CFA Legal Compliance & Ethical Standards 3 — Questions and Answers
Question 1: The Bank Secrecy Act (BSA) requires financial institutions to file a Suspicious Activity Report (SAR) within how many days of initially detecting a suspicious transaction?
- 15 days
- 30 days
- 45 days (Correct answer)
- 60 days
Correct answer: 45 days
Financial institutions must file a SAR within 30 calendar days of the date of the initial detection of facts constituting a suspicious transaction, with a 60-day extension if no suspect is identified initially — but the standard window is 30 days.
Question 2: Which of the following BEST describes the 'tipping off' prohibition under anti-money laundering laws?
- Prohibits sharing SAR information with law enforcement agencies
- Prohibits informing a subject that a SAR has been filed about them (Correct answer)
- Prohibits employees from reporting suspected fraud to management
- Prohibits banks from sharing customer data with regulators
Correct answer: Prohibits informing a subject that a SAR has been filed about them
Tipping off prohibits financial institutions from notifying a subject that a SAR has been filed or that an investigation is underway, to protect the integrity of investigations.
Question 3: An attorney who discovers fraud while providing legal services to a client is subject to which unique ethical constraint not applicable to other professionals?
- They must always disclose fraud to law enforcement immediately
- Attorney-client privilege may prevent disclosure of client confidences (Correct answer)
- They are required to resign from any company board where fraud is discovered
- They must file a SAR with FinCEN like financial institutions
Correct answer: Attorney-client privilege may prevent disclosure of client confidences
Attorney-client privilege can restrict an attorney's ability to disclose client fraud, creating a tension between ethical duties that other fraud examiners do not face.
Question 4: The concept of 'constructive knowledge' in fraud law means that a party:
- Directly witnesses a fraudulent act being committed
- Is presumed to know facts that a reasonable inquiry would have revealed (Correct answer)
- Receives a written warning about a potential fraud scheme
- Participates in designing the fraudulent scheme
Correct answer: Is presumed to know facts that a reasonable inquiry would have revealed
Constructive knowledge is legal notice of facts that a person should have known because a reasonable investigation would have revealed them, even if actual knowledge is absent.
Question 5: Under the ACFE's Code of Professional Ethics, a CFE who is offered a gift by a client during an engagement should:
- Accept the gift only if its value is under $50
- Disclose the gift to their supervisor and decline it (Correct answer)
- Accept the gift as long as it does not influence the investigation outcome
- Report the offer as a potential bribery attempt to law enforcement
Correct answer: Disclose the gift to their supervisor and decline it
CFEs must avoid conflicts of interest and should decline gifts that could impair or appear to impair their objectivity, disclosing the offer to maintain transparency.
Question 6: Which federal statute specifically criminalizes making a materially false statement to a federal investigator, even when not under oath?
- 18 U.S.C. § 1001 (Correct answer)
- 18 U.S.C. § 1341 (Mail Fraud Statute)
- 18 U.S.C. § 1343 (Wire Fraud Statute)
- 18 U.S.C. § 1512 (Witness Tampering)
Correct answer: 18 U.S.C. § 1001
18 U.S.C. § 1001 makes it a federal crime to knowingly make false statements or conceal material facts in any matter within the jurisdiction of the federal government.
Question 7: An organization implements a mandatory job rotation policy for employees in sensitive financial roles primarily to:
- Reduce payroll costs by cross-training employees
- Detect and deter fraud by eliminating continuous opportunity (Correct answer)
- Comply with OSHA workplace safety requirements
- Satisfy external auditors' staffing recommendations
Correct answer: Detect and deter fraud by eliminating continuous opportunity
Job rotation removes the continuous opportunity needed to sustain long-running fraud schemes and may expose irregularities when a new person takes over a role.
CFA Legal Compliance & Ethical Standards 3
The Bank Secrecy Act (BSA) requires financial institutions to file a Suspicious Activity Report (SAR) within how many days of initially detecting a suspicious transaction?