CFE Money Laundering 2 — Questions and Answers
Question 1: Which international body sets global AML/CFT standards and issues the Forty Recommendations on money laundering?
- The United Nations Office on Drugs and Crime (UNODC)
- The Financial Action Task Force (FATF) (Correct answer)
- The Basel Committee on Banking Supervision
- Interpol
Correct answer: The Financial Action Task Force (FATF)
The Financial Action Task Force (FATF) is the intergovernmental body that establishes international standards for combating money laundering and terrorist financing.
Question 2: Which of the following is considered a 'red flag' indicator of potential money laundering?
- A customer who provides full identification and opens one account
- A business that consistently reports small but steady profits
- A customer who is reluctant to provide information about the source of funds (Correct answer)
- A customer who requests information about interest rates before depositing
Correct answer: A customer who is reluctant to provide information about the source of funds
Reluctance to provide information about the source of funds is a classic red flag indicating possible money laundering activity.
Question 3: The primary anti-money laundering legislation in the United States that requires financial institutions to assist government agencies in detecting and preventing money laundering is the:
- Patriot Act
- Bank Secrecy Act (BSA) (Correct answer)
- Foreign Corrupt Practices Act (FCPA)
- Sarbanes-Oxley Act (SOX)
Correct answer: Bank Secrecy Act (BSA)
The Bank Secrecy Act of 1970 is the primary U.S. AML law requiring financial institutions to maintain records and file reports to help detect money laundering.
Question 4: Know Your Customer (KYC) programs at financial institutions are primarily designed to:
- Maximize profit from high-net-worth clients
- Verify customer identity and assess the risk of illicit financial activity (Correct answer)
- Track customer spending patterns for marketing purposes
- Ensure compliance with consumer protection laws
Correct answer: Verify customer identity and assess the risk of illicit financial activity
KYC programs require institutions to verify client identities and understand the nature of their financial activity to detect and prevent money laundering and fraud.
Question 5: Which term describes the use of cash-intensive businesses (such as car washes or restaurants) to mix criminal proceeds with legitimate revenue?
- Smurfing
- Commingling (Correct answer)
- Layering
- Round-tripping
Correct answer: Commingling
Commingling involves mixing illegal proceeds with legitimate business revenues to disguise their illicit origin.
Question 6: Under the USA PATRIOT Act, financial institutions are required to implement Customer Identification Programs (CIPs). At minimum, CIPs must collect which of the following for individual customers?
- Name, date of birth, address, and identification number (Correct answer)
- Name, employer, income, and tax returns
- Name, address, credit score, and employment history
- Name, social media profiles, references, and investment history
Correct answer: Name, date of birth, address, and identification number
CIPs must collect at minimum the customer's name, date of birth, address, and identification number (such as Social Security Number or passport number).
Question 7: A 'shell company' is most commonly used in money laundering schemes to:
- Provide legitimate payroll services to employees
- Conceal the true ownership and origin of funds through complex corporate layers (Correct answer)
- Obtain government contracts through competitive bidding
- Facilitate legitimate cross-border trade transactions
Correct answer: Conceal the true ownership and origin of funds through complex corporate layers
Shell companies, which have no real operations, are used to conceal the beneficial ownership of assets and obscure the paper trail of illicit funds.
CFE Money Laundering 2
Which international body sets global AML/CFT standards and issues the Forty Recommendations on money laundering?