Explanation

Correct Answer: B - Establishing a threshold transaction value and reviewing all transactions above this threshold for evidence of ML/FT is the most appropriate recommendation.

Analysis of Each Option:

A. Require the bank's business units to screen potential employees as part of the first line of defense

• While employee screening is important for ML/FT risk management, this is not the most effective primary control. Employee screening addresses internal risk but doesn't directly monitor transaction patterns that are more indicative of ML/FT activities.

B. Establish a threshold transaction value and review all transactions above this threshold

• ✓ This is the best practice for ML/FT risk management
• Transaction monitoring with threshold-based alerts is a fundamental component of AML/CFT programs
• Allows for systematic detection of suspicious activity patterns
• Aligns with regulatory requirements and international standards (FATF recommendations)
• Provides objective criteria for identifying potentially suspicious transactions

C. Exclude politically exposed persons (PEPs) from screening

• ✗ This is incorrect and contrary to best practices
• PEPs are actually considered higher risk for ML/FT due to their positions and potential for corruption
• Regulatory requirements mandate enhanced due diligence for PEPs
• Excluding PEPs would create significant regulatory and reputational risk

D. Give compliance and legal functions primary responsibility

• ✗ This is not optimal
• While compliance and legal play important roles, ML/FT risk management should be a shared responsibility across the organization
• Best practices involve a three lines of defense model where business units (first line), risk management (second line), and internal audit (third line) all have defined roles
• Concentrating responsibility in one function reduces effectiveness

Key Principles of Effective ML/FT Risk Management:

1. Risk-based approach - focusing resources on higher-risk areas
2. Transaction monitoring - systematic review of customer transactions
3. Customer due diligence - understanding customer profiles and risk levels
4. Suspicious activity reporting - timely identification and reporting of potential ML/FT
5. Enterprise-wide responsibility - shared accountability across the organization

The threshold-based transaction monitoring approach (Option B) directly addresses the core detection mechanism for ML/FT activities and represents a fundamental best practice in the industry.