What should a compliance officer recommend when a longtime customer exhibits unusual deposit and transfer behavior?

• A. Contact the board of directors immediately.
• B. Inform law enforcement about potential money laundering.
• C. Gather documentation and prepare to file a suspicious transaction report.
• D. Document the activity without filing a suspicious transaction report.

Answer: (C)

When a longtime customer begins to exhibit unusual deposit and transfer behavior, the compliance officer should recommend gathering documentation and preparing to file a suspicious transaction report (STR). This is the correct approach because it aligns with regulatory requirements and the institution's own protocols for dealing with potentially suspicious activities.

Filing an STR is a critical step in the anti-money laundering (AML) process, as it serves to inform the appropriate authorities about potentially suspicious patterns of behavior that could indicate money laundering or other criminal activities. By preparing this documentation, the compliance officer ensures that there is a detailed record of the unusual behavior, which can be invaluable for any future investigations. This approach also demonstrates the institution's commitment to compliance with AML regulations and its readiness to act on unusual activity, thus protecting the institution from the risks associated with facilitating illicit activities.

While contacting the board of directors may be necessary in some severe cases, it is generally not the immediate step a compliance officer should take regarding a single customer's unusual activity. Informing law enforcement directly about potential money laundering could be premature at this stage, particularly if the institution has not yet conducted a thorough assessment of the situation. Simply documenting the activity without filing the STR would not fulfill the obligation to report significant suspicious behavior, which could expose the institution to