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"Most Requested: Commonly Asked KYC/AML Interview Questions with Detailed Explanations"

###KYC, CDD, and EDD:
1. KYC (Know Your Customer):
A process used by financial institutions to verify the identity of their clients and assess the risk associated with them. It is the first step in ensuring compliance with anti-money laundering (AML) regulations.

2. CDD (Customer Due Diligence):
A part of KYC, CDD involves gathering information about a customer to understand their risk profile. This includes verifying the identity of the customer, assessing the nature of their business, and identifying the source of funds.

3. EDD (Enhanced Due Diligence):
Applied to high-risk customers, EDD requires more detailed information to mitigate potential risks. This is often required for Politically Exposed Persons (PEPs) or customers from high-risk jurisdictions.

Factors That Determine the Risk of a Customer:
1. **Nature of Business**: Is the business high-risk (e.g., casinos, money service businesses)?
2. **Location/Jurisdiction**: Is the customer operating in or from a high-risk country or jurisdiction?
3. **Product/Service**: What products or services are being used? (e.g., high-risk products like international wire transfers).
4. **Transaction**: Are there unusual or large transaction patterns that may signal suspicious activity?

###PEPs (Politically Exposed Persons):
#DomesticPEP**: Individuals who hold prominent public functions within their own country (e.g., government officials, judges, military leaders).
International PEP: Foreign individuals holding prominent positions in international organizations (e.g., heads of international agencies).
Foreign PEP: Politicians or officials from foreign governments.

###Money Laundering:
The process of making illegally obtained money appear legitimate. It typically involves three stages:
1. **Placement**: The introduction of illegal funds into the financial system.
2. **Layering**: Complex transactions are carried out to obscure the origin of the funds.
3. **Integration**: The money is reintegrated into the legitimate economy, making it difficult to trace its criminal origin.

###Pillars of KYC (Customer Lifecycle Management - CLM):
1. **CIP (Customer Identification Program)**: The process of verifying a customer’s identity through official documents.
2. **RA (Risk Assessment)**: Assessing the risk level of each customer based on factors like business type, location, and transaction patterns.
3. **CAP (Customer Activity Profiling)**: Monitoring the customer’s transaction behavior over time to detect unusual or suspicious activity.
4. **OD (Ongoing Due Diligence)**: Regularly updating customer information and reassessing risk levels during periodic reviews.
5. **Exit**: The process of offboarding a customer who poses too high a risk or doesn’t meet compliance requirements.

*Sanctions:*
*Who imposes sanctions?*
**Governments**: The U.S., EU, UK, and other national governments.
**International bodies**: United Nations, European Union.

*Types of sanctions:*
1. **Economic Sanctions**: Restrictions on trade, investments, and access to resources for a country or region (e.g., U.S. sanctions on Iran).
2. **Financial Sanctions**: Target individuals or entities by freezing their assets or preventing them from accessing financial systems (e.g., EU sanctions on Russian oligarchs).
3. **Travel Ban**: Restricts individuals from traveling to or from certain countries.
4. **Sports Sanctions**: Prohibits participation in international sports events (e.g., Russia being banned from international competitions).

Sanctions are typically imposed:
During customer onboarding.
During periodic reviews.
During cross-border payments.

*Correspondent Banking:*
Banks providing services to another bank, especially cross-border transactions. This often involves opening an account with a foreign bank to facilitate international business.

#CBDDQ(Correspondent Banking Due Diligence Questionnaire)

(Ultimate Beneficial Owner):
A person who ultimately owns or controls a legal entity. Generally, anyone owning *25% or more* of an entity is considered a UBO.

###KYC Process for Private Entities:
1. **Collection of Documents**: Obtain foundational documents like the Memorandum of Association (MOA), Articles of Association (AOA), and Incorporation Certificate.
2. **Identify UBO**: Identify and verify any person with 25% or more ownership.
3. **Source of Funds and Wealth**: Verify where the company’s funds come from and how its wealth was accumulated.
4. **Assess Risk**: Consider the nature of the business, location, products/services, and transactions to determine the customer’s risk level.

###Parties Involved in a Trust:
1. **Settlor**: The person who creates the trust.
2. **Trustee**: The person or entity managing the trust.
3. **Beneficiary**: The person or entity benefiting from the trust.