. You must apply customer due diligence measures when: –

(You can choose multiple answers)

a) You don’t like the look of the customer
b) You carry out an ‘occasional transaction’ worth €10,000 or more
c) You have doubts about a customer’s identification information that you obtained previously c
d) You are being monitored by your supervisor
e) The business/individual is not located in the UK
                                                                                                                          (2 marks)

6. What is a PEP?

________________________________________________________          (1 mark)

7. The FCA expects a firms Money Laundering Reporting Officer (MLRO) to be based in the UK?

a) True
b) False
                                                                                                                   (1 mark)

8. What does EDD stand for?

a) Extra Diligence Data
b) Enhanced Due Diligence
c) Enhanced Due Detection
d) Extensive Due Diligence
                                                                                                                   (1 mark)

9. What is the full name of the acronym JMLSG?

________________________________________________________          (1 mark)

10. What is a Suspicious Activity Report?

________________________________________________________

________________________________________________________          (2 marks)

You have reached the end of test paper 2

4.1 AML & Financial Crime Answer Sheet 2

Below are the answers to the second assessment test paper; the correct answer is provided in red underneath each assessment question. We have then provided detailed information about the question and answer which should be relayed to the assessment taker where any gaps have been identified. Use the mark guidance for scoring each answer.

1. The NCA was formed after SOCA was disbanded – what date did the NCA become fully operational?

b) 7^th October 2013

Serious Organised Crime Agency (SOCA) was created under The Serious Organised Crime & Police Act 2005, which came into effect on April 7, 2005. It was responsible for gathering intelligence regarding the proceeds of crime and financial information arising from suspicions of money laundering until the 7^th October 2013 when the National Crime Agency (NCA) became fully operational and took over the previous duties of SOCA.

2. Name 3 Acts, laws or regulators who refer to, set or impose money-laundering regulations?

• The Proceeds of Crime Act 2002 (POCA)
• Serious Organised Crime and Police Act 2005 (SOCPA)
• The Terrorism Act 2000, as amended by the:
• The Anti-Terrorism, Crime & Security Act 2001
• Terrorism Act (Amendment) Regulations 2007
• The Terrorism Act 2006
• The Bribery Act 2010
• The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017
• The FCA and/or their Handbook
• The Joint Money Laundering Steering Group (JMLSG)
• Gambling Commission
• HMRC (for those business with money laundering obligation not already supervised by the FCA, Gambling Commission or an authorised professional body)

All the above Acts, laws and/or regulators have an influence and/or impact on the financial crime and money laundering regulations; either by directly setting and imposing them or by the expectation to follow them.

3. The FCA and HMRC note that a business must maintain effective systems and controls to counter the risk of being used for financial crime. Complete the below suggested measures: –

a) Deterrence by applying appropriate customer due diligence measures
b) Detection as a result of monitoring transactions and reporting suspicious activity to the NCA
c) Carrying out risk assessments that identify areas vulnerable to money laundering and terrorist financing

4. Performing due diligence on all commercial and individual clients and/or suppliers is an essential control for counteracting financial crime. List 3 forms of identification that an individual or company could be asked for as verification?

INDIVIDUAL                                                                            COMPANY

Passport (or copy of)                                                               Certificate of Incorporation

Drivers Licence (or copy of)                                                    Companies House Check

Utility Bill                                                                                Accounts/Financial Statements

Bank Statement                                                                      Director Identity

Electoral Register Check                                                         Utility Bill (proof of trading address)

5. You must apply customer due diligence measures when: –

(Add to the below answers if your firm has other DD requirements)

• You establish a business relationship
• You carry out an ‘occasional transaction’ worth €10,000 or more
• You suspect money laundering or terrorist financing
• You have doubts about a customer’s identification information that you obtained previously
• It’s necessary for existing customers (e.g. due to changes in their circumstances)
• For high risk customers (i.e. beneficial owners, PEPs etc)

6. What is a PEP?

Politically exposed Person

With regards to money laundering and in the finance and credit industries, a PEP is a “Politically Exposed Person”, which is someone entrusted with a prominent public function and as such, can pose a higher risk for being involved in bribery and/or corruption. This is not classed as a generalisation of all public figures or functions, however, due to their position and the influence that they may hold, more extensive levels of due diligence are required.

With regards to PEP’s FATF advise: –

“The potential risks associated with PEPs justify the application of additional anti-money laundering/counter-terrorist financing (AML/CFT) preventive measures with respect to business relationships with PEPs. To address these risks, FATF Recommendations 12 and 22 require countries to ensure that financial institutions and designated non-financial businesses and professions (DNFBPs) implement measures to prevent the misuse of the financial system and non-financial businesses and professions by PEPs, and to detect such potential abuse if it occurs.”

7. The FCA expects a firms Money Laundering Reporting Officer (MLRO) to be based in the UK?

a) True

SYSC 3.2.6I & J states that “A firm must appoint an individual as MLRO, with responsibility for oversight of its compliance with the FCA’s rules on systems and controls against money laundering; and ensure that its MLRO has a level of authority and independence within the firm and access to resources and information sufficient to enable him to carry out that responsibility.

The job of the MLRO within a firm is to act as the focal point for all activity within the firm relating to anti-money laundering. The FCA expects that a firm’s MLRO will be based in the United Kingdom.”

8. What does EDD stand for?

b) Enhanced Due Diligence

For financial and credit firms, checking who they are doing business with, vetting suppliers and verifying customers is an essential practice as well as being a legal requirement. Carrying out identity checks and background searches in known collectively as due diligence and is the reasonable steps taken by a firm to verify who they are dealing with and mitigate against financial crime.

Customer Due Diligence (CDD) means taking steps to identify and verify who a firm’s customers are and validating what they say is true. CDD is the common term in the financial industries for carrying of the above-mentioned checks, be it on individuals (customers), companies or suppliers. It is the process of obtaining proof of identity, address, date of birth etc, via official documents, searches and background checks.

Enhanced Due Diligence (EDD) means going one step further than the standards CDD and is utilised for higher risk customers and/or businesses. Certain industries, people and businesses pose higher money laundering and/or terrorist financing risks and as such, are subject to EDD measures by firms.

These can include: –

• When a customer is not present during due diligence checks
• ‘Politically Exposed Persons’
• Uncertainty over standard due diligence checks and/or results

9. What is the full name of the acronym JMLSG?

Joint Money Laundering Steering Group

The Joint Money Laundering Steering Group (JMLSG), is made up of the UK’s leading trade associations from the Financial Services Industry. Their aim is to promote good practice in preventing and countering money laundering and terrorist financing, as well as providing guidance to businesses, the government and regulators. The help in the interpretation and understanding of the UK’s Money Laundering Regulations.

The JMLSG offers UK firms within the financial sector, guidance and assistance on complying with their legal and regulatory obligations under the money laundering and terrorist financing laws and rules and the FCA, when considering a firm’s systems and controls against money laundering and terrorist financing, use the JMLSG’s rules to guide their own assessments and regulations.

10. What is a Suspicious Activity Report?

MARKER NOTE: Give the mark based on the answer being similar in content to the below description – the answer does not have to mirror the below, however, it should show a good understanding of SAR’s.

A Suspicious Activity Report (SAR) is a documented and submitted report that details an individual or firms suspicion or concern about money laundering and/or terrorist financing. The information provided, alerts the National Crime Agency (NCA) and law enforcement that certain clients, customers or businesses activity is in some way suspicious and might indicate attempts at fraud, money laundering and/or terrorist financing.

It is a legal requirement that a firm submits an SAR where there is a valid suspicion and it also protects the organisation and UK financial institutions from the risk of laundering the proceeds of crime. Submitting an SAR to the NCA ensures compliance with the obligations a firm has under the Proceeds of Crime Act 2002 (POCA). It is expected that a firm submits an SAR as soon as they know or suspect that a person/company is engaged in money laundering or dealing in criminal property.

This is the end of test 2 answer paper. Where you have identified any gaps or misunderstandings in an assessment, you should use the additional answers provided to teach and support the respondent. You should also scan/save a copy of the completed quiz and marking sheet and complete any assessment/evaluations forms that you use for training and development and record these in the employees training file.

5 Test Marking Sheets