A U.S. bank must block or reject an international funds transfer when there is an OFAC designated party to the transaction, regardless of the beneficiary or the correspondent bank. This is because the U.S. bank is prohibited from dealing with any person orentity that is on the Specially Designated Nationals and Blocked Persons List (SDN List) or subject to any other OFAC sanctions program1. The SDN List includes individuals, groups, and entities, such as terrorists and narcotics traffickers, that are designated under programs that are not country-specific2. The U.S. bank must also report any blocked or rejected transactions to OFAC within 10 business days3.: 1: FFIEC BSA/AML Office of Foreign Assets Control - Office of Foreign ... 2: Specially Designated Nationals And Blocked Persons List (SDN) Human ... 3: [Reporting Blocked Transactions | Office of Foreign Assets Control]

The investigator should escalate these concerns to the bank anti-money laundering officer, who is responsible for overseeing the implementation and effectiveness of the bank's AML/CFT policies and procedures, as well as ensuring compliance with relevant laws and regulations. The bank anti-money laundering officer can then decide on the appropriate course of action, such as conducting further investigation, reporting to the regulators, or terminating the relationship with the customer. The other options are not suitable for escalating these concerns, as they may not have the authority, expertise, or responsibility to handle such matters.
:
ACAMS, CAMS Examination Study Guide, 6th Edition, Chapter 4, pp. 113-114 FATF Guidance: The Role of Hawala and Other Similar Service Providers in Money Laundering and Terrorist Financing, October 20131, p. 19 Basel Committee on Banking Supervision, Sound management of risks related to money laundering and financing of terrorism, June 20172, p. 10

According to the FATF Guidance on Private Sector Information Sharing, FIs should establish sufficient safeguards concerning the confidentiality of information shared for AML purposes, both within the same financial group and between FIs not belonging to the same group. These safeguards include ensuring that the information is shared only with authorized personnel who have a need to know, that the information is used only for the intended AML purpose, and that the information is protected from unauthorized access, disclosure, or misuse. FIs should also comply with the applicable legal and regulatory requirements on data protection and privacy, and respect the rights and interests of the customers whose information is shared1.
:
1: FATF Guidance on Private Sector Information Sharing1

One of the main challenges and risks for online banks is the verification of customer identity and the prevention of identity fraud. Online banks are more vulnerable to moneylaundering and terrorist financing because they do not have face-to-face contact with their customers and may rely on third-party sources or digital methods to verify customer information. Therefore, the most important recommendation for the anti- money laundering expert to make is that the online bank ensures that prospective new customers can be properly identified and that their identity documents and information are verified using reliable and independent sources. This is also in line with the international standards and best practices for anti-money laundering and counter-terrorist financing, such as the FATF Recommendations, the Basel Committee on Banking Supervision principles, and the EU's Fifth Anti-Money Laundering Directive123 The other options are less important or less effective than ensuring customer identification. Limiting the amount that can be processed per transaction may reduce the exposure to large-scale money laundering, but it does not prevent the use of multiple transactions or accounts to launder smaller amounts. Setting up automated programs to analyze transactions for money laundering activity may enhance the detection and reporting of suspicious transactions, but it does not address the root cause of money laundering, which is the concealment of the source and ownership of illicit funds. Ensuring that a firewall is set up to protect the transactions may improve the security and confidentiality of the online banking system, but it does not prevent the misuse of the system by money launderers who have legitimate access to the system123
:
1: Anti-Money Laundering Guide for Digital Banks by sanctions.io, 2022
2: The fight against money laundering: Machine learning is a game changer by McKinsey, 2021
3: FATF Guidance on Digital Identity, 2020

Wash trading is a form of market manipulation where two parties coordinate to create artificial trading activity, often for money laundering, tax fraud, or price manipulation.
Why Option C (Wash Trading) is Correct:
No real market risk is taken-transactions are simply cycled between the same parties.
Creates an illusion of liquidity or inflates asset prices artificially.
Common in commodities, stocks, cryptocurrency, and futures markets.
Red flag for money laundering: Criminals may use wash trading to layer illicit funds through financial markets.
Why Other Options Are Incorrect:
Option A (Short Position): A short position involves selling an asset one does not own and repurchasing it later at a lower price-this does not describe the described scheme.
Option B (Reverse Flip): A reverse flip is a real estate money laundering typology, not applicable here.
Option D (Bid-Ask Spread): This refers to the difference between the highest price a buyer is willing to pay and the lowest price a seller will accept, but it does not involve fraudulent trading.
AML Risks in Wash Trading:
Can be used to move illicit funds through financial markets.
Artificially increases trading volume and market price manipulation.
Frequently flagged in AML transaction monitoring systems.
Best Practices for Detecting Wash Trading:
Monitor repetitive trading between related entities.
Look for circular transactions with no economic justification.
Use AI-based transaction monitoring to detect high-frequency wash trades.
Reference:
FATF Report on Money Laundering in Capital Markets
SEC & CFTC Enforcement on Wash Trading Cases
Wolfsberg Group Market Manipulation Risk Guidelines