CIMA BA4 · Chapter 4
Ethical conflict, whistleblowing and money laundering MCQs with Answers
10 multiple-choice questions on Ethical conflict, whistleblowing and money laundering for CIMA BA4 Fundamentals of Ethics, Corporate Governance and Business Law. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
What is the first step a member should normally take when trying to resolve an ethical conflict?
- A) Gather the relevant facts and identify the ethical issues and fundamental principles involved
- B) Resign from the organisation
- C) Inform a journalist so that the issue becomes public
- D) Ignore the issue unless it involves a criminal offence
Show answer & explanation
Answer: A) Gather the relevant facts and identify the ethical issues and fundamental principles involved
The Code's resolution process begins with establishing the relevant facts, the ethical issues and the fundamental principles involved, followed by considering internal procedures and alternative courses of action. Resignation is a last resort. Going to the media is not an appropriate first step and may itself breach confidentiality.
Question 2
Which of the following is the best description of 'whistleblowing'?
- A) Leaking a company's confidential plans to a competitor for payment
- B) Refusing to work overtime without extra pay
- C) Disclosing information about wrongdoing within an organisation to someone who can take action, internally or externally
- D) Publishing an organisation's annual report
Show answer & explanation
Answer: C) Disclosing information about wrongdoing within an organisation to someone who can take action, internally or externally
Whistleblowing is reporting suspected wrongdoing, such as fraud, danger or illegal conduct, to people able to address it, whether internal (such as an audit committee) or external (such as a regulator). Selling secrets to a competitor is a breach of confidentiality, not whistleblowing.
Question 3
Which is the correct order of the three stages of money laundering?
- A) Placement, layering, integration
- B) Layering, placement, integration
- C) Integration, layering, placement
- D) Placement, integration, layering
Show answer & explanation
Answer: A) Placement, layering, integration
Placement introduces criminal cash into the financial system, layering disguises its origin through complex transactions, and integration returns the funds to the economy as apparently legitimate wealth. The order matters: funds must be placed before they can be layered and finally integrated.
Question 4
A criminal pays cash from drug sales into many small bank deposits below reporting thresholds. Which stage of money laundering does this represent?
- A) Layering
- B) Integration
- C) Placement
- D) Tipping off
Show answer & explanation
Answer: C) Placement
Placement is the initial stage in which illicit cash is introduced into the financial system, often by splitting it into small deposits ('smurfing'). Layering would involve moving the money through complex transactions, and integration would return it as apparently clean funds. Tipping off is a separate offence, not a stage.
Question 5
Under UK anti-money-laundering law, an accountant who suspects money laundering tells the client that a report has been made to the authorities. Which offence may the accountant have committed?
- A) Placement
- B) Tipping off
- C) Insider dealing
- D) Fraudulent trading
Show answer & explanation
Answer: B) Tipping off
Tipping off is the offence of disclosing that a suspicious activity report has been made, or that an investigation is under way or contemplated, where the disclosure is likely to prejudice an investigation (Proceeds of Crime Act 2002, s333A, which applies to the UK regulated sector, including accountants). Placement is a stage of laundering, and insider dealing and fraudulent trading are unrelated offences.
Question 6
An accountant in business suspects that a colleague is laundering money through the company's accounts. To whom should she normally report her suspicion first?
- A) The colleague suspected of laundering
- B) The company's external customers
- C) A national newspaper
- D) The organisation's money laundering reporting officer (MLRO) or nominated officer
Show answer & explanation
Answer: D) The organisation's money laundering reporting officer (MLRO) or nominated officer
Organisations within the regulated sector appoint an MLRO (nominated officer) to receive internal reports and decide whether to report externally to the relevant authority. Reporting to the suspect would risk tipping off, and disclosure to customers or the press would breach confidentiality and could prejudice an investigation.
Question 7
A member has exhausted internal procedures and the ethical conflict remains unresolved. Which of the following would be an appropriate next step under the CIMA Code?
- A) Continue with the unethical action because the internal procedures have been completed
- B) Disclose the matter to friends and family to obtain their opinion
- C) Seek advice from CIMA's ethics helpline or obtain legal advice before deciding whether to disassociate from the matter
- D) Destroy any documents relating to the matter
Show answer & explanation
Answer: C) Seek advice from CIMA's ethics helpline or obtain legal advice before deciding whether to disassociate from the matter
If a conflict cannot be resolved internally, the member may seek professional advice from CIMA or legal advice, and if still unresolved should refuse to remain associated with the matter, which could ultimately mean resignation. Proceeding with the unethical action, discussing confidential matters socially or destroying evidence would all be inappropriate.
Question 8
In the UK, which of the following statements about legal protection for whistleblowers is correct?
- A) Only employees with at least ten years' service are protected
- B) Protection applies only when the disclosure is made to a newspaper
- C) A whistleblower must prove that the wrongdoing actually occurred to be protected
- D) Workers who make a protected disclosure about specified wrongdoing are protected from dismissal and detriment for making it
Show answer & explanation
Answer: D) Workers who make a protected disclosure about specified wrongdoing are protected from dismissal and detriment for making it
Under UK law (the Public Interest Disclosure Act 1998, which inserted Part IVA and related provisions into the Employment Rights Act 1996), workers who make a qualifying disclosure in the public interest, for example about crimes, breaches of legal obligations or danger to health and safety, are protected from detriment, and dismissal for making a protected disclosure is automatically unfair (ERA 1996, s103A) with no minimum service requirement. A reasonable belief is required, not proof, and disclosures to the employer or a prescribed regulator are protected more readily than disclosures to the media.
Question 9
A management accountant's manager instructs her to reclassify revenue expenditure as capital expenditure so that a profit target is met. She raises it with the manager, who refuses to change his mind. What is the most appropriate next step?
- A) Escalate the matter to a higher level of management or the audit committee, in line with the organisation's procedures
- B) Make the adjustment, because she has already raised her concern
- C) Report the matter immediately to the press
- D) Resign immediately without raising the matter with anyone else
Show answer & explanation
Answer: A) Escalate the matter to a higher level of management or the audit committee, in line with the organisation's procedures
Where a matter cannot be resolved with the immediate superior, the member should escalate it through the organisation's procedures, for example to the next level of management, internal audit or the audit committee. Complying would breach integrity. Going to the press is premature and resignation is a last resort after internal routes and advice have been exhausted.
Question 10
Which of the following situations is most likely to involve the 'layering' stage of money laundering?
- A) Depositing banknotes from criminal activity into a bank account
- B) Repeatedly transferring funds between shell companies in several countries to obscure the audit trail
- C) Buying a property using funds that now appear to be legitimate business profits
- D) Reporting a suspicious transaction to the authorities
Show answer & explanation
Answer: B) Repeatedly transferring funds between shell companies in several countries to obscure the audit trail
Layering involves complex series of transactions, often across borders and through shell companies, designed to distance the funds from their criminal source. Depositing cash is placement, and buying assets with apparently clean funds is integration. Reporting is a compliance action, not laundering.