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KYC and Customer Due Diligence Flashcards

6 cards from real CAMS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 6 KYC and Customer Due Diligence flashcards as text

  1. What is a 'beneficial owner' in the context of AML due diligence?

    Answer: The natural person(s) who ultimately owns or controls a legal entity or on whose behalf a transaction is conducted

    A beneficial owner is the natural (human) person who ultimately owns or exercises control over a legal entity, as opposed to the nominee or front person who may appear on legal documents.

  2. When should Enhanced Due Diligence (EDD) be applied to a customer?

    Answer: When a customer is identified as high-risk due to factors such as PEP status, high-risk geography, or unusual activity

    EDD should be applied whenever a risk assessment identifies elevated AML risk, such as PEP status, high-risk country connections, complex ownership structures, or transactions inconsistent with stated purpose.

  3. What is a 'shell company' in the context of money laundering?

    Answer: A legal entity with no significant assets or operations used primarily to obscure the true beneficial ownership of assets

    Shell companies are legal entities that typically have no real business operations or assets and are used to hold assets or conduct transactions while concealing the true owner's identity.

  4. Under the FinCEN CDD Rule, financial institutions must identify and verify beneficial owners of legal entity customers. What is the minimum ownership threshold that triggers this requirement?

    Answer: 25%

    FinCEN's CDD Rule requires identifying individuals who own 25% or more of a legal entity customer, meaning up to four individuals must be identified under the ownership prong.

  5. What is 'source of funds' verification in the context of EDD?

    Answer: Identifying and documenting the origin of the money being deposited or used in a specific transaction

    Source of funds verification documents where the specific money in a particular transaction came from (e.g., salary, sale of property, inheritance), helping confirm the funds are legitimate.

  6. What is 'nominee ownership' and why is it an AML concern?

    Answer: When a person holds legal title to assets on behalf of the true beneficial owner, obscuring the real owner's identity

    Nominee ownership involves using a third party to hold assets or accounts in their name while the true beneficial owner remains hidden, a common technique to evade AML identification requirements.