Question 1

During a routine CDD update in a financial institution, a junior member of the compliance department identifies that the spouse of the reviewed client was elected as a member of government. Which action should the junior member take?

AInform the relationship manager about the election of the client's spouse

BMake a note on the client's account of this fact and continue operations as usual.

CFile a suspicious transaction report because the client did not notify the financial institution.

DUpdate the client's information to reflect that the client is related to a politically exposed person.

Answer : D

FATF guidelines require enhanced due diligence when a client becomes a Politically Exposed Person (PEP) or is related to one. Since the client's spouse is now a government member, the client must be classified as related to a PEP, and the institution's records must be updated accordingly.

Question 2

A transaction monitoring alert is generated by an automated system. The alert was triggered by a scenario to flag large cash payments. The analyst is not able to explain the behavior that triggered the alert. Which step should a KYC analyst take next?

ABlock the account to prevent any other transactions.

BSubmit a suspicious transaction report.

CEscalate the alert to the second line for investigation.

DMark the alert as a false positive.

Answer : C

When an analyst cannot reasonably explain activity flagged by transaction monitoring, the correct step is to escalate the case to the second line of defense (compliance or investigations team) for further review before any reporting or account action is taken.

Question 3

Which piece of evidence would be a red flag that a customer is a shell company?

AThe company registry lists only one director of the customer.

BThe company's place of business is a gatekeeper address.

CThe company name includes the word 'holding'.

DThe company was incorporated three weeks ago.

Answer : B

A gatekeeper address, such as a law firm or company formation agent's address with no real operational presence, is a strong red flag indicating the entity may be a shell company used to conceal beneficial ownership or illicit activities.

Question 4

Which action should be considered a possible red flag, indicating to a bank that the activity might warrant further investigation?

AMaking multiple cash deposits just under the reporting threshold

BAdding a new beneficial owner after the establishment of the business relationship

COpening a new account without a local telephone number or utility bill

DSending large amounts of money to family in their home country with known sources of income

Answer : A

Structuring transactions by making multiple cash deposits just under the reporting threshold is a common method to evade detection and reporting requirements, making it a strong red flag for potential money laundering.

Question 5

Which situation would most likely increase the inherent risk of a corporate customer?

AA junior-level employee of the customer becomes politically exposed.

BThe customer opens an additional cash management account.

CA beneficial owner of the customer goes public on a US stock exchange.

DThe customer's business expands beyond its home country.

Answer : D

Expanding business operations beyond the home country increases inherent risk due to cross-border transactions, exposure to multiple jurisdictions, and potential dealings with regions of higher money laundering or terrorism financing risk.

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