Banking Exam Anti-Money Laundering (AML) Principles 5 — Questions and Answers
Question 1: What is 'smurfing' in the context of AML?
- Using animated character-themed accounts to avoid detection by automated systems
- Breaking large cash sums into multiple smaller deposits across different branches or individuals to avoid reporting thresholds (Correct answer)
- Laundering money through virtual gaming currencies
- Transferring funds through multiple international correspondent banks
Correct answer: Breaking large cash sums into multiple smaller deposits across different branches or individuals to avoid reporting thresholds
Smurfing is a form of structuring where multiple individuals ('smurfs') deposit smaller amounts across different locations to avoid triggering CTR requirements.
Question 2: Which of the following describes the 'integration' stage of money laundering?
- Converting cash into monetary instruments like money orders
- Reintroducing laundered funds into the legitimate economy so they appear as lawful income (Correct answer)
- Moving funds through multiple offshore accounts to obscure their origin
- Depositing cash proceeds into a bank account for the first time
Correct answer: Reintroducing laundered funds into the legitimate economy so they appear as lawful income
Integration is the final stage, where laundered money re-enters the legitimate financial system — often through luxury purchases, investments, or business revenue — appearing as clean funds.
Question 3: A Money Services Business (MSB) such as a check casher or money transmitter must register with:
- The Federal Reserve Bank of their district
- Their state banking department only
- FinCEN, and comply with BSA requirements (Correct answer)
- The OCC and submit quarterly compliance reports
Correct answer: FinCEN, and comply with BSA requirements
MSBs are required to register with FinCEN, implement AML programs, and comply with BSA obligations including filing SARs and CTRs.
Question 4: A bank discovers it failed to file a required SAR six months ago. What should it do?
- Ignore it since the reporting window has passed
- File the SAR immediately and document the reason for the delay (Correct answer)
- Notify the customer that a report will be filed
- Close the account and notify OFAC
Correct answer: File the SAR immediately and document the reason for the delay
Banks should file late SARs promptly upon discovery and document the circumstances; regulators take a more favorable view of good-faith late filings than of willful non-filing.
Question 5: What is the primary purpose of a bank's transaction monitoring system in an AML program?
- To prevent customers from conducting transactions that exceed daily limits
- To automatically detect unusual or suspicious patterns in account activity that may warrant further investigation (Correct answer)
- To block all wire transfers to foreign countries in real time
- To generate monthly account statements for high-net-worth clients
Correct answer: To automatically detect unusual or suspicious patterns in account activity that may warrant further investigation
Transaction monitoring systems analyze account activity against expected behavior and peer groups to flag anomalies that compliance staff can then investigate for potential SAR filing.
Question 6: Which of the following customer behaviors would most strongly indicate potential money laundering through a business account?
- Depositing checks from multiple business clients each week
- Receiving large wire transfers from known suppliers in the same industry
- Consistent cash deposits significantly exceeding the revenue reported on the business's tax filings (Correct answer)
- Occasionally making international wire transfers to pay foreign vendors
Correct answer: Consistent cash deposits significantly exceeding the revenue reported on the business's tax filings
A discrepancy between reported business revenue and actual cash deposits is a strong red flag, suggesting the business may be used as a front to launder cash.
Question 7: Under U.S. law, which statute makes it a federal crime to conduct a financial transaction knowing the funds are derived from illegal activity?
- The Bank Secrecy Act (31 U.S.C. § 5311)
- The Money Laundering Control Act (18 U.S.C. § 1956) (Correct answer)
- The USA PATRIOT Act (Section 314)
- The Gramm-Leach-Bliley Act
Correct answer: The Money Laundering Control Act (18 U.S.C. § 1956)
18 U.S.C. § 1956, enacted as part of the Money Laundering Control Act of 1986, is the primary federal statute criminalizing money laundering transactions.
Banking Exam Anti-Money Laundering (AML) Principles 5
What is 'smurfing' in the context of AML?