Banking Exam Anti-Money Laundering (AML) Principles 4 — Questions and Answers
Question 1: Under the USA PATRIOT Act, which program must banks establish to verify the identity of new customers?
- Suspicious Activity Monitoring Program (SAMP)
- Customer Identification Program (CIP) (Correct answer)
- Anti-Terrorist Financing Protocol (ATFP)
- Enhanced Due Diligence Framework (EDDF)
Correct answer: Customer Identification Program (CIP)
Section 326 of the USA PATRIOT Act requires covered financial institutions to implement a CIP to collect and verify identifying information for new account holders.
Question 2: OFAC (Office of Foreign Assets Control) sanctions programs require banks to:
- File a SAR for every transaction involving a foreign national
- Block or reject transactions involving sanctioned individuals, entities, or countries (Correct answer)
- Charge higher fees on international wire transfers to high-risk countries
- Obtain FinCEN approval before opening accounts for non-U.S. citizens
Correct answer: Block or reject transactions involving sanctioned individuals, entities, or countries
OFAC administers economic sanctions that prohibit U.S. financial institutions from engaging in transactions with designated individuals, entities, and jurisdictions.
Question 3: Which of the following best describes a 'shell company' in the context of money laundering?
- A legitimate holding company with multiple operating subsidiaries
- A company with no significant assets or operations used to conceal the true beneficial owner (Correct answer)
- A foreign company that operates under a different regulatory framework
- A startup company in the early stages of incorporation
Correct answer: A company with no significant assets or operations used to conceal the true beneficial owner
Shell companies are corporate entities with no real business activity, used to obscure the identity of the true owner and facilitate layering of illicit funds.
Question 4: A bank's AML program must include four core elements. Which of the following is NOT one of the four required pillars?
- Internal policies, procedures, and controls
- A designated compliance officer
- Customer credit monitoring and scoring (Correct answer)
- Independent testing of the AML program
Correct answer: Customer credit monitoring and scoring
The four BSA/AML pillars are: internal controls, a designated BSA officer, ongoing employee training, and independent audit/testing — credit monitoring is not among them.
Question 5: Real estate transactions are a common vehicle for money laundering integration because:
- Real estate agents are required to file SARs just like banks
- Property values are easy to manipulate and real estate can be sold to produce seemingly legitimate proceeds (Correct answer)
- The IRS automatically audits all real estate transactions above $500,000
- Mortgages require minimal documentation compared to other financial products
Correct answer: Property values are easy to manipulate and real estate can be sold to produce seemingly legitimate proceeds
Real estate allows criminals to integrate dirty money by purchasing property with illicit funds and reselling it, generating what appears to be clean, legitimate sales proceeds.
Question 6: Which international body sets global AML standards that influence U.S. regulatory requirements?
- The International Monetary Fund (IMF)
- The World Bank
- The Financial Action Task Force (FATF) (Correct answer)
- The Basel Committee on Banking Supervision
Correct answer: The Financial Action Task Force (FATF)
FATF is an intergovernmental organization that develops and promotes policies to combat money laundering and terrorist financing, setting the global AML standards that member countries implement.
Question 7: When a bank's transaction monitoring system generates an alert, what is the compliance team's first responsibility?
- Immediately file a SAR with FinCEN
- Freeze the customer's account pending investigation
- Conduct a review to determine whether the alert represents genuinely suspicious activity (Correct answer)
- Notify local law enforcement within 24 hours
Correct answer: Conduct a review to determine whether the alert represents genuinely suspicious activity
An alert is a starting point for investigation, not automatic grounds for a SAR — the compliance team must analyze the transaction in context before determining whether filing is warranted.
Banking Exam Anti-Money Laundering (AML) Principles 4
Under the USA PATRIOT Act, which program must banks establish to verify the identity of new customers?