An overseas client wants to buy a $2.8 million property, with the funds arriving in several international transfers from different countries and no clear reason for the split. Under the AML/CFT Act, what level of due diligence is required?
Correct Answer
A) Enhanced due diligence, because the funding pattern is unusual and complex
This scenario requires enhanced due diligence due to multiple risk factors: high transaction value, overseas client, and multiple international transfers. These factors increase money laundering risk and require additional verification and ongoing monitoring under the AML Act.
Why This Is the Correct Answer
Section 22(1)(c) of the AML/CFT Act 2009 requires enhanced due diligence when a customer seeks to conduct a complex, unusually large transaction or an unusual pattern of transactions with no apparent economic or lawful purpose. Funds split across several countries for no clear reason fit that description, so the agency must verify the source of funds or wealth.
Why the Other Options Are Wrong
Option B: Standard customer due diligence only, as for any other buyer
Standard due diligence ignores the unusual pattern; section 22(1)(c) requires enhanced due diligence for complex or unusual transactions with no apparent purpose.
Option C: None beyond identity checks, as international wire transfers are pre-verified
Banks' checks on wire transfers do not discharge the agency's own due diligence obligations.
Option D: Simplified due diligence, because the client is not physically present
A client who is not met in person is higher risk, not lower; simplified due diligence is only for listed low-risk entities.
Deep Analysis of This Compliance Question
Enhanced due diligence is not triggered by price or nationality alone. Section 22 lists specific triggers: certain customer types (trusts, non-residents from high-risk countries, companies with nominee shareholders), politically exposed persons, complex or unusual transactions with no apparent purpose, and any case the entity's own risk assessment flags. The unexplained split of funds across countries is what brings this scenario within section 22(1)(c).
Background Knowledge for Compliance
The AML/CFT Act 2009 sets three levels of due diligence: simplified (for listed low-risk entities such as government agencies), standard (the default for new business relationships) and enhanced (for the section 22 triggers). Enhanced due diligence adds verification of the source of funds or wealth.
Memory Technique
Enhanced due diligence follows the section 22 triggers: risky customer types, politically exposed persons, unusual or complex transactions, and the entity's own risk assessment. A big price tag alone is not on the list.
When a scenario says 'high value' and 'overseas', look for the actual section 22 trigger before choosing enhanced due diligence.
Exam Tip for Compliance
Unusual or complex transactions with no apparent purpose trigger enhanced due diligence under section 22(1)(c).
Real World Application in Compliance
A Singapore-based buyer plans to pay for an Auckland apartment through transfers from banks in three countries and cannot explain why. The agency applies enhanced due diligence, asking for documents showing the source of the funds and the reason for the arrangement, before it proceeds.
Common Mistakes to Avoid on Compliance Questions
- •Thinking wire transfer verification eliminates other AML requirements
- •Applying only standard due diligence to high-value overseas transactions
- •Believing physical presence determines due diligence levels
Related Topics & Key Terms
Key Terms:
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- → An international client buying a $2.8 million commercial property provides a copy of their overseas passport but refuses any further identity checks or information, claiming diplomatic immunity. How should the agent proceed under AML/CFT requirements?
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