ACAMS Beneficial Ownership and Politically Exposed Persons (PEPs) 2 — Questions and Answers
Question 1: When a legal entity customer is a publicly traded company on a US exchange, how does FinCEN's CDD Rule treat beneficial ownership requirements?
- Full beneficial ownership documentation is still required
- Covered financial institutions may exclude these entities from beneficial ownership identification requirements (Correct answer)
- Only the CEO must be identified
- The exchange provides all required beneficial ownership data
Correct 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.
Question 2: What is the primary AML risk concern when onboarding a PEP as a customer?
- Currency exchange rate exposure
- Elevated risk of bribery, corruption proceeds, or abuse of public office being laundered through the institution (Correct answer)
- Greater likelihood of tax evasion
- Reputational risk from media attention only
Correct 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.
Question 3: For PEP relationships, FATF Recommendation 12 requires which specific additional measure beyond standard CDD?
- Obtaining government approval to maintain the account
- Senior management approval for establishing or continuing the business relationship (Correct answer)
- Reporting all PEP transactions to financial intelligence units
- Limiting PEP accounts to domestic transactions only
Correct 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.
Question 4: What is a 'nominee director' and why is it relevant to beneficial ownership risk?
- A government-appointed regulator overseeing corporate governance
- A person who appears as a director in public records but acts on behalf of an undisclosed third party, obscuring true control (Correct answer)
- A director elected by minority shareholders
- A temporary director appointed during corporate restructuring
Correct 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.
Question 5: Which of the following is a 'close associate' of a PEP for AML purposes?
- Any personal friend of the PEP
- 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 (Correct answer)
- Any employee working in the same government department as the PEP
- A family member of a PEP who lives outside the country
Correct 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.
Question 6: Under the Corporate Transparency Act (CTA), effective January 2024 in the US, who is responsible for reporting beneficial ownership information?
- Banks and financial institutions on behalf of their customers
- Covered reporting companies (most small corporations and LLCs) directly to FinCEN (Correct answer)
- State secretaries of state offices
- Registered agents of corporations
Correct 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.
ACAMS Beneficial Ownership and Politically Exposed Persons (PEPs) 2
When a legal entity customer is a publicly traded company on a US exchange, how does FinCEN's CDD Rule treat beneficial ownership requirements?