According to the Basel Committee on Banking Supervision guidelines, the internal audit functionshould evaluate the adequacy and effectiveness of the bank's compliance function and its compliance risk management framework1. This includes assessing the compliance risk inherent in the bank's activities, products, services, and systems, as well as the compliance policies, procedures, controls, and reporting mechanisms2. The internal audit function should also review the transactions and records of the bank to ensure compliance with applicable laws, regulations, and internal standards3.
The other statements are incorrect because:
* B. An internal audit program of adequacy of the bank's compliance function should be established, but should not include review of transactions. This statement is false because the internal audit function should review the transactions and records of the bank to ensure compliance, as mentioned above3.
* C. The compliance function and internal audit function should be combined. This statement is false because the compliance function and the internal audit function should be separate and independent from each other, to avoid conflicts of interest and ensure objectivity and credibility.
* D. The auditors should not discuss internal audit findings with compliance management to maintain independence. This statement is false because the internal audit function should communicate and coordinate with the compliance function on a regular basis, to share information, insights, and recommendations, and to avoid duplication of work. However, the internal audit function should maintain its independence and report directly to the board of directors or the audit committee.
:
1: The internal audit function in banks, Principle 10, p. 9
2: The internal audit function in banks, Principle 10, p. 10
3: The internal audit function in banks, Principle 10, p. 11
4: The internal audit function in banks, Principle 2, p. 4
5: The internal audit function in banks, Principle 10, p. 11

The European Union Money Laundering Directives (AMLDs) are issued periodically by the European Parliament to prevent money laundering and terrorist financing and establish a consistent regulatory environment across the EU1. They apply to all member states of the European Union and require them to enact laws and/or regulations to comply with the directives2. The directives are legally binding and set forth minimum standards and obligations for financial institutions and other entities within the member states3. The directives do not set forth non-binding best practices, but rather harmonize the AML/CFT rules and procedures across the EU4. The directives do not have extraterritorial impact and do not apply to states that have diplomatic relations with member states, unless they are part of the European Economic Area (EEA) or have equivalent AML/CFT regimes5.: 1: Guide to EU Anti Money Laundering Directives (AMLD) - ComplyAdvantage 2: Directive - 2015/849 - EN - Fourth Anti-Money Laundering Directive - EUR-Lex 3: EU context of anti-money laundering and countering the financing of terrorism - European Commission 4: EU Anti-Money Laundering Directives (AMLD) | LSEG - Refinitiv 5: Anti-money laundering and countering the financing of terrorism legislative package - European Commission Reference:https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32015L0849&from=FR

According to the Wolfsberg Group, a correspondent bank should evaluate the distribution of downstream correspondents and identify any direct or indirect issues when it permits "nested" relationships, which are arrangements where a respondent bank provides correspondent banking services to other banks that are not customers of the correspondent bank. This step is important to understand the types of financial institutions to whom the services are being offered and the potential risks they pose. The correspondent bank should also obtain information on the nature and extent of the nested activity, the due diligence performed by the respondent bank on the nested banks, and the controls and monitoring in place to prevent financial crime.
:
Wolfsberg Correspondent Banking Principles 20221, Section 4.5: Nested Relationships Guidance on Correspondent Banking Services2, Section 3.2.2: Nested Correspondent Banking Relationships Reference:
http://www.qfcra.com/en-us/whatwedo/AntiMoneyLaundering/Documents/Guidance%20on%
20Correspondent%20Banking%20May%202018.pdf (7)
P/6, Wolfsberg Anti-Money Laundering Principles for Correspondent Banking 2014https://www.wolfsberg- principles.com/sites/default/files/wb/pdfs/wolfsberg-standards/8.%20Wolfsberg-Correspondent-Banking- Principles-2014.pdf

The Black Market Peso Exchange (BMPE) is a trade-based money laundering technique commonly used by narcotics traffickers based in Colombia and Mexico. The central feature is the use of a money trader to ensure that the revenue from drug sales in the U.S.doesn't actually cross any borders. Instead, those dollars are used to purchase any number of legitimate commodities from unsuspecting businesses on behalf of legitimate South American businesspersons, whose legitimate imports are used to obtain pesos for the drug cartels12.
The BMPE involves six distinct steps:
* Obtaining criminal proceeds: The drug cartels sell drugs for dollars in the U.S.
* Involvement of intermediary services: The drug cartels sell the dollars to black market peso exchangers in Colombia at a discounted rate.
* Identification of complicit companies: The black market peso exchangers identify exporting companies in the U.S. and importing companies in South America that are willing to participate in the scheme.
* Placement of funds: The black market peso exchangers deposit the dollars into U.S. bank accounts or use money service businesses or other methods to transfer the funds.
* Layering of funds: The black market peso exchangers use the funds to purchase monetary instruments such as checks, money orders, or wire transfers, or to pay for the goods ordered by the South American importers.
* Integration of funds: The South American importers receive the goods or the monetary instruments and use them to pay for their imports or to sell them for pesos in the local market.
:
1: Black Market Peso Exchange in Money Laundering - Financial Crime Academy
2: Overview - FinCEN.gov