A bank employee recently opened an account for a new restaurant. Daily cash deposits over a three-month period are close to $9,500.
What are two red flags that indicate possible money laundering or terrorist financing? (Choose two.)
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A. B. C. D.BD
Money laundering is the process of disguising the proceeds of illegal activity as legitimate funds to avoid detection, while terrorist financing involves the provision of funds or material support to individuals or groups to carry out terrorist activities. Banks are required to have Anti-Money Laundering (AML) programs in place to detect and prevent these activities.
In this scenario, there are two red flags that may indicate possible money laundering or terrorist financing:
The restaurant is located in a different city: If the restaurant is located in a different city from the bank where the account was opened, it could indicate that the account was opened to launder funds from a different location. Criminals may use different locations to create distance between the illegal source of funds and the bank account that receives the funds. This could be a red flag for the bank to investigate further.
The daily cash deposits are so close in amount: The fact that daily cash deposits are consistently close to $9,500 could be a red flag for potential structuring, which is the practice of making multiple deposits in amounts below the reporting threshold to avoid detection. Criminals may structure transactions in this way to avoid detection by financial institutions or regulatory authorities. Consistent cash deposits in the same or similar amounts could indicate that the individual or entity is trying to avoid currency transaction reporting requirements, which requires banks to report transactions over $10,000 to the Financial Crimes Enforcement Network (FinCEN).
In contrast, options C and D may not necessarily be red flags for money laundering or terrorist financing. A new account that has daily cash deposits (Option C) may be a common practice for businesses that deal with cash transactions, such as restaurants, and may not necessarily be a red flag for suspicious activity. Similarly, a steady flow of income (Option D) may not be an indicator of money laundering or terrorist financing on its own, as legitimate businesses may have a steady flow of income. However, it is important for banks to investigate any unusual patterns or activities, which could be a sign of suspicious activity.