ACCA Strategic Professional · Advanced Audit and Assurance (International) · Money laundering
Meridian Partners has a risk-based AML approach. A prospective client, Sable Holdings, is owned through three layers of offshore companies in a high-risk jurisdiction, and its ultimate owner is a politically exposed person (PEP) who declines to explain the source of funds. Which response is most consistent with required enhanced due diligence?
The firm must apply enhanced due diligence: obtain senior management approval, establish source of wealth and funds, monitor more closely, and decline the engagement if satisfactory evidence is not provided. A PEP owning through offshore layers is high risk, so standard checks or only verifying the parent would be inadequate.
- AApply standard CDD because the engagement is a statutory audit, which is automatically low risk
- BProceed once the PEP signs the engagement letter, and review the file at the next annual renewal
- CObtain senior management approval, establish source of wealth and funds, apply enhanced ongoing monitoring, and decline the engagement if satisfactory evidence is not providedCorrect
- DVerify only the identity of the immediate parent company because the ultimate owner is outside the firm's jurisdiction
Explanation
PEPs, complex structures and high-risk jurisdictions require enhanced due diligence: senior management approval, establishing source of wealth and funds, and enhanced monitoring. If the firm cannot complete CDD it must not proceed. Standard CDD or checking only the parent ignores beneficial ownership and the high risk factors present.
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