Interview Preparation guide for AML Domain

General Questions: -

Question – What is Money Laundering and three stages of Money Laundering?

- Money Laundering is a process of converting illegal funds to legal funds. The three
stages of money laundering are 1- Placement; 2- Layering and 3- Integration.

Question – What is structuring?

- Structuring is a process of breaking down large amount of funds to small portions
below the threshold amount (e.g., in USA $10,000) to avoid filing of regulatory
reporting.

Question – What is Correspondent Banking and risk faced by correspondent banking?

- Corresponding Banking also known as clearing house, facilitates the cross border
payments. Three risk faced by correspondent banking are – 1) Correspondent bank
does not first-hand information of the end customers; 2) Geographical risk (as
payments are usually cross border); 3) Amounts involved are high.

Question – What/ How is a PEP and what is the risk with PEP?
- PEP is Politically exposed person, who holds or has held a prominent political
position is consider as PEP. There are two risk factors with PEP – 1) PEPs have access
to huge amount of public funds; and 2) PEPs have the power to influence high level
decisions.

Question – What is a MSB and risks with MSB?

- MSB known as Money Services Business are business that facilitates services like
currency exchange, money transmitting, and provide monetary instrument like
cashier’s check, prepaid cards and money orders. Risk that MSB brings are Banks are
not aware of the end customer, and MSB also deal in cash, which is risk as source of
funds is not available in cash deals.

Question – What is Terrorist Financing?

- Terrorist Financial is financing the terrorist group for spreading terrorism.

Question – What are the difference between Money Laundering and Terrorist Financing?
- Two major difference of ML & TF are - 1 – In Money laundering, the source of funds
are always illegal; and in Terrorist financing source of fund is both legal and illegal. 2
– In Money laundering the objective is to make dirty money to clean, and in Terrorist
financing the objective is to spread terrorism.

Question – What is FATF?

- FATF is financial Action Task Force, combats Money Laundering and Terrorist
financing by provide 1) Guidance and Recommendation to the member countries; 2)
Monitor the effective implementation of recommendations; and 3) Effective
assessment. There are 40 recommendation provided by FATF to fight ML & TF.
Question – What is FIU and who is FIU of US and UK?
- FIU is Financial Intelligence Unit which is responsible for 1) Collection of information
(through SAR/ STR submitted by banks); 2) Analysing the information and 3)
Dissemination or distribution of information to the relevant regulator and law
enforcement. FIU of US is FinCEN (Financial Crime Enforcement Network) and FIU of
UK is NCA (National Crime Agency)

KYC (Know Your Customer) expected questions: -

Question – What is KYC and key element of KYC? (Interviewer may not ask for whole answer
mentioned below, but may ask in bits and pieces)
- KYC (Know your customer) is a process of knowing the customer details. KYC process
involves six key critical components provided below-
1) Identity and Verification (ID&V) – In this bank collect the identity information of the
customer. If individual, banks collects ID and Address verification document; and if
company, bank collects document like Articles of Association, Memorandum of
Association or Incorporation Certificate/ for Partnership companies – Partnership
deed/ for Trust – Trust deed; to prove legal existence of company; status of the
company; date of incorporation; registration number; entity legal name.
2) Customer Profile – In this step, bank identifies (for Company) - ultimate beneficial
owner (UBO); - nature of business; - nature of relationship to be established with the
bank; - Identification of source of funds and source of wealth; - Key Individuals or
Principals. (for Individual) – Customer type (normal or PEP); - Employment details; -
nature of relationship to be established with the bank; - Identification of source of
funds and source of wealth.
3) Screening- In this step, Customer name is screening through three types of
screening, 1) Negative media – to identify negative news; 2) Sanctions screening –
Customer name is screened against the SDN list; 3) PEP screening – Customer name
is screened against the PEP list.
4) Risk Rating & Acceptance – In this step, Customer risk is determined based on three
factors, 1) Customer type; 2) Geographical Risk; & 3) Product type, and is accepted
with relevant risk of High, Medium or Low.
5) Monitoring and Investigation – In this step, banks monitor the unusual transactions
or pattern, and appropriate investigation is done to understand the purpose of the
transactions deviating from customer KYC profile.
6) Documentation- In this step – Bank documents the finding for the investigation as
evidence of investigation performed.

Question – What is customer KYC review period?

- There are two types of review period, 1) Periodic Review and 2) Event based KYC
Review. In Periodic review, for Low risk customer – every 5 years review is
performed, for Medium risk customer – every 3 years review is performed, and for
High risk customer – every 1 year review is performed. In Event based review – KYC
review is performed, whenever customer transactional activity changes.

Question – What is EDD and why bank perform EDD?

- EDD is Enhanced Due Diligence, which is performed on high risk customer, to
mitigate the higher risk the customer may bring to the bank. The risk is mitigated by
doing additional due diligence like, doing site visits to verify the customer existence,
verifying banking reference, calling and email on the provided details to check
whether they are actually assigned, verifying the financial documents of the entity
and all other steps involved in customer due diligence.

Question – What is Ultimate ownership structure percentage for Low, Medium and High risk
customer, while doing KYC profiling?
- For Low and Medium risk customer, any UBO holds 25% or more ownership in a
company will undergo KYC process. For High Risk customer, any UBO holds 10% or
more ownership in a company will undergo KYC process.

Screening expected questions: -

Question – What is Sanctions?

- Sanctions are trade and official restrictions imposed to economically disable those
who are involved in committing illegal activities and have broken the international
law impacting the human rights. Sanction are imposed by global bodies like UN
(United Nations), EU (European Union), Interpol, OFAC (Office of Foreign Asset &
Control) in US, HMT (Her Majesty’s Treasury) of UK and others.

Question – What are type of Sanctions?

- There are three types of sanction screening
- 1) List Based Sanctions - list based sanctions will have names of individual also
known as (SDN – Specially Designated Nationals), organizations and vessels (mostly
ships).
- 2) Sectorial Sanctions – Sanctions imposed on certain sector of an economy/
country (for example – financial sector of Russia is sanctioned)
- 3) Comprehensive Sanctions – These are complete sanctions imposed on countries
to disable the economic strength, by restricting trade relations. Examples of
comprehensive sanction countries are, Iran, North Korea, Syria, Cuba, Crimea
Region..

Transaction Monitoring expected questions: -

Question- What is Transaction Monitoring?

- Transaction Monitoring is processing reviewing the transactions of the customer to
identify if there are any suspicious transactions and recommend SAR (Suspicious
Activity Report)

Question – What is SAR?

- SAR (Suspicious Activity Report) or STR (Suspicious Transaction Report) is a tool used
by banks to file suspicious activity to the FIU (Financial Intelligence Unit).

Question – Tell me about few threshold?

- Rapid Movement of Funds/ Wash Transactions
- Structuring of funds
- Round dollar transactions

Question – Tell me about Rapid movement of funds?

- Rapid movement of funds is quick incoming and outgoing of funds within a week
time, also is known as wash transactions.

Question – Tell me about Structuring of funds.

- Structuring of funds are transactions which fall below the reporting threshold, for
example in US, transactions below 10000 USD fall under the structuring pattern.
*Structuring is a process of breaking a large amount of funds in smaller
transactions below the reporting requirement to avoid regulatory attention.

Question – Tell me a scenario where you had identified a potential Suspicious activity?
- There was a case that was closed by the operations team based on complimentary
line of business, but when it came for QA review, I was able to identify through open
search that the focal entity had a subsidiary in Iran, which is a Sanctioned country,
and hence we reopened the alert and escalated to Level 2 team, and later during the
onsite calibration call, it was informed that a SAR has been raised on the FE, and I
received a appreciation from the US stakeholder.

Question – Who is the US financial regulator?

- OCC – Office of the Comptroller of Currency

Question – What is BSA Act?

- BSA Act also known as Bank Secrecy Act of 1970 states that financial institutions
should record and report financial transactions. BSA Act has five pillars, which every
financial institution should implement – 1) Development of internal policies and
procedures; 2) Appointment of designate compliance officer; 3) Employee ongoing
training program; 4) An independent Audit review; 5) Customer Due Diligence

Question – What is the full-form US Patriot Act?

- US Patriot Act of 2001 also referred as United and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism.
-Section 313 – refers to prohibition of doing business with shell banks.
-Section 314 (a) – refers to sharing information with law enforcement and
regulators. 314 (b) – refers to sharing information within the banks.

Good to Know –
*Safe harbour – Protection to the financial institution from retaliation of the customers.
* Tipping off – Sharing the investigation information to the customer. It is crime.
* Payment stripping – Removing potential suspicious information. It is crime.
* Smurfing – Depositing of funds in small ratio in multiple accounts by the help of smurf.