Risk Analysis & Due Diligence Flashcards

A financial institution's sanctions risk assessment should be reviewed and updated:

Answer: When significant regulatory, business, or geopolitical changes occur, at minimum annually

Risk assessments must remain current; significant changes in sanctions programs, geopolitical events, or business model changes require timely updates, with at least annual reviews.

Which of the following represents the BEST practice for managing sanctions risk in a correspondent banking relationship?

Answer: Conducting ongoing due diligence including periodic reviews of the correspondent's sanctions program and geographic exposure

Ongoing due diligence with periodic reviews ensures correspondent relationships don't become conduits for sanctions evasion as their risk profiles change over time.

In sanctions risk analysis, what is the primary purpose of 'transaction monitoring'?

Answer: To detect transactions that may involve sanctioned parties, jurisdictions, or evasion patterns

Transaction monitoring in a sanctions context is designed to identify and investigate transactions that may violate sanctions prohibitions or indicate evasion attempts.

A US bank receives a letter of credit from a foreign bank on behalf of a buyer whose name closely resembles an SDN-listed entity. The MOST appropriate action is:

Answer: Place the transaction on hold and conduct enhanced due diligence to resolve the potential match

Potential name matches require enhanced due diligence to determine whether a true match exists before processing or rejecting the transaction.

When assessing sanctions risk for a new product, such as a mobile payment app, which factor should be evaluated FIRST in a risk-based framework?

Answer: The potential for the product to be used by or to transfer value to sanctioned parties or jurisdictions

The core sanctions risk question for any new product is whether it could facilitate prohibited transactions with sanctioned parties or jurisdictions.

Under OFAC guidance, a financial institution that identifies a potential sanctions violation should:

Answer: Voluntarily self-disclose to OFAC promptly, which may reduce penalties under the mitigating factors framework

Voluntary self-disclosure to OFAC is a significant mitigating factor that can substantially reduce civil monetary penalties, per OFAC's enforcement guidelines.

A risk analyst is building a country risk tier model for sanctions purposes. Which combination of factors is MOST relevant for assigning a high-risk tier to a country?

Answer: Active OFAC, UN, or EU sanctions programs targeting the country and weak AML/CFT controls

A country's presence on active international sanctions programs combined with weak financial controls are the most direct indicators of high sanctions risk.