CAMS ACAMS Exam Lab Questions

Under the USA PATRIOT Act, a U.S. bank that maintains a correspondent account for a foreign bank operating under an offshore license must obtain from the foreign bank the name and address of a person residing in the United States who is authorized to accept service of legal process for records related to the correspondent account1. This requirement is intended to facilitate the U.S. authorities’ access to information and records regarding the correspondent account and its underlying transactions, especially in cases where the foreign bank is located in a jurisdiction that does not cooperate with U.S. law enforcement or regulatory requests2.

 Under USA PATRIOT Act Section 311, the U.S. government can impose special measures against a foreign jurisdiction, institution, or transaction that is of primary money laundering concern1. These measures can range from requiring additional recordkeeping and reporting to prohibiting or restricting the opening or maintaining of correspondent or payable-through accounts for the designated entity2. A payable-through account is a type of correspondent account that allows customers of a foreign bank to access the U.S. financial system by writing checks or making wire transfers from the foreign bank’s account at a U.S. bank3.

In this case, the U.S. government has enacted special measures against a designated entity that has a payable-through account with an EU bank, which in turn has a correspondent banking relationship with a U.S. bank. One of the possible actions that the U.S. bank might be required to take regarding the EU bank’s services for the designated entity is to obtain additional information about customers permitted to use this account. This is to ensure that the U.S. bank can identify and monitor the transactions and activities of the designated entity and its customers, and to prevent any money laundering or terrorist financing risks4.

The other actions listed are not likely to be required by the U.S. government under Section 311. Ensuring the designated entity’s confidential information is not shared with other entities is not a special measure, but a general obligation of any financial institution under privacy laws. Verifying that the EU bank serves the designated entity is not a relevant action, since the U.S. government has already designated the entity as a primary money laundering concern. Performing enhanced due diligence on the EU bank is not a specific action related to the payable-through account, but a broader requirement for any correspondent account under Section 312 of the USA PATRIOT Act5.

Trade-based money laundering (TBML) is a method of disguising and moving illicit funds through the international trade system. Criminals often manipulate various aspects of trade transactions, such as pricing, quantity, documentation, and commodity type, to transfer value and obscure the source of funds. Some of the common red flags that may indicate TBML are:

The transaction involves the use of front (or shell) companies: Front or shell companies are entities that have no physical presence, no employees, and no business activity, but are used to facilitate money laundering. They often have vague or generic names, are registered in secrecy jurisdictions, and have no available ownership information. In this case, ABC Holdings Ltd. and Sunrise Holdings Ltd. could be front or shell companies that are used to launder money through trade transactions.

The type of commodity being shipped appears inconsistent with the exporter or importer’s regular business activities: Criminals may use commodities that are unrelated to their core business or that have low correlation with the market price to launder money. They may also use commodities that are difficult to value, verify, or trace, such as precious metals, gems, art, or antiquities. In this case, the automotive parts company and the silk flower supplier seem to have no logical connection, and the value of the silk flowers may be inflated or deflated to transfer funds.

According to Section 313 of the USA PATRIOT Act, U.S. financial institutions are prohibited from maintaining correspondent accounts for foreign shell banks, which are banksthat have no physical presence in any country and are not affiliated with a regulated financial group. Therefore, a non-U.S. bank must provide the name and address of all shell banks that it maintains accounts for, if any, to its U.S. correspondent. This is to ensure that the U.S. financial institution does not indirectly provide services to shell banks, which pose a high risk of money laundering and terrorist financing.

According to Section 319 (b) of the USA PATRIOT Act, U.S. financial institutions that provide a correspondent account to a foreign bank must maintain records of the owners of the foreign bank and the name and address of a U.S. person who is authorized to receive service of legal process for records regarding the correspondent account. This is to facilitate the access of U.S. law enforcement authorities to information related to the correspondent account in case of an investigation or a subpoena.

The other two options, B and C, are not required by the USA PATRIOT Act, although they may be part of the due diligence or enhanced due diligence procedures that U.S. financial institutions apply to their foreign correspondent accounts, as per Section 312 of the USA PATRIOT Act.