The correct answer is B, as a customer acceptance policy is an essential element of KYC standards according to the Basel Committee's Customer Due Diligence for Bankspaper1. A customer acceptance policy defines the types of customers that the bank is willing to accept, and the conditions and limitations that apply to such relationships. A customer acceptance policy helps the bank to avoid customers who are likely to pose a higher than average risk of money laundering or terrorist financing, or who are not willing to provide sufficient information for identification and verification purposes1.
1: Customer due diligence for banks - Bank for International Settlements, page 9.
Reference:https://www.bis.org/publ/bcbs77.pdf

This is a red flag of money laundering or terrorist financing that involves the use of non-profit organizations (NPOs) as conduits for illicit funds. NPOs may be vulnerable to abuse by criminals who exploit their legitimate activities, reputation, and access to funds and resources. A transaction monitoring process that would alert a bank for this red flag activity is to analyze the source, destination, frequency, and purpose of the funds transferred to and from the charity account, and to compare them with the expected profile and activity of the NPO. If the bank detects any inconsistency, discrepancy, or deviation from the norm, it should raise an alert and conduct further investigation.
FATF Report: Risk of Terrorist Abuse in Non-Profit Organisations, page 9 Transaction Monitoring Processes for Red Flag Activity in Banking AML Red Flags - What are the Top 10 Indicators? - ComplyAdvantage, section "Red flags related to the nature of transactions"

The USA PATRIOT Act stipulates that US banks that maintain correspondent accounts for foreign banks must keep identification records of foreign bank owners with 50% or more ownership in the bank. This ensures that the US government can track the flow of funds through the correspondent accounts and prevent money laundering and terrorist financing. Additionally, the US federal banking agency can require foreign banks to produce records or information related to any account opened in the US or other countries. This allows the agency to monitor the activities of foreign banks and ensure compliance with US regulations.

Senior management and AML officers may face personal liability if they knowingly allow AML violations to persist.
Option A (Correct):If senior management or the AML officer was aware of violations and failed to act, they could face regulatory or criminal liability.
Option B (Incorrect):Criminal liability depends on intent and negligence-an AML officer is not automatically prosecuted because a bank receives a regulatory order.
Option C (Incorrect):Liability extends beyond the AML officer-other senior executives can also be held accountable.
Option D (Incorrect):Violations can result in both civil and criminal prosecution, depending on the severity.
Legal Risks for AML Compliance Failures:
Civil penalties (fines and sanctions) for AML program deficiencies.
Criminal charges if executives knowingly ignore violations.
Regulatory enforcement actions leading to license revocation.
Reference:
USA PATRIOT Act Section 352 (AML Compliance Program Requirements)
FinCEN Guidelines on AML Compliance Officer Liability
FATF Recommendation 35 (Sanctions for AML Non-Compliance)

The correct next course of action is to request that the new product approval committee include the compliance officer. This is because the compliance officer has the responsibility to ensure that the new financial service complies with the applicable laws, regulations, and standards, and does not pose any undue risks to the institution or its customers. The compliance officer should be involved in the new product development process from the beginning, and provide guidance and feedback on the potential compliance implications and requirements of the new service12.
1:
CAMS Certification Package - 6th Edition | ACAMS, Chapter 6: Developing an Effective Anti-Money Laundering Program, p. 121-122 2: FATF Guidance: The Role of Hawala and Other Similar Service Providers in Money Laundering and Terrorist Financing, October 2013, p. 28, http://www.fatf-gafi.org/media
/fatf/documents/reports/Role-of-hawala-and-similar-in-ml-tf.pdf