Money Laundering Test Questions

All of the following are primary forces behind increased compliance efforts EXCEPT A. Reputational risk B. A company's good reputation improves business C. Regulatory requirements D. Money laundering activities are on the decline

D

Which of the following is the largest source of funds that go through the money laundering process? A. Financial crimes B. Embezzlement and extortion C. Drug trafficking D. Organized crime rings

C

All of the following make the insurance industry susceptible to money laundering except A. Guaranteed products B. Agents and brokers who are often unaware of the need to screen clients or to question payment methods C. Insurance policies and annuities that can be cashed in D. Independent agents who do not work directly for the insurance companies

A

Amy, as the AML compliance officer of ABC securities, is required to trace the source of all funds belonging to foreign persons or institutions under which of these? A. The transaction involves a facilitator B. The transaction involves two or more banks C. A transaction of 10,000 or more D. A primary money laundering concern has been identified

D Why: Financial institutions are not required to trace the source of all funds belonging to foreign persons or institutions. The new rules only require enhanced reporting when a primary money laundering concern has been identified.

Caroline is a private banker for a large money center bank. Why does Caroline find it difficult to fulfill her money laundering responsibilities? A. Caroline is asked to fill conflicting role B. Private banks are fewer in number and only handle transactions under $10,000 C. Caroline does not have to follow anti-money laundering regulations D. Private bankers are not required to report suspicious transactions

A Why: personal bankers are asked to fill conflicting role. Those that ask them to build personal relationships with their clients and at the same time monitor their accounts for suspicious activity and question specific transactions.

Gregg, an insurance agent, suspects that a client has an engaged in a suspicious activity. All of the following are true except: A. It should be reported immediately to the compliance officer B. Gregg must file an SAR C. The insurance company will file a SAR, if appropriate D. It may require further investigation

B Why: the requirement to identify and report suspicious transactions applies only to an insurance company, not its agents or brokers

Michael, the AML compliance officer for an insurance company observes unusual activity or behavior. Which of the following is true? A. It must be reported to law enforcement immediately B. A report must be submitted to Office of Foreign Asset Control. (OFAC) C. Further investigation may be required D. A SAR must be filed

C Why: unusual activity or behavior merely means further investigation may be required

Emily is a registered representative with the ABC brokerage firm. She notices that a client has been transferring funds from various sources into the client's account. Emily should A. Not be concerned as long as the client has not yet transferred the funds out of the account B. Be delighted that the client is moving the funds into the account C. Immediately submit an SAR D. Report this to her anti-money laundering compliance officer as this may be an indication that the client is engaged in the money laundering layering phase

D Why: Emily, as a registered representative is not required to file the SAR. She should report the activity to the AML compliance officer who will determine if a SAR should be filed

Which of thee requires financial institutions to inform customers of its privacy policies? A. Gramm-Leach Bliley Act B. Bank secrecy act of 1970 C. Money laundering control act of 1986 D. Annunzio-Wylie Money launder act of 1992

A Why: The Gramm-Leach-Bliley Act, a 1999 law permits banks and other companies to run banking, securities and insurance operations under one roof. This act also contains privacy provisions. These provisions require a financial institution to inform customers about its privacy policies.

Paula engages in an electronic transaction via through an encrypted card that has a monetary value and is tracked by a microchip. This transaction is known as A. An electromagnetic transfer B. A cyberpayment C. A micro loan payment D. An automated clearing house (ACH) card payment

B Why: a cyberpayment is an electronic transaction via the internet or through an encrypted card that has a monetary value that is tracked by a microchip.

As the anti money laundering compliance officer for the All Risk Insurance Company, Elizabeth knows she needs to be cognizant of all of the following activities except: A. Large cash payments followed by cancellation of a policy during the permitted free look period B. The potential of fraudulent claims C. The transfer of benefits of an insurance contract to an unrelated third party D. More and more transactions are handled online.

B Why: anti money laundering enforcement is concerned with transactions susceptible to money laundering activities. Anti money laundering enforcement is not concerned with fraudulent claims.

As a personal banker with a large national bank, Natalie is aware that a CTR is required in each of the following except: A. Your client pays a $100,000 single premium annuity with a personal check B. A client pay of a loan with $12,000 in cash C. A client invests more than $10,000 of cash in a mutual fund account D. A bank client deposits more than $10,000 of cash into a certificate of deposit

A Why: Currency transaction reports (CTRs) are required only when the aumento us made in cash or cash equivalents

Which of these is MOST likely to be considered a suspicious activity? A. John makes a large deposit into an annuity contract with a wire transfer B. Laura presents a refund check from the XYZ insurance compay to pay a premium for a new life insurance policy C. Toby makes a large deposit into an annuity contract with a personal check D. Cassandra, who is a long time customer, comes into the office to pay the annual premium for her life insurance policy with cash

A Why: large payments or deposits by wire transfer are likely to be seen as a suspicious activity. Payments Edith personal checks and payments by insurance company refund checks are normally not suspicious, nor is a cash payment from a long time customer

Madelyn is a registered representative of the Big Money Brokerage firm. She is required to follow the firm's KYC policy in accordance with the BSA for all the following reasons except: A. Assure suitable recommendations as required by FINRA rules B. Minimize the firm's susceptibility to illegal activities C. Properly advice reputable customers D. Ensure compliance with the regulatory guidelines of the BSA

A Why: the primary gol f an effective KYC policy is to ensure compliance with regulatory guidelines of the bank secrecy act, properly service reputable clients and minimize the institutions' susceptibility to illegal activities.

Which stage involves numerous transactions that vary in form and complexity? A. Placement B. Gradation C. Integration D. Layering

D

The compliance manager of a brokerage firm must be sure that the firm complies with the travel rule for which of these transactions? A. Neither external or internal transfers B. Both external and internal transfers C. An internal transfer D. An external transfer

D Why: external transfers are, by nature, subject to both the joint and travel rules.

Susan is the anti money laundering compliance officer for LMN insurance company. She is examining what she thinks may be money laundering activity and would like to investigate further, but is afraid she may violate the Gramm-Leach-Bliley Act of 1999. Upon further examination, Susan finds that the Gramm-Leach-Bliley act does all of the following except: A. Requires financial institutions to inform customers of its privacy policies B. Gives customers the opportunity to block sharing of certain private information C. Requires financial institutions to notify customers of private information it intends to share D. Prevents financial institutions from sharing information regarding terrorist acts involving money laundering activity.

D Why: financial institutions may exchange information to deter money laundering. After notifying the treasury department, two or more financial institutions (or any association of financial institutions) may share information with each other regarding individuals, entities, organizations or countries suspected of possible terrorist or money laundering activities. Information sharing in compliance with Title III does not constitute a violation of the privacy provisions of the Gramm-Leach-Bliley Act.

When Bob is opening an account for a new customer, the LEAST important guideline under the company's AML program would be A. Being aware of unusual transactions or disproportionate activity B. Being sure to identify ownership of all accounts C. Identifying the source of funds D. Knowing the clients highest level of education

D Why: knowing who the owner of the account is, identifying the source of funds, and being aware of unusual activity are requirements of the know your customer (KYC) rule. The client's education level is not important.

As the AML compliance manager for a brokerage firm, Joan must be constantly alert to possible layering transactions. All of these are examples of layering transactions except A. Changing the money's currency B. A wire transfer between difference accounts in different names in difference countries C. Bank-to-bank transfers D. A customer makes a cash deposit of $9,50 to avoid the necessity of a CTR

D Why: layering can involve bank-to-bank transfers, wire transfers between different accounts in different names or different counties, making deposits and withdrawals to continually vary the amount of money in the accounts, changing the money's currency and purchasing expensive items to change the form of the money. A cash deposit just below $10,000 is considered a structured transaction.

As the anti money laundering compliance manager for a securities brokerage firm, Jerry would consider all of these a potential suspicious activity except A. A client does a number of structures transactions to avoid CTRs B. A customer who will not engage in a transaction when told a CTR will be completed C. A customer who is asking questions about CTRs D. A client pays a very large single premium deposit with a personal check

D Why: payments by personal check are not normally considered suspicious transactions. Structured transactions, asking questions about CTRs, and reluctance to engage in a transaction due to a CTR filing may all be considered suspicious

Which is the first and most dangerous step in the money laundering process? A. Placement B. Assimilation C. Integration D. Layering

A

The KAP Brokerage firm executes several wire transfers. It must be sure to comply with the joint rule for A. Both internal and external transfers B. Internal transfers only C. External transfers only D. Neither external nor internal transfers

A Why: Internal transfers by nature would be subject to the joint rule, but not the travel rule. External transfers are by their nature subject to both the joint and travel rules.

When opening a new account, Amy, the compliance officer of ABC securities, must compare the clients name with a list of special designated nationals. Where is the list of SDN's maintained? A. OFAC B. FinCEN C. FATF D. SDNL

A Why: OFAC is the organization that maintains the list of SDNs

Prior to Operation Greenback, money launderers had little reason to hide their money laundering activities for all of the following reasons except A. The BSA had not yet been enacted B. Financial institutions had not always followed the stringent guidelines outlines under the BSA C. Lack of regulatory enforcement of the time-consuming process of transaction reporting D. Financial institutions had concerns about their client's right to privacy

A Why: previously, financial institutions had not always followed the stringent guidelines outlines under the BSA. This was due to concerns about their clients' right to privacy under federal laws and lack of regulatory enforcement of the time consuming process of transaction reporting

The AML compliance officer for an insurance company observes unusual activity or behavior. Which of the following is true? A. Further investigation may be required B. An SAR must be filed C. A report must be submitted to OFAC D. It must be reported to law enforcement immediately

A Why: unusual activity does not necessarily require reporting. The activity must be reported if deemed to be suspicious after further investigation.

The International Monetary Fund (IMF) estimates that money laundering is about what percent of the world's gross domestic product? A. 4-8% B. 1-3% C. 2-5% D. 6-10%

C

Which of these maintains a list of specially designated nationals? A. SDNL B. IAIS C. OFAC D. FATF

C Why: at the core of OFAC regulations is the requirements that financial institutions identify the activity of Specially Designated Nationals (SDNs). An SDN is viewed as a threat to the United States and is subject to a specific governmental sanctions program. OFAC maintains an SDN list.

The largest threat to anti-money laundering efforts is A. Private banking B. Insurance transactions C. Technological advances D. Lotteries

C Why: banks and other financial institutions may become particularly susceptible to cyberpayments.

Which of these is a reason that the insurance industry is susceptible to money laundering? A. The regulators do not understand the insurance industry B. There is a general lack of AML supervision in the insurance industry C. The insurance industry is exempt from most anti-money laundering regulations D. The anti-money laundering rules and regulations are too vague

B

Which of the following organizations is a bureau of the treasury department that provides the US policy makes with strategic analyses of domestic and worldwide money laundering developments, trends and patterns? A. FATF B. FinCEN C. SEC D. OFAC

B Why: FinCEN is a bureau of the treasury department that provides US policy makers with strategic analyses of domestic and worldwide laundering developments, trends and patterns.

The ABC insurance company has appointed Jams as its anti-money laundering compliance officer. James ensures that ABC company files SARs because it issues all insurance contracts except A. Individual annuity contracts B. Group annuity contracts C. Other contracts with cash value or investment features D. Permanent life insurance policies

B Why: FinCEN issued a final rule that requires insurance companies that issue or underwrite insurance products that present a high degree of risk for money laundering or the financing of terrorism or other illicit activity, to file SARs. The insurance companies that are required to file SARs are those selling permanent life insurance policies, other than group life insurance policies, annuity contracts, other than group annuity contracts and any other insurance products with features of cash value or investment features.

Jeff is an insurance agent and should be concerned when all of these occur except A. A client buys an insurance policy that appears to be beyond the client's means B. A regular client pays an insurance premium with cash C. A client terminates a single premium life policy for a loss shortly after the policy was issued D. A client borrows the cash value from a life insurance policy shortly after the policy was issued

B Why: a regular client paying an insurance premium in cash is no reason for concern

As an anti-money laundering compliance officer, Mary, must be on the watch for all of these potential elements in money laundering schemes, EXCEPT: A. Multiple transactions that cross governmental jurisdictions B. A securities account with consistently routine activity C. A facilitator D. Unusually large account activity

B Why: a securities account that does not raise a red glad. However, unusually large account activity, transactions that cross government jurisdictions and the potential use of a facilitator do raise red flags.

Joyce is the anti-money laundering compliance officer for an insurance company. She is aware of a suspicious activity, but does not yet know the identity of a person conducting a suspicious activity. What is the maximum amount of time Joyce has to file a SAR? A. 90 days B. 60 days C. 30 days D. 120 days

B Why: each SAR must be filed within 30 days of the initial determination for the necessity of filing the report. An extension of 30 days can be obtained if the identity of the person conducting the suspicious activity is not known, however, at no time should an SAR be delayed longer than 60 days.

Which of these gives the secretary of treasury and the attorney general power to issue a summons or subpoena for records of a foreign financial institution that maintains a correspondent account in the United States? A. Money laundering suppression act of 1994 B. USA Patriot Act of 2001 C. Money laundering Control Act D. BSA of 1970

B Why: in addition to enhanced reporting requirements, under the USA patriot act, the secretary of the treasury or the attorney general my issue a summons or subpoena, requesting records maintained inside or outside the United States to any foreign bank that maintains a correspondent account with a US financial institution

Which of these operations was the first multi agency money laundering task force assembled? A. Operation risky business B. Operation greenback C. Operation C-chase D. Operation Casablanca

B Why: one of the earliest attempts to thwart modern money laundering schemes was an investigation known as operation greenback. The investigation was a joint operation between the US customs department and the IRS that began in 1979. It was the first multi agency money laundering task force ever assembled.

Cassandra should follow all of the firm's know your customer guidelines except A. Monitor activities in the account B. Take the customer's word for identification purposes C. Obtain identification from all new customers D. Maintain awareness of unusual transactions

B Why: one oft the main guidelines a financial institution should follow when establishing a KYC policy is to verify the customers identity that is conducting significant business transactions

Matthew has engaged in a variety of illegal activities and is attempting to launder funds from the illegal activities. Matthew is MOST likely to use a securities firm when A. Placing illegal funds B. Layering transactions C. Integrating illegal funds with legitimate funds C. Buying stock in foreign companies

B Why: securities firms are most often used by launderers to layer transactions. Funds can be moved between a wide variety of securities. Funds can also be moved in seconds from one financial institution to another.

Robert is a personal banker for the ABC Bank Trust Company. He finds it difficult to fulfill his responsibilities for enforcement of anti-money laundering controls for all of the following reasons EXCEPT: A. The beneficial owner of the assets is often hidden B. Private banking operations provide all inclusive money management C. Private bankers like Robert have a responsibility to develop a personal relationship with his clients and increase their deposits with the bank D. The private baking services are highly confidential

B Why: the fundamental problem is that private bankers are asked to fill conflicting roles. They must develop a personal relationship with clients and increas their deposits with the bank, but they must also monitor their accounts for suspicious activity and question specific transactions. In addition, private account are highly confidential and the beneficial owner is not always known. As a result, they do not fulfill their anti-money laundering responsibilities.

The insurance industry is susceptible to money laundering because A. Agents and brokers focus more on money laundering than they do on sales B.the industry strictly controls overfunding and additional deposits C. The insurance industry has low levels of suspicious activity reporting D. The international nature of the reinsurance market makes it easy to understand all aspects of insurance transactions

C

Criminals are increasingly turning to insurance and other financial industries to launder money for all f the following reasons except A. The insurance industry has low levels of suspicious activity reporting B. The rise of sophisticated controls against money laundering in the banking sector C. Insurers are incorporating world class AML technology D. Insurance products are often marketed through non-insurance professionals

C

XYZ Securities is required to trace the source of all funds belonging to foreign persons or institutions when A. A facilitator is involved in the transaction B. Two or more foreign banks are involved in the transaction C. A primary money laundering concern has been identified D. A transaction occurs of $10,000 or more

C Why: financial institutions are not required to trace the source of all funds belonging to foreign persons or institutions. The new rules only require enhanced reporting when a primary money laundering concern has been identified.

The compliance manager of a brokerage firm observes a transfer of $4,000 from John's account to his brother Bill's account within the same firm. Which rule applies to this transfer? A. The transfer rule B. Neither the joint rule nor the transfer rule C. The joint rule D. Both the joint rule and the transfer rule

C Why: note that not all wire transfers are applicable to both the joint and travel rules.

Patrick, who is the AML compliance manager for the ABC insurance company, must comply with the Annunzio-Wylie money laundering act of 1992 which A. Extends anti-money laundering requirements to insurance companies and brokerage firms B. Requires financial institutions to inform customers of its privacy policies C. Requires financial institutions to file SARs on any transaction that appears to violate money laundering laws D. Makes noncompliance with the BSA a felony

C Why: the Annunzio-Wylie money laundering act of 1992 requires financial institutions to file SARs on any transactions that appear to violate money laundering laws

Gregg, an insurance agent, suspects that a client has engaged in a transaction that appears to violate money laundering laws. The Annunzio-Wylie money laundering act of 1992 requires which of the following? A. Gregg must report the client to the FBI B. Gregg must file an SAR C. Gregg's financial institution must file an SAR D. Gregg's financial institution must notify the client that she is the subject of an SAR

C Why: the Annunzio-Wylie money laundering act of 1992 requires financial institutions to file suspicious activity reports on any transactions that appear to violate money laundering laws

The XYZ insurance company is about to establish a formal anti-money laundering program. The USA Patriot Act requires XYZ's program to include all of the following essential components except: A. An employee training program B. An internal compliance officer C. Program coordination with FATF D. An independent audit function

C Why: the USA Patrio Act requires other non bank institutions such as securities firms and insurance companies to comply with AML regulations. In order to guard against money laundering through financial institutions, each financial institution shall establish AML programs.

The AML compliance manager must ensure her firm which is acting as an intermediary transmitter, passes along information to the next financial institution, under which of these rules? A. The intermediary rule B. Rule 110 C. The travel rule D. The crossing rule

C Why: the travel rule requires non bank financial institutions that act as transmitters' financial institutions and intermediary financial institutions in transmittals of funds greater than $3,000 to include all information received about such wire transfers in their retransmittal of the wire order

Toby is an insurance agent with the LMN Insurance Company. To comply with the anti-money laundering know your customer policy, Toby is expected to do all of the following except A. Make a reasonable effort to determine the true identity of his customers B. Identify the sources of funds for an account C. Ensure that the recommendations he makes for his customers are suitable D. Obtain identification for all new customers

C Why: various enforcement agencies have outlined guidelines that financial institutions should follow when establishing.a KYC policy: - make a reasonable effort to determine the true identity of all customers requesting services of the financial institution -take particular care to identify the ownership of all accounts and of those using safe custody facilities - obtain identification from all new customers -verify the identity of customers conducting significant business transactions -monitor activities in an account -identify the source of funds for an account -maintain an awareness of unusual transactions or disproportionate activity relative to the customers income or worth

Which of the following describes the integration stage? A. A money laundered divides large cash deposits into smaller amounts to avoid reporting requirements B. To make the illegal funds harder to detect, layers of transactions are used C. Placing the funds in the laundering system with little or no effort to disguise their illegal origins D. Illegal funds are commingled with legitimate funds

D

A series of bank-to-bank fund transfers is an example of A. Placement B. Integration C. Curling D. Layering

D Why: layering can involve bank-to-bank transfers, wire transfers between different accounts in different names/countries, making deposits and withdrawals to vary the amount of money in the accounts, changing the money's currency, and purchasing expensive items to change the form of money.

Money launderers often view the securities industry as a prime target for money laundering because of all of these EXCEPT: A. The highly competitive and fast paced nature of the business leads to the temptation to obtain business, without regard for the source of funds B. Funds can be easily be moved from one type of security to another C. Funds can be moved quickly from one firm to another D. Most securities firms do not accept cash

D Why: securities firms are most often used by launderers to layer transactions. Funds can be moved between a wide variety of securities. Funds can also be moved in seconds from one financial institution to another.

Rolfe has a client who has made a series of deposits small enough to avoid a mandatory CTR or an SAR, but Rolfe still has a concern. What is Rolfe's client engaging in? A. Layering B. Integration C. Placement D. Smurfing

D Why: structured transactions, sometimes known as smurfing, occur when transactions are structured in amounts less than the $10,000 automatic reporting requirement of the BSA

Brittany is an agent of an insurance company. When she executes a transaction for a new client she should b aware of all of these EXCEPT A. The client's occupation B. The client's address C. The size of the transaction relative to income D. The number of the client's dependents

D Why: the KYC rule requires knowledge of the client's address, occupation and whether or not the size of the transaction is proportional to the client's income. The number of dependents is not important.

The insurance industry is susceptible to money laundering for all of these reasons except: A. Regulation is not uniformly effective against money laundering in all states B. Much of the insurance business is conducted through agents C. Often the insurance companies do not have direct contact with their clients D. The industry is subject to centralized regulation

D Why: the insurance industry is especially attractive du to the lack of a central regulatory system. Insurance industry regulation is not uniformly effective against money laundering in all states. A second issue making the insurance industry susceptible to laundering activity is that much of the business is conducted through agents.

Under the joint rule, Sarah, who is the AML program compliance officer for a securities brokerage firm, is required to collect and retain certain information on all fund transfers greater than A. $5,000 B. $10,000 C. $25,000 D. $3,000

D Why: the joint rule requires each firm involved in a fund transfer greater than $3,000 to collect and retain certain information regarding that transfer.