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AML & KYC Compliance Flashcards

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

Read the first 7 AML & KYC Compliance flashcards as text

  1. A bank employee notices a long-time customer suddenly making large cash withdrawals for an unfamiliar third party. The employee files a SAR and tells the customer. What violation has occurred?

    Answer: Tipping off, which is prohibited under BSA

    Informing a subject that a SAR has been filed constitutes 'tipping off,' which is prohibited under the BSA and could undermine the investigation.

  2. Which AML concept requires financial institutions to understand the nature and purpose of customer relationships to develop a customer risk profile?

    Answer: Know Your Customer (KYC)

    KYC encompasses the ongoing process of understanding customer relationships, their expected activity, and assessing associated risks.

  3. Under the Corporate Transparency Act (CTA), most small companies must report beneficial ownership information to:

    Answer: FinCEN

    The CTA requires most small companies to report beneficial ownership information to FinCEN to help prevent anonymous shell company abuse.

  4. A trade finance transaction where an exporter invoices significantly above the true market value of goods is an example of:

    Answer: Trade-based money laundering (TBML)

    Over- or under-invoicing goods to move value across borders is a classic trade-based money laundering technique.

  5. Which of the following BEST describes a 'shell company' in the context of money laundering?

    Answer: A legal entity with no significant operations used to obscure beneficial ownership

    Shell companies are legal entities that typically have no real business activity and are used to hide the identity of the true beneficial owner.

  6. When must a financial institution file a SAR for an insider transaction involving a bank employee?

    Answer: When there is no minimum dollar threshold — any amount if an insider is involved

    For SAR filings involving insiders (employees), there is no minimum dollar threshold — any amount of suspicious activity must be reported.

  7. The final stage of money laundering, where illicit funds re-enter the legitimate economy as seemingly lawful income, is called:

    Answer: Integration

    Integration is the third stage where laundered money is reintroduced into the legitimate economy through investments, real estate, or business revenues.