Which of the following are red flag indicators specifically related to anonymity? (Select Two.)
Answer : A, B
Anonymity red flags in crypto include the use of:
Decentralized or hardware wallets (A): These wallets are often unhosted and can facilitate anonymous transfers across borders, complicating AML controls.
Mixing services (B): These obscure transaction trails by blending multiple users' funds, enhancing anonymity and increasing ML risk.
Privacy-oriented email services (C), fraudulent scheme-linked assets (D), and unusual sign-on activity (E) are also risk indicators but not specifically tied to anonymity in cryptoasset transactions.
AML guidance and thematic reviews emphasize A and B as key anonymity-related red flags.
Question 2
What is the purpose of a security audit in reason to smart contracts?
Answer : D
The primary purpose of a security audit for smart contracts is to protect investors' funds by identifying vulnerabilities, coding errors, and weaknesses in the smart contract or underlying protocol that could be exploited. This proactive approach helps prevent hacks, exploits, and financial loss.
While performance issues (B) may be noted, the critical concern is security. Identifying bad actors (C) is not within the scope of a code audit but is a broader operational issue. Copyright concerns (A) are unrelated.
AML and crypto governance frameworks underline the importance of security audits to mitigate operational risks in DeFi and other smart contract-based applications.
Question 3
A politically exposed person (PEP) opens a crypto account. What is the required action?
Answer : B
PEPs require enhanced scrutiny under FATF Recommendation 12, including senior management approval and source of funds verification.
Question 4
A firm using blockchain analytics finds an address that sent funds through multiple hops before reaching a darknet market wallet. This is an example of:
Answer : B
Indirect exposure occurs when funds pass through one or more intermediary wallets before reaching a known illicit destination. This requires enhanced monitoring to capture risks that are not directly linked but are part of the transaction chain.
Question 5
In sanctions screening, a ''fuzzy match'' occurs when:
Answer : B
Fuzzy matches require further review to confirm whether the match is a true hit or a false positive, ensuring compliance accuracy.
Question 6
A client at a virtual asset service provider (VASP) opened a wallet four weeks earlier with 201,000 USD. The client received a Bitcoin transfer for a total of 565,400 USD. Which is the strongest indication of an illicit source of funds for the client?
Answer : D
Funds moving through multiple intermediary wallets before arriving at the client's wallet indicate layering techniques used to obscure the source of funds, a classic money laundering tactic.
Transferring funds quickly (A) or declaring wealth (B) are less definitive indicators. An untraceable IP (C) raises concerns but is less conclusive than complex transactional layering.
Question 7
Which is an accurate description of a Decentralized Autonomous Organization (DAO)?
Answer : B
DAOs are decentralized organizational structures where protocol governance and operational decisions are made collectively by token holders or participants rather than centralized management. This group voting and consensus determine how the protocol functions.
DAOs do not rely on traditional contracts (D) nor necessarily require ongoing human managerial control (A). They are not simply funds with boards voting (C) but represent decentralized governance mechanisms.
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