Knowledge based

What is PEP and its types?

A PEP is an individual who holds a prominent public position or role in a

government body or international organization, either in Australia or overseas.
Immediate family members and/or close associates of these individuals are also
considered PEPs.

PEPs often have power over government spending and budgets, procurement processes,
development approvals, and grants. Examples of PEPs include heads of state,
government ministers or equivalent politicians, senior government executives, high-
ranking judges, high-ranking military officers, central bank governors, or board
members or executives of an international organization. This is not a complete list
of PEPs.

Because PEPs hold positions of power and influence, they can be a target for
corruption and bribery attempts, and ultimately for money laundering or terrorism
financing activities. This is why it’s important to use AML/CTF measures to
identify, mitigate and manage any such potential risks. However, you should
remember that being a PEP doesn’t automatically mean someone is involved in
criminal activities.

The AML/CTF Act identifies three types of PEPs.

Domestic PEP – someone who holds a prominent public position or role in an

Australian government body.
Foreign PEP – someone who holds a prominent public position or role with a
government body in a country other than Australia. This would include foreign PEPs
working or residing in Australia.
International organization PEP – someone who holds a prominent public position or
role in an international organization, such as the United Nations (UN), the World
Trade Organisation (WTO), or the North Atlantic Treaty Organisation (NATO).

What are money laundering and its stages?

Money laundering is the process of making illegally obtained funds appear

legitimate by passing them through a complex web of transactions. It typically
involves three stages:

Placement: In this stage, illicit funds are introduced into the financial system.
This can be done by depositing cash into a bank account, purchasing high-value
items such as real estate or art, or using money transfer services.

Layering: In this stage, the illicit funds are moved through multiple transactions
to make it difficult to trace their origins. This can be done by transferring funds
between multiple bank accounts, converting cash into other assets, or moving funds
across borders.

Integration: In this stage, the illicit funds are reintroduced into the legitimate
economy. This can be done by purchasing assets such as real estate, investing in
legitimate businesses, or using the funds to make legitimate purchases.

Money laundering can be carried out through various methods, including through
banks, shell companies, and cryptocurrencies. It is a serious crime and can have
severe legal and financial consequences. Financial institutions and businesses are
required to implement Anti-Money Laundering (AML) measures to detect and prevent
money laundering activities.

CDD and EDD

Customer due diligence (CDD) and enhanced due diligence (EDD) are two different
types of know-your-customer (KYC) processes that firms to check their customers.

CDD and EDD are both forms of KYC procedures. CDD entails identifying the consumer
by comparing given data to databases or solutions such as document and biometric
checks. This is often required during account opening and to permit high-risk
transactions.

If a customer is deemed low risk, they may be subject to simplified customer due
diligence, in which the sole obligation is to identify the customer but not verify
their identity.

EDD is required as an extra form of a step-up KYC process for consumers deemed
high-risk. A consumer may be considered high-risk due to location, occupation, or
political exposure. Therefore, the prerequisites for completing EDD differ
according to where you live.

The requirements for completing EDD vary depending on local regulations. Still, it
is typically required when entering into a business relationship with a politically
exposed person (PEP) when the transaction involves a person from a high-risk or
sanctioned country or in any other situation with an increased risk of money
laundering.

Why is KYC Important?

KYC stands for "Know Your Customer" and refers to the process of verifying the
identity of customers or clients. KYC is important for several reasons:

Compliance: KYC is a regulatory requirement in many countries and industries,

including banking and finance, to prevent money laundering, terrorist financing,
and other financial crimes. Failing to comply with KYC regulations can result in
legal and financial penalties.

Risk Management: KYC helps financial institutions and businesses to assess the
risks associated with each customer or client. By verifying their identity and
understanding their financial activities, businesses can better manage their risks
and prevent potential fraud or other financial crimes.

Customer Protection: KYC helps to protect customers from identity theft and fraud.
By verifying the identity of customers, businesses can ensure that their personal
and financial information is secure and protected.

Reputation: KYC helps businesses to maintain their reputation by demonstrating

their commitment to compliance and risk management. This can help to build trust
and confidence with customers, investors, and regulators.

Overall, KYC is an important process that helps to protect businesses, customers,

and the wider financial system from financial crimes and other risks.

Online banking is more risky or offline?

Online banking and offline banking both come with their own unique risks, and it is
difficult to say which one is riskier overall. However, online banking may have
certain risks that offline banking does not have, such as:

Cybersecurity threats: Online banking is susceptible to cyber-attacks, such as

phishing, hacking, and malware. Cybercriminals can use these methods to steal login
credentials, personal information, and money from online bank accounts.

Device security: Online banking requires the use of devices such as computers,
smartphones, and tablets. These devices may be vulnerable to security threats, such
as viruses and malware, which can compromise the security of online banking
activities.

Public Wi-Fi: Using public Wi-Fi to access online banking can also be risky, as it
may not be secure and could be monitored by hackers or cybercriminals.

On the other hand, offline banking may have risks such as:

Physical security: Offline banking involves physically going to a bank branch or an

ATM, which could put users at risk of theft or robbery.

Identity theft: Offline banking involves providing personal information, such as

account numbers and social security numbers, which could be stolen or misused by
identity thieves.

Check fraud: Using checks for offline banking can put users at risk of check fraud,
where someone may create a fake check and steal money from the user's account.

Ultimately, both online and offline banking can be secure if users take appropriate
measures to protect their personal and financial information. Users can take steps
such as using strong passwords, keeping their devices updated, and monitoring their
accounts for any suspicious activity.

How do terrorists use cryptocurrency in doing fraud?

Cryptocurrencies have been used by terrorists to finance their activities and carry
out fraud. Some ways in which terrorists use cryptocurrencies for fraudulent
activities include:

Darknet marketplaces: Terrorists may use darknet marketplaces to buy and sell
illegal goods and services, such as drugs and weapons, using cryptocurrencies. This
allows them to carry out these activities anonymously and without leaving a paper
trail.

Money laundering: Terrorists may use cryptocurrencies to launder money obtained

from illegal activities. They may use mixing services or anonymous wallets to
obfuscate the source of the funds and make them difficult to trace.

Crowdfunding: Terrorists may use cryptocurrencies to raise funds for their

activities through crowdfunding campaigns. They may use fake identities or stolen
identities to avoid detection and raise money from supporters around the world.

Ransomware: Terrorists may use ransomware attacks to extort money from individuals
or businesses in exchange for restoring access to their computer systems.
Cryptocurrencies such as Bitcoin are often used as payment methods, as they are
difficult to trace.

It is important to note that the vast majority of cryptocurrency transactions are

legitimate and that cryptocurrencies are not inherently linked to terrorism or
fraud. However, because cryptocurrencies offer a high degree of anonymity and are
difficult to trace, they have been used by terrorists and other criminals for
illegal activities. This has led to increased scrutiny from regulators and law
enforcement agencies, who areworking to prevent these activities and protect the
integrity of the financial system.