CAMS KYC and Customer Due Diligence 1 — Questions and Answers
Question 1: What are the three levels of customer due diligence recognized in AML frameworks?
- Basic, standard, comprehensive
- Simplified, standard, enhanced (Correct answer)
- Low, medium, high
- Initial, ongoing, exit
Correct answer: Simplified, standard, enhanced
Customer due diligence is typically stratified into simplified (low-risk), standard (normal), and enhanced (high-risk) levels, with the depth of scrutiny increasing with the customer's risk rating.
Question 2: Under FinCEN's Customer Due Diligence (CDD) Rule, which category of beneficial owner must be identified for legal entities?
- Any individual with a financial interest in the entity
- Each individual owning 25% or more of the entity and one control person (Correct answer)
- All employees with signatory authority
- All shareholders regardless of ownership percentage
Correct answer: Each individual owning 25% or more of the entity and one control person
FinCEN's CDD Rule requires identifying each individual who owns 25% or more of a legal entity (ownership prong) plus one individual who controls the entity (control prong).
Question 3: What is the primary purpose of Enhanced Due Diligence (EDD)?
- To expedite account opening for low-risk customers
- To gather additional information on high-risk customers to better understand and mitigate risk (Correct answer)
- To comply with credit underwriting requirements
- To satisfy FATCA reporting obligations for foreign accounts
Correct answer: To gather additional information on high-risk customers to better understand and mitigate risk
EDD involves collecting additional information about high-risk customers — such as source of funds, source of wealth, and business purpose — to better assess and manage elevated money laundering risk.
Question 4: Which of the following is a valid document for verifying individual customer identity under a U.S. Customer Identification Program (CIP)?
- Utility bill
- Pay stub
- Unexpired government-issued photo ID such as a passport or driver's license (Correct answer)
- Bank statement from another institution
Correct answer: Unexpired government-issued photo ID such as a passport or driver's license
CIP requirements specify that for individuals, institutions must collect and verify name, date of birth, address, and identification number using documentary or non-documentary methods; an unexpired government-issued photo ID satisfies documentary verification.
Question 5: What does 'ongoing customer due diligence' require financial institutions to do?
- Conduct full KYC reverification every 30 days for all customers
- Continuously monitor customer transactions and update customer information to ensure profiles remain current and accurate (Correct answer)
- File a SAR every time a customer's behavior changes
- Re-verify customer identity each time a transaction is initiated
Correct answer: Continuously monitor customer transactions and update customer information to ensure profiles remain current and accurate
Ongoing CDD requires continuously monitoring customer transactions for activity inconsistent with the customer's profile and periodically refreshing customer information to ensure risk ratings remain accurate.
Question 6: A Politically Exposed Person (PEP) is best defined as:
- Any foreign national who opens an account at a U.S. bank
- An individual who holds or has held a prominent public function, posing higher corruption and bribery risks (Correct answer)
- A customer who has previously been reported in a SAR
- Any customer with assets over $1 million
Correct answer: An individual who holds or has held a prominent public function, posing higher corruption and bribery risks
A PEP is someone entrusted with a prominent public function (e.g., heads of state, senior government officials, military officers, judicial officials) who pose an elevated risk of corruption and bribery.
CAMS KYC and Customer Due Diligence 1
What are the three levels of customer due diligence recognized in AML frameworks?