A sound Customer Due Diligence Program (CDD) is a key component of an effective anti-money laundering and counter-terrorism financing (AML/CFT) framework. According to the Financial Action Task Force (FATF), the global standard-setter for AML/CFT, CDD involves the following elements1:
* Identifying the customer and verifying their identity using reliable, independent sources of information or documents.
* Identifying the beneficial owner and taking reasonable measures to verify their identity, so that the financial institution understands who ultimately owns or controls the customer or the funds.
* Understanding and obtaining information on the purpose and intended nature of the business relationship.
* Conducting ongoing due diligence on the business relationship and scrutinizing transactions to ensure that they are consistent with the financial institution's knowledge of the customer, their business and risk profile, and the source of funds.
Therefore, the three elements of a sound CDD program that are listed in the question are:
* Determination of what type of customer the financial institution will accept: This involves defining the customer acceptance policy and risk appetite of the financial institution, and applying appropriate risk-based measures to accept or reject customers based on their risk profile and the financial institution's ability to manage and mitigate those risks2.
* Training as to how and to what extent to identify prospective customers: This involves providing adequate and regular training to the staff who are responsible for conducting CDD, and ensuring that
* they are aware of the legal and regulatory requirements, the internal policies and procedures, the risk indicators, the verification methods, and the reporting obligations3.
* Obtaining date of birth and address of a prospective customer: This is part of the basic information that is required to identify and verify the customer's identity, and to establish their risk profile and the source of funds. The date of birth and address can also be used to check against various databases and watchlists to detect any potential matches with sanctioned or high-risk individuals or entities4.
The element that is not part of a sound CDD program is:
* Determination of who in the institution should be assigned to the prospective customer as a liaison: This is not a mandatory or essential element of CDD, although it may be a good practice to assign a dedicated relationship manager or contact person to each customer, especially for high-risk or complex customers, to ensure effective communication, monitoring, and service delivery.
References:
* FATF Guidance on Customer Due Diligence and Financial Inclusion 1
* ACAMS Study Guide for the CAMS Certification Examination (6th Edition), Chapter 2: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) 2
* ACAMS Study Guide for the CAMS Certification Examination (6th Edition), Chapter 4: Developing an AML/CFT Program 3
* ACAMS Study Guide for the CAMS Certification Examination (6th Edition), Chapter 5: Conducting and Supporting the Investigation Process 4
* Wolfsberg Group Guidance on Customer Due Diligence (CDD)

1. A. Micro-structuring cash:
The customer's behavior of putting high-denomination cash notes into a poker machine without placing bets and then collecting winnings in the form of a check resembles "structuring" or "smurfing." Structuring involves breaking down large sums of money into smaller transactions to avoid detection. In this case, the customer may be attempting to legitimize illicit funds by converting them into casino winnings1.
2. B. Legitimizing illicit funds:
By using the poker machine to convert cash into a check, the customer is potentially legitimizing illicit funds.
The casino winnings obtained through this process may appear legitimate, even though the initial source of the cash remains suspicious1.
A: Micro-structuring cash:
The customer's actions of repeatedly inserting high-denomination cash notes into the poker machine without placing bets and then collecting winnings in the form of a check resemble structuring. Structuring involves deliberately breaking down large amounts of cash into smaller transactions to avoid detection. Money launderers engage in structuring to obscure the origin of funds and make them appear legitimate. In this case, the customer's behavior raises red flags and warrants further investigation.
B: Legitimizing Illicit Funds:
By converting cash into casino winnings (in the form of a check), the customer may be attempting to legitimize illicit funds. The casino winnings obtained through this process could be used to create a veneer of legitimacy, even though the initial source of the cash remains suspicious. Casinos are attractive for money launderers due to the anonymity and fluidity of transactions, making it challenging to trace the origin of funds1.
References: 1: Anti-Money Laundering Specialist (6th edition), ACAMS, Chapter 3: "Money Laundering and Terrorist Financing Methods," Section 3.1.2: "Structuring."

According to the Wolfsberg Anti-Money Laundering Principles for Correspondent Banking, the risk of a correspondent bank customer depends on various factors, such as the nature of the customer's business, the customer's location, the products and services offered, the customer's ownership and management structure, and the customer's customer base1. Among these factors, two that should increase the risk and require additional due diligence are:
* The customer is located in a Financial Action Task Force (FATF) member country and the bank's head of information security is a politically exposed person (PEP). A PEP is an individual who is or has been entrusted with a prominent public function, such as a senior government official, a judicial or military officer, a senior executive of a state-owned corporation, or a political party leader2. PEPs pose a higher risk of money laundering, corruption, or bribery due to their influence and access to public funds3. Therefore, a correspondent bank customer that has a PEP in a key position should be subject to enhanced due diligence, such as verifying the source of funds, the purpose of the relationship, and the PEP's reputation and integrity4.
* The customer is located in a non-FATF member country and services mostly commercial customers who engage in international trade. A non-FATF member country is a country that is not part of the FATF, an inter-governmental body that sets standards and promotes effective implementation of legal, regulatory, and operational measures for combating money laundering, terrorist financing, and other related threats to the integrity of the international financial system5. Non-FATF member countries may
* have weaker or less consistent anti-money laundering and counter-terrorist financing regimes, and may pose a higher risk of financial crime or sanctions evasion6. Moreover, a correspondent bank customer that services mostly commercial customers who engage in international trade may be exposed to trade-based money laundering, which is the process of disguising the proceeds of crime and moving value through the use of trade transactions7. Therefore, a correspondent bank customer that operates in a non-FATF member country and deals with international trade should be subject to enhanced due diligence, such as obtaining information on the nature and volume of the trade transactions, the origin and destination of the goods, and the identity and reputation of the trade counterparties8.
The other options are not correct because they do not necessarily increase the risk of a correspondent bank customer or require additional due diligence. A customer that is located in a FATF member country and provides services primarily to a local individual customer may pose a lower risk of money laundering or terrorist financing, as the customer's activities are subject to the FATF standards and recommendations, and the customer's customer base is less likely to involve complex or cross-border transactions. A customer that is located in a FATF member country and provides services to other correspondent banks in neighboring countries may also pose a lower risk of money laundering or terrorist financing, as the customer's activities are subject to the FATF standards and recommendations, and the customer's customer base is composed of regulated financial institutions that are subject to their own anti-money laundering and counter-terrorist financing obligations.
nswer: BD
According to the Wolfsberg Anti-Money Laundering Principles for Correspondent Banking, the risk of a correspondent bank customer depends on various factors, such as the nature of the customer's business, the customer's location, the products and services offered, the customer's ownership and management structure, and the customer's customer base1. Among these factors, two that should increase the risk and require additional due diligence are:
* The customer is located in a Financial Action Task Force (FATF) member country and the bank's head of information security is a politically exposed person (PEP). A PEP is an individual who is or has been entrusted with a prominent public function, such as a senior government official, a judicial or military officer, a senior executive of a state-owned corporation, or a political party leader2. PEPs pose a higher risk of money laundering, corruption, or bribery due to their influence and access to public funds3. Therefore, a correspondent bank customer that has a PEP in a key position should be subject to enhanced due diligence, such as verifying the source of funds, the purpose of the relationship, and the PEP's reputation and integrity4.
* The customer is located in a non-FATF member country and services mostly commercial customers who engage in international trade. A non-FATF member country is a country that is not part of the FATF, an inter-governmental body that sets standards and promotes effective implementation of legal, regulatory, and operational measures for combating money laundering, terrorist financing, and other related threats to the integrity of the international financial system5. Non-FATF member countries may have weaker or less consistent anti-money laundering and counter-terrorist financing regimes, and may pose a higher risk of financial crime or sanctions evasion6. Moreover, a correspondent bank customer that services mostly commercial customers who engage in international trade may be exposed to trade-based money laundering, which is the process of disguising the proceeds of crime and moving value through the use of trade transactions7. Therefore, a correspondent bank customer that operates in a non-FATF member country and deals with international trade should be subject to enhanced due diligence, such as obtaining information on the nature and volume of the trade transactions, the origin and destination of the goods, and the identity and reputation of the trade counterparties8.

Under the Egmont Group Principles, information exchange among financial intelligence units (FIUs) should be conducted freely, spontaneously, and upon request, on the basis of reciprocity. This means that FIUs should be willing to share information without the expectation of reciprocity on how the information will be used.
The goal is to facilitate the cooperation and exchange of information among FIUs to combat money laundering, terrorist financing, and other financial crimes.

Verified Answer: = A. Collect further customer reference data and determine what must be screened and at which frequency. and C. Deploy an independent risk-based test to ensure the screening on this customer is effective.
Comprehensive Detailed Explanation: = When an existing customer changes its business scope and jurisdictions, banks need to manage sanctions compliance risk effectively. Here are the steps they should take:
1. Collect Further Customer Reference Data: Obtain updated information about the customer's new business activities, locations, and counterparties. Understand the nature of their transactions and assess the associated risks. Determine what specific data elements need to be screened (e.g., names, addresses, beneficial owners) and establish the appropriate screening frequency.
2. Deploy an Independent Risk-Based Test: Conduct a comprehensive risk assessment tailored to the customer's changes. This assessment should consider factors such as the customer's industry, geographic exposure, and transaction volume. The risk assessment helps identify high-risk areas that require enhanced scrutiny.
3. Screen Directors and Ultimate Beneficial Owners: Perform sanctions screening not only on the customer but also on their directors and ultimate beneficial owners. This ensures that any potential risks associated with these individuals are identified and mitigated.
4. Perform Politically Exposed Person (PEP) and Negative Media Screenings: Continue to screen the customer and related parties against PEP lists and negative media sources. This helps detect any adverse information related to politically exposed individuals or entities.
By following these steps, banks can proactively manage sanctions compliance risk and safeguard their institution's reputation while adhering to regulatory requirements12.
References:
1. Protiviti: Sanctions Risk Assessment: A Key Risk Management Tool
2. Moody's: What Businesses Need to Know About Sanctions Compliance