CSS Correspondent Banking & Trade Finance Flashcards

When a U.S. bank serves as an intermediary in a cross-border payment and the beneficiary bank is in a jurisdiction subject to comprehensive sanctions, the U.S. bank must:

Answer: Screen the transaction and reject or block it if the payment would ultimately benefit a sanctioned country, government, or SDN

U.S. banks serving as intermediaries must screen transactions against sanctions lists — the absence of a direct customer relationship does not eliminate the obligation to block or reject payments involving sanctioned parties or jurisdictions.

Which international body publishes risk indicators specifically designed to help financial institutions detect trade-based money laundering and sanctions evasion?

Answer: FATF (Financial Action Task Force)

FATF has published guidance and trade-based money laundering (TBML) risk indicators to help financial institutions and regulators identify suspicious trade transactions that may involve sanctions evasion, money laundering, or terrorist financing.

A 'flag of convenience' in maritime sanctions compliance refers to:

Answer: A vessel registered under the flag of a country different from the nationality of its owners, often to benefit from lower oversight

Flags of convenience allow ship owners to register vessels in countries with low oversight, reduced costs, and looser regulations — which can also reduce transparency and facilitate sanctions evasion.

A bank's sanctions compliance team notices that a customer's wire transfer references an Iranian port. The payment is from a non-sanctioned UAE company. The bank should:

Answer: Investigate further to determine if the transaction benefits Iran or Iranian parties and whether a license or exemption applies

A reference to an Iranian port is a red flag warranting enhanced due diligence — the bank must determine whether the transaction ultimately benefits Iran, Iranian-owned entities, or SDNs before deciding to process, reject, or block.

Which OFAC guidance document is most relevant for banks providing trade finance services involving potential sanctions exposure?

Answer: OFAC's Frequently Asked Questions (FAQs) on trade finance and letters of credit

OFAC's trade finance FAQs and sector-specific guidance provide directly applicable guidance on how sanctions obligations apply to LCs, bills of exchange, and other trade instruments.

What is a 'phantom shipment' in the context of trade finance sanctions evasion?

Answer: A transaction where trade documents (invoices, bills of lading) are fabricated for goods that do not actually exist or are not shipped

Phantom shipments involve creating false trade documentation for goods that were never actually shipped, facilitating the movement of funds without real underlying trade — often used to disguise sanctions violations or launder money.