CCO Anti-Money Laundering and Financial Crimes 2 — Questions and Answers
Question 1: What is Customer Due Diligence (CDD) in AML compliance?
- A credit review process
- The process of identifying and verifying customer identity and assessing the nature of their business relationship to detect suspicious activity (Correct answer)
- A process for resolving customer complaints
- Annual account rebalancing
Correct answer: The process of identifying and verifying customer identity and assessing the nature of their business relationship to detect suspicious activity
CDD requires firms to collect and verify customer identity information and understand the expected nature of their transactions to detect anomalies.
Question 2: What is Enhanced Due Diligence (EDD) and when is it required?
- Standard due diligence for all customers
- Additional scrutiny applied to high-risk customers, such as politically exposed persons or customers from high-risk jurisdictions (Correct answer)
- A simplified process for low-risk customers
- A one-time review at account opening
Correct answer: Additional scrutiny applied to high-risk customers, such as politically exposed persons or customers from high-risk jurisdictions
EDD requires more rigorous verification and ongoing monitoring for customers who pose elevated AML risks, including PEPs and those from high-risk countries.
Question 3: What is a Politically Exposed Person (PEP)?
- A customer who donates to political campaigns
- An individual who holds or has held a prominent public function, making them higher risk for bribery and corruption (Correct answer)
- Any foreign national doing business in the US
- A customer who trades in commodities
Correct answer: An individual who holds or has held a prominent public function, making them higher risk for bribery and corruption
PEPs are individuals such as heads of state, senior officials, or their close associates who carry elevated corruption risk due to their public positions.
Question 4: What does OFAC stand for and what is its role?
- Office of Financial Accounting and Compliance; sets GAAP standards
- Office of Foreign Assets Control; administers US economic and trade sanctions (Correct answer)
- Office of Federal Audit Control; oversees bank examinations
- Office of Foreign Acquisitions and Commerce; reviews mergers
Correct answer: Office of Foreign Assets Control; administers US economic and trade sanctions
OFAC is the US Treasury bureau that administers and enforces economic and trade sanctions against targeted foreign countries, entities, and individuals.
Question 5: What is the purpose of a transaction monitoring system in AML compliance?
- To maximize transaction fees
- To automatically detect unusual patterns of activity that may indicate money laundering or other financial crimes (Correct answer)
- To process payments faster
- To generate customer account statements
Correct answer: To automatically detect unusual patterns of activity that may indicate money laundering or other financial crimes
Transaction monitoring systems use rules and analytics to flag unusual activity patterns for investigation by compliance analysts.
Question 6: What is 'de-risking' and what concern does it raise for regulators?
- Reducing credit risk in loan portfolios
- Financial institutions exiting entire customer segments to avoid AML compliance burden, raising financial inclusion concerns (Correct answer)
- Lowering interest rates to reduce defaults
- Eliminating high-risk investments from portfolios
Correct answer: Financial institutions exiting entire customer segments to avoid AML compliance burden, raising financial inclusion concerns
De-risking occurs when banks terminate services for entire categories of customers, which raises financial inclusion concerns and can push activity to less-regulated channels.
CCO Anti-Money Laundering and Financial Crimes 2
What is Customer Due Diligence (CDD) in AML compliance?