Anti-Money Laundering Compliance Flashcards

A customer makes three separate cash deposits of $4,000, $5,000, and $3,500 into different branches of the same bank on the same business day. Which of the following actions is the bank required to take?

Answer: File a Currency Transaction Report (CTR) because the total exceeds $10,000.

The Bank Secrecy Act (BSA) requires financial institutions to file a Currency Transaction Report (CTR) for currency transactions exceeding $10,000. This rule applies to multiple transactions by or on behalf of the same person in a single business day that total more than $10,000. In this scenario, the total cash deposited is $12,500, which triggers the mandatory CTR filing.

Which of the following scenarios best illustrates the 'layering' stage of money laundering?

Answer: An individual transfers funds through a complex series of wire transfers to multiple accounts in different countries.

Layering is the second stage of money laundering, where criminals obscure the origin of illicit funds through complex financial maneuvers. Transferring funds through numerous accounts, especially across different jurisdictions, is a classic layering technique designed to break the audit trail and make it difficult to trace the money back to its illegal source.

Under the Bank Secrecy Act (BSA), a financial institution must file a Suspicious Activity Report (SAR) if it knows, suspects, or has reason to suspect that a transaction of at least what amount involves funds derived from illegal activity?

Answer: $5,000

Financial institutions are required to file a SAR for transactions aggregating $5,000 or more if they know, suspect, or have reason to suspect the transaction involves funds from illegal activities, is designed to evade BSA regulations, or has no business or apparent lawful purpose.

What is the primary distinction between Know Your Customer (KYC) and Customer Due Diligence (CDD)?

Answer: KYC is the initial process of identifying and verifying a customer's identity, while CDD is the ongoing process of assessing that customer's risk.

KYC is generally understood as the initial step of collecting and verifying a customer's identity at the start of a business relationship. CDD is a broader, ongoing process that includes KYC but also involves assessing the customer's risk profile, understanding the nature of their activities, and performing ongoing monitoring. CDD ensures the institution maintains an up-to-date understanding of the customer relationship.

An effective OFAC (Office of Foreign Assets Control) compliance program within a bank should include all of the following EXCEPT:

Answer: Appointing a dedicated BSA Officer, separate from any OFAC compliance responsibilities.

An effective OFAC compliance program requires internal controls for screening, blocking/rejecting transactions, and conducting risk assessments. While having a dedicated compliance officer is critical, their responsibilities often overlap, and it is common for the BSA Officer to also manage or oversee the OFAC compliance function. Segregating these roles is not a mandatory requirement for an effective program.

A bank teller notices a customer who frequently makes large cash deposits is deliberately keeping each transaction just under the $10,000 reporting threshold. This activity is a red flag for which type of illicit financial activity?

Answer: Structuring

Structuring, also known as 'smurfing,' is the act of breaking down a large financial transaction into smaller, separate transactions to deliberately avoid triggering regulatory reporting requirements, such as the Currency Transaction Report (CTR) for cash transactions over $10,000.