CISI IoI Anti-Money Laundering and Financial Crime 2 — Questions and Answers
Question 1: Which of the following best describes a Politically Exposed Person (PEP) in AML terms?
- A client who has expressed strong political views in financial correspondence
- An individual who holds or has held a prominent public function, considered higher risk due to potential for corruption (Correct answer)
- A foreign national subject to additional tax reporting requirements under FATCA
- Any client who is a registered member of a recognised political party
Correct answer: An individual who holds or has held a prominent public function, considered higher risk due to potential for corruption
A PEP is someone who holds or has held a prominent public position — such as a head of state, senior politician, or senior military official — and is treated as higher risk due to potential exposure to corruption and bribery.
Question 2: In which circumstances is Enhanced Due Diligence (EDD) required under UK AML regulations?
- For all new retail customers at account opening regardless of risk profile
- For customers identified as higher risk, such as PEPs and those from high-risk third countries (Correct answer)
- Only for customers investing sums in excess of £1 million
- Whenever a customer requests an international wire transfer
Correct answer: For customers identified as higher risk, such as PEPs and those from high-risk third countries
EDD is required in higher-risk situations, including dealings with PEPs, customers connected to high-risk third countries identified by FATF, and other circumstances indicating elevated money laundering risk.
Question 3: What is 'smurfing' (also known as structuring) as used by money launderers?
- Using automated computer programs to conduct and disguise illegal financial transactions
- Breaking large sums of money into smaller deposits to avoid transaction reporting thresholds (Correct answer)
- Using multiple offshore accounts to conceal criminal proceeds across jurisdictions
- Creating false invoices and commercial documentation to justify large payments
Correct answer: Breaking large sums of money into smaller deposits to avoid transaction reporting thresholds
Smurfing or structuring involves deliberately breaking down large sums into smaller transactions, typically below reporting thresholds, to avoid detection by financial institutions and authorities.
Question 4: What is the primary role of the UK Financial Intelligence Unit (UKFIU) in the AML framework?
- Acting as the FCA's enforcement division for financial crime cases
- Receiving, analysing, and disseminating financial intelligence derived from SARs submitted to the NCA (Correct answer)
- Setting AML policy on behalf of HM Treasury
- Independently supervising AML compliance across all regulated sectors
Correct answer: Receiving, analysing, and disseminating financial intelligence derived from SARs submitted to the NCA
The UKFIU sits within the National Crime Agency and is the central body responsible for receiving, analysing, and sharing SAR intelligence with law enforcement and other relevant agencies.
Question 5: Which of the following is a placement technique rather than a layering technique in money laundering?
- Establishing a chain of shell companies across multiple jurisdictions
- Using real estate transactions to move funds between parties
- Depositing cash through a currency exchange bureau (Correct answer)
- Conducting back-to-back loans to create apparent legitimate income
Correct answer: Depositing cash through a currency exchange bureau
Using a currency exchange bureau to convert cash is a placement technique, introducing physical currency into the financial system; the other options involve disguising existing electronic funds, which is layering.
Question 6: Under the Money Laundering Regulations 2017, which of the following is NOT part of the regulated sector subject to AML obligations?
- Estate agents
- Accountants and tax advisers
- Supermarket chains (Correct answer)
- High-value dealers selling goods above €10,000 in cash
Correct answer: Supermarket chains
Supermarket chains are not subject to the Money Laundering Regulations; the regulated sector covers financial institutions, legal and accounting professionals, estate agents, and high-value dealers, among others.
Question 7: What is the maximum custodial sentence for a principal money laundering offence under the Proceeds of Crime Act 2002?
- 5 years
- 10 years
- 14 years (Correct answer)
- 25 years
Correct answer: 14 years
The maximum sentence for the principal money laundering offences under POCA 2002 is 14 years' imprisonment, reflecting the severity with which the UK treats financial crime.
CISI IoI Anti-Money Laundering and Financial Crime 2
Which of the following best describes a Politically Exposed Person (PEP) in AML terms?