Money Laundering & AML Compliance Flashcards

Which federal agency has primary enforcement authority over anti-money laundering compliance in US depository institutions?

Answer: The prudential regulator (OCC, FDIC, or Federal Reserve)

Prudential regulators such as the OCC, FDIC, and Federal Reserve conduct AML examinations and have authority to take enforcement action against banks for BSA violations.

Cryptocurrency exchanges operating in the United States are classified under the BSA as:

Answer: Money services businesses subject to AML program requirements

FinCEN has classified cryptocurrency exchangers and administrators as money services businesses, requiring them to register, implement AML programs, and file SARs and CTRs.

A lawyer receives $200,000 in cash from a client to hold in escrow for a real estate purchase. Which AML concern is most immediately relevant?

Answer: The lawyer should assess whether this triggers client due diligence and potential SAR filing obligations

While lawyers have limited BSA obligations, receiving large unexplained cash sums raises significant AML concerns requiring due diligence and potentially SAR filing under state bar rules or voluntary programs.

The term 'de-risking' in the AML context refers to:

Answer: Financial institutions exiting entire market segments or customer categories to avoid AML compliance costs

De-risking occurs when financial institutions terminate relationships with entire customer categories — such as money transmitters or foreign banks — rather than managing individual customer risk.

Under the USA PATRIOT Act Section 312, US financial institutions must apply Enhanced Due Diligence (EDD) to correspondent accounts opened for:

Answer: Foreign banks operating under offshore banking licenses with no physical presence

Section 312 requires EDD for foreign banks with offshore banking licenses (shell banks) or those operating in jurisdictions deemed high risk by the US government.

Which of the following is an example of integration, the final stage of money laundering?

Answer: Purchasing a luxury hotel with laundered funds and collecting legitimate rental income

Integration involves reinvesting laundered funds into legitimate economic activities — such as real estate — so that proceeds appear to be lawful business income.

A financial institution's AML program must include independent testing. Who must conduct this testing?

Answer: An independent party, either internal audit or an outside firm not involved in daily compliance

BSA regulations require that AML program testing be performed by an independent party, meaning someone not responsible for day-to-day BSA/AML operations.