A company service provider in Country A sets up a corporate structure for a client from Country B,
which is known for corruption. The corporate structure includes a holding company in Country A with
a bank account in one of the international banks located there.
During on-boarding, the client's wealth was estimated at $7 million. Shortly thereafter, the client's
father became president of Country B. During a routine client review two years later, it was identified
that client's wealth had grown to $510 million.
What are two red flags that indicate money laundering or financial terrorism? (Choose two.)
AC
Explanation:
High-risk: The risks here are significant, but are not necessarily prohibited. To mitigate the
heightened risk presented, the financial institution should apply more stringent controls to reduce
the ML/FT risk, such as conducting enhanced due diligence and more rigorous transaction
monitoring. Countries that maintain a reputation for corruption or drug trafficking are generally
considered high-risk. High-risk customers may include politically exposed persons (PEPs) or certain
types of money services businesses or cash-intensive businesses; high-risk products and services may
include correspondent banking and private banking.
B. The substantial growth in wealth during a short period of time.
C. The client is a family member of a PEP from a country known for corruption.
Two red flags that indicate potential money laundering or financial terrorism in the given scenario are:
B. The substantial growth in wealth during a short period of time: A rapid and significant increase in the client's wealth can be indicative of illicit financial activities, including money laundering.
C. The client is a family member of a PEP from a country known for corruption: Being a family member of a Politically Exposed Person (PEP) from a country known for corruption raises the risk of potential influence, misuse of power, and the need for enhanced due diligence to mitigate the risks associated with politically exposed relationships.
B. The substantial growth in wealth during a short period of time.
C. The client is a family member of a PEP from a country known for corruption.
Two red flags that indicate potential money laundering or financial terrorism in the given scenario are:
B. The substantial growth in wealth during a short period of time: A rapid and significant increase in the client's wealth can be indicative of illicit financial activities, including money laundering.
C. The client is a family member of a PEP from a country known for corruption: Being a family member of a Politically Exposed Person (PEP) from a country known for corruption raises the risk of potential influence, misuse of power, and the need for enhanced due diligence to mitigate the risks associated with politically exposed relationships.
B. The substantial growth in wealth during a short period of time.
C. The client is a family member of a PEP from a country known for corruption.
C. The client is a family member of a PEP from a country known for corruption encompass the risk associated with A. The client is from a country known for corruption. Given that, if one need to choose only two red flags, B and C are the most comprehensive and significant indicators of potential money laundering or financial terrorism.