During the regular periodic review of a high-risk client, a KYC analyst performs EDD checks and detects the presence of a politically exposed person. The KYC analyst should escalate this issue to the:
Correct Answer: B
When a politically exposed person (PEP) is identified during enhanced due diligence, FATF requires that senior management approve the decision to continue or terminate the relationship due to the elevated financial crime risk.
Company A is owned by Company B (80%) and Individual W (20%). Company B is owned equally by Company C and Individual X. Company C is owned by Individual Y (60%), Individual W (10%) and Individual Z (30%). Who should be considered as a beneficial owner of Company A with more than 25% shares?
Correct Answer: B
Individual Y owns 60% of Company C, which owns 50% of Company B, which owns 80% of Company A.
Y’s indirect ownership in Company A = 60% 50% 80% = 24%.
Additionally, Company B’s other owner, Individual X, has 50% of Company B, giving X an indirect stake of 40% in Company A, but X has no further upstream ownership through C.
FATF guidance states that indirect and direct holdings should be combined where applicable. Y’s 24% does not meet the 25% threshold alone, so none of the others qualify – except if local regulation treats control via majority in an intermediate entity as passing through. In that case, Y controls Company C, which controls 50% of Company B, giving effective control over 40% of Company A – meeting the threshold.
Which is a preferred source of non-documentary verification?
Correct Answer: B
A credit report is a reliable non-documentary verification source because it is generated by an independent, trusted agency and contains validated personal and financial information that can help confirm a customer’s identity.
A bank’s business team has developed a new strategy, which includes the introduction of prepaid cards as a new high-risk product offering. The compliance team has proposed to impose a monetary limit on each prepaid card and limit the offering to the existing customers of the bank only. Which best describes the risk impact of the controls proposed by the compliance team?
Correct Answer: B
Inherent risk is the natural risk before controls are applied. The compliance team’s measures (monetary limits and restricting to existing customers) reduce the exposure to misuse, thereby lowering the residual risk – the risk that remains after controls are implemented.
An alert is generated by a negative media search system that an existing client is accused of money laundering and is arrested. A KYC analyst assigned to investigate finds no records of a court order or subpoen
a. Which is the next action the analyst should take?
Correct Answer: C
An arrest for alleged money laundering is a serious adverse media finding that must be escalated to the compliance officer for further assessment and potential action, regardless of whether there is a conviction.
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