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Answer: The bank should apply its due diligence process not just to potential customers but also to beneficial owners of the proposed customer accounts and persons acting on their behalf.
## Explanation According to Basel Committee guidelines on customer due diligence for banks, **Option C** correctly describes a best practice for mitigating money laundering risk. ### Key Points: - **Comprehensive Due Diligence**: Banks must apply due diligence not only to potential customers but also to beneficial owners of accounts and persons acting on their behalf - **Beneficial Ownership Identification**: This is crucial for understanding the true ownership structure and preventing the use of shell companies or intermediaries to conceal illicit activities - **Risk-Based Approach**: Due diligence measures should be proportionate to the risk profile of customers, rather than applying the same measures to all customers (which contradicts Option B) ### Why Other Options Are Incorrect: - **Option A**: Banks cannot rely solely on due diligence performed by other banks; they must conduct their own independent due diligence - **Option B**: A risk-based approach requires different levels of due diligence based on customer risk profiles, not uniform application to all customers - **Option D**: Anonymous accounts are generally prohibited under anti-money laundering regulations, including numbered accounts that function anonymously The Basel Committee emphasizes that customer due diligence should include identifying and verifying the identity of customers, understanding the nature of their business, and identifying beneficial owners to prevent money laundering and terrorist financing.
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A regional bank is formalizing its policies and procedures to help identify and analyze the risk of potential money laundering transactions. Of special interest is accounting for customers' backgrounds when determining customer acceptance policies. According to Basel Committee guidelines, which of the following correctly describes a best practice that the bank should use in identifying, verifying and profiling customers to help mitigate money laundering risk?
A
The bank does not need to apply due diligence on a customer if the bank receives funds from that customer's account at another bank that is subject to the same customer due diligence standards.
B
The bank should apply the same due diligence measures to all customers regardless of their jurisdiction and the nature of their relationship with the bank to prevent discrimination.
C
The bank should apply its due diligence process not just to potential customers but also to beneficial owners of the proposed customer accounts and persons acting on their behalf.
D
The bank should not open an account for or conduct business with a customer who wants to remain anonymous to the bank except for confidential "numbered accounts" that function as anonymous.