CAMS-FCI practice question 10 of 25

The investigations team of a financial institution (Fl) wants to perform enhanced due diligence measures on operations done by a foreign bank related to transactions of companies that export scrap gold and silver. What would be the next best steps for the investigations team? (Select Two.)

Answer options

A: Ask the legal department if it can proceed to rescind the contract of the correspondent banking relationship since the export of scrap gold and silver is a high-risk activity.

B: Ask the respondent bank if it has a risk rating for the exporting companies, if the customer profiles are updated, and if so. when was the last time it was done. Correct answer

C: Ask the respondent bank if the exporting companies have obtained an official license that permits the exporting of scrap gold and silver. Correct answer

D: Ask the respondent bank if it can file a SAR/STR in its jurisdiction since the investigations team also plans to do the same in the Fl's home country.

E: Ask the business manager who handles the relationship of the respondent bank if they can persuade the bank to close the accounts of the export companies.

Correct Answer:

B. Ask the respondent bank if it has a risk rating for the exporting companies, if the customer profiles are updated, and if so. when was the last time it was done.; C. Ask the respondent bank if the exporting companies have obtained an official license that permits the exporting of scrap gold and silver.

Explanation

When conducting enhanced due diligence (EDD) on a respondent bank, especially concerning high-risk activities, the correspondent institution must gain a deeper understanding of the respondent's own due diligence processes and the legitimacy of its customers' operations. Asking about the risk rating and profile updates for the exporting companies (B) directly assesses the respondent's risk management controls ("Know Your Customer's Customer"). Verifying that these companies possess the required official licenses (C) is a fundamental step to confirm the legality and legitimacy of their high-risk business activities. Both actions are critical information-gathering steps in an EDD investigation.

Why Incorrect

A. Rescinding the contract is a de-risking decision that should only be considered after the EDD investigation is complete, not as a first step.
D. A financial institution cannot instruct another independent institution to file a SAR/STR; each has its own legal obligation based on its own findings.
E. Asking a business manager to pressure the respondent bank to close accounts is an inappropriate and premature action before an investigation is concluded.

References

1. The Wolfsberg Group. (2020). Correspondent Banking Due Diligence Questionnaire (CBDDQ). Questions 25-28 (focus on the Respondent's Customer Due Diligence program) and Question 35 (regarding high-risk customers).

2. The Wolfsberg Group. (2019). Frequently Asked Questions (FAQs) on Correspondent Banking. FAQ 11, which states the need to understand the types of customers the respondent bank services as part of the due diligence process.

3. Basel Committee on Banking Supervision. (2016). Sound management of risks related to money laundering and financing of terrorism. BCBS Paper 353. Annex 4, Section 4.3 "Correspondent banking," p. 43.

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