CSCP Anti-Money Laundering & Financial Crimes 2 — Questions and Answers
Question 1: Which component of an AML program involves verifying the identity of customers and understanding the nature of their business relationships?
- Employee training
- Customer Due Diligence (CDD) (Correct answer)
- Suspicious Activity Reporting
- Recordkeeping
Correct answer: Customer Due Diligence (CDD)
Customer Due Diligence (CDD) requires firms to identify and verify customers and assess the risks they present as part of a robust AML program.
Question 2: Enhanced Due Diligence (EDD) is most commonly required for which category of customers?
- Retail investors with small account balances
- Politically Exposed Persons (PEPs) and high-risk customers (Correct answer)
- Customers who have never filed a SAR
- Employees of FINRA member firms
Correct answer: Politically Exposed Persons (PEPs) and high-risk customers
EDD is required for higher-risk customers such as Politically Exposed Persons (PEPs), customers in high-risk jurisdictions, and those with complex or opaque ownership structures.
Question 3: Under FinCEN's 2016 CDD rule, broker-dealers must identify and verify the identity of beneficial owners who own what minimum percentage of a legal entity customer?
- 10%
- 15%
- 20%
- 25% (Correct answer)
Correct answer: 25%
FinCEN's CDD rule requires identification of beneficial owners who own 25% or more of a legal entity customer, as well as one person who controls the entity.
Question 4: Which of the following transactions would MOST likely trigger a SAR filing at a broker-dealer?
- A customer making a large purchase of blue-chip stocks
- Multiple wire transfers just below the $10,000 reporting threshold with no business explanation (Correct answer)
- A new customer opening a retirement account
- A customer exercising stock options at expiration
Correct answer: Multiple wire transfers just below the $10,000 reporting threshold with no business explanation
Multiple transactions just below reporting thresholds (structuring) with no apparent business purpose are classic red flags that require a SAR filing.
Question 5: Under the USA PATRIOT Act, broker-dealers are required to have a Customer Identification Program (CIP). Which of the following is a minimum requirement of a CIP?
- Obtaining a credit score for each new customer
- Verifying the identity of each customer opening an account (Correct answer)
- Conducting annual reviews of all existing customer accounts
- Filing a SAR for all foreign national customers
Correct answer: Verifying the identity of each customer opening an account
Section 326 of the USA PATRIOT Act requires broker-dealers to implement a CIP that includes verifying the identity of customers opening new accounts.
Question 6: OFAC administers and enforces economic and trade sanctions. What must a firm do when a customer's name matches an OFAC Specially Designated Nationals (SDN) list entry?
- File a SAR and continue normal business operations
- Block the transaction or account and report to OFAC (Correct answer)
- Notify FINRA within 24 hours and close the account
- Escalate to senior management and wait 30 days before acting
Correct answer: Block the transaction or account and report to OFAC
When a match is found on the OFAC SDN list, firms must block or reject the transaction and report it to OFAC, as transacting with SDNs is prohibited.
Question 7: Which of the following best describes 'layering' in a money laundering scheme?
- Depositing cash in multiple bank accounts to avoid detection
- Using complex financial transactions to disguise the origin of illicit funds (Correct answer)
- Investing criminal proceeds in legitimate businesses
- Creating multiple shell companies to hold assets
Correct answer: Using complex financial transactions to disguise the origin of illicit funds
Layering is the second stage of money laundering, involving complex transactions such as wire transfers, currency conversions, and securities trades designed to obscure the audit trail.
CSCP Anti-Money Laundering & Financial Crimes 2
Which component of an AML program involves verifying the identity of customers and understanding the nature of their business relationships?