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JST545 Money Laundering

25 Pages / 6,219 Words Published On: 02-03-2021
Scenario for Parts 1 and 2

Assume you are a senior AML/CTF compliance manager for Business Solutions Ltd (BSL), an Australian reporting entity providing over-the-counter niche business finance (leasing and factoring). At present, BSL operates only in Australia and all business is conducted face to face, either at a branch of the entity or at the customer’s premises.

BSL is planning its first venture offshore and is considering acquiring an online leasing business in New Zealand, Frontline Financing (FF). The New Zealand entity offers online trade financing, among other services. It owns an innovative online leasing product, available to commercial customers, which allows customers to apply and transact completely online. FF is regulated under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (NZ).

One attraction of FF for the Board of BSL is using the online tool in Australia as part of a longer term strategy to broaden BSL’s appeal and open its product to customers in more remote areas of Australia.

The Board has not yet decided whether BSL should also assume the day-to-day management of FF.

You have been asked to provide senior stakeholders with an assessment of ML/TF risk considerations to assist them in understanding the challenges if the acquisition goes ahead.

Part 1

The BSL Board has asked you to prepare a document that clearly identifies and evaluates the ML/TF risks involved in the acquisition of FF.

  1. Applying AUSTRAC guidance and/or Australian standards (or some equally valid methodology that you reference), formulate a risk assessment methodology targeted at the proposed acquisition. Ensure that you:
  1. outline the risk criteria you will use to identify and assess the proposed acquisition
  2. describe the tools that you will use in the risk assessment
  3. explain, with an example, the role that industry typologies will play in the risk assessment methodology
  4. explain the role that BSL’s risk appetite will play in the risk assessment methodology
  5. describe how you will review the ML/TF risk assessment.
  1. Analyse the ML/TF vulnerabilities that might arise for BSL as a result of:
  1. running a business that offers online trade financing and leasing products
  2. running an offshore entity/branch that provides products and services to New Zealand customers.
  3. What conclusions can you draw about the impact of each strategy on BSL’s risk profile? For example, does it increase or reduce risk? Why, and in what way?
Part 2:

As part of BSL’s business risk plan, you are required to prepare a document on the issues concerning ML/TF risk controls to be addressed if BSL proceeds with the acquisition of FF.

Use the risk assessment that you developed for Part 1 to complete the questions below.

  1. Assess the AML/CTF controls required initially and on an ongoing basis if the online leasing product is acquired and offered by BSL in Australia. Specifically address the following questions:
  2. Which of BSL’s current controls will be appropriate for use in their present form (i.e. without enhancement)? Base your answer on the key controls that BSL is likely to have in place, given its current business profile. State your assumptions.
  3. Which stakeholders would you consult to determine deficiencies in existing controls and identify new controls that are required?
  4. Will some of BSL’s current controls be appropriate with enhancement? Support your answer with analysis.
  5. What new controls will need to be developed? Of these new controls, which are a priority for implementation if resources are limited and which can wait until after ‘going live’ with the new product? (For example, sampling of KYC files using a remote method may be a priority because of the introduction of an online channel.) Justify your answer. Present your answer in the form of recommendations to senior management.
  6. Prepare a short video (no more than three minutes) where you present your recommendations from part iv above to senior management.
  7. Assume that the new controls you recommended in Question 2(a) (iv) have been approved. Choose one (1) control and answer the following questions:
  1. Explain how you would design the control.
  2. Describe how you would work with stakeholders to implement the control.
  3. Advise as to which senior manager(s) should be allocated responsibility for monitoring the new control.
  4. Explain how you would monitor and assess the effectiveness of the control on an ongoing basis.
  5. Assume that BSL acquires FF. Design a system for ensuring that you and your staff keep up with changes in products, services and channels in both Australia and New Zealand that may affect BSL’s ML/TF risk.
  1. Assume that BSL acquires FF. Identify emerging trends in financial services. Discuss the likely impact of one (1) trend on the ML/TF risk of the online leasing product.
Part 3: Scenario

Important notice: the facts from the previous scenario do not apply to Part 3. Read the scenario and questions for Part 3 independently of the scenario and questions for Parts 1 and 2.

You are the newly appointed compliance officer (CO) for Cash 4U Direct (Cash4U), a small, Melbourne-based boutique remitter. As Cash4U’s CO, your job responsibilities cover a broad range of compliance areas, including AML/CTF.

Cash4U facilitates remittance of money by individuals in Australia to three (3) destinations in the Pacific?Fiji, Nauru and Papua New Guinea (PNG). Established for just over three years, and registered and enrolled with AUSTRAC, the business has a total of five (5) branches, all in the greater Melbourne area.

Cash4U has an AML/CTF Program and a documented risk assessment, which were approved by the owners three years ago when the business commenced operation. The risk assessment assumes all individuals are low risk unless their transactions or behaviour at the counter indicate the potential need to prepare a suspicious matter report (SMR). Where a possible SMR is indicated, ECDD procedures are initiated, including asking the customer for two (2) additional pieces of information—the nature of the relationship to the person in the Pacific to whom funds are to be remitted and the source of funds.

As CO, one of your initial priorities is to identify any deficiencies in procedures, so you decide to investigate the effectiveness of the controls for monitoring and mitigating money laundering (ML) and terrorism financing (TF) risks. Listed below are the findings from your interviews with management and staff and review of Cash4U’s AML/CTF files, AML/CTF Program and risk assessment.

  • Cash4U does not process any inward remittances and senders are individuals only.
  • Neither the AML/CTF Program nor the risk assessment have been reviewed since approved three years ago. The AML/CTF Program states that an independent review will be conducted regularly, but at least once every three years.

 The KYC procedures include collecting from new clients their first and last name, residential address and date of birth. The information provided is verified by inspecting either a domestic or foreign driver licence or passport. 

  • Payments go through a bespoke platform established with money service businesses (MSBs) in the receiving countries. Cash4U net settles the funds at the end of each week by making bulk payments via bank transfers to the MSBs in the other country.
  • Transactions are monitored at the end of each month by downloading all transactions into Excel and filtering the payments to identify unusual transaction patterns.

The downloaded transaction reports and records of the investigation carried out (if any) are managed by the CO.

  • When branch staff are appointed, they complete mandatory training on topics sufficient to meet the requirements of Chapter 8. All staff undertake refresher training every two years. As a result, staff know to be alert for ‘in person’ suspicious activity and to report a suspicion by phoning head office with their concerns. It is the responsibility of the CO at head office to lodge the SMR online with AUSTRAC.
  • Only one (1) SMR has been lodged over the past three years and that customer continues to remit money regularly to six receivers in PNG.
  • The risk assessment rates Fiji and Nauru as low risk and PNG as medium risk; however there is no methodology or rationale provided to expand on this assessment.
  • Cash4U is meeting its obligations with respect to sanctions and DFAT.
  • Cash4U does not subscribe to a list provider for PEP checking. Instead it asks customers to declare if they are a PEP. If the customer replies in the affirmative, they are rated ‘high risk’ and required to advise on the form their source of funds and their relationship to the receiver.

Use the information provided above to answer the following questions.

  1. In priority order, list and explain the deficiencies in Cash4U’s current AML/CTF processes.
  2. Prepare a report for Cash4U’s senior management and owners:
  3. updating them on the key ML/TF risks and vulnerabilities facing Cash4U
  4. outlining your planned approach to address the key deficiencies you have identified, including estimates of the time, cost and resources required.
  1. Effective remediation of deficient controls involves working with stakeholders. Conduct an interview with a senior AML/CTF manager at your organisation to find out how they would approach the remediation of control deficiencies. Based on the interview, summarise how the AML/CTF manager would go about:
  1. identifying appropriate stakeholders with whom to workconsulting stakeholders about their knowledge of controls and their views as to any deficiencies
  2. engaging with stakeholders to ensure remediation of the deficiencies
  3. implementing ongoing processes to monitor and assess the effectiveness of controls.
  1. Reflect on the suitability of the stakeholder consultation and engagement strategies outlined by the AML/CTF manager at your organisation for addressing the remediation of the deficiencies you identified at Cash4U.
  1. Justify your view as to whether or not the strategies would be effective for Cash4U.
  2. Draft a high level stakeholder engagement plan for the deficiencies identified at Cash4U that outlines how you will work and communicate with stakeholders during the remediation.
  3. Identify one of Cash4U’s key controls and prepare a plan to implement processes to monitor and assess its effectiveness.
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Total 25 pages

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