Anti-money Laundering

What does screening a customer against the Specially Designated Nationals list actually require of a firm?

1. A.Comparing every customer and transaction against the published list, regardless of size or any suspicion.Correct. The prohibition arises from the identity of the counterparty, so no threshold or suspicion trigger applies.
2. B.Checking customers whose transactions exceed the reporting threshold that triggers a currency report.Wrong. Attaching sanctions screening to a currency threshold would leave every smaller dealing with a prohibited person unexamined.
3. C.Reviewing the list whenever the firm has already decided that a customer's activity is suspicious.Wrong. Suspicion drives the judgment-based reporting obligations, whereas sanctions screening runs unconditionally.
4. D.Confirming at account opening that the customer is not a resident of a country subject to sanctions.Wrong. The list names specific persons and entities, and residence is neither the test nor a substitute for it.

Why: Screening against the SDN list is a mechanical comparison of names against a published list of persons and entities with whom United States persons may not deal. It applies to every customer and every transaction regardless of size, and it does not depend on the firm finding anything suspicious, because the prohibition arises from who the counterparty is rather than from what the transaction looks like. Where a genuine match exists, the firm must block or reject the transaction as the sanctions programme requires and report the action, rather than simply declining the business quietly. This is why sanctions screening sits alongside, and not inside, the judgment-based parts of an anti-money-laundering programme.

Who must approve a member firm's anti-money-laundering compliance program, and in what form?

1. A.The firm's designated anti-money-laundering compliance officer, by signing the written program.Wrong. That officer runs the program, and letting the same person approve it would leave nobody senior accountable.
2. B.A member of senior management, in writing.Correct. The program needs budget, staff, and the authority to refuse business, which only senior management can commit.
3. C.FINRA, which must review and approve the program before the firm implements it.Wrong. FINRA examines programs but does not pre-approve them, and approval is an internal governance step.
4. D.The independent party engaged to conduct the program's periodic testing.Wrong. An independent tester evaluates the program and cannot also be the authority that adopts it.

Why: The program must be approved in writing by a member of senior management. That requirement exists because an effective program consumes budget, staff, technology, and the authority to stop business the firm would otherwise write, and none of those can be committed by the compliance function alone. Written approval by a senior manager also fixes accountability at a level where a systemic failure cannot be attributed to a junior officer acting without a mandate. The firm separately designates an anti-money-laundering compliance officer to run the program day to day, but designating that officer is not the same act as approving the program.

A firm completed thorough identification and due diligence on a customer at account opening. Three years later the customer's trading pattern and stated occupation no longer match. What does the customer due diligence requirement expect?

1. A.Nothing further; identification and due diligence are completed at account opening and are not revisited.Wrong. Ongoing monitoring is an express component, and a profile only works if it reflects the current customer.
2. B.The firm should update the customer information on a risk basis and assess whether the changed pattern has an explanation.Correct. Divergence between profile and behaviour is exactly the signal the monitoring component exists to catch.
3. C.The firm must close the account, since a customer whose activity departs from the stated profile can no longer be verified.Wrong. Closure is a last resort, and an unexplained change calls first for inquiry rather than exit.
4. D.The firm must re-run its identity verification from the beginning, collecting fresh documents for every such customer.Wrong. Identity was established; what has gone stale is the activity profile rather than the identification.

Why: Customer due diligence is not a one-time gate at account opening; it includes ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update customer information. A profile assembled years ago stops being useful the moment the customer's actual behaviour diverges from it, and that divergence is itself one of the most reliable indicators the monitoring is meant to catch. The firm should therefore refresh the customer information and assess whether the new pattern has an explanation, escalating to its anti-money-laundering compliance officer if it does not. Updating is expected where activity or risk indicates a need, rather than on a rigid calendar applied identically to every account.

A broker-dealer suspects that a customer's wire activity is part of a laundering scheme spanning several institutions and wants to compare notes with the bank on the other side of the wires. What framework permits this?

1. A.None; customer information may be shared only with regulators and law enforcement, never with another institution.Wrong. A statutory channel exists for precisely this comparison, subject to notice and confidentiality conditions.
2. B.The privacy regulation's service provider exception, since the two institutions are jointly servicing the transfers.Wrong. That exception covers a firm's own service providers, not an independent institution investigating a customer.
3. C.Voluntary information sharing between financial institutions, available once each files the required notice with FinCEN.Correct. The channel exists because launderers fragment activity so that no single institution ever sees the pattern.
4. D.The customer's account agreement, which is deemed to consent to sharing for anti-money-laundering purposes.Wrong. The sharing rests on the statutory framework rather than on anything the customer agreed to.

Why: The USA PATRIOT Act allows financial institutions to share information with one another about suspected money laundering or terrorist financing, provided each institution files the required notice with FinCEN, takes reasonable steps to verify that the other institution has done the same, and keeps the shared information confidential and uses it only for permitted purposes. Institutions that comply receive a safe harbour from liability for the sharing. The provision exists because launderers deliberately fragment activity across institutions so that no single firm sees a pattern, and sharing is the only way the pattern becomes visible. It is voluntary rather than mandatory, and it does not replace the obligation to report suspicious activity to FinCEN.