A prospective client walks into an accounting firm wanting to incorporate a company. The accountant feels uncomfortable after the meeting. Which two of the accountant's observations warrants escalation to the compliance officer? (Choose two.)
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A. B. C. D. E.AD
In this scenario, the accountant has identified certain observations that make them feel uncomfortable. The accountant needs to determine which observations warrant escalation to the compliance officer. Let's go through each observation and analyze whether it should be escalated or not:
A. The prospective client presents confusing details about the proposed business and has very little knowledge about the proposed business activity. This observation suggests a lack of understanding or clarity regarding the client's intended business activities. This could be a potential red flag as it may indicate that the client is trying to conceal the true nature of their business or engage in illicit activities. Therefore, this observation warrants escalation to the compliance officer.
B. The prospective client is able to provide source of funds and source of wealth documents. Providing source of funds and source of wealth documents indicates that the client is able to demonstrate the legitimacy of their financial resources. This observation does not raise immediate concerns and does not necessarily warrant escalation to the compliance officer. However, the compliance officer should still review these documents to ensure compliance with relevant anti-money laundering (AML) regulations.
C. The prospective client exhibits confidence when speaking to the accountant when providing personal details. While the client's confidence when providing personal details may seem positive, it alone does not necessarily indicate any suspicious activity. Confidence is a subjective observation and does not directly relate to AML concerns. Therefore, this observation does not warrant immediate escalation to the compliance officer.
D. The principal activities of the proposed company are importing and exporting new furniture. Based on the information provided, importing and exporting new furniture appears to be a legitimate business activity. This observation does not raise immediate concerns and does not warrant escalation to the compliance officer. However, the compliance officer should still assess the proposed activities in accordance with the firm's risk-based approach.
E. The prospective client is unable to provide information about the beneficial owners. Failure to provide information about the beneficial owners is a significant red flag. Beneficial ownership information is crucial for assessing the potential risks associated with money laundering and terrorist financing. The inability to provide such information suggests a lack of transparency and may indicate an attempt to hide the true ownership or control of the company. Therefore, this observation warrants escalation to the compliance officer.
Based on the above analysis, the two observations that warrant escalation to the compliance officer are:
A. The prospective client presents confusing details about the proposed business and has very little knowledge about the proposed business activity. E. The prospective client is unable to provide information about the beneficial owners.
It is important to note that this is a hypothetical scenario based on the information provided, and the actual decision to escalate would depend on the policies and procedures of the accounting firm and the compliance officer's professional judgment.