International AML/CFT Standards Flashcards

According to the FATF 40 Recommendations, the cornerstone of an effective AML/CFT system, which allows for the flexible and efficient allocation of resources, is known as what?

Answer: The Risk-Based Approach (RBA)

FATF Recommendation 1 explicitly calls for countries and financial institutions to identify, assess, and understand their money laundering and terrorist financing risks and apply a corresponding set of AML/CFT measures. This is the definition of the Risk-Based Approach (RBA), which is considered the foundation for the effective implementation of all other FATF Recommendations.

A global bank is conducting its annual review of its correspondent banking relationships. To align with international best practices for collecting due diligence information, which standardized tool, developed by a major industry group, would be most appropriate to use?

Answer: The Wolfsberg Group's Correspondent Banking Due Diligence Questionnaire (CBDDQ)

The Wolfsberg Group, an association of global financial institutions, developed the Correspondent Banking Due Diligence Questionnaire (CBDDQ) to provide a standardized, reasonable, and enhanced due diligence tool for correspondent banking relationships. It is considered a global standard for managing financial crime risks in this area.

Which of the following situations would mandate a financial institution to conduct customer due diligence (CDD) measures, according to FATF Recommendation 10?

Answer: When there is a suspicion of money laundering, regardless of any transaction threshold.

FATF Recommendation 10 states that CDD must be performed in several circumstances, including: when establishing business relations; when carrying out occasional transactions above the designated threshold; when there is a suspicion of money laundering or terrorist financing; or when the institution has doubts about the veracity of previously obtained customer identification data. A suspicion of ML/TF triggers the CDD requirement irrespective of any threshold.

A country is undergoing an assessment by FATF to evaluate the implementation and effectiveness of its AML/CFT measures against the 40 Recommendations. This peer review process is officially known as a:

Answer: Mutual Evaluation

The FATF assesses its members' compliance with the international AML/CFT standards through a peer review process called a Mutual Evaluation. These in-depth country reports analyze both technical compliance (laws and regulations in place) and the effectiveness of the country's AML/CFT system.

A compliance officer at a bank identifies a new client from a jurisdiction publicly identified by the FATF as having strategic AML/CFT deficiencies. According to international standards, which of the following actions is most appropriate?

Answer: Apply enhanced due diligence measures to the business relationship.

FATF standards require financial institutions to apply enhanced due diligence (EDD) measures to business relationships and transactions with persons and entities from countries for which this is called for by the FATF, such as those with identified strategic deficiencies. This involves gaining a deeper understanding of the customer and their transactions to mitigate the heightened risk.

Which international body, primarily focused on banking supervision, works to strengthen the regulation and supervision of banks worldwide and has published guidelines on the sound management of AML/CFT risks that complement the FATF standards?

Answer: The Basel Committee on Banking Supervision (BCBS)

The Basel Committee on Banking Supervision (BCBS) is the primary global standard-setter for the prudential regulation of banks. It has issued guidelines, such as "Sound management of risks related to money laundering and financing of terrorism," which complement the FATF's broader AML/CFT standards and integrate them into the overall framework of banking supervision.