The compliance officer for a bank is reviewing on-boarding documents for a new business account for a domestic corporation. The officer is unable to verify the identity of the beneficial owners of the company. Only information on the nominee owners was provided, and none of the listed addresses are local. The purpose of the business and future expected activity was disclosed to include cash letters, money orders and international remittance transfers.
Which red flag identifies a heightened money laundering risk?
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A. B. C. D.B
The red flag that identifies a heightened money laundering risk in this scenario is option B: The nature and purpose of the business include international remittance transfers.
Explanation: Money laundering is a process of concealing the proceeds of criminal activity, which often involves the use of financial institutions to move illicit funds. In order to combat this crime, banks and financial institutions have to implement anti-money laundering (AML) programs and follow strict regulations to identify and verify the identity of their customers. One of the critical steps in the AML process is the identification of red flags that indicate a heightened risk of money laundering.
In the scenario described in the question, the compliance officer for a bank is reviewing on-boarding documents for a new business account for a domestic corporation. The officer is unable to verify the identity of the beneficial owners of the company. Only information on the nominee owners was provided, and none of the listed addresses are local. The purpose of the business and future expected activity was disclosed to include cash letters, money orders and international remittance transfers.
Option A (Expected activity was advised to include cash letter and money orders) alone may not necessarily indicate a heightened risk of money laundering as these are common banking activities. However, when combined with other factors, such as the inability to verify the identity of the beneficial owners, it could potentially indicate a higher risk.
Option C (The names provided at account opening are identified as the corporation's representative nominees) may indicate a risk of nominee ownership, where an individual acts as a front for the true beneficial owner, but this alone may not necessarily indicate a heightened risk of money laundering.
Option D (Account signer's government-issued identification lists addresses outside of where the branch account was opened) may indicate a discrepancy in the information provided, but again, alone may not necessarily indicate a heightened risk of money laundering.
Option B (The nature and purpose of the business include international remittance transfers) is the red flag that indicates a heightened risk of money laundering in this scenario. International remittance transfers are often used in money laundering schemes to move illicit funds across borders, and the lack of information about the beneficial owners of the corporation raises additional concerns about the legitimacy of the transactions. Therefore, the compliance officer should conduct further due diligence on the account and transactions, and consider filing a suspicious activity report (SAR) if appropriate.