Answer: Establish a threshold transaction value and review all transactions above this threshold for evidence of ML/FT.

## 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.