AML/CFT Risk and Methods Flashcards

A financial institution's risk assessment identifies that it facilitates a high volume of international trade finance for a variety of goods. Which money laundering method should be of PRIMARY concern when developing risk mitigation strategies for this line of business?

Answer: Trade-Based Money Laundering (TBML).

Trade-Based Money Laundering (TBML) is a method of disguising criminal proceeds through the use of trade transactions. Given that the institution is heavily involved in international trade finance, it is directly exposed to risks such as over- and under-invoicing of goods, phantom shipments, and other schemes used to move value and legitimize illicit funds. While other methods are possible, TBML is the most direct and significant risk associated with this specific business activity.

An AML analyst is reviewing a customer's account and notes a pattern of frequent cash deposits in different branches, all just under the $10,000 reporting threshold. This activity is immediately followed by wire transfers to a high-risk jurisdiction. This pattern is a classic red flag for which of the following?

Answer: Structuring.

Structuring is the act of breaking down a large financial transaction into a series of smaller transactions to avoid triggering currency transaction reporting (CTR) requirements. The scenario describes a customer intentionally keeping deposits below the $10,000 threshold, which is a hallmark of structuring.

Which of the following customer profiles presents the highest inherent AML risk and would most likely require Enhanced Due diligence (EDD)?

Answer: A foreign politically exposed person (PEP) seeking to open a private banking account.

Politically Exposed Persons (PEPs) are considered high-risk due to their potential influence and susceptibility to corruption and bribery. Foreign PEPs, in particular, require Enhanced Due Diligence (EDD) to understand the source of wealth and funds and to mitigate the risk of laundering the proceeds of corruption.

A key difference between money laundering and terrorist financing is that terrorist financing:

Answer: Can involve funds from legitimate sources, such as donations.

While money laundering is always about disguising the illicit origin of funds, terrorist financing can be funded by legitimate sources, including charitable donations, legitimate business operations, or personal funds. The primary goal of terrorist financing is to conceal the purpose and destination of the funds, rather than just the source.

A compliance officer at a bank is reviewing a new corporate account application for 'ABC Trading Ltd.' The company lists a registered agent's address, has nominee directors, and its stated business purpose is 'general international trade.' Financial projections show anticipated high-volume wire transfers to and from various offshore jurisdictions with no clear business rationale. These characteristics are strong indicators of a potential:

Answer: Shell company.

A shell company is a legal entity that exists only on paper and has no significant assets or active operations. Key red flags include the use of a registered agent's address instead of a physical business location, nominee directors to obscure true ownership, a vague business purpose, and complex, high-volume international transactions without a clear economic reason. These are classic methods used to obscure ownership and move illicit funds.

Which of the following is considered a primary risk associated with correspondent banking relationships for AML/CFT purposes?

Answer: Limited visibility into the respondent bank's customers and their transactions.

A major risk in correspondent banking is that the correspondent bank processes transactions for the customers of another bank (the respondent bank) without having a direct relationship with them. This creates a risk because it can be difficult to conduct due diligence on the respondent bank's customers, making it harder to identify and report suspicious activity.