CSS Sanctions Evasion Techniques & Red Flags Flashcards

What does 'de-risking' mean in the context of correspondent banking and sanctions compliance?

Answer: The practice of financial institutions terminating or restricting banking relationships with entire categories of customers or jurisdictions to avoid compliance costs and risks

De-risking refers to banks broadly exiting customer relationships or business lines (e.g., money services businesses, remittance corridors) rather than managing the risks on a case-by-case basis, often driven by fear of sanctions and AML enforcement.

A sanctions compliance investigation reveals that a customer provided a false address in a non-sanctioned country but is actually located in a sanctioned jurisdiction. This is an example of:

Answer: Geographic inconsistency red flag — a common sanctions evasion technique of misrepresenting location to avoid sanctions screening

Misrepresenting geographic location is a well-documented sanctions evasion technique — compliance programs must look beyond stated addresses to verify actual location through other data points (IP addresses, phone numbers, transaction patterns).

Which FATF-designated category of 'high-risk and other monitored jurisdictions' (previously the 'grey list') is most relevant to sanctions compliance teams conducting geographic risk assessments?

Answer: FATF's Jurisdictions Under Increased Monitoring (the 'grey list')

FATF's Jurisdictions Under Increased Monitoring (grey list) identifies countries with strategic AML/CFT deficiencies — these jurisdictions warrant enhanced due diligence and are often used by sanctions compliance teams as a risk indicator for geographic risk assessments.

Why is the concept of 'beneficial ownership' critical in sanctions compliance?

Answer: Sanctions target the actual people who control or benefit from entities — compliance must look through corporate structures to identify if a sanctioned person is the true owner or controller

Sanctions are meaningless if they can be circumvented by placing assets in the name of a non-sanctioned entity — identifying beneficial owners ensures that sanctions reach the actual people they target, consistent with OFAC's 50 Percent Rule.

A financial institution notices that a customer has been making repeated small payments to multiple different individuals in a comprehensively sanctioned country. This activity pattern is best described as:

Answer: Potential structuring to circumvent transaction monitoring thresholds for sanctioned-country payments, warranting enhanced due diligence

Breaking up transactions into multiple smaller payments to evade monitoring thresholds (structuring) is a red flag, and when the recipients are in a comprehensively sanctioned country, the compliance implications are significantly elevated beyond normal remittance risk.

Which U.S. government agency, in addition to OFAC, plays a key role in enforcing sanctions against illicit petroleum trade through maritime enforcement actions?

Answer: The U.S. Department of Justice (DOJ) and the U.S. Department of State, working with OFAC in interagency enforcement actions

Sanctions enforcement against illicit oil trade involves a coordinated interagency effort — OFAC designates parties, the DOJ prosecutes criminal violations, and the State Department engages diplomatically, often combined in joint enforcement actions.