{ "moduleCode": "IFF502", "title": "KYC, CDD and reading the red flags", "levelCode": "L-01", "levelName": "Foundations", "nqf": 5, "credits": 12, "notionalHours": 120, "lessons": [ { "id": "l1m2-1", "title": "Customer Due Diligence: the four elements", "readingMinutes": 30, "objectives": [ "Apply the four elements of Customer Due Diligence to a new relationship.", "Distinguish Simplified, Standard, and Enhanced due diligence and their triggers.", "Identify the two elements at which CDD most commonly fails and why.", "Draft a testable customer profile at onboarding." ], "keyTakeaways": [ "The 25% ownership threshold is a rebuttable presumption, not a ceiling.", "Source of funds ≠ source of wealth; both are required at EDD.", "Failures cluster at BO identification and ongoing monitoring." ], "keyTerms": [ { "term": "PEP", "definition": "Politically Exposed Person, an individual entrusted with prominent public functions, and their close associates and family." }, { "term": "EDD", "definition": "Enhanced Due Diligence — heightened checks for higher-risk customers." }, { "term": "Beneficial Owner", "definition": "The natural person who ultimately owns or controls a customer or an asset (typically defined as ≥25% ownership or effective control)." } ] }, { "id": "l1m2-2", "title": "Red flags: the FATF and Egmont typologies", "readingMinutes": 25, "objectives": [ "Classify red flags into transactional, behavioural and structural families.", "Apply combinatorial reasoning to elevate an alert to an STR.", "Identify sector-specific flags at retail bank, private bank, notary, crypto exchange.", "Document a red-flag disposition to supervisory standard." ], "keyTakeaways": [ "A single red flag rarely justifies filing; three or four across families almost always do.", "False-positive rates on single-rule monitoring routinely exceed 95%.", "STRs require articulable suspicion, not proof.", "Alerts without disciplined dispositions are worse than no alerts at all." ], "keyTerms": [ { "term": "Egmont Group", "definition": "Global body of Financial Intelligence Units facilitating cross-border information exchange." }, { "term": "Pass-through account", "definition": "Account whose sole function is to receive and immediately forward funds, holding no meaningful balance." } ] } ], "caseStudy": { "title": "The lawyer's client account", "jurisdiction": "Common-law jurisdiction, based on public FATF typology", "summary": "A solicitor's pooled client account receives USD 4.1 million from a client described only as 'a family trust based in Liechtenstein'. Funds are used to buy three residential properties over four months. No CDD file exists for the beneficial owner.", "facts": [ "The solicitor is a sole practitioner in a mid-sized city.", "The trust's protector is a Cayman-based company; the trustee is a Liechtenstein fiduciary.", "Two of the three properties are re-mortgaged within six months of purchase; net cash back to the trust is USD 2.3 million." ], "investigativeQuestions": [ "Which FATF Recommendation and which DNFBP obligations are engaged?", "What EDD steps should the solicitor have performed at instruction?", "How would you approach a mutual legal assistance request to Liechtenstein for the trust documentation?" ], "learningPoints": [ "Legal professionals sit at the top of the AML risk hierarchy for real-estate transactions.", "Chain re-mortgaging is a textbook integration technique.", "Trust structures across two jurisdictions defeat single-jurisdiction beneficial-ownership registries." ] }, "quiz": [ { "number": 1, "type": "multiple_choice", "points": 1, "question": "Which of the following is NOT one of the four elements of CDD under FATF Rec. 10?", "options": [ "Identify the customer", "Identify the beneficial owner", "Understand purpose of the relationship", "Guarantee absence of criminal history" ], "correctIndex": 3, "correctAnswer": "Guarantee absence of criminal history", "rationale": "AML compliance is risk-based; it does not require or guarantee criminal-history certainty." }, { "number": 2, "type": "multiple_choice", "points": 1, "question": "A single wire transfer to a high-risk jurisdiction, in isolation, is:", "options": [ "Proof of laundering", "A red flag requiring assessment in context", "Legally reportable regardless of context", "Irrelevant if under $10,000" ], "correctIndex": 1, "correctAnswer": "A red flag requiring assessment in context", "rationale": "Red flags are probability signals; investigation must combine them with other indicators before filing." }, { "number": 3, "type": "multiple_choice", "points": 1, "question": "Enhanced Due Diligence is mandatory for:", "options": [ "All new customers", "Politically Exposed Persons", "Cash deposits under $10,000", "Domestic wire transfers" ], "correctIndex": 1, "correctAnswer": "Politically Exposed Persons", "rationale": "FATF and virtually all national regimes require EDD for PEPs, cross-border correspondent banking and higher-risk jurisdictions." }, { "number": 4, "type": "multiple_choice", "points": 1, "question": "Enhanced Due Diligence (EDD) is triggered by:", "options": [ "Any new customer", "Politically-exposed persons, high-risk jurisdictions or complex/unusual transactions", "Only cash transactions above USD 10,000", "Only corporate customers" ], "correctIndex": 1, "correctAnswer": "Politically-exposed persons, high-risk jurisdictions or complex/unusual transactions", "rationale": "EDD is required for higher-risk relationships; PEPs, high-risk jurisdictions, unusual transactions, under FATF R.10 and R.12." }, { "number": 5, "type": "multiple_choice", "points": 1, "question": "Red flags in AML analysis should be interpreted:", "options": [ "Individually — one is enough", "Combinatorially — the presence of several together carries the diagnostic weight", "Only when confessed", "Only when quantitative" ], "correctIndex": 1, "correctAnswer": "Combinatorially — the presence of several together carries the diagnostic weight", "rationale": "No single red flag proves laundering; it is the co-occurrence of transactional, behavioural and structural flags that shifts probability." }, { "number": 6, "type": "multiple_choice", "points": 1, "question": "A Suspicious Transaction Report (STR):", "options": [ "Is a criminal charge", "Requires proof beyond reasonable doubt", "Is filed on reasonable grounds for suspicion, with a lower threshold than probable cause", "Can only be filed by law enforcement" ], "correctIndex": 2, "correctAnswer": "Is filed on reasonable grounds for suspicion, with a lower threshold than probable cause", "rationale": "STRs are filed by obliged entities on a suspicion threshold, deliberately lower than probable cause; so that the FIU can triage." }, { "number": 7, "type": "multiple_choice", "points": 1, "question": "The FATF risk-based approach requires obliged entities to:", "options": [ "Apply identical controls to every customer", "Allocate controls proportionately to assessed risk", "Report every transaction to the FIU", "Refuse all cash" ], "correctIndex": 1, "correctAnswer": "Allocate controls proportionately to assessed risk", "rationale": "Since 2012 the FATF standards are explicitly risk-based: resources scale with risk, not with volume." }, { "number": 8, "type": "multiple_choice", "points": 1, "question": "The FATF beneficial-ownership threshold is a rebuttable presumption at:", "options": [ "≥10% direct ownership", "≥25% direct or indirect ownership or effective control", "≥50% voting rights", "Any equity interest" ], "correctIndex": 1, "correctAnswer": "≥25% direct or indirect ownership or effective control", "rationale": "FATF Rec. 10/24 sets the presumption at ≥25% direct or indirect ownership, or effective control by other means." }, { "number": 9, "type": "multiple_choice", "points": 1, "question": "A trust protector's identity is relevant to CDD because:", "options": [ "They own the trust assets", "They may exercise ultimate effective control", "They pay the beneficiaries directly", "They audit the trustee's accounts" ], "correctIndex": 1, "correctAnswer": "They may exercise ultimate effective control", "rationale": "Under FATF R.25 the protector is one of the five roles whose identity must be captured because they may exercise effective control." }, { "number": 10, "type": "multiple_choice", "points": 1, "question": "Simplified Due Diligence (SDD):", "options": [ "Requires no verification at all", "Applies to demonstrably low-risk relationships with reduced evidentiary depth", "Is prohibited under FATF", "Only applies to cash transactions" ], "correctIndex": 1, "correctAnswer": "Applies to demonstrably low-risk relationships with reduced evidentiary depth", "rationale": "SDD applies to low-risk categories (listed public companies, supervised FIs, public bodies) with reduced, not absent — verification." } ], "essayPrompts": [ { "number": 1, "prompt": "Discuss the strengths and weaknesses of the risk-based approach to AML compliance as compared with a rules-based approach.", "wordGuide": "1200-1500", "weightingPercent": 30 }, { "number": 2, "prompt": "Assess the role of legal professional privilege as an obstacle to effective AML supervision of lawyers.", "wordGuide": "1200-1500", "weightingPercent": 30 } ], "assignment": { "prompt": "Design a one-page CDD triage checklist your bank branch could use during onboarding of small-business customers. Justify every field.", "wordGuide": "2000-2500", "weightingPercent": 35 }, "rubric": { "criteria": [ { "criterion": "Legal and regulatory accuracy", "weight": 25 }, { "criterion": "Typology and mechanism analysis", "weight": 25 }, { "criterion": "Evidence and application to the facts", "weight": 20 }, { "criterion": "Investigative or policy judgement", "weight": 15 }, { "criterion": "Structure, referencing and professional expression", "weight": 15 } ], "bands": [ { "band": "Distinction", "range": "75-100" }, { "band": "Meritorious", "range": "65-74" }, { "band": "Competent", "range": "50-64" }, { "band": "Marginal", "range": "40-49" }, { "band": "Not competent", "range": "0-39" } ], "subMinimum": "40% in the assignment component" }, "exportedAt": "2026-08-14T13:05:13.196Z" }