RCMS Anti-Money Laundering & KYC 3 — Questions and Answers
Question 1: What is a Politically Exposed Person (PEP) in the context of KYC/AML?
- Any foreign national opening an account in a U.S. bank
- An individual who holds or has held a prominent public function, posing higher corruption risk (Correct answer)
- A customer who has previously filed a complaint with a regulator
- A business owner with more than 25% ownership in a company
Correct answer: An individual who holds or has held a prominent public function, posing higher corruption risk
PEPs are individuals entrusted with prominent public functions who may pose higher risks for bribery and corruption.
Question 2: What is the timeframe within which a financial institution must file a SAR after initially detecting a suspicious transaction?
- 24 hours
- 15 calendar days
- 30 calendar days, extendable to 60 if no suspect is identified (Correct answer)
- 90 days
Correct answer: 30 calendar days, extendable to 60 if no suspect is identified
SARs must be filed within 30 calendar days of detection, with a 60-day extension allowed when no suspect has been identified.
Question 3: Which of the following is an example of trade-based money laundering (TBML)?
- Using a shell company to receive wire transfers from a sanctioned country
- Over-invoicing goods to transfer value across borders under the guise of legitimate trade (Correct answer)
- Depositing cash in multiple small increments below the CTR threshold
- Converting drug proceeds into cryptocurrency
Correct answer: Over-invoicing goods to transfer value across borders under the guise of legitimate trade
TBML exploits international trade transactions, such as over- or under-invoicing, to move value across borders illicitly.
Question 4: Under the Customer Due Diligence (CDD) rule finalized by FinCEN in 2016, what beneficial ownership threshold must be identified for legal entity customers?
- 10% or greater ownership
- 15% or greater ownership
- 25% or greater ownership (Correct answer)
- 50% or greater ownership
Correct answer: 25% or greater ownership
The FinCEN CDD rule requires identifying natural persons owning 25% or more of a legal entity customer.
Question 5: What distinguishes Enhanced Due Diligence (EDD) from standard CDD?
- EDD is required for all retail customers while CDD applies only to corporate accounts
- EDD involves deeper scrutiny of higher-risk customers, including PEPs and high-risk jurisdictions (Correct answer)
- EDD requires biometric verification while CDD relies on document review
- EDD is optional and performed only upon customer request
Correct answer: EDD involves deeper scrutiny of higher-risk customers, including PEPs and high-risk jurisdictions
EDD requires additional information and ongoing monitoring for customers or relationships presenting higher AML risks.
Question 6: Which international body sets the global standard for AML/CFT compliance frameworks?
- Basel Committee on Banking Supervision
- Financial Action Task Force (FATF) (Correct answer)
- International Monetary Fund (IMF)
- Bank for International Settlements (BIS)
Correct answer: Financial Action Task Force (FATF)
FATF is the inter-governmental body that develops and promotes policies to protect the global financial system from money laundering and terrorist financing.
Question 7: What is 'de-risking' in the context of AML compliance?
- Applying risk scores to individual transactions
- Financial institutions terminating relationships with entire customer categories deemed high-risk (Correct answer)
- Encrypting customer data to reduce cyber risk
- Transferring compliance responsibilities to correspondent banks
Correct answer: Financial institutions terminating relationships with entire customer categories deemed high-risk
De-risking refers to the practice of financial institutions exiting entire categories of customers or business lines to avoid AML compliance burdens.
RCMS Anti-Money Laundering & KYC 3
What is a Politically Exposed Person (PEP) in the context of KYC/AML?