Free Banking Anti-Money Laundering (AML) Principles Questions and Answers — Questions and Answers
Question 1: A new corporate customer, a cash-intensive business, opens an account. Over the first month, the teller notices the customer makes multiple cash deposits each week, all ranging between $9,000 and $9,500. This pattern of transactions is a primary indicator of which stage of money laundering?
- Integration
- Layering
- Placement (Correct answer)
- Obfuscation
Correct answer: Placement
Placement is the first stage of money laundering, where illicit funds are introduced into the financial system. The described activity, known as 'structuring' or 'smurfing,' involves intentionally making multiple small deposits to evade the automatic Currency Transaction Report (CTR) threshold, which is a classic placement technique.
Question 2: Which of the following are all considered core, required components (pillars) of a bank's BSA/AML compliance program?
- A designated AML Compliance Officer, independent testing, ongoing employee training, and internal controls. (Correct answer)
- Quarterly reporting to the board, a customer rewards program, a public relations policy, and a fraud hotline.
- A marketing review process, a new product approval committee, annual shareholder meetings, and a security officer.
- Daily currency transaction reporting, mandatory law enforcement cooperation, a customer rating system, and a whistle-blower policy.
Correct answer: A designated AML Compliance Officer, independent testing, ongoing employee training, and internal controls.
Regulators mandate that an effective AML program be built on five key pillars. These are: (1) a system of internal controls, (2) the designation of a qualified AML Compliance Officer, (3) ongoing and relevant employee training, (4) independent testing of the program, and (5) appropriate customer due diligence (CDD). The options in the correct answer list four of these essential components.
Question 3: A bank is onboarding a new client who is a senior government official from a foreign country. This client's status as a Politically Exposed Person (PEP) automatically requires the bank to perform which of the following?
- File a mandatory Suspicious Activity Report (SAR) for all transactions.
- Charge higher fees for all account services.
- Apply Enhanced Due Diligence (EDD), including verifying the source of wealth and funds. (Correct answer)
- Restrict the account to only domestic transactions.
Correct answer: Apply Enhanced Due Diligence (EDD), including verifying the source of wealth and funds.
Politically Exposed Persons (PEPs) are considered high-risk for potential involvement in bribery and corruption. Therefore, regulations require financial institutions to apply Enhanced Due Diligence (EDD) measures. Key components of EDD for PEPs include obtaining senior management approval to establish the relationship, taking reasonable measures to establish the source of wealth and funds, and conducting enhanced ongoing monitoring of the business relationship.
Question 4: A bank teller identifies a customer's transaction pattern that involves wiring numerous small, frequent amounts of money to various individuals in a high-risk jurisdiction. The transactions lack any clear economic or business purpose. After escalating the concern, the AML investigator decides to file a report with FinCEN. What is this report called?
- Currency Transaction Report (CTR)
- Beneficial Ownership Report (BOR)
- Funds Transfer Report (FTR)
- Suspicious Activity Report (SAR) (Correct answer)
Correct answer: Suspicious Activity Report (SAR)
A Suspicious Activity Report (SAR) is required to be filed with the Financial Crimes Enforcement Network (FinCEN) for transactions that are suspected to involve funds derived from illegal activity or are intended to hide or disguise funds, or that have no business or apparent lawful purpose. The scenario describes activity that is highly suspicious and warrants a SAR, whereas a CTR is for cash transactions exceeding a specific threshold.
Question 5: A criminal organization successfully deposits illicit cash into the banking system through a series of structured deposits. To obscure the audit trail, the funds are then moved through a complex series of wire transfers to shell corporations in different countries, converted into different currencies, and used to purchase and sell high-value assets. This activity best describes which stage of money laundering?
- Placement
- Layering (Correct answer)
- Integration
- Structuring
Correct answer: Layering
Layering is the second stage of money laundering, where the primary goal is to obscure the source of the funds by creating a complex web of transactions. This stage is characterized by activities like wire transfers between different accounts and jurisdictions, using shell companies, and converting funds into various financial instruments to make it difficult for law enforcement to trace the money back to its illegal origin.
Question 6: Which of the following is a primary responsibility of a bank's designated AML Compliance Officer?
- Approving all new commercial loan applications over $1 million.
- Setting the bank's annual revenue and profitability targets.
- Overseeing the implementation and ongoing effectiveness of the AML program, including policies and procedures. (Correct answer)
- Personally conducting all investigations into customer fraud claims.
Correct answer: Overseeing the implementation and ongoing effectiveness of the AML program, including policies and procedures.
The AML Compliance Officer is responsible for the overall management of the bank's AML program. This includes designing and implementing policies and procedures, ensuring adequate training, overseeing transaction monitoring systems, and acting as the main point of contact for regulatory inquiries and reporting suspicious activities.
Free Banking Anti-Money Laundering (AML) Principles Questions and Answers
A new corporate customer, a cash-intensive business, opens an account.
Over the first month, the teller notices the customer makes multiple cash deposits each week, all ranging between $9,000 and $9,500.
This pattern of transactions is a primary indicator of which stage of money laundering?