CAMS KYC and Customer Due Diligence 2 — Questions and Answers
Question 1: What is a 'beneficial owner' in the context of AML due diligence?
- The bank that benefits from customer account fees
- The natural person(s) who ultimately owns or controls a legal entity or on whose behalf a transaction is conducted (Correct answer)
- The legal entity itself as a corporate customer
- Any signatory on a business account
Correct 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.
Question 2: When should Enhanced Due Diligence (EDD) be applied to a customer?
- For all new customers at account opening regardless of risk
- Only after a SAR has been filed on the customer
- When a customer is identified as high-risk due to factors such as PEP status, high-risk geography, or unusual activity (Correct answer)
- Only for customers whose transactions exceed $1 million per year
Correct 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.
Question 3: What is a 'shell company' in the context of money laundering?
- A company that manufactures oil and gas equipment
- A legal entity with no significant assets or operations used primarily to obscure the true beneficial ownership of assets (Correct answer)
- A startup company with limited revenue in its early stages
- A subsidiary of a multinational corporation
Correct 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.
Question 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?
- 10%
- 15%
- 25% (Correct answer)
- 51%
Correct 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.
Question 5: What is 'source of funds' verification in the context of EDD?
- Confirming the routing and account number used for a wire transfer
- Identifying and documenting the origin of the money being deposited or used in a specific transaction (Correct answer)
- Verifying the customer's employment history
- Checking the originating bank's AML compliance record
Correct 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.
Question 6: What is 'nominee ownership' and why is it an AML concern?
- When a government official nominates a financial institution for a compliance award
- When a person holds legal title to assets on behalf of the true beneficial owner, obscuring the real owner's identity (Correct answer)
- When a bank nominates a customer for a premium banking tier
- When legal entities nominate employees as authorized signatories
Correct 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.
CAMS KYC and Customer Due Diligence 2
What is a 'beneficial owner' in the context of AML due diligence?