Banking Anti-Money Laundering Compliance Questions and Answers — Questions and Answers
Question 1: A customer makes three separate cash deposits of $4,000, $5,000, and $3,500 into different branches of the same bank on the same business day. Which of the following actions is the bank required to take?
- File a Suspicious Activity Report (SAR) for structuring.
- File a Currency Transaction Report (CTR) because the total exceeds $10,000. (Correct answer)
- Advise the customer that their account will be closed due to suspicious activity.
- Do nothing, as no single transaction exceeded the $10,000 threshold.
Correct answer: File a Currency Transaction Report (CTR) because the total exceeds $10,000.
The Bank Secrecy Act (BSA) requires financial institutions to file a Currency Transaction Report (CTR) for currency transactions exceeding $10,000. This rule applies to multiple transactions by or on behalf of the same person in a single business day that total more than $10,000. In this scenario, the total cash deposited is $12,500, which triggers the mandatory CTR filing.
Question 2: Which of the following scenarios best illustrates the 'layering' stage of money laundering?
- A criminal group uses a cash-intensive front business, like a car wash, to co-mingle illicit and legitimate funds.
- An individual purchases a luxury property with funds that have been moved through various offshore accounts.
- A 'smurf' deposits $9,500 in cash into a bank account to avoid reporting thresholds.
- An individual transfers funds through a complex series of wire transfers to multiple accounts in different countries. (Correct answer)
Correct answer: An individual transfers funds through a complex series of wire transfers to multiple accounts in different countries.
Layering is the second stage of money laundering, where criminals obscure the origin of illicit funds through complex financial maneuvers. Transferring funds through numerous accounts, especially across different jurisdictions, is a classic layering technique designed to break the audit trail and make it difficult to trace the money back to its illegal source.
Question 3: Under the Bank Secrecy Act (BSA), a financial institution must file a Suspicious Activity Report (SAR) if it knows, suspects, or has reason to suspect that a transaction of at least what amount involves funds derived from illegal activity?
- $10,000
- $2,000
- $5,000 (Correct answer)
- $25,000
Correct answer: $5,000
Financial institutions are required to file a SAR for transactions aggregating $5,000 or more if they know, suspect, or have reason to suspect the transaction involves funds from illegal activities, is designed to evade BSA regulations, or has no business or apparent lawful purpose.
Question 4: What is the primary distinction between Know Your Customer (KYC) and Customer Due Diligence (CDD)?
- KYC is performed only for high-risk customers, while CDD is for all customers.
- KYC focuses on ongoing transaction monitoring, while CDD is a one-time identity verification at onboarding.
- KYC is the initial process of identifying and verifying a customer's identity, while CDD is the ongoing process of assessing that customer's risk. (Correct answer)
- KYC is mandated by the USA PATRIOT Act, while CDD is a recommendation from the Financial Action Task Force (FATF).
Correct answer: KYC is the initial process of identifying and verifying a customer's identity, while CDD is the ongoing process of assessing that customer's risk.
KYC is generally understood as the initial step of collecting and verifying a customer's identity at the start of a business relationship. CDD is a broader, ongoing process that includes KYC but also involves assessing the customer's risk profile, understanding the nature of their activities, and performing ongoing monitoring. CDD ensures the institution maintains an up-to-date understanding of the customer relationship.
Question 5: An effective OFAC (Office of Foreign Assets Control) compliance program within a bank should include all of the following EXCEPT:
- Screening new customers and transactions against OFAC sanctions lists.
- Blocking or rejecting transactions with sanctioned individuals or entities.
- Appointing a dedicated BSA Officer, separate from any OFAC compliance responsibilities. (Correct answer)
- Conducting a periodic, risk-based assessment of its exposure to sanctioned parties.
Correct answer: Appointing a dedicated BSA Officer, separate from any OFAC compliance responsibilities.
An effective OFAC compliance program requires internal controls for screening, blocking/rejecting transactions, and conducting risk assessments. While having a dedicated compliance officer is critical, their responsibilities often overlap, and it is common for the BSA Officer to also manage or oversee the OFAC compliance function. Segregating these roles is not a mandatory requirement for an effective program.
Question 6: A bank teller notices a customer who frequently makes large cash deposits is deliberately keeping each transaction just under the $10,000 reporting threshold. This activity is a red flag for which type of illicit financial activity?
- Integration
- Layering
- Structuring (Correct answer)
- Placement
Correct answer: Structuring
Structuring, also known as 'smurfing,' is the act of breaking down a large financial transaction into smaller, separate transactions to deliberately avoid triggering regulatory reporting requirements, such as the Currency Transaction Report (CTR) for cash transactions over $10,000.
Banking Anti-Money Laundering Compliance Questions and Answers
A customer makes three separate cash deposits of $4,000, $5,000, and $3,500 into different branches of the same bank on the same business day.
Which of the following actions is the bank required to take?