CBA Regulatory Compliance and AML 3 — Questions and Answers
Question 1: Under OFAC regulations, what must a bank do when a transaction matches a name on the SDN (Specially Designated Nationals) list?
- File a SAR and process the transaction normally
- Block the transaction, hold the funds, and report to OFAC within 10 business days (Correct answer)
- Reject the transaction and notify the customer immediately
- Escalate to senior management and decide within 5 days
Correct answer: Block the transaction, hold the funds, and report to OFAC within 10 business days
OFAC requires institutions to block transactions involving SDN-listed parties, hold the funds in a segregated account, and file a report with OFAC within 10 business days.
Question 2: What does 'layering' refer to in the three stages of money laundering?
- Introducing illicit cash into the financial system
- Creating complex financial transactions to obscure the audit trail (Correct answer)
- Using laundered funds to purchase legitimate assets
- Structuring deposits to avoid reporting thresholds
Correct answer: Creating complex financial transactions to obscure the audit trail
Layering is the second stage where criminals conduct complex, multi-step transactions to distance the funds from their illegal source and obscure the audit trail.
Question 3: Which regulation requires financial institutions to establish Customer Due Diligence (CDD) procedures, including identifying beneficial owners of legal entity customers?
- Bank Secrecy Act of 1970
- USA PATRIOT Act of 2001
- FinCEN CDD Rule effective May 2018 (Correct answer)
- Dodd-Frank Act of 2010
Correct answer: FinCEN CDD Rule effective May 2018
FinCEN's CDD Rule (effective May 11, 2018) added a fifth pillar to BSA compliance requiring identification of beneficial owners who own 25% or more of a legal entity customer.
Question 4: Under the FinCEN CDD Rule, a bank must identify and verify beneficial owners of a legal entity customer who own what minimum percentage of equity interests?
- 10%
- 15%
- 25% (Correct answer)
- 51%
Correct answer: 25%
The CDD Rule requires identifying all individuals who own 25% or more of a legal entity, plus one control prong individual regardless of ownership.
Question 5: A politically exposed person (PEP) is subject to enhanced due diligence because they:
- Are more likely to be targets of identity theft
- Pose higher AML risk due to potential for corruption and abuse of public positions (Correct answer)
- Are required by law to disclose all financial accounts
- Typically conduct high-volume transactions that require extra review
Correct answer: Pose higher AML risk due to potential for corruption and abuse of public positions
PEPs are considered higher risk because their public positions of trust create vulnerability to corruption, bribery, and misappropriation of public funds.
Question 6: Which AML typology involves using multiple businesses or individuals to convert drug proceeds into seemingly legitimate income?
- Round-tripping
- Smurfing
- Black market peso exchange (Correct answer)
- Trade-based money laundering
Correct answer: Black market peso exchange
The Black Market Peso Exchange is a method where drug proceeds in the US are used to purchase goods for export, converting criminal dollars into legitimate pesos through commercial transactions.
Question 7: When must a financial institution file a SAR after initially identifying suspicious activity?
- Within 15 calendar days
- Within 30 calendar days, or 60 days if no suspect is identified (Correct answer)
- Within 45 business days
- Within 90 days of account opening
Correct answer: Within 30 calendar days, or 60 days if no suspect is identified
A SAR must be filed within 30 calendar days of detecting suspicious activity; if no suspect can be identified, the deadline is extended to 60 days.
CBA Regulatory Compliance and AML 3
Under OFAC regulations, what must a bank do when a transaction matches a name on the SDN (Specially Designated Nationals) list?