RCMS Anti-Money Laundering & KYC 5 — Questions and Answers
Question 1: What does the Corporate Transparency Act (CTA), effective January 2024, primarily require?
- Public companies to disclose executive compensation ratios annually
- Most U.S. companies to report their beneficial owners to FinCEN (Correct answer)
- Financial institutions to collect tax identification numbers from all account holders
- Foreign corporations to register with OFAC before operating in the U.S.
Correct answer: Most U.S. companies to report their beneficial owners to FinCEN
The CTA requires millions of U.S. companies to report beneficial ownership information to FinCEN to combat the misuse of shell companies for illicit finance.
Question 2: In AML risk assessment, which factor would most likely elevate a customer's risk rating?
- The customer is a domestic publicly traded company
- The customer's business involves significant cash transactions in a high-risk jurisdiction (Correct answer)
- The customer has maintained an account for over 10 years with no complaints
- The customer uses online banking rather than branch visits
Correct answer: The customer's business involves significant cash transactions in a high-risk jurisdiction
Cash-intensive businesses operating in high-risk jurisdictions present elevated AML risk due to greater opportunities for illicit fund concealment.
Question 3: Which of the following best describes 'Hawala' in the context of AML?
- A formal wire transfer system used by large commercial banks
- An informal value transfer system based on trust that operates outside traditional banking (Correct answer)
- A type of trade finance instrument used for import/export transactions
- A regulatory reporting standard for cross-border transactions
Correct answer: An informal value transfer system based on trust that operates outside traditional banking
Hawala is an informal value transfer system where money is moved through a network of brokers (hawaladars) without actual physical transfer of funds.
Question 4: What is a 'Know Your Customer's Customer' (KYCC) process?
- A process where retail customers are asked to identify their financial advisors
- Due diligence conducted on the customers of an institution's business clients to assess downstream risk (Correct answer)
- A regulatory requirement to collect references from existing customers for new account applications
- The process of verifying that a customer's listed beneficiaries are legitimate
Correct answer: Due diligence conducted on the customers of an institution's business clients to assess downstream risk
KYCC extends KYC practices to understand who a business customer's own customers are, reducing the risk of being used as an intermediary for illicit transactions.
Question 5: Under FATF standards, countries with significant AML/CFT deficiencies are placed on which lists?
- The OFAC SDN List and Foreign Sanctions Evaders List
- The 'Grey List' (Increased Monitoring) and 'Black List' (Call for Action) (Correct answer)
- The Basel AML Index and OECD Non-Cooperative Countries List
- The FinCEN 314(a) List and State Department INCSR Watch List
Correct answer: The 'Grey List' (Increased Monitoring) and 'Black List' (Call for Action)
FATF maintains a grey list of jurisdictions under increased monitoring and a black list (IOSCO) of high-risk jurisdictions subject to a call for action.
Question 6: What is the primary AML risk of virtual asset service providers (VASPs) according to FATF guidance?
- High currency conversion fees that obscure transaction values
- Potential for anonymous or pseudonymous transactions that circumvent CDD requirements (Correct answer)
- Overreliance on blockchain technology that cannot be audited by regulators
- Cross-border tax avoidance through cryptocurrency arbitrage
Correct answer: Potential for anonymous or pseudonymous transactions that circumvent CDD requirements
VASPs face AML risks primarily because cryptocurrency transactions can be conducted with reduced identity transparency, enabling potential layering and placement of illicit funds.
Question 7: Which of the following scenarios would most likely require a financial institution to file a SAR, even if no currency reporting threshold is met?
- A customer depositing payroll checks totaling $8,000 each week
- A new account receiving multiple wire transfers from unrelated parties followed by immediate withdrawals (Correct answer)
- A longtime customer making quarterly IRA contributions of $6,500
- A business account with daily deposits consistent with its stated revenue
Correct answer: A new account receiving multiple wire transfers from unrelated parties followed by immediate withdrawals
Rapid in-and-out wire patterns from unrelated sources in a new account are a classic red flag for money laundering that warrants SAR filing regardless of transaction size.
RCMS Anti-Money Laundering & KYC 5
What does the Corporate Transparency Act (CTA), effective January 2024, primarily require?