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Chapter 7
Review Questions
Disclaimer: The review questions contained within this chapter are not meant to indicate the exact style or difficulty level of the actual CGSS Examination questions. They are designed to help candidates review the content of the examination manual.
Chapter 1: Governance and Enforcement
1-1.
What was the first recognized global body to impose sanctions? A.
League of Nations
B.
United Nations
C.
US Congress
D.
British Parliament
1-2.
Sanctions were formally recognized as a foreign policy tool: A.
in the decree ending World War II.
B.
within the charter of the United Nations.
C.
in the bylaws of the League of Nations.
D.
by the US Supreme Court.
1-3.
One of the first recorded instances of sanctions was the:
A.
Megarian Decree.
B.
Blockade of Boston Harbor.
C.
Spanish Armada’s blockade of English ports.
D.
Ventôse Decrees.
1-4.
The Non-Proliferation Treaty is intended to prevent the spread of nuclear weapons and technology and promote peaceful uses of which of the following?
A.
Dual-use goods
B.
Nuclear energy C.
Military force
D.
Economic sanctions
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1-5.
The Magnitsky Act allows the US government to freeze the assets of and ban entry of any foreign official implicated in which of the following?
A.
Transshipment
B.
Money laundering
C.
Human rights violationsD. Trade finance
1-6.
Which of the following best describes the Financial Action Task Force’s Mutual Evaluation
Reports? A.
Reports conducted by one country against another to determine the strength of its sanctions regime
B.
Reports that determine whether countries are required to comply with FATF’s standards
C.
Reports issued by a country’s regulators on a financial institution’s financial crimes
compliance weaknesses
D.
Reports that evaluate a
country’s compliance with FATF’s recommendations
1-7.
A US consultant is in Beijing, China working on a project for a major Chinese financial institution, and is asked how to set up a sanctions compliance program to engage in trade-related transactions with the country of Iran. The US consultant drafts a sanctions compliance framework and delivers it to the client. The consultant is most likely engaged in:
A.
Wire-stripping.
B.
Facilitation. C.
Transshipment.
D.
Risk management.
1-8.
Which of the following describes multiple countries working together to block trade and issue embargoes against another country?
A.
Multilateral sanctions
B.
Unilateral sanctions
C.
Autonomous sanctions
D.
Financial sanctions
1-9.
Which of the following is a government’s exercise of
its authority beyond its geographical boundaries? A.
Long-arm jurisdiction
B.
Sphere of influence
C.
Geographic authority
D.
Extraterritoriality
1-10.
An SDN deposits US funds into his bank account in Germany with a German bank. The German bank maintains a nostro account with a US financial institution in New York. The funds may be subject to forfeiture according to which 2001 US law?
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A.
The USA PATRIOT Act
B.
The Magnitsky Act
C.
FATF recommendationsD. EU Directive 4
1-11.
Which of the following is the most common type of sanctions imposed by one nation upon another? A.
Trade
B.
Economic C.
Multilateral D.
Compliance
1-12.
During which period did governments impose sanctions more often than in prior decades? A.
Great Depression
B.
Cold War
C.
Golden Age
D.
Gulf War
1-13.
The bombing of which site provoked questions about whether sanctions were an alternative to war or might hasten military force? A.
Alfred P. Murrah Federal Building
B.
World Trade Center
C.
Pearl Harbor
D.
US Embassy in Tanzania
1-14.
Which of the following has
not
been used as an official reason for imposing sanctions? A.
Preventing war
B.
Raising money for humanitarian relief
C.
Freeing captured citizens
D.
Reinforcing labor rights
1-15.
The assassination of a
Washington Post
reporter in Turkey in 2018 resulted in sanctions under the provisions of which of the following? A.
Sectoral sanctions
B.
USA PATRIOT Act C.
Magnitsky Act
D.
Non-Proliferation Treaty
1-16.
Sanctions seek to deter which of the following? (Select two)
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A.
Money laundering
B.
Tariffs
C.
International goods trade
D.
Trafficking counterfeit goods
1-17.
The UN Security Council has set some key criteria for targeting individuals and entities. Which of the following scenarios is most likely to result in the imposition of Security Council sanctions against an entity? A.
Violating human rights
B.
Violating environmental resolutions
C.
Violating intergovernmental agreements
D.
Violating the Wassenaar Agreement
1-18.
Which of the following countries is
not
a permanent member of the U.N. Security Council? A.
China
B.
Egypt
C.
France
D.
Russia
1-19.
The Denied Persons List is a list of people who have been denied which type of privileges? A.
Export
B.
Travel
C.
Voting
D.
International banking
1-20.
FinCEN issues a rule designating a Russian bank as a primary money laundering concern. As a compliance officer at a European financial institution with US correspondent accounts, you receive a notice from your US correspondent. What should you do?
A.
Ensure you do not comply with regulations as this would violate the EU blocking regulations.
B.
Begin exiting your bank from any relationships with the designated Russian target.
C.
Consult the bank’s policy on Special Measures.
D.
Escalate the notice to senior management and general counsel.
1-21.
Countries with strategic deficiencies in their anti-money laundering and counterterrorism financing regimes are placed on which of the following maintained by FATF? A.
Blacklist
B.
Blocked Persons list
C.
Greylist
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D.
Civil penalties
1-22.
Which of the following statements is true? A.
The European Union makes general exceptions for acts that are personal in nature.
B.
The United Nations has the most sanctions regimes.
C.
The European Union only implements United Nations sanctions.
D.
United States sanctions require periodic evaluation and renewal.
1-23.
OFAC’s “A Framework for OFAC Compliance Commitments” document identifies whic
h of the following as the first of five essential compliance components? A.
Adequate resources B.
Management commitment C.
Empowered personnel D.
Culture of compliance
1-24.
According to the Wolfsberg Group, the key purpose of a risk assessment is to drive improvements in financial crime risk management through identifying: A.
the procedures and policies used to screen customers. B.
the ultimate beneficial owner of customers. C.
the ways in which general and specific sanctions risks are mitigated by a firm’s sanctions
compliance program controls. D.
the risk appetite of the financial institution.
1-25.
Which of the following is true regarding the determination of a financial instit
ution’s risk
appetite? A.
The firm first needs to define what it considers to be high, medium, and low risk for customers, products/services, countries, and delivery channels. B.
What is considered low risk for AML purposes generally is considered low risk for sanctions compliance. C.
Country risk ratings for AML always should be included in the sanctions risk assessment. D.
The firm needs to determine whether thresholds in its filtering process will need to be adjusted to accommodate current resources.
1-26.
What are the components of the risk formula suggested by the Wolfsberg Group for sanctions risk assessment?
A.
Customers, products/services, countries, and delivery channels B.
Risk assessment, risk appetite, and institutional resources
C.
Inherent risk, policies/procedures, and internal controls D.
Inherent risk, control effectiveness, and residual risk
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1-27.
Which of the following statements is accurate concerning inherent risk as a component of a risk assessment? A.
Inherent risk is the level of sanctions risk that exists after controls are applied. B.
The four main inherent risk categories are customers, policies and procedures, geography/jurisdiction, and delivery channels. C.
The level of inherent risk is determined by examining the probability of occurrence and the severity of the impact of sanctions violation.
D.
Customers are the most highly weighted aspect of inherent risk.
1-28.
Which of the following is a way in which a customer’s delivery channels might increase a financial institution’s inherent risk?
A.
The customer’s delivery channel processes payments slowly in order to impede
investigations. B.
The affiliate providing the due diligence on the customer is in a jurisdiction with low compliance standards.
C.
The customer conceals its identity by using complex entities and/or shell companies. D.
The customer transfers product ownership without the knowledge of the financial institution.
1-29.
Which of the following are examples of controls used within a sanctions compliance program to mitigate its inherent risks? (Select two.) A.
Sanctions due diligence B.
Management commitment C.
Risk-assessment tools D.
Independent testing E. Regulatory exams
1-30.
Which of the following statements is accurate concerning a financial institution’s residual risk?
A.
The firm assesses its residual risk and then determines its risk appetite. B.
The firm can transfer, avoid, further mitigate, or accept its residual risk. C.
The firm’s residual risk increases along with control effectiveness.
D.
The firm’s residual risk increases as inherent risk decreases.
1-31.
In large, complex financial institutions, why is it important for risk assessments to be conducted across various assessment units, with all lines of business contributing to the overall risk assessment? A.
The larger the firm, the more complex the risk assessment process and the longer it will take. B.
Eventually, this method ensures that residual risk is spread among the various units. C.
Identifying the assessment units and determining how they combine with one another is important for an accurate and thorough risk assessment.
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D.
This method ensures consistency in risk assessments for large institutions from a global standpoint.
1-32.
Staying current with the political climate, requiring vendors to provide updated information, monitoring government websites through subscriptions, and creating tailored news alerts are ways in which a firm can:
A.
manage its control effectiveness.
B.
stay current on sanctions. C.
ensure an accurate risk assessment.D. conduct timely testing and auditing.
1-33.
What is the role of policies and procedures as aspects of an i
nstitution’s sanctions compliance
program?
A.
They communicate to regulators an institution’s residual risk compared with its risk
appetite.
B.
They identify, interdict, escalate, report, and maintain records concerning potentially prohibited activities.
C.
They provide stability and consistency for institutions by memorializing in writing process and practices for employees to follow. D.
They alert the sanctions compliance team to potential outliers or deviations that may need to be reviewed.
1-34.
Which of the following statements reflects the role of the independent audit in a financial
institution’s sanctions compliance program?
A.
Auditing assesses the overall integrity and effectiveness of the compliance program, including policies, procedures, and processes. B.
Auditing must be undertaken prior to implementing the program. C.
Because it is independent, auditing does not address regulatory requirements. D.
The independent audit incorporates small-scale audits from third parties.
1-35.
An effective employee training program is an integral component of a successful sanctions compliance program and generally should: A.
demonstrate how to calibrate an AST threshold.
B.
communicate the role of the sanctions compliance department in managing and owning the sanctions risk. C.
hold employees accountable for sanctions compliance training through assessments. D.
protect employees from personal accountability for ensuring sanctions compliance.
1-36.
As a sanctions regime in the United States, what is one of the purposes of the Office of Foreign Assets Control (OFAC)? A.
It enacts and regulates sanctions to mitigate threats to national security, foreign policy, and the US economy.
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B.
It fulfills Common Foreign and Security Policy objectives. C.
It tests UN Security Council resolutions. D.
It enforces the Foreign Corrupt Practices Act (FCPA)
1-37.
The European Union sanctions regime comprises which of the following?
A.
All sanctions imposed by the Common Foreign Security Policy Council, and autonomous sanctions
B.
All sanctions imposed by the Bureau of Industry and Security and the UN Security Council
C.
All sanctions imposed by Office of Foreign Assets Control and the UN Security Council
D.
All sanctions imposed by the UN Security Council, and autonomous sanctions
Chapter 2: Sanctions Evasion Techniques
2-1.
Which US agencies are responsible for issuing licenses that allow financial institutions to do business with companies or organizations that are under sanction?
A.
The Office of Foreign Assets Control (OFAC) and the Bureau of Industry and Security (BIS)
B.
The Bureau of Sanctions Management (BSM) and the Office of Sanctions Control and Implementation (OSCI)
C.
The Bureau of Sanctions and Industry (BSI) and the Office of Financial Security Management (OFSM)
D.
The Central Import and Export Office (CIEO) and the Office of Financial Sanctions Implementation (OFSI)
2-2.
The United States and the European Union have imposed sanctions on Company X. The
company’s owners try to evade the sanctions by reducing their holdings in Company X to less
than 50%. What is this evasion technique called?
A.
Establishment of a single-layer corporate structure
B.
Violation of the holdings rule
C.
Dilution of sanctioned ownership
D.
Abuse of proxies and shell corporations
2-3.
How long does a counterparty relationship last?
A.
Throughout the customer onboarding process
B.
For the life of the transaction
C.
Until all governments have lifted sanctions
D.
For the term of the contract defining the counterparty relationship
2-4.
A bank employee completes a transaction for a company that is under EU sanctions. The employee does this by routing the payment through a bank that is outside the EU and
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removing the relevant information from the payment method. What is the name of this type of sanctions evasion?
A.
External evasion
B.
Specially designated national
C.
Double stripping
D.
Stripping
2-5.
Why is it necessary for a financial institution to review its whitelists regularly?
A.
A staffer may intentionally add a sanctioned individual or institution. B.
A staffer may accidentally include a false positive result on a whitelist.
C.
US regulations require whitelist checks at least four times per year. D.
EU regulations require whitelist checks at least every six months.
2-6.
Which types of SWIFT messages do banks usually send together?
A.
MT103COV and MT202COV
B.
MT103 and MT202
C.
MT202 and MT202COV
D.
MT103 and MT202COV
2-7.
Which of the following tactics do people use to avoid detection during sanctions payment screening?
A.
Using a bank identifier code assigned to a bank in a sanctioned country
B.
Rearranging the data when they know a bank screens all fields of a form
C.
Using unusual combinations of characters, such as #!$#!$ D.
Leaving a message untouched before sending it to another bank
2-8.
In March 2015, Commerzbank agreed to pay $1.45 billion in fines for violation of US laws and New York state law. Which of these actions would likely have resulted in a lower fine?
A.
Commerzbank’s US employees having completed the voluntary self
-disclosures B.
Commerzbank’s US employees having followed the compliance culture of the company’s
European employees
C.
A more focused attempt by Commerzbank to reduce transparency across the compan
y’s
jurisdictions
D.
A more focused attempt by the US-based offices to spot and block transactions
2-9.
What lesson can financial professionals learn from the 2014 case of Alex and Gary Tsai?
A.
Third-party due diligence systems, though useful, have little effect on this type of situation.
B.
It is essential to have a thorough knowledge of a customer’s identity and his or her
connection to other entities.
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C.
Shell companies and front companies are easy to detect when a financial institution has a compliance culture.
D.
Financial professionals must understand that front companies are legal even though shell companies usually are not.
2-10.
Why was the BNP Paribas case of May 2015 especially significant?
A.
It was one of the first in which individual executives were held personally liable but the bank was not.
B.
It was the first time a US court convicted and sentenced a financial institution based on testimony from the World Bank.
C.
It was the first time a US court convicted and sentenced a financial institution for violating
the country’s sanctions.
D It was one of the first in which the financial institution was held responsible but its executives were not.
2-11.
Which of the following is an important difference between AML regulations and sanctions?
A.
AML targets exist everywhere in the world, but sanctions targets exist only in certain locations.
B.
Sanctions generally have minimum transaction thresholds, and AML regulations do not.
C.
AML regulations require screening of all transactions, and sanctions require screening of some transactions.
D.
In most cases, sanctions have an immediate legal effect, and AML regulations do not.
2-12.
Which of the following is an example of dual-use goods? (Select two)
A.
Navigation equipment that can be used on civilian or military vessels
B.
Lasers that have uses in medical technology and in the construction industry
C.
Video games that can be played on two or more platforms
D.
Translation software that is available in two or more languages or dialects
2-13.
Which of the following would be considered
a red flag in a customer’s paperwork?
A.
The paperwork lists the address of a freight-forwarding firm as an interim destination.
B.
The customer has included specific harbor entry dates even though delivery is nine days from now.
C.
The paperwork states the shipment is of heavy machinery, but the shipment is refrigerated.
D.
The customer lists the shipment contents as hardware, but there is no packaging for fragile items.
2-14.
Automated screening tools can detect many red flags, but which of the following red flags usually requires human assessment to find?
A.
There is an abnormal shipping route for the product and destination.
B.
There are destinations outside the normal chain of custody.
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C.
The customer lacks a background in the export or trade business.
D.
The customer details are similar to the BIS list of denied persons.
2-15.
What was significant about the 2017 case of Access USA Shipping LLC?
A.
The US government fined the company but not its chief executive officer.
B.
Access USA set up an internal straw buyer to help a client evade sanctions.
C.
The European Union pursued charges in the case, but the US government did not.
D.
Access USA set up a series of shell companies to help a client evade sanctions.
2-16.
What was significant about the Technopromexport case?
A.
Technopromexport likely did not know the final destinations of the goods it shipped.
B.
The case involved a private company concealing the export of dual-use goods.
C.
The case involved a state-owned company concealing the final destination of goods.
D.
Technopromexport was a Chinese-owned company operating outside of China.
2-17.
In which of these situations would transshipment most likely be legal?
A.
When a large ship cannot navigate a small river and goods must be moved from the ship to a fleet of trucks
B.
When a company ships goods through a sanctioned country, but the goods have no end use or end user in that country
C.
When a company has an OFAC compliance program in place and does its best but mistakenly approves a transshipment D.
When a large ship turns off its transponders in order to transfer goods to smaller ships
2-18.
A shipper conceals sanctioned goods by placing them underneath crates of vegetables that will be unsellable if held at port for too long or inspected too roughly. What is the name of this type of sanctions evasion?
A.
Incognito shipment
B.
Straw shipment
C.
Transshipment of goods
D.
Consolidation of goods
Chapter 3: Sanctions Due Diligence
3-1.
What are the two components of the governance structure that support a financial
institution’s sanctions compliance program?
A.
The board of directors and the sanctions compliance officer B.
The board of directors and internal audit
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C.
The board of directors and the three lines of defense D.
The board of directors and OFAC
3-2.
Which of the following statements describes the first line of defense within the governance structure of a sanctions compliance program? A.
It basically owns and manages the collection of sanctions due diligence (SDD) information. B.
It includes the sanctions compliance officer and responsibility for ongoing monitoring for sanctions compliance. C.
It ensures that SDD procedures and processes are designed properly, firmly established, and applied as intended.
D.
It independently evaluates the risk management and controls of the bank through periodic assessments.
3-3.
It is important for the sanctions compliance officer (SCO) to be independent from the first line of defense:
A.
to successfully protect the firm’s data.
B.
to prevent conflicts of interest and facilitate unbiased advice and counsel. C.
to ensure a thorough, unbiased internal audit. D.
to protect the SCO from interference from external authorities.
3-4.
How does the scope of KYC information used for sanctions compliance differ from that used for AML requirements? A.
Every element of a complete KYC program for AML purposes is directly relevant to a sanctions compliance program. B.
The scope of KYC information used for sanctions compliance can be more limited than that for AML purposes.
C.
AML KYC programs are focused on risk exposure emanating from the customer, whereas
sanctions compliance focuses on the nature of the customer’s business.
D.
AML KYC programs suffice for low- to medium-risk customers, but sanctions KYC programs are expanded to encompass high-risk customers.
3-5.
The three categories of key information to collect about customers are: A.
the customer, the beneficial owner, and the nature of business. B.
the customer, the nature of business, and the products and services used. C.
the customer, the products and services, and the jurisdiction/geography. D.
the customer, the jurisdiction, and the geographical scope.
3-6.
Which statement reflects the meaning of “control” with regard to the concept of beneficial
ownership?
A. “Control” recognizes that a person in whose name an
account is opened with a
bank is not necessarily the person who ultimately controls such funds. B. “Control”
denotes the signatory authority or legal title.
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C.
“Control” is the entity for which a high level of sanctions risk exists.
D.
“Control” is separate fr
om beneficial ownership.
3-7.
Which of the following statements is accurate concerning the concept of beneficial ownership? A.
Beneficial ownership is only relevant for high-risk jurisdictions. B.
Beneficial ownership refers to the named signatory on an account, even if another party exercises control over the transaction. C.
Beneficial ownership refers to the natural person(s) who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. D.
Knowledge about beneficial ownership is useful for financial institutions to have about a customer, but is not a regulator requirement.
3-8.
A financial institution can verify beneficial ownership information about a customer by: A.
requiring the customer to provide reliable documents, such as government-issued passports. B.
searching the firm’s available databases for ownership information.
C.
requ
esting pertinent information from the customer’s legal advisors.
D.
analyzing combined information from all of the customer’s data silos.
3-9.
Which of the following constitutes an operational challenge that can be encountered when attempting to identify beneficial owners? A.
Lack of resources within the institution B.
Extraterritoriality issues with the sanctions regime C.
Lack of familiarity concerning sanctions regulations for some overseas jurisdictions D.
Unreliable information from a new customer
3-10.
How is determining beneficial ownership for sanctions due diligence (SDD) different from determining beneficial ownership for anti-money laundering (AML) requirements in the United States? A.
Most AML requirements identify a beneficial owner as one that owns more than 20% of a legal entity, whereas OFAC applies a 45% rule to legal entity ownership for SDD. B.
Most AML requirements identify a beneficial owner as one that owns more than 50% of a legal entity, whereas OFAC applies a 25% rule to legal entity ownership for SDD. C.
Most AML requirements identify a beneficial owner as one that owns more than 25% of a legal entity, whereas OFAC applies the 50 Percent Rule to legal entity ownership for SDD. D.
Most AML requirements identify a beneficial owner as one that owns more than 75% of a legal entity, whereas OFAC applies a 25% rule to legal entity ownership for SDD.
3-11.
How is the aggregate ownership of corporate structures affected by the OFAC 50 Percent Rule? (Select two.) A.
If sanctioned person A both owns 25% of company A and also controls company A, company A is subject to sanctions.
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B.
If sanctioned company A owns 30% of company B, and sanctioned company C owns 20% of company B, then company B is subject to sanctions. C.
If a parent company that is a sanctions target spreads out its ownership holdings of its affiliates, it is not subject to OFAC 50 Percent Rule. D.
If a company that is a sanctions target owns less than 50% of two or more legal entities, those entities are subject to the sanctions restrictions. E.
If sanctioned company A owns 70% of company B, and company B owns 70% of company C, and there are no other sanctioned ownership interests, then company C is not sanctioned because company A only owns 49% of company C.
3-12.
Which of the following is a significant difference between the EU’s European Best Practice
Guidance and OFAC concerning sanctions due diligence and beneficial ownership? A.
The EU does not apply the aggregate rule to ownership interests separately maintained by sanctions targets. B.
The EU’s rule applies when a sanctions target owns less than 50% of a legal entity.
C.
The EU rule does not apply to parties that may exert influence or control over an entity. D.
The EU rule supersedes the European AML directives regarding collecting customer due diligence.
3-13.
Which of the following statements is accurate concerning knowing the nature of a customer’s
business and its products and services for the purpose of sanctions due diligence (SDD)? A.
A customer that is low risk for AML requirements is also low risk for SDD purposes. B.
Although the information is collected as part of the process of assessing AML risks, the way in which it is assessed for SDD is different. C.
A customer that is low risk for AML requirements is highly likely to be higher risk for SDD purposes. D.
Savvy businesses use information provided via a customer’s website and the Standard
Industrial Classification (SIC) codes on the company registry to determine the nature of the business.
3-14.
Customers whose businesses involve trade-related activities warrant close attention in regard to the nature of business and products and services because: A.
trade activity involving goods from a low-risk jurisdiction translates to a high sanctions risk.
B.
cargo can be transferred from one ship or other form of transport to another via another country before arriving at its final destination. C.
the sanctions risk profile of an intermediate jurisdiction can conceal that of the originating country. D.
the customer’s beneficial owner may reside in the intermediate jurisdiction.
3-15.
Which of the following considerations relates to a customer’s jurisdiction/geography as part of the customer’s sanctions risk profile
? (Select two.) A.
Activity of subsidiaries or affiliated third parties
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B.
Dual use of goods C.
Travel for work and travel funding D.
Nationality and residence of ultimate beneficial owners
E.
Insurance services that cover goods in a sanctioned country
3-16.
Which of the following is a common error/assumption made about sanctions due diligence? A.
The sanctions risks associated with a customer’s affiliates or subsidiaries are not a problem
for the customer to assess and manage.
B.
To detect attempts at evasion, you must know the nature, purpose, and structure of a
customer and counterparty’s relationship.
C.
Country risk exposure can be indirect and not directly linked to the customer’s country of
location.
D.
A customer that has no obvious presence in or direct link to a sanctioned country is a low sanctions risk.
3-17.
The four steps for gathering KYC information in the sanctions due diligence research model include: A. request, analyze, organize, and decide. B. assess, explore, organize, and present. C.
identify, evaluate, correlate, and decide. D.
assess, evaluate, correlate, and present.
3-18.
Which of the following constitutes a known sanctions risk that is common in wealth management and private banking? A.
Customers tend to be powerful clients or involved with powerful clients. B.
Customer wealth is typically consolidated in one jurisdiction/geographical location. C.
Customers often hold assets in their name, thus concealing the identity of the true owner/controller. D.
Customers keep banking information private by limiting relationships with external parties.
3-19.
Which of the following constitutes a known sanctions risk that is common in commercial and investment banking?
A.
The commercial or investment bank is typically the ultimate beneficial owner. B.
Given the customers’ complex structures, tax residency cannot be determined.
C.
Customers tend to use intermediaries.
D.
The financing of debt and equity is protected by sanctions restrictions.
3-20.
Free trade zones are a key risk area in trade-related activities because:
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A.
they commonly have inadequate sanctions safeguards and weak procedures to inspect goods and legal entities.
B.
they are often referred to by different names in different countries.
C.
they are located in regional financial centers that link international trade hubs with access to global financial markets.
D.
they are owned and controlled by countries that typically are sanctions targets.
3-21.
Why are sanctions risks potentially higher and more difficult to identify when financial institutions offer correspondent banking to other firms? A.
Correspondent banking allows the institution to undertake international financial transactions for themselves and their customers. B.
Correspondent banking is used for the execution of third-party payments and trade finance. C.
The correspondent bank may provide services for individuals or entities for which it has neither verified the identities nor obtained any firsthand knowledge. D.
Correspondent banks undertake SDD on their own customers, counterparties, intermediaries, suppliers, and end users.
Chapter 4: Sanctions Screening
4-1.
Which occurs as a part of name screening? A.
A firm screens customers after onboarding to collect SDD information. B.
A firm uses predefined templates, codes, and acronyms to collect SDD information. C.
A firm screens customer names when a red flag is raised and further enquiry is necessary. D.
A firm’s entire customer database is screened by automatic screening tools on a periodic
basis.
4-2.
Automated screening tools need to be configured correctly and then updated regularly to reflect: A.
changes in employee training. B.
changes in the political landscape. C.
new types of sanctions and revised regulations.
D.
vendor agreements.
4-3.
Which of the following represents a cost of automated screening when compared with manual screening? A.
Documentation of results
B.
Resource intensiveness
C.
Case management D.
Model validation
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4-4.
The techniques of fuzzy logic and partial mapping are used to overcome the problem of: A.
flawed records and databases. B.
excessive false positives. C.
outdated risk models. D.
uncalibrated thresholds.
4-5.
Which of the following statements describes threshold calibration in the context of AST software used for sanctions compliance? A.
Threshold calibration fine-tunes the percentage threshold for determining which alerts to generate. B.
Threshold calibration increases the risk of a target being missed or not detected by an AST. C.
Threshold calibration is independent of the firm’s sanctions risk areas.
D.
Threshold calibration fine-tunes which algorithms to use within the AST software.
4-6.
Scenarios are used in sanctions screening to: A.
analyze payment messages that include multiple unrelated customers with the same physical address. B.
use known typologies to enhance an AST’s ability to detect possible sanctions violations
specific to an organization. C.
evaluate an organization’s sanctions risk
-assessment results. D.
instruct employees on how to identify known sanctions typologies.
4-7.
There are many sanctions lists, so it is important for a financial institution to: A.
subscribe only to the UN and EU lists. B.
cross-check several lists to reduce the number of false positive hits. C.
update its KYC information to match the most current lists. D.
identify which lists relate to its customers and the jurisdiction/geography of its business.
4-8.
Which of the following would constitute a screening software or filtering deficiency that
weakens a firm’s compliance program?
A.
An organization updates its sanctions screening software to incorporate changes to the SDN list.
B.
The organization fails to include pertinent identifiers in the SSI list for designated, blocked, or sanctioned financial institutions. C.
Software uses “AKA” or “alias” to account for alternative spellings of surnames.
D.
An institution blocks the activity of a target match from a list outside the host country.
4-9.
Which of the following is a common identifier of a legal entity? A.
Information about other penalties imposed against a target
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B.
Nationality of a target C.
Registered or any known operating address of a target D.
Number of employees
4-10.
Which of the following is an acceptable strategy used by financial institutions to manage the volume of hits and alerts generated by their ASTs? A.
Reduce the number of lists that the institution screens against.
B.
Calibrate the threshold used by the AST for matches so that it only generates alerts that are very similar to the information on a sanctions list.
C.
Recalculate the firm’s risk appetite to take available resources into consideration.
D.
Use whitelists and create more specific scenarios and rules.
4-11.
In sanctions payment screening, the Society for the Worldwide Interbank Financial Telecommunications (SWIFT) code is: A.
a reliable provider of financial messaging services. B.
a payment system that is neutral with respect to autonomous sanctions. C.
a source of data protocols used by all payment ecosystems. D.
a gatekeeper for payment screening tools.
4-12.
How are SWIFT payment messages predefined? A.
By transaction number and type of message B.
By format for type of commercial activity and numbered, set fields C.
By commercial activity and value of transaction D.
By message type and transaction number
4-13.
Which of the following describes a strategy to help overcome the challenges posed by naming conventions, transliteration, and romanization? A.
Screening algorithms should be updated regularly to include new names. B.
Organizations should stop every payment for manual screening and not rely on ASTs for countries that are high risk or for which it does not have an institutional understanding of the types of customers.
C.
Screening analysts should receive name matching training on the cultural naming conventions of global names. D.
Analysts should build their own equivalence and synonyms lists.
4-14.
Which of the following is an identifier on the Denied Persons List of individuals and entities whose export privileges have been denied by the BIS? A.
Shipping routes B.
Ports of call C.
Recent voyage history
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D.
Types of goods
4-15.
One of the challenges of trade-related screening related to documentation is: A.
it can be provided after the importing or exporting has occurred. B.
it can be provided in formats that require manual review.
C.
it does not include details such as the quantity and weight of the goods. D.
it does not account for dual-use goods.
4-16.
You are onboarding a customer from a low-risk jurisdiction whom you have been told does extensive business in the former Soviet Union. You screen the customer against the sanctions lists and do not find the customer to be listed by OFAC or any other sanctions regimes. Which of the following would be the most appropriate action to take?
A.
Do nothing, as the customer is located in a low-risk jurisdiction, and you can rely on that jurisdiction to enforce sanctions restrictions on customers.
B.
Ask the customer to provide the names of those entities that it expects to transact with, and screen those entities for sanctions. C.
Place a hold on the account and screen all the named entities prior to processing any transactions.
D.
Ask the customer to provide its beneficial ownership for further screening.
Chapter 5: Sanctions Investigations and Assets Freezing
5-1.
Which of the following scenarios commonly trigger a sanctions investigation? (Select two.)
A.
The customer provides incomplete documentation when opening an account.
B.
The customer indicates a new country of residence.
C.
Your screening tool discovers a possible name match between the customer and a sanctions target.
D.
Your screening tool discovers another customer with the same address.
E.
Information given by or about the customer indicates possible evasion activity or a sanctions link.
5-2.
Which of the following may preclude further investigation? A.
Informing the customer
B.
Simple checks to discount the match
C.
Blocking assets
D.
Filing a suspicious transaction report with local authorities
5-3.
Which of the following is a key identifier for an individual?
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A.
Date of birth
B.
Weight
C.
Marital status
D.
Religious affiliation
5-4.
Which of the following is a key identifier for a legal entity?
A.
The legal entity’s profit/loss statement
B.
The legal entity’s number of units sold per fiscal year
C.
The legal entity’s registered or corporate name and registration number
D.
The legal entity’s number of employees
5-5.
In assessing the appropriate response to sanctions alerts, investigators commonly use which of the following tools?
A.
Computer-generated algorithm
B.
Three-step test of customer reliability
C.
Five-step decision tree
D.
Social-media monitoring software
5-6.
Which of the following is part of an appropriate response to sanctions alerts? (Select two)
A.
Completing a SAR/STR within 10 business days
B.
Assessing the root cause of a sanctions violation
C.
Blocking or rejecting sanctions alerts
D.
Determining the types of sanctions that are applicable to the activity
5-7.
When is it important to record and document the findings of an investigation? A.
Only when the investigation disproves the sanctions violation
B.
Only when the investigation confirms the sanctions violation
C.
Only when the investigation cannot prove or disprove the sanctions violationD. Always; every step of every investigation must be recorded and documented.
5-8.
Which of the following statements are true of sanctions lists? (Select three.)
A.
Sanctions lists are only updated annually.
B.
Sanctions lists are updated constantly. C.
Sanctions lists are issued by numerous countries and jurisdictions.
D.
Sanctions lists are issued by the United Nations Council on Sanctions Compliance (UNCSC).
E.
More than one sanctions list might pertain to one individual or legal entity. F.
Screening against OFAC-
maintained lists ensures compliance with other countries’ lists.
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5-9.
The term “asset flight” refers to:
A.
the movement of assets from inside a soon-to-be-sanctioned area to outside the area, to
ensure the assets’ future availability.
B.
the limitations on the amount of currency that can be transferred out of a country in any single transaction.
C.
the banning of aviation related to the import/export of dual-use goods.
D.
the applicability of sanc
tions within a jurisdiction’s air space.
5-10.
Which of the following are primary sources of information that can be used in an investigation? (Select three.)
A.
Key trade activity lists
B.
Search engines (Google, etc.)
C.
Transaction activity
D.
Corporate registers
E.
Third-party databases
F.
Know your customer (KYC) information
5-11.
How do customers typically learn that their assets have been frozen because of a sanctions violation?
A.
The financial institution intending to freeze assets must provide written notification at least 10 business days in advance of taking such action.
B.
Customers are alerted that an investigation is underway, and can “opt in” to receive alerts
about future impending actions.
C.
Customers may receive no notice and generally discover that their assets have been frozen when they are unable to access their funds. D.
The lead (or co-lead) investigator must notify the customer by telephone no more than 24 hours in advance of taking such action.
5-12.
Which of the following statements is true of frozen assets in the European Union?
A.
Frozen assets cannot be used for any purpose.
B.
Frozen assets can be used to pay for certain basic needs, such as food, rent, and legal support, provided the necessary document (license) has been obtained. C.
Fees (such as monthly service charges on an account) usually cannot be charged on frozen assets.
D.
Frozen assets cannot accrue interest.
5-13.
Which of the following statements is true about general licenses? A.
General licenses can be difficult to find, because they are rarely posted on the sanctions
regulator’s website.
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B.
General licenses authorize a particular type of transaction for a class of persons without the need to apply for a specific license. C.
General licenses are issued on a case-by-case basis.
D.
General licenses are rarely issued, as they provide too much opportunity for circumventing economic sanctions restrictions.
5-14.
Which of the following statements are true of specific licenses? (Select two.)
A.
Specific licenses must be applied for from the competent regulatory body in the jurisdiction issuing the sanction.
B.
Specific licenses must be applied for by the end user seeking them.
C.
Specific licenses are only granted for a limited time period (not to exceed 60 days).
D.
Specific licenses might need to be applied for in more than one jurisdiction.
5-15.
What are three ways to be delisted (removed from a sanctions targets list)? (Select three.)
A.
By submitting at least five professional references to the blocking agent B.
By death (if the sanctions target is an individual) C.
By dissolution (if the sanctions target is a legal entity) D.
By filing for personal or corporate bankruptcy
E.
By direct request to the authority imposing the restrictions
F.
By lodging a formal complaint with the financial institution imposing the block
5-16.
“Dealing in funds” refers to:
A.
interacting with frozen assets in a way that is inconsistent with sanctions law.
B.
creating money-market funds specifically for the purpose of segregating frozen assets.
C.
transferring funds from one branch of a financial institution to a different, less profitable branch.
D.
failing to manage “asset drift” be
tween frozen accounts in two different jurisdictions.
5-17.
When sanctions regulations explain exactly what actions are permitted without a license, which actions are allowed only with a license, and under what circumstances certain actions are either allowed or not allowed, which of the following are they detailing?
A.
The sanction’s scope of licensing
B.
The sanction’s scope of jurisdiction
C.
The sanction’s scope of influence
D.
The sanction’s scope of permitted activities
5-18.
If you identify funds belonging to a sanctions target or realize your firm has violated a sanctions restriction, which of the following actions should you take? (Select two.) A.
Informally conduct an investigation to ensure discretion.
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B.
Report current or past violations by telephone within 30 days of discovery.
C.
Record, date, and keep copies of all steps taken in the investigation. D.
Record, date, and keep copies of all internal memos relative to the case. E.
Avoid voluntarily reporting current or past violations until required to do so.
5-19.
What is the legal term that refers to the country in which an individual lives most of the time?
A.
The individual’s native country
B.
The individual’s jurisdiction of residen
ce
C.
The individual’s home identifier
D.
The individual’s jurisdiction of citizenship
5-20.
What is the term for the process of reviewing a customer’s past transaction activity over a
specific time period?
A.
Year-to-date review
B.
Life-of-account review
C.
Customer due diligence (CDD)
D.
Look-back review
5-21.
Within the context of sanctions, the practice known as “mirror trading” refers to investors doing
which of the following?
A.
Increasing their capital gains significantly by “mirroring” successful investors’ trading
activity
B.
Trading funds on the black market in order to avoid fees and taxes
C.
Buying securities in one currency and then selling identical ones in another currency
D.
Investing less desirable currency (such as rubles) in works of fine art and then selling the art for more desirable or stable currencies
5-22.
What is a corporate register?
A.
A list, created and maintained by the firm’s chief financial officer, of all assets held by a
financial institution
B.
A list of key information about a company, such as when it was formed and who its owners and directors are C.
A list, created and maintained by the Business Council for the United Nations, of all companies doing business in the international markets
D.
A list of key information about a firm’s customers
or clients, such as their dates of birth and permanent residences
5-23.
What does the term “simple check” refer to?
A.
The initial actions taken to discount or confirm a sanctions link B.
A personal check payable to an individual and signed by an individual
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C.
A business check payable to another business within the same jurisdiction
D.
The placement of a temporary hold on assets while an initial investigation is conducted
5-24.
Funds that are blocked or rejected due to an OFAC sanction must be reported to OFAC within which of the following? A.
5 business days from the date of the action B.
5 calendar days from the date of the action
C.
10 business days from the date of the actionD. 10 calendar days from the date of the action
5-25.
What is a “false positive” mat
ch?
A.
A match generated by an automated screening tool (AST) that is based on positive, but intentionally deceptive, information
B.
A match generated by an AST that is later deemed not to be a true match
C.
A proven match that was not initially flagged by an AST
D.
A match generated by an AST that is later confirmed to be a true match
5-26.
When conducting an investigation or interacting with frozen or blocked assets, where should you look first for information on how to proceed?
A.
Your firm’s internal procedural docum
ents
B.
The regulator’s office in the jurisdiction in question
C.
The Business Council for the United Nations
D.
OFAC
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