CSS Correspondent Banking & Trade Finance Flashcards

What is the primary sanctions risk associated with U-turn transactions processed through U.S. correspondent banks?

Answer: The potential that funds passing through U.S. dollar clearing may involve sanctioned parties or jurisdictions without proper authorization

U-turn transactions create sanctions exposure because U.S. dollar clearing routes payments through U.S. financial institutions, which must screen all parties to the transaction even when neither the sender nor recipient is a U.S. person.

In a letter of credit (LC) transaction, which party bears the primary sanctions compliance obligation when the beneficiary is in a potentially sanctioned jurisdiction?

Answer: All parties in the LC chain — issuing bank, confirming bank, negotiating bank, and freight forwarders — have obligations proportionate to their role

Sanctions compliance in LC transactions is a shared responsibility — each party in the chain must screen counterparties and underlying goods/routes against applicable sanctions programs.

What is a 'ghost shipper' red flag in trade finance sanctions compliance?

Answer: A named shipper or seller whose identity cannot be verified or does not appear to exist as a legitimate business

Ghost shippers are fictitious or unverifiable entities listed as shippers in trade finance documents, often used to conceal the true origin of goods or involvement of a sanctioned party.

Which document in a trade finance transaction is most useful for identifying the ultimate origin of goods in a sanctions context?

Answer: Certificate of Origin

A Certificate of Origin identifies the country where goods were manufactured or produced, helping compliance teams determine whether goods originate from a sanctioned country or involve prohibited content.

Under OFAC's sanctions, which type of activity in correspondent banking is known as 'payment stripping'?

Answer: Removing SWIFT message fields that identify a sanctioned party to allow the payment to clear undetected

Payment stripping involves deliberately removing, altering, or omitting fields in SWIFT payment messages (such as the originator name or address) that would identify a sanctioned party and trigger screening flags.

The Financial Action Task Force (FATF) Recommendation 16 on wire transfers ('the travel rule') is relevant to sanctions compliance because it requires:

Answer: Originator and beneficiary information to accompany wire transfers, facilitating sanctions screening throughout the payment chain

FATF Recommendation 16 (the 'travel rule') requires that identifying information about the originator and beneficiary travel with wire transfers, enabling sanctions screening at each stage of the payment chain.