Beneficial Ownership and Politically Exposed Persons (PEPs) Flashcards

When a legal entity customer is a publicly traded company on a US exchange, how does FinCEN's CDD Rule treat beneficial ownership requirements?

Answer: Covered financial institutions may exclude these entities from beneficial ownership identification requirements

FinCEN's CDD Rule provides exclusions for certain regulated entities, including companies listed on US stock exchanges, because their ownership is already subject to SEC disclosure requirements.

What is the primary AML risk concern when onboarding a PEP as a customer?

Answer: Elevated risk of bribery, corruption proceeds, or abuse of public office being laundered through the institution

PEPs pose elevated AML risk because their public positions may give them access to state funds or opportunities for bribery and corruption, making them potential conduits for laundering illicit proceeds.

For PEP relationships, FATF Recommendation 12 requires which specific additional measure beyond standard CDD?

Answer: Senior management approval for establishing or continuing the business relationship

FATF Recommendation 12 requires senior management approval for establishing or continuing business relationships with PEPs, in addition to enhanced due diligence measures.

What is a 'nominee director' and why is it relevant to beneficial ownership risk?

Answer: A person who appears as a director in public records but acts on behalf of an undisclosed third party, obscuring true control

Nominee directors appear on public corporate records while the actual controlling person remains hidden, a common technique used to obscure beneficial ownership in shell company structures.

Which of the following is a 'close associate' of a PEP for AML purposes?

Answer: A natural person known to have close business relations with a PEP or who is in a position to conduct transactions on behalf of the PEP

FATF guidance defines close associates as individuals with known close business relationships with PEPs or who hold positions enabling them to transact on the PEP's behalf, extending PEP risk beyond immediate family.

Under the Corporate Transparency Act (CTA), effective January 2024 in the US, who is responsible for reporting beneficial ownership information?

Answer: Covered reporting companies (most small corporations and LLCs) directly to FinCEN

The CTA requires most small corporations, LLCs, and similar entities to file beneficial ownership information directly with FinCEN's Beneficial Ownership Secure System (BOSS), shifting the reporting obligation to the companies themselves.