Certified Reverse Mortgage Professional (CRMP)

Correct: Implementing a risk-based approach for digital assets requires specialized tools and procedures. Because blockchain transactions are pseudonymous, traditional KYC is insufficient on its own; institutions must use blockchain analytics (KYT) to trace the provenance of funds and identify links to illicit addresses. Furthermore, the FATF ‘Travel Rule’ and related guidance require institutions to assess the AML/CFT controls of the counterparty VASP to ensure they are not facilitating transfers to sanctioned or high-risk entities.

Incorrect: Relying on traditional fiat monitoring thresholds is ineffective because digital assets move with different speeds and patterns, often requiring real-time or specialized behavioral analysis. Notarized statements are impractical and do not address the technical reality of blockchain transparency or the need for automated monitoring. Limiting interactions to private blockchains is a business strategy rather than a compliance implementation for existing customer activity and does not address the risk of customers interacting with the broader, public virtual asset ecosystem.

Takeaway: Effective digital asset compliance requires integrating blockchain-specific analytics with traditional due diligence to address the unique pseudonymity and cross-border risks of virtual assets.

Correct: Facilitation payments, often referred to as grease payments, are payments made to officials to ensure they perform a routine, non-discretionary task that they are already required to do. Under modern anti-corruption standards, such as the UK Bribery Act and the recommendations of the OECD, these are considered bribes. While the U.S. Foreign Corrupt Practices Act (FCPA) has historically had a narrow exception for them, the global trend and best practices in financial crime compliance treat them as prohibited acts of corruption because they undermine the rule of law and create significant legal and reputational risk.

Incorrect: The suggestion that these payments are permissible if below a threshold is incorrect because many jurisdictions, including the UK, do not recognize any de minimis exception for bribery. The idea that payments to a government entity are inherently legitimate is false, as the purpose of the payment (to expedite service) still constitutes an improper influence. The claim that only discretionary decisions count as corruption is a common misconception; modern standards recognize that paying for routine, non-discretionary acts also constitutes bribery and creates a conflict of interest.

Takeaway: Facilitation payments are widely recognized as a form of corruption and are prohibited by most international anti-bribery standards regardless of the amount or the routine nature of the task being performed.

Correct: Regulatory best practices, such as those outlined by FATF and various national supervisors, emphasize that enforcement actions must be effective, proportionate, and dissuasive. This means the penalty should reflect the gravity of the breach, take into account whether the institution has a history of similar issues, and reward transparency and cooperation during the investigative process.

Incorrect: Applying maximum fines regardless of context ignores the principle of proportionality and may not lead to better compliance outcomes. Focusing solely on individuals fails to address systemic institutional failures and corporate accountability. Immediate license suspension for any deficiency is often considered a ‘nuclear option’ that is disproportionate for many compliance failures and could cause unnecessary systemic economic instability.

Takeaway: Effective enforcement relies on a proportionate response that balances the severity of the breach against the institution’s compliance history and its level of cooperation.

Correct: Risk tolerance is the operational translation of risk appetite into specific, measurable limits. If a firm’s risk appetite states a low tolerance for financial crime, but its operational thresholds (risk tolerance) are set so high that they miss common patterns like layering or smurfing, there is a misalignment. Adjusting thresholds to capture aggregate behavior ensures that the firm’s day-to-day operations actually reflect its stated risk boundaries.

Incorrect: Increasing board meeting frequency is a governance step but fails to address the operational failure of the monitoring system. Filing reports only on the accounts the regulator found is a reactive measure that does not fix the systemic misalignment of risk tolerance. Amending the risk appetite to exclude high-risk segments like high-net-worth clients would likely increase the firm’s risk exposure and violate regulatory expectations regarding consistent monitoring.

Takeaway: Risk tolerance must be operationalized through specific technical thresholds and triggers that directly reflect and enforce the organization’s high-level risk appetite.

Correct: Price verification is the most effective safeguard against Trade-Based Money Laundering (TBML) because it directly addresses the primary method of illicit value transfer: over-invoicing and under-invoicing. By comparing the transaction prices to independent market data, an institution can identify discrepancies that suggest the movement of excess value across borders, which is a hallmark of TBML.

Incorrect: Relying on Letters of Credit and shipping documents is insufficient because these documents can be falsified or represent ‘phantom shipments’ where no goods actually move. Sanctions screening and business license verification only address the identity of the parties involved, not the legitimacy of the transaction’s economic substance. Accepting a client’s self-attestation regarding private discounts is a weak control that fails to provide independent verification of the red flags identified.

Takeaway: The most effective defense against trade-based money laundering is the independent validation of the economic substance and fair market value of the goods being traded.

Correct: FATF Recommendation 11 and corresponding national regulations (such as those enforced by FinCEN or the FCA) require financial institutions to maintain all necessary records on transactions and CDD information for at least five years. This includes beneficial ownership data and the results of any analysis performed. The information must be sufficient to permit reconstruction of individual transactions and must be available to competent authorities in a timely manner. A centralized, retrievable format is the professional standard for ensuring this ‘timely’ availability to a Financial Intelligence Unit (FIU).

Incorrect: Storing beneficial ownership documents in a separate, restricted physical archive may impede the firm’s ability to provide a timely and complete response to regulatory inquiries. Relying on the record-keeping of a foreign institution in a high-risk jurisdiction is a failure of the firm’s independent obligation to maintain its own records. Limiting retention to three years is insufficient, as international standards and most national laws require a minimum of five years for record retention following the end of the business relationship or the transaction.

Takeaway: Financial institutions must maintain comprehensive transaction and due diligence records in an accessible format for at least five years to satisfy both FATF standards and national regulatory requirements.

Correct: Over-invoicing is a primary TBML technique where the price of the good is inflated to transfer value from the importer to the exporter. By listing the price at five times the market average, the client is able to move excess funds across borders under the guise of a legitimate trade transaction, which is a hallmark of trade-based value transfer.

Incorrect: Routing payments through a private account is a red flag for commingling and potential tax evasion, but it does not inherently involve the manipulation of trade mechanics. Vague descriptions are a red flag for lack of transparency but are secondary to the clear evidence of price manipulation. Transaction size increases are general AML red flags related to the layering or placement phases but do not specifically define the trade-based nature of the crime as clearly as price distortion.

Takeaway: Price manipulation, specifically over-invoicing or under-invoicing, is a core method of TBML used to move illicit value across international borders.

Correct: Transaction monitoring systems are not set-and-forget tools. Periodic tuning and validation are essential to ensure that the rules and scenarios remain aligned with the institution’s specific risk profile. As new typologies emerge—such as specific trade-based money laundering techniques in emerging markets—the system must be adjusted to capture these patterns while minimizing false positives that drain investigative resources.

Incorrect: Implementing uniform static thresholds fails to account for the risk-based approach, as different jurisdictions and customer segments carry varying levels of risk. Relying solely on vendor defaults is insufficient because these rules are generic and do not reflect the unique risks of an institution’s specific products or geographic footprint. Mandating manual reviews for all transactions above an average balance is an inefficient use of resources that lacks the sophisticated pattern recognition necessary to identify complex laundering cycles.

Takeaway: Effective transaction monitoring requires a dynamic, risk-based approach centered on the regular calibration and validation of detection scenarios to address evolving financial crime threats.

Correct: In the Three Lines of Defense model, the first line (business operations) must own and manage the risk, while the second line (compliance/risk management) provides oversight and challenge. When the second line performs operational tasks such as approving files, they lose their independence and cannot objectively monitor the process. Remediation must ensure that the first line retains risk ownership and the second line remains an independent oversight function.

Incorrect: Assigning approval to Internal Audit is incorrect because the third line must remain independent of all operational and management decisions to provide objective assurance. Merging the first and second lines is incorrect as it removes the necessary checks and balances and creates a conflict of interest. Allowing the compliance officer to continue approvals with a retrospective review is incorrect because it does not resolve the fundamental conflict of the second line performing first-line duties, which compromises the oversight function.

Takeaway: The integrity of the Three Lines of Defense model relies on the clear separation of risk ownership, risk oversight, and independent assurance.

Correct: When a data integrity failure occurs in transaction monitoring, the institution must not only fix the technical root cause but also conduct a retrospective review (lookback). This is necessary to identify any suspicious activity that may have gone undetected during the period of the failure, ensuring that all required Suspicious Activity Reports (SARs) are filed and regulatory obligations are met.

Incorrect: Increasing filter sensitivity for future transactions does not address the historical risk or the specific data mapping error. Terminating the contract is a business decision that does not fulfill the regulatory requirement to remediate the missed monitoring. Simply increasing audit frequency for the future fails to address the immediate need to identify and report suspicious transactions that occurred during the 12-month failure period.

Takeaway: Data integrity failures in transaction monitoring require a retrospective lookback to identify and remediate any missed suspicious activity reporting obligations.