Which transaction monitoring processes would alert a bank for red flag activity?
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A. B. C. D.C
The correct answer is A. A client makes a prepayment on their credit card and a week later makes multiple cash withdrawals using an automated teller machine (ATM) in a foreign country.
Explanation:
Transaction monitoring is a critical component of a bank's anti-money laundering (AML) program. It involves analyzing customer transactions to identify unusual or suspicious activities that could be indicative of money laundering, terrorist financing, or other criminal activities. The purpose of transaction monitoring is to alert the bank to potential red flag activity so that it can take appropriate action to mitigate the risks.
Out of the given scenarios, A is the most indicative of red flag activity. Let's analyze the other options as well:
B. A client who does not typically make extravagant credit card purchases books an airline ticket on a travel website.
This scenario is not necessarily indicative of red flag activity. Booking an airline ticket on a travel website could be a legitimate transaction and may not warrant further investigation unless there are other suspicious activities associated with the customer's account.
C. A charity account receives multiple electronic transfers and then sends a wire transfer to a higher-risk country.
This scenario is also indicative of potential red flag activity. The fact that multiple electronic transfers were received by a charity account, followed by a wire transfer to a higher-risk country, could indicate that the account is being used to launder money or finance terrorism.
D. The company has a name that is similar to that of a company whose directors are named on the bank's internal blacklist.
This scenario may warrant further investigation, but it is not necessarily indicative of red flag activity. The fact that the company's name is similar to that of a blacklisted company does not necessarily mean that it is engaged in illicit activity. However, the bank may want to conduct additional due diligence to ensure that the company is not involved in any criminal activities.
In summary, transaction monitoring processes should be designed to identify potential red flag activity. In the given scenarios, only scenario A is indicative of red flag activity, although scenario C may also warrant further investigation.