Banking Anti-Money Laundering 4 — Questions and Answers
Question 1: Which of the following best describes a 'shell company' in the context of money laundering?
- A company that manufactures protective casings for electronics
- A business entity with no active operations used to obscure the true owner of assets (Correct answer)
- A subsidiary company formed to limit parental liability
- A holding company that consolidates ownership of subsidiaries
Correct answer: A business entity with no active operations used to obscure the true owner of assets
Shell companies are legal entities with no genuine business activities and are commonly used in layering schemes to hide the beneficial owner of illicit funds.
Question 2: What is the primary purpose of a Customer Risk Rating in an AML program?
- To determine the interest rate a customer will receive
- To assess the likelihood that a customer's activity poses a money laundering risk (Correct answer)
- To evaluate a customer's creditworthiness for loan approval
- To categorize customers by their average account balance
Correct answer: To assess the likelihood that a customer's activity poses a money laundering risk
Customer risk ratings help banks apply a risk-based approach, directing enhanced due diligence resources toward higher-risk customers.
Question 3: A Politically Exposed Person (PEP) is considered high-risk for AML purposes primarily because:
- They frequently travel internationally
- Their political position may provide opportunities for bribery or corruption (Correct answer)
- They typically hold large amounts of cash
- They are more likely to be subject to OFAC sanctions
Correct answer: Their political position may provide opportunities for bribery or corruption
PEPs are considered high-risk because their public positions of power create opportunities for bribery, corruption, and embezzlement of public funds.
Question 4: Which of the following is an example of the 'integration' stage of money laundering?
- Depositing drug money into multiple bank accounts
- Wiring funds through a series of offshore accounts
- Purchasing real estate with laundered funds and then selling it (Correct answer)
- Breaking cash into smaller amounts to avoid reporting
Correct answer: Purchasing real estate with laundered funds and then selling it
Integration is the final stage where laundered funds re-enter the legitimate economy through purchases of assets like real estate, which can be sold to generate clean proceeds.
Question 5: Under the BSA, how long must banks retain records of wire transfers of $3,000 or more?
- 1 year
- 3 years
- 5 years (Correct answer)
- 10 years
Correct answer: 5 years
The BSA's Recordkeeping Rule requires banks to retain records of wire transfers of $3,000 or more for five years from the date of the transaction.
Question 6: What is 'correspondent banking' and why does it pose elevated AML risk?
- Banking services for journalists, creating reputational risk
- Providing banking services to foreign banks, which may allow illicit funds to pass through without full due diligence (Correct answer)
- Exchanging written correspondence about customer accounts
- Offering reciprocal credit lines between two domestic banks
Correct answer: Providing banking services to foreign banks, which may allow illicit funds to pass through without full due diligence
Correspondent banking relationships can be exploited by money launderers because the respondent bank's customers receive indirect access to the correspondent bank's systems without undergoing its due diligence.
Question 7: Which red flag most strongly suggests real estate money laundering?
- A buyer requesting a 30-year fixed-rate mortgage
- An all-cash purchase of high-value property by a newly formed LLC with no apparent business history (Correct answer)
- A seller accepting a price below market value
- A real estate agent representing both buyer and seller
Correct answer: An all-cash purchase of high-value property by a newly formed LLC with no apparent business history
All-cash purchases by opaque entities like newly formed LLCs with no business history are a classic integration-stage red flag in real estate money laundering schemes.
Banking Anti-Money Laundering 4
Which of the following best describes a 'shell company' in the context of money laundering?