CAMS-FCI practice question 17 of 25

A KYC specialist from the first line of defense at a bank initiates an internal escalation based on a letter of credit received by the bank. MEMO To…

A KYC specialist from the first line of defense at a bank initiates an internal escalation based on a letter of credit received by the bank. MEMO To: Jane Doe. Compliance Manager, Bank B From: Jack Brown, KYC Specialist, Bank B RE: Concerning letter of credit A letter of credit (LC) was received from a correspondent bank. Bank A. in Country A. in Asia with strict capital controls, providing guarantee of payment to Bank B's client for the export of 10 luxury cars located in Country B. located in Europe. Bank A's customer is a general in the army where Bank A is headquartered. The information contained in the LC is as follows: • Advising amount per unit 30.000.00 EU •10 units of BMW • Model IX3 • Year of registration: 2020 Upon checks on Bank B's client, the exporter mentioned that the transactions were particularly important, and a fast process would be much appreciated in order to avoid reputational damage to the firm and the banks involved in the trade finance process. The exporter has a longstanding relationship with Bank B and was clearly a good income generator. The exporter indicated that, as a general, the importer was trustworthy. The relationship manager

Answer options

A. File a SAR/STR in relation to corruption involving the nephew and the general.

B. Determine whether there is a business relationship between the nephew and the general.

C. Seek senior management approval to continue the relationship with the nephew.

D. Flag the nephew as a PEP by association.

Correct answer

Correct Answer:

D. D. Flag the nephew as a PEP by association.

Explanation

The question, despite being incomplete, implies a relationship between the exporter and the general. Assuming the exporter is the general's nephew, he would be classified as a Politically Exposed Person (PEP) by association. Financial Action Task Force (FATF) guidelines require financial institutions to identify not only PEPs but also their family members and close associates. The first and most critical step upon identifying such a relationship is to flag the individual accordingly. This classification triggers enhanced due diligence and other risk mitigation measures.

Why Incorrect

A. Filing a SAR/STR is premature. An investigation and risk assessment must be conducted first to determine if a suspicious transaction has actually occurred.
B. Determining the business relationship is part of due diligence, but the primary risk flag is the familial PEP association, which must be identified first.
C. Seeking senior management approval is a required step for handling PEP relationships, but it follows the initial identification and flagging of the PEP status.

References

1. Financial Action Task Force (FATF). (2012-2023). International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation – The FATF Recommendations. Paris: FATF/OECD. (See Recommendation 12 and its Interpretive Note, which defines PEPs to include family members and close associates).

2. The Wolfsberg Group. (2017). Wolfsberg Guidance on Politically Exposed Persons (PEPs). Page 6, Section 2.2, defines "Family Members and Close Associates" and the rationale for their inclusion in PEP screening.

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