ACAMS Customer Due Diligence (CDD) 2

Question 1

Under FinCEN's Customer Due Diligence Rule (31 CFR 1010.230), what are the four core elements of CDD?

Accepted Answer

Customer identification, beneficial ownership identification, understanding the customer's business, and ongoing monitoring

Answer

Identification, verification, monitoring, and reporting

Answer

KYC, EDD, SAR filing, and CTR filing

Answer

Account opening, transaction approval, risk scoring, and annual review

Question 2

Under the FinCEN CDD Rule, who qualifies as a 'beneficial owner' of a legal entity customer?

Accepted Answer

Each individual who owns, directly or indirectly, 25% or more of the equity interests of a legal entity, plus one individual who controls or manages the entity

Answer

Any employee of the customer with signatory authority on the account

Answer

Only the CEO and CFO of the legal entity customer

Answer

Any individual who has conducted a transaction through the account in the past 12 months

Question 3

What is 'simplified due diligence' (SDD) and when may it be applied?

Accepted Answer

A reduced level of CDD measures that may be applied to lower-risk customers where the risk of money laundering is demonstrably low

Answer

A shortened account opening process for customers referred by employees

Answer

An expedited CDD process for VIP or private banking customers

Answer

CDD performed by a third party on behalf of the primary institution

Question 4

What is a 'trigger event' in the context of CDD ongoing monitoring, and can you provide three examples?

Accepted Answer

An event requiring a financial institution to review and potentially update a customer's CDD information; examples: significant changes in transaction patterns, adverse media, or customer-initiated changes to account information

Answer

A transaction that triggers an automatic SAR filing; examples: transactions over $10K, foreign wire transfers, cash deposits

Answer

A system alert requiring immediate account freeze; examples: OFAC match, court order, law enforcement request

Answer

An indicator that a customer is about to close their account; examples: declining balance, reduced transaction frequency, competitor promotional offers

Question 5

What is 'reliance on third parties' for CDD, and what conditions must be met for this reliance to be permissible?

Accepted Answer

Allowing another regulated financial institution to conduct CDD on a customer and relying on those results, subject to specific conditions including written agreement, immediate access to records, and satisfaction that the third party is regulated and supervised

Answer

Using automated software to conduct CDD without human review; requires regulatory approval

Answer

Outsourcing CDD to non-regulated service providers for cost savings; permitted without restrictions

Answer

Requiring customers to self-certify their identity information; permissible for all customer types

Question 6

What is the difference between Customer Identification Program (CIP) and Customer Due Diligence (CDD)?

Accepted Answer

CIP is the minimum identity verification process at account opening (name, address, DOB, ID number), while CDD is the broader ongoing program that includes risk profiling, beneficial ownership, and transaction monitoring

Answer

CIP and CDD are interchangeable terms for the same regulatory requirement

Answer

CIP applies to individuals while CDD applies to legal entities

Answer

CIP is required by FinCEN while CDD is only a best practice recommendation