CFCS Terrorist Financing & Sanctions Compliance Flashcards

What is a 'nested correspondent' relationship and why does it heighten sanctions risk?

Answer: A subsidiary bank using its parent's correspondent account to access the global financial system, making the ultimate originator of transactions harder to identify

Nested correspondent relationships occur when a foreign bank uses another foreign bank's correspondent account, adding additional layers that obscure the true originator and making sanctions screening more difficult.

What does 'OFAC 50% rule' require financial institutions to apply when screening for sanctions compliance?

Answer: Entities owned 50% or more by a sanctioned person/entity are themselves subject to sanctions, even if not explicitly listed

OFAC's 50% rule extends sanctions prohibitions to entities owned 50% or more, in aggregate, by one or more sanctioned parties, even when those entities are not themselves named on the SDN list.

What is 'proliferation financing' as identified by FATF in its expanded mandate?

Answer: Providing funds or financial services for the development or acquisition of weapons of mass destruction

Proliferation financing involves providing financial support for the development, production, or acquisition of weapons of mass destruction (nuclear, biological, chemical, or radiological weapons).

In a sanctions compliance context, what does 'blocking' a transaction mean?

Answer: Freezing the transaction and the associated funds, notifying OFAC, and holding the assets in a blocked account

When a US financial institution identifies a transaction involving a sanctioned party, it must block (freeze) the funds in a separate blocked account and report the action to OFAC within 10 business days.

Which red flag is most specifically associated with potential terrorist financing rather than ordinary money laundering?

Answer: Small-value transfers to multiple recipients in conflict zones with no clear business rationale

Terrorist financing often involves relatively small, fragmented transfers to individuals or entities in high-risk or conflict-affected regions that lack a plausible legitimate business purpose.

What is a 'specific license' from OFAC and when would a US financial institution need one?

Answer: An individual authorization from OFAC permitting a specific transaction or activity that would otherwise be prohibited by sanctions

A specific OFAC license is a case-by-case written authorization allowing a particular transaction involving a sanctioned party or jurisdiction that would otherwise be prohibited.