Risk Analysis & Due Diligence Flashcards

A compliance team is reviewing a high-value transaction involving a free trade zone (FTZ). What is the PRIMARY sanctions concern associated with FTZs?

Answer: Reduced regulatory oversight that can facilitate sanctions evasion through transshipment

FTZs often have lighter regulatory oversight, making them attractive for transshipping sanctioned goods while obscuring the true origin or destination.

Which of the following is the MOST effective control to detect potential sanctions evasion through layering in a wire transfer?

Answer: Monitoring for structuring patterns and inconsistent transaction volumes relative to customer profiles

Behavioral analytics that flag unusual transaction patterns relative to a customer's profile are the most effective tool for identifying layering and potential sanctions evasion.

Under OFAC regulations, what is the standard for a 'blocked transaction'?

Answer: A transaction involving a Specially Designated National or sanctioned jurisdiction that must be frozen and reported

A blocked transaction involves a sanctioned party or jurisdiction; funds must be frozen in a blocked account and reported to OFAC within required timeframes.

A sanctions compliance officer is evaluating a new cryptocurrency exchange client. Which factor presents the HIGHEST sanctions risk?

Answer: The exchange allows peer-to-peer transactions with minimal KYC requirements

Minimal KYC on peer-to-peer transactions allows sanctioned parties to transact pseudonymously, creating substantial sanctions exposure.

When performing due diligence on a non-profit organization (NPO) client, which sanctions-related risk factor is MOST significant?

Answer: The geographic regions where the NPO distributes funds or operates programs

NPOs operating in conflict zones or high-risk regions face substantial risk of funds being diverted to sanctioned groups or individuals.

A due diligence review finds that a client's shipment passed through a port in a sanctioned country before reaching its stated destination. This is an example of:

Answer: Transshipment used as a potential sanctions evasion technique

Routing shipments through sanctioned country ports is a known evasion technique used to obscure the true origin, destination, or parties involved.

What is the significance of 'adverse media screening' in a sanctions due diligence program?

Answer: It identifies negative news about customers that may indicate undisclosed sanctions risk or illicit activity

Adverse media screening surfaces negative news that may indicate a customer's involvement with sanctioned parties, jurisdictions, or activities not yet reflected on official lists.