CAMS Certified Anti-Money Laundering Specialist (the 6th edition) Questions and Answers

According to the Basel Committee’s paper on Customer Due Diligence for Banks1, banks should review their existing customer relationships on a regular basis, especially for higher risk categories of customers or business relationships. This includes identifying whether the customer or the beneficial owner is a PEP, either at the account opening stage or later, as a result of a change in the customer’s circumstances or profile. The paper also states that banks should apply a risk-based approach to determine the appropriate level and type of due diligence depending on the risk profile of the customer or the beneficial owner.

Basel Committee on Banking Supervision, Customer due diligence for banks, October 20011

FATF Guidance: Politically Exposed Persons (Recommendations 12 and 22), June 20132

ACAMS, CAMS Examination Study Guide, 6th Edition, Chapter 4

Banks mustcomply with legal subpoenaswhile ensuring AML compliance.

Option B (Correct):The bank shouldreview client transactionsandrespond fullyto law enforcement.

Option A (Incorrect):Filing a SAR simply because of a subpoenaisnot requiredunless suspicious activity is identified.

Option C (Incorrect):Tipping offthe client about the subpoena isillegalunder AML laws.

Option D (Incorrect):Risk scores should be reviewedbut not automatically adjustedsolely based on a subpoena.

The Wolfsberg Group is an association of thirteen global banks that aims to develop guidance and standards for the management of financial crime risks. The Group has issued a number of documents since its inception to provide financial institutions with an industry perspective on effective financial crime risk management.

When an existing customer becomes a politically exposed person (PEP), the KYC analyst should perform enhanced due diligence (EDD) for that customer. EDD involves gathering additional information about the customer, assessing the risk associated with their PEP status, and updating the KYC profile accordingly. The goal is to ensure compliance with regulations, verify customer identities, and mitigate the higher risk posed by PEPs. Regular monitoring and updates during the review/refresh period are essential to stay informed about any changes in the customer’s status or risk profile1.

 The Financial Action Task Force (FATF) Recommendation that should cause an anti-money laundering specialist the most concern is B: Financial institutions should not keep anonymous accounts. This is because anonymous accounts are accounts that are opened or maintained without verifying the identity of the customer or the beneficial owner, or with fictitious or incomplete information. Anonymous accounts pose a high risk of money laundering and terrorist financing, as they can be used to conceal the origin, destination, and purpose of illicit funds, and to evade the detection and reporting of suspicious transactions. Therefore, the FATF Recommendation 10 requires financialinstitutions to identify and verify the identity of their customers and the beneficial owners, and to prohibit the opening or maintaining of anonymous accounts or accounts in obviously fictitious names1.

The other options are also FATF Recommendations, but they are less relevant or applicable to the scenario. Option A: Financial institutions should not warn their customers when information relating to them is being reported to the competent authorities, is the FATF Recommendation 21, which aims to prevent tipping-off, i.e., alerting the customer that they are being investigated or reported for money laundering or terrorist financing. However, this does not directly address the issue of identity verification or anonymous accounts2. Option C: Financial institutions should maintain all necessary suspicious transaction report records on transactions, both domestic and international, for at least 5 years, is the FATF Recommendation 11, which aims to ensure that financial institutions have adequate and consistent records of their customers and transactions, and that these records are available to the competent authorities when needed. However, this does not prevent the opening or maintaining of anonymous accounts in the first place3. Option D: If financial institutions suspect that funds stem from criminal activity,they should be required to close the account, is not a FATF Recommendation, but rather a possible action that financial institutions may take in accordance with their risk assessment and policies. However, the FATF does not mandate or recommend the closure of accounts as a general rule, and advises that financial institutions should consult with the competent authorities before taking such action, as it may alert the customer or compromise the investigation4.

1: FATF Recommendation 10: Customer due diligence, 1 2: FATF Recommendation 21: Tipping-off and confidentiality, 2 3: FATF Recommendation 11: Record keeping, 3 4: Frequently Asked Questions (FAQs) related to Suspicious Transaction Reporting, 5

The charity frequently withdrawing cash from the bank indicates possible terrorist financing, as cash transactions are often used to conceal the source, destination, and purpose of funds. Cash transactions also make it difficult to trace the flow of funds and identify the beneficiaries. Terrorist financiers may use charities as a cover to collect and distribute funds for their activities, and may exploit the cash-based nature of charitable donations to avoid detection12.

Money laundering through capital marketsoften involvespump-and-dump schemes, wash trading, and layering funds through rapid trading activity.

Option A (Correct):A sudden spike in demand for a low-priced security is a red flag for pump-and-dump schemes, where criminals manipulate the marketto inflate stock prices artificially before selling off shares for a profit.

Option B (Incorrect):A gradual decline in trading volume and price does not indicate suspicious activity related to money laundering.

Option C (Incorrect):An increase in demand for ETFs is common and not necessarily linked to money laundering.

Option D (Incorrect):Holding securities in one specific emerging market may indicate a geographic investment strategy, not necessarily money laundering.

Common Money Laundering Typologies in Capital Markets:

Pump-and-Dump Schemes– Fraudulently inflating stock prices to cash out illicit funds.

Wash Trading– Conductingself-tradesto create an illusion of high market activity.

Layering Funds Through Rapid Trading– Engaging infrequent buy-and-sell ordersto obfuscate the origin of funds.

Best Practices for AML in Capital Markets:

Monitor unusual trading volume and price fluctuations.

Use AI-driven surveillance systems to detect manipulative behavior.

Investigate transactions involving offshore brokers or shell entities.

According to the Anti-Money Laundering Specialist (the 6th edition) resources, the employee should report the conversation to the compliance officer because the colleague is engaging in tipping off, which is a serious violation of anti-money laundering laws and regulations. Tipping off is the act of informing a person or entity that they are the subject of a suspicious transaction report or an investigation, or providing any information that may compromise or impede the investigation. Tipping off can result in criminal penalties, civil liabilities, and disciplinary actions for the individual and the institution. Therefore, the employee has a duty to report the colleague’s misconduct to the compliance officer, who is responsible for ensuring compliance with the anti-money laundering policies and procedures, and taking appropriate corrective actions.

CAMS Certification Package - 6th Edition | ACAMS, Chapter 3: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), page 97

CAMS Certifications: How to Get CAMS Certified | ACAMS, CAMS Examination Preparation, page 8

ACAMS CAMS Certification Video Training Course - Exam-Labs, Module 3: Compliance Standards for Anti-Money Laundering and Combating the Financing of Terrorism, video 3.4: Tipping Off and Confidentiality

Exam CAMS: Certified Anti-Money Laundering Specialist (the 6th edition), Question 8, Answer B

According to the Basel Committee on Banking Supervision (BCBS), a sound KYC program should consist of four essential elements: (i) customer acceptance policy; (ii) customer identification; (iii) on-going monitoring of higher risk accounts; and (iv) risk management. Therefore, B and D are the correct choices among the given options. A customer acceptance policy defines the types of customers that the bank is willing to accept and the conditions for doing so. A risk management system ensures that the bank has adequate policies, procedures, and controls to identify, measure, monitor, and mitigate the risks arising from its KYC program.

Financial institutions must conduct thorough background checks on employees in sensitive roles (e.g., private banking) to mitigate fraud, insider trading, and money laundering risks.

Option A (Correct):Past employment records help verify work history and identify any red flags related to prior financial misconduct.

Option D (Correct):Internet and media searches reveal any negative press, regulatory issues, or connections to illicit activity.

Option E (Correct):Criminal history searches help screen for prior convictions related to financial crimes.

Why Other Options Are Incorrect:

Option B (Incorrect):Personal references are less reliable and may not uncover objective risk factors.

Option C (Incorrect):A resume is self-reported and should be verified using independent sources.

Best Practices for Employee Background Screening:

Conduct enhanced due diligence for high-risk roles (e.g., private bankers, compliance officers).

Use reliable background screening tools and legal databases.

Verify employment history and check against regulatory blacklists.

Money laundering has a significant negative impact on the financial sector by undermining the integrity of financial markets. It distorts asset and commodity prices and leads to the misallocation of resources, which can dampen economic growth. The process also erodes public trust in the financial system and can deter foreign investment.

According to the Anti-Money Laundering Specialist (the 6th edition) study guide, when a financial institution receives a law enforcement request to keep an account open that may be associated with suspicious or criminal activity, it should take the following two steps:

Maintain account records for at least five years after the request expires. This is to ensure that the financial institution can provide evidence of its compliance with the law enforcement request and the applicable anti-money laundering regulations. The five-year retention period isbased on the international standard set by the Financial Action Task Force (FATF) and adopted by many jurisdictions12.

Ask for a written request from the law enforcement agency that defines the duration. This is to protect the financial institution from potential liability and to clarify the scope and purpose of the law enforcement request. The written request should specify the time period for which the account should remain open, the reason for the request, the contact information of the law enforcement officer, and the legal authority for the request34.

Anti-Money Laundering Specialist (the 6th edition) study guide, page 57

FATF Recommendation 11, paragraph 2

Anti-Money Laundering Specialist (the 6th edition) study guide, page 58

Money Laundering website, article on “Law Enforcement Requests to Keep Accounts Open”

https://www.fincen.gov/resources/statutes-regulations/guidance/requests-law-enforcement-financial-institutions-maintain

According to the Anti-Money Laundering Specialist (the 6th edition) study guide, ongoing training is a key element of an effective anti-money laundering compliance program, as it ensures that the staff are aware of their roles and responsibilities, the latest regulatory developments, and the emerging risks and trends in money laundering and terrorist financing1. Ongoing training also helps to foster a culture of compliance within the institution, where the staff are committed to adhering to the policies and procedures, detecting and reporting suspicious activities, and protecting the institution from reputational and legal damages2.

1: CAMS Study Guide, 6th Edition, Chapter 2, Section 2.5, page 53

2: CAMS Study Guide, 6th Edition, Chapter 2, Section 2.6, page 54

The three statements from the procedure that are in line with Wolfsberg are:

B. The responsible private banker must establish the identity of a holder of general powers over an account (e.g. a signatory for the account) and, as appropriate, verify that identity. This is consistent with the Wolfsberg Principle 1.2.1, which states that the bank will establish the identity of its clients and beneficial owners prior to establishing business relationships with such persons1.

D. The responsible private banker must obtain the necessary documentation establishing the authorized signer’s authority to act on behalf of the account holder or beneficial owner (e.g. a Power of Attorney). This is consistent with the Wolfsberg Principle 1.2.3, which states that the bank will obtain the necessary documentation establishing the authority of the authorized signatory to act on behalf of the client or beneficial owner1.

E. If an individual has signing authority over an account but does not act on a professional basis as a manager of funds, the responsible private banker must understand and document the relationship between that authorized signer, the account holder, and, if different, the beneficial owner of the account. This is consistent with the Wolfsberg Principle 1.2.4, which states that the bank will understand and document the relationship between the authorized signatory, the client and, if different, the beneficial owner of the account1.

1: Wolfsberg Anti-Money Laundering Principles for Private Banking (2012)

This is a common red flag of money laundering that involves layering, which is the process of moving funds through multiple accounts or entities to conceal their origin and ownership. Layering often involves cross-border transfers, especially to high-risk jurisdictions, and rapid movement of funds to avoid detection or tracing. A compliance officer should prioritize this red flag for investigation, as it may indicate a complex money laundering scheme or the financing of terrorism or proliferation.

AML Red Flags – What are the Top 10 Indicators? - ComplyAdvantage, section “Red flags related to transaction patterns”

AML 101: The 10 Most Common Red Flags - KYC-Chain, section “Red flag indicators related to geographical risks”

Anti-money laundering red flags, page 2, bullet point 5

The USA PATRIOT Act imposes several requirements on U.S. financial institutions when dealing with foreign financial institutions, especially those that pose a high risk of money laundering or terrorist financing. Two of these requirements are:

Performing enhanced due diligence on shell banks: A shell bank is a bank that has no physical presence in any country and is not affiliated with a regulated financial group. The USA PATRIOT Act prohibits U.S. financial institutions from opening or maintaining correspondent accounts for shell banks, and requires them to take reasonable steps to ensure that their correspondent accounts are not being used by shell banks indirectly12.

Performing due diligence on correspondent accounts: A correspondent account is an account established by a financial institution to receive deposits from, make payments on behalf of, or handle other financial transactions for a foreign financial institution. The USA PATRIOT Act requires U.S. financial institutions to collect and verify certain information about the foreign financial institution, such as its ownership, licensing, and anti-money laundering policies, and to assess the risk of money laundering or terrorist financing associated with the correspondent account13.

CAMS Certification Package - 6th Edition | ACAMS, Chapter 3: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), pages 82-84

CAMS Certifications: How to Get CAMS Certified |ACAMS, Candidate Handbook, page 14

ACAMS CAMS Certification Video Training Course - Exam-Labs, Video 3.4: Correspondent Banking and Money Laundering Risks

a qualified compliance officer is a mandatory element of all anti-money laundering programs, regardless of the type or size of the financial institution. The compliance officer is responsible for developing, implementing, and overseeing the anti-money laundering program, ensuring its compliance with the relevant laws and regulations, and reporting any suspicious activity to the appropriate authorities12. The compliance officer should have sufficient authority, resources, and expertise to perform these duties effectively.

Anti-Money Laundering (AML) | FINRA.org1

Anti-Money Laundering Program and Suspicious Activity Reporting Requirements For Insurance Companies Frequently Asked Questions | FinCEN.gov2

According to the ACAMS CAMS Certification Study Guide (6th edition), one of the challenges of information sharing within a financial group is the compliance with privacy and data protection rules that may vary across jurisdictions. Therefore, before sharing information about a customer with an affiliate, a bank should consider whether such sharing is permitted by the applicable laws and regulations, and whether the customer has consented to it. The other options are not relevant factors for information sharing in the case of an investigation.

ACAMS CAMS Certification Study Guide (6th edition), page 971; ACAMS CAMS Certification Video Training Course, Module 4, Lesson 22

When reviewing business operations of a Money Services Business (MSB), it is critical to identify behaviors that indicate potential money laundering activity. TheCAMS Study Guide – 6th Editionoutlines severalred flagscommonly associated with MSBs.

Option Ais correct:

A customer beinghesitant to provide beneficiary information, such as the name or address, is a red flag. It may indicate attempts to hide the true purpose or recipient of the funds and could suggeststructuring or layering activity.

Option Dis correct:

A customer usingmultiple accounts under different namesto conduct transactions is a strong red flag. This could indicate efforts toobscure ownership, avoid detection, or conductsuspicious structuringbehavior to stay below reporting thresholds.

Option Bis incorrect:

While large cash deposits from cash-intensive businesses may require further review, they are not inherently suspicious unlessinconsistent with the nature of the business or transaction volume.

Option Cis incorrect:

Currency exchanges under the reporting threshold, even from high-risk jurisdictions, are not in themselves red flags unless they show a pattern ofstructuringor are part oflarger suspicious behavior.

Option Eis incorrect:

Frequent small-dollar transfers to a native country may benormal remittance behaviorand only become suspicious if tied to additional indicators such asstructuring or third-party involvement.

purchasing a low volume of chips with cash and turning them in for a casino check is a common technique of money laundering in casinos. This method allows the launderer to convert “dirty” money into physical casino chips, which are then played with for a short while, and then cashed out as “clean” money in the form of a check. This way, the launderer can avoid the reporting requirements and the traceability of cash transactions.

ACAMS CAMS Certification Video Training Course - Exam-Labs1

Understanding Money Laundering in Casinos | ComplyAdvantage2

Casino Money Laundering: Red Flag Indicators - Alessa3

According to the web search results, one of the methods that FATF-style regional bodies (FSRBs) use to understand the inherent money laundering and terrorist financing risks in their regions is to conduct regional-level research and analysis of the money laundering and terrorist financing methods and trends using standards and templates used for FATF typologies reports12. Typologies are the various techniques used to launder money or financeterrorism, and typologies reports are the documents that describe these techniques, identify the vulnerabilities and risks, and provide case studies and best practices to prevent and detect them3. The FATF and its FSRBs produce typologies reports on a regular basis, covering different topics and sectors relevant to their regions and the global community3. By conducting regional-level research and analysis, FSRBs can enhance their understanding of the specific money laundering and terrorist financing threats and challenges faced by their member countries, and provide them with useful guidance and recommendations to mitigate these risks12.

The other options are not correct because they are either not the methods used by FSRBs to understand the inherent money laundering and terrorist financing risks in their regions, or they are not consistent with the FATF standards and expectations. Requiring member countries to develop statistical metrics over money laundering and terrorist financing crimes may be a useful way to measure the effectiveness of their anti-money laundering and counter-terrorist financing (AML/CFT) systems, but it is not a method used by FSRBs to understand the risks in their regions. Rather, it is a requirement imposed by the FATF on all countries to collect and maintain comprehensive statistics on matters relevant to the effectiveness and efficiency of their AML/CFT systems4. Requiring participating financial institutions of their members to file suspicious transaction reports (STRs) to the regional body may be a violation of the FATF standards, which state that financial institutions should report any suspicious transactions to the financial intelligence unit (FIU) of their country, not to any regional or international body5. Moreover, STRs are confidential and protected by legal provisions, and should not be disclosed to any third party without the consent of the FIU5. Conducting global research on money laundering and terrorist financing trends and reporting their findings in their own typologies report may be a duplication of the FATF’s work, as the FATF is the global standard-setter and policy-maker for AML/CFT, and produces typologies reports that cover the global trends and issues3. FSRBs should focus on the regional-level research and analysis, and coordinate and cooperate with the FATF and other FSRBs to share information and experiences12.

 5678910

Money laundering through real estate is a common method of disguising the source and ownership of illicit funds. Real estate transactions often involve large amounts of money, complex legal structures, and cross-border transfers, which can obscure the true nature and origin of the funds. The new business customer in this scenario raises several red flags that warrant enhanced due diligence, such as:

The business was established five years ago but has a vague website and no physical presence in the state where it is registered.

One of the principals has an international phone number and lives abroad, which could indicate a foreign shell company or a politically exposed person.

The other principal works out of a recreational vehicle, which could suggest a lack of legitimate business activity or income.

The business claims to be a real estate business, but does not provide any details about its projects, clients, or partners.

These factors suggest that the business may be involved in money laundering through real estate, either by purchasing properties with illicit funds, using properties to generate illegal income, or selling properties to launder money. Therefore, the financial institution should conduct enhanced due diligence to verify the identity, background, and source of funds of the business and its principals, as well as the purpose and nature of the account relationship.

ACAMS Study Guide for the CAMS Certification Examination - 6th Edition, Chapter 2: Money Laundering Risks and Methods, pp. 46-47

Enhanced Due Diligence in Construction and Real Estate, by James Swenson, Ethixbase 360

Due Diligence & Legal Considerations in Commercial Real Estate, by Justia

FATF Recommendation 29 states that an FIU should serve as a national center for the receipt and analysis of suspicious transaction reports and other information relevant to money laundering and terrorist financing.

“The FIU should serve as a national center for the receipt and analysis of suspicious transaction reports (STRs) and other information relevant to ML/TF, and for the dissemination of the results of that analysis.”

(CAMS 6th Edition, Role of the FIU; FATF Recommendation 29)

"The decision of whether or not to file a suspicious transaction report (also known as a suspicious activity report or SAR in the United States) often involves weighing the aggravating and mitigating factors arising from the research conducted during the investigative process. Financial institutions should draft procedures that document the factors to consider when determining whether a suspicious transaction report (STR) is appropriate."

A customer visiting multiple branches of the MSB on the same day in order to transfer funds internationally is a potential indicator of structuring, which is a technique used by money launderers to avoid reporting thresholds or detection by authorities. A customer attempting to buy money orders under $3,000 USD in cash multiple times a day is also apossible sign of structuring, as well as an attempt to evade the identification and recordkeeping requirements for MSBs. Both scenarios should be included in the procedures for further review by the AML Officer.

BSA/AML Risk Assessment for Money Services Businesses (MSBs), section “Risk Factors”, sub-section “Structuring”: “Structuring is the practice of conducting financial transactions in a specific pattern calculated to avoid the creation of certain records and reports required by the BSA and/or 31 CFR Chapter X. Structuring is illegal and is often indicative of money laundering or other illicit activity.”

Money Services Business (MSB) — AML Compliance Guide, section “AML Compliance Requirements for MSBs”, sub-section “Identification and Recordkeeping”: “MSBs must verify the identity of any person who conducts a transaction of $3,000 or more. They must also keep records of the transaction, including the name, address, date of birth, and identification number of the customer, as well as the amount, date, and method of payment.”

Accounts may beclosedif theypose high money laundering or sanction risks.

Option A (Correct):MultipleSAR filingsindicatehigh risk, possibly requiringaccount closureif AML concerns persist.

Option B (Incorrect):Tuition paymentsare alegitimate purposefor fund transfers.

Option C (Incorrect):Indirect dealings withSDNs require compliance review, but notimmediate account closure.

Option D (Incorrect):Civil subpoenasalone do not justifyaccount termination.

The decision of whether or not to file a suspicious transaction report (also known as a suspicious activity report or SAR in the United States) often involves weighing the aggravating and mitigating factors arising from the research conducted during the investigative process. The final decision should be documented and supported by the reasoning that was used to make the determination. The transaction has already been investigated which led to the requesting of the document. The document checked out and the question did not specify the document was suspicious, therefore we can conclude an STR does not need to be completed and thus should move to document the reason why an STR wasn't completed.

According to the ACAMS CAMS Study Guide (the 6th edition), FIUs are central agencies that receive, analyze, and disseminate financial intelligence to support the detection and prevention of money laundering, terrorist financing, and other financial crimes1. FIUs have different legal powers and functions depending on their type and jurisdiction, but generally they can use various investigative techniques, such as requesting additional information from reporting entities, accessing databases, conducting analysis, and issuing guidance12. FIUs also have access to a wide range of financial information, such as suspicious activity reports, currency transaction reports, cross-border cash declarations, and other relevant data sources, to identify and assess potential illicit activities13. Moreover, FIUs can cooperate and exchange information with domestic andforeign counterparts, subject to certain legal and operational safeguards, to facilitate cross-border investigations and prosecutions of financial crimes14.

The line of business is responsible for creating, implementing and maintaining policies and procedures, as well as communicating these to all personnel. It must also establish processes for screening employees to ensure high ethical and professional standards and deliver appropriate training on AML policies and procedures based on roles and functions performed so employees aware of their responsibilities. To facilitate this, employees should be trained as soon as possible after being hired, with refresher training as appropriate.

Wash trading is the term for trading through multiple accounts, where an individual generates offsetting profits and losses and transfers of positions through accounts that do not appear to be commonly controlled. Wash trading is a form of market manipulationthat creates artificial trading activity and volume, and may be used to evade taxes, inflate prices, or launder money. Wash trading can also involve the use of third parties or intermediaries to conceal the true identity and source of funds of the trader.

= The main references for this question are the following sources:

The document titled “Money Laundering and Terrorist Financing Typologies and Trends in Canadian Securities Dealers” published by the Investment Industry Regulatory Organization of Canada (IIROC) in December 2019. You can access it by clicking here. This document states that “Wash trading is a form of market manipulation where an individual simultaneously sells and buys the same financial instruments to create misleading, artificial activity in the marketplace. Wash trading is illegal under securities law because it misleads investors and regulators about the true supply and demand of the securities involved. Wash trading can also be used to evade taxes, inflate prices, or launder money.”

The document titled “Market Manipulation” published by the Financial Industry Regulatory Authority (FINRA). You can access it by clicking here. This document states that “Wash sales are a form of market manipulation in which an investor simultaneously sells and buys the same security to create misleading, artificial activity in the marketplace. Wash sales are illegal under Section 9(a)(1)(A) of the Securities Exchange Act of 1934. Wash sales can be used to manipulate the price of a security, evade taxes, or launder money.”

According to the Financial Action Task Force (FATF), substantial growth in wealth during a short period of time is a red flag for money laundering or terrorist financing. Additionally, when a client is a family member of a politically exposed person (PEP) from a country known for corruption, it raises concerns about the potential for corruption, bribery, or influence peddling. In this case, the client's father became the president of Country B, which makes him a PEP.

A financial institution (FI) should exit a relationship when the suspicious conduct of the account holder or the FI’s stated policies and procedures for closing an account warrant such action. A FI has the right and responsibility to terminate a customer relationship that poses an unacceptable level of risk to the FI or violates its AML/CFT program. A FI should have clear and consistent criteria for exiting a relationship, such as the number and severity of SARs filed, the nature and extent of due diligence conducted, the availability and effectiveness of mitigating controls, and the alignment of the customer profile with the FI’s risk appetite. A FI should also document the rationale and process for exiting a relationship, communicate the decision to the customer and relevant stakeholders, and monitor the account until closure.

The reputational risk to the FI posed by closing the account or the request from law enforcement to close the account are not valid reasons for exiting a relationship by themselves. A FI should consider the potential reputational impact of closing an account, but it should not outweigh the legal and regulatory obligations of the FI to prevent and detect money laundering and terrorist financing. A FI should also cooperate with law enforcement requests, but it should not automatically close an account based on such requests, as they may interfere with ongoing investigations or intelligence gathering. A FI should exercise its own judgment and discretion in deciding whether to exit a relationship, based on its own policies and procedures and the facts and circumstances of each case.

Exiting Relationships: Ten Steps to a Successful Client Exit Strategy

De-risking your SARs: Building SAR relationship exit strategies into your AML/CFT program

Answers to Frequently Asked Questions Regarding Suspicious Activity Reporting and Other Anti-Money Laundering Considerations

When implementing a risk-based approach related to casinos, the risks related to the customer as an individual are mainly based on the customer’s profile, behaviour, source of funds, and geographic location. Among the options given, B and D are the most relevant factors that could indicate a higher risk of money laundering or terrorist financing.

Casual customers are those who do not have a regular or established relationship with the casino, and who may visit the casino only once or occasionally. They may not provide sufficient or reliable identification information, or may use false or stolen identities. They may also engage in suspicious transactions, such as large cash purchases of chips, minimal or no gaming activity, or frequent transfers of chips between customers. Casual customers pose a higher risk of money laundering or terrorist financing because they are harder to verify, monitor, and trace by the casino operators.

Customer from a high-risk country is a customer who resides in, or has links to, a country that is subject to sanctions, embargoes, or similar measures, or that is identified by credible sources as having significant levels of corruption, or as being a source, transit, or destination of illicit funds. Such customers pose a higher risk of money laundering or terrorist financing because they may be involved in, or connected to, criminal or terrorist activities, or may be using funds that are derived from or intended for such activities.

= The main reference for this question is the document titled “FATF Guidance on the Risk-Based Approach for Casinos” published by the FATF in October 2008. You can access it by clicking here. You can also find more information about the risk-based approach and the customer risks for casinos on the Gambling Commission website and the Exam Answer website.

 According to the Anti-Money Laundering Specialist (the 6th edition) resources, FSRBs are regional organizations that help the FATF implement its global AML/CFT policy and standards in over 200 affiliated countries1. FSRBs have their own high-level principles and objectives that govern their relationship with the FATF and their members2. Among these principles and objectives, two that should be included in a FSRB update are:

Issue country-specific Mutual Evaluation reports. This is the process by which FSRBs assess the compliance and effectiveness of their members’ AML/CFT systems, based on the FATF standards and methodology3. Mutual Evaluation reports provide an in-depth analysis of the strengths and weaknesses of each jurisdiction, as well as recommendations for improvement4.

Identify jurisdictions with weak AML/CFT regimes. This is the process by which FSRBs, in coordination with the FATF, monitor and publicly list the countries that pose a risk to the international financial system due to their strategic deficiencies in AML/CFT. This process aims to encourage and assist these jurisdictions to address their gaps and enhance their cooperation with the global network.

The other three options are incorrect because:

Address AML/CFT technical assistance of individual members is not a principle that should be included in a FSRB update, as it is not a core function of FSRBs. FSRBs may facilitate or coordinate technical assistance, but they are not the primary providers or funders of such assistance.

Establish AML/CFT standards and typologies is not a principle that should be included in a FSRB update, as it is not a role of FSRBs. FSRBs are expected to adopt and implement the FATF standards, not to create their own. Typologies are the methods and trends of money laundering and terrorist financing, which are identified and analyzed by the FATF and FSRBs through research and workshops.

Protect the reputation and standing of FATF is not a principle that should be included in a FSRB update, as it is not a responsibility of FSRBs. FSRBs are autonomous and independent organizations that have their own governance and accountability mechanisms. FSRBs are expected to cooperate and coordinate with the FATF, but not to act as its agents or representatives.

1: ACAMS, CAMS Study Guide, 6th Edition, Chapter 3, p. 64 2: FATF, High-Level Principles for the Relationship between the FATF and the FATF-Style Regional Bodies, February 2019, 3 3: ACAMS, CAMS Study Guide, 6th Edition, Chapter 3, p. 65 4: FATF, FATF Methodology for Assessing Technical Compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems, February 2013 (updated October 2019), [12] : ACAMS, CAMS Study Guide, 6th Edition, Chapter 3, p. 66 : FATF, High-Risk and Other Monitored Jurisdictions, 4 : FATF, High-Level Principles for the Relationship between the FATF and the FATF-Style Regional Bodies, February 2019, 3, p. 4 : FATF, High-Level Principles for the Relationship between the FATF and the FATF-Style Regional Bodies, February 2019, 3, p. 2 : ACAMS, CAMS Study Guide, 6th Edition, Chapter 3, p. 67 : FATF, High-Level Principles for the Relationship between the FATF and the FATF-Style Regional Bodies, February 2019, 3, p. 3 : FATF, High-Level Principles for the Relationship between the FATF and the FATF-Style Regional Bodies, February 2019, 3, p. 5 : FATF, FATF Methodology for Assessing Technical Compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems, February 2013 (updated October 2019), [12], p. 9 : FATF, High-Risk and Other Monitored Jurisdictions, 4, p. 1

Political system changes can have an impact on an organization's AML risk as they can affect the legal and regulatory framework in which the organization operates. For example, changes to the laws or regulations related to AML, or changes in the way in which the government enforces AML regulations, can have an impact on the organization's AML risk by increasing or decreasing the likelihood of it being exposed to AML risk. In addition, changes in the political environment or political stability in a specific jurisdiction can also affect the organization's AML risk.

Mutual Legal Assistance Treaties (MLATs)areformal agreementsforcross-border law enforcement cooperation.

Option D (Correct):MLATsallow countries toexchange information, conduct joint investigations, and provide legal assistance.

Option A (Incorrect):Memoranda of Agreement (MOA)are typicallynon-binding agreementsbetween private entities.

Option B (Incorrect):Declarations of understandingare informal statements, not legally binding treaties.

Option C (Incorrect):Memoranda of Understanding (MOUs)governgeneral cooperation, notformal legal assistance.

According to the Certified Anti-Money Laundering Specialist (the 6th edition) Study guide, the CCO should advise the manufacturing customer that increased scrutiny of cross-border transfers may lead to delays and caution them to ensure that all necessary documentation is provided in order to facilitate a timely transfer. Additionally, the CCO should recommend that the customer contact the FATF to discuss the possibility of an independent review of the findings, as well as other options to mitigate the potential negative consequences.

The specialist should recommend directing the teller (cashier) to file a suspicious transaction report (STR). This is because the teller (cashier) has failed to comply with thebank’s internal policies and procedures for reporting unusual or suspicious activity, which is a key component of an effective anti-money laundering (AML) program1. The teller (cashier) should have filed an internal report of unusual activity assoon as he or she noticed the suspicious transactions, regardless of the personal circumstances or the length of service of the customer involved2. Failing to do so could expose the bank to regulatory sanctions, reputational damage, or legal liability3.

The other options are not appropriate recommendations for the specialist to make in this situation. Continuing to monitor the accounts is not sufficient, as it does not address the past non-compliance or the potential money laundering risk posed by the suspicious transactions. Refreshing anti-money laundering training for the teller (cashier) is not enough, as it does not ensure that the teller (cashier) will report the suspicioustransactions or prevent future violations. Suspending the teller’s (cashier’s) employment is too harsh, as it does not take into account the teller’s (cashier’s) long and exemplary work record, the personal hardship faced by the teller’s (cashier’s) family, or the possibility of remedial actions or corrective measures4.

1: Internal Controls | FinCEN.gov1 2: Reporting Suspicious Transactions - ACAMS2 3: The Consequences of Non-Compliance with AML Regulations - Blog | Unit213 4: Employee Discipline in the Workplace: A Guide for Managers4

 The financial institution should perform further investigation to verify the legitimacy of the tour guide’s explanation and the source of funds. If the investigation reveals any suspicious or unusual activity, such as inconsistent cash flow patterns, involvement of high-risk customers or jurisdictions, or indications of money laundering or terrorist financing, the financial institution should report the activity to the authorities and consider terminating the relationship. The financial institution should also document the investigation and its findings, and update the customer’s risk profile accordingly.

CAMS Study Guide - 6th Edition, Chapter 4, page 112

CAMS Certification Exam Outline, Domain 1, Task 1.2, Skill 1.2.2

ACAMS MoneyLaundering.com, Article: “How to Conduct Effective Customer Due Diligence”

The Financial Action Task Force (FATF) recommends that financial institutions pay special attention to non-face-to-face business relationships or transactions when dealing with new or developing technologies. These include digital channels, online platforms, and virtual interactions. The increased use of technology for remote transactions poses unique risks related to customer identification, authentication, and due diligence. Financial institutions must implement robust controls to mitigate these risks and ensure compliance with anti-money laundering (AML) and counter-terrorist financing (CFT) requirements12.

 A U.S. bank must block or reject an international funds transfer when there is an OFAC designated party to the transaction, regardless of the beneficiary or the correspondent bank. This is because the U.S. bank is prohibited from dealing with any person or entity that is on the Specially Designated Nationals and Blocked Persons List (SDN List) or subject to any other OFAC sanctions program1. The SDN List includes individuals, groups, and entities, such as terrorists and narcotics traffickers, that are designated under programs that are not country-specific2. The U.S. bank must also report any blocked or rejected transactions to OFAC within 10 business days3.

 1: FFIEC BSA/AML Office of Foreign Assets Control - Office of Foreign … 2: Specially Designated Nationals And Blocked Persons List (SDN) Human … 3: [Reporting Blocked Transactions | Office of Foreign Assets Control]

According to the Wolfsberg Anti-Money Laundering Principles for Private Banking (2012), the bank should have a clear policy on how to deal with intermediaries, such as lawyers, accountants, trust and company service providers, or other financial institutions, that introduce or manage clients on behalf of the bank. The policy should reflect the following aspects1:

The bank should perform due diligence on the intermediary itself, including its ownership, reputation, regulatory status, and AML policies and procedures.

The bank should obtain the identity and beneficial ownership information of the clients introduced or managed by the intermediary, and verify them using reliable and independent sources, unless there are legal or regulatory impediments to do so.

The bank should assess the level of due diligence performed by the intermediary on its clients, and determine whether it is equivalent or comparable to the bank’s own standards. If not, the bank should perform additional due diligence on the intermediary’s clients, or decline to accept them.

The bank should monitor the transactions and activities of the clients introduced or managed by the intermediary, and report any suspicious or unusual activity to the relevant authorities.

Option B is consistent with these aspects, as it states that the bank must obtain the same type of information with respect to an introduced client that would otherwise be obtained by the bank, absent the involvement of the intermediary. This ensures that the bank has a sufficient understanding of the client’s identity, source of wealth, and risk profile, and can apply appropriate AML measures.

Option C is also consistent with these aspects, as it states that where an intermediary manages assets on behalf of a number of clients and is the account holder with the bank, but that intermediary does not conduct the same level of due diligence as the bank, it is necessary for the bank to undertake due diligence on the intermediary’s clients. This ensures that the bank does not rely solely on the intermediary’s due diligence, and can identify and mitigate any potential money laundering risks associated with the clients.

Option A is not consistent with these aspects, as it states that when an intermediary introduces clients to the bank, it is not necessary for the bank to perform due diligence on the intermediary’s clients. This contradicts the principle that the bank should obtain and verify the identity and beneficial ownership information of the clients introduced by the intermediary, unless there are legal or regulatory impediments to do so.

Option D is also not consistent with these aspects, as it states that where an intermediary manages assets on behalf of a number of clients and arranges for the opening of accounts for its clients with the bank, and that intermediary is a financial institution subject to similar regulations, it is necessary for the bank to perform due diligence on the intermediary’s clients. This contradicts the principle that the bank may rely on the due diligence performed by the intermediary on its clients, if the intermediary is a regulated financial institution that applies equivalent or comparable AML standards to the bank, and if the bank has access to the relevant information and documentation.

1: Wolfsberg Anti-Money Laundering Principles for Private Banking (2012), Section 3: Intermediaries

According to the ACAMS CAMS Study Guide, one of the key elements of an effective anti-money laundering (AML) program is ongoing training for all relevant staff. Training should cover the legal and regulatory obligations, the risks and red flags of money laundering and terrorist financing, the procedures and controls for customer due diligence and transaction monitoring, the reporting and record-keeping requirements, and theroles and responsibilities of the staff and the management. Training should also be tailored to the specific functions and needs of the staff, and should be updated regularly to reflect the changes in the AML environment and the FI’s policies and procedures.

PEPs are considered high-risk customers for AML purposes, as they may abuse their positions of power and influence to commit or facilitate corruption, bribery, embezzlement, or other financial crimes. Therefore, it is essential that the FI’s staff are aware of the definition and categories of PEPs, the sources and methods to identify and verify PEPs, the enhanced due diligence measures and ongoing monitoring that apply to PEPs, and the escalation and reporting procedures for suspicious activities involving PEPs .

If an internal audit reveals that a large group of employees do not know how to handle PEPs, this indicates a serious gap in the FI’s AML training program, which could expose the FI to regulatory sanctions, reputational damage, and legal liabilities. Therefore, the next course of action that should be taken is to create a company-wide training program that covers the relevant aspects of PEPs, and to ensure that the training is delivered to all staff who deal with PEPs or have access to PEP-related information. The training should also be evaluated for its effectiveness and impact, and the results should be reported to the senior management and the board of directors.

ACAMS CAMS Study Guide, 6th Edition, Chapter 2: Developing an Effective Anti-Money Laundering Program, page 51-52

ACAMS CAMS Study Guide, 6th Edition, Chapter 3: Conducting Customer Due Diligence, page 75-78

FATF Guidance: Politically Exposed Persons (Recommendations 12 and 22), June 2013, 1

ACAMS CAMS Study Guide, 6th Edition, Chapter 4: Conducting Ongoing Monitoring, page 97-98

According to the Anti-Money Laundering Specialist (the 6th edition) study guide, one of the best practices for conducting an internal investigation is to request formal company authorization to conduct the investigation. Such authorization should be granted, if possible, by the board of directors or audit committee, as this will help to establish the independence and legitimacy of the investigation, as well as the protection of the attorney-client privilege and the work product doctrine1. The other options are incorrect because:

B. Refusing to provide any records or documents to law enforcement may be seen as obstructing justice or violating regulatory obligations, and may also result in the loss of the privilege or the imposition of sanctions or penalties23.

C. Letting the bank hire any and all contract investigators may compromise the quality and integrity of the investigation, as well as the protection of the privilege or the work product doctrine, as the investigators may not be properly supervised or instructed by legal counsel, or may not be covered by the Kovel doctrine45.

D. Not marking files or documents with privileged and confidential: attorney-client privilege and/or work-product may undermine the claim of the privilege or the work product doctrine, as it may indicate that the materials were not prepared for the purpose of seeking or providing legal advice or in anticipation of litigation, or that they were not intended to be kept confidential67.

1: ACAMS, CAMS Certification Package - 6th Edition, Chapter 5, page 150

2: ACAMS, CAMS Certification Package - 6th Edition, Chapter 5, page 151

3: Perkins Coie, Protecting Internal Investigation Materials From Disclosure, Updates, August 10, 2020

4: ACAMS, CAMS Certification Package - 6th Edition, Chapter 5, page 150

5: Eversheds Sutherland, Legal privilege of corporate internal investigations under US law - 2019 caselaw update, JDSupra, December 20, 2019

6: ACAMS, CAMS Certification Package - 6th Edition, Chapter 5, page 150

7: Norton Rose Fulbright, Internal investigations: when does privilege apply?, Global law firm, September 11, 2018

Money launderers usehigh-value goods(e.g., jewelry, art, and precious metals) todisguise illicit funds.

Option C (Correct):Requesting ahandwritten receipt for a cash purchasesuggests anattempt to avoid record-keeping, a knownmoney laundering technique.

Option A (Incorrect):Buying gold bars withcash and cryptocurrencyisunusualbut notinherently illegalunless the amounts are suspicious.

Option B (Incorrect):Credit card payments are traceableanddo not raise immediate red flags.

Option D (Incorrect):Kimberly Process-certified diamondsare legally sourced, and requesting themdoes not indicate suspicious intent.

Arms and related materials embargo is a type of sanction that prohibits the supply, sale, transfer, or export of arms and related materials to a targeted country, entity, or individual. This type of sanction is most likely to be used in order to avoid escalating violent conflicts and/or proliferation of weapons, as it aims to reduce the availability and access of weapons and ammunition that could fuel violence and instability. Arms and related materials embargo can also prevent the transfer of weapons of mass destruction and their delivery systems to non-state actors or rogue states. According to the UN, arms and related materials embargo is one of the most common and effective forms of sanctions that the Security Council imposes to address threats to international peace and security12.

1: Different types of sanctions - Consilium1

2: UN Sanctions and the Prevention of Conflict - United Nations University2

The branch manager should conduct further investigation before taking any other action, as this activity may indicate possible money laundering or fraud. The branch manager should review the transaction records of the customers and the teller, and look for any unusual or suspicious patterns, such as large or frequent cash deposits, round amounts, structured transactions, or inconsistent information. The branch manager should also interview the teller and the customers, and ask them about the nature and purpose of their relationship, the source and use of funds, and the reason for choosing the same teller. The branch manager should document the findings and report any suspicious activity to the appropriate authorities, if necessary.

CAMS Study Guide, 6th Edition, Chapter 3, Section 3.21

CAMS Study Guide, 6th Edition, Chapter 4, Section 4.21

CAMS Exam Questions and Free Practice Test, Question 322

The payment received from an account in an offshore jurisdiction and the lack of beneficial ownership details for the originating account are two money laundering red flags.Offshore jurisdictions are often used by money launderers to hide the source and destination of their funds, as they typically have low transparency and weak regulatory oversight. The absence of beneficial ownership information makes it difficult to identify the true owners and controllers of the funds, and to assess the legitimacy and risk of the transaction. These factors increase the possibility that the payment is related to money laundering, tax evasion, or other illicit activities.

ACAMS CAMS Certification Study Guide, 6th Edition, page 33

ACAMS CAMS Certification Exam Outline, 6th Edition, Domain 1, Task 1.2

ACAMS CAMS Certification Video Training Course, Module 1, Lesson 1.2

Exam CAMS: Certified Anti-Money Laundering Specialist (the 6th edition), Question 315

Arobust customer identification programis critical in preventing money laundering and financial crime.

Option B (Correct):Understanding the nature and purpose of a customer’s business helps banks assess thelegitimacyof financial activity and identify potential risks.

Option D (Correct):Understandingwhya customer selects a particular bank provides insights intopossible risk factors, such as jurisdictional concerns or access to certain financial instruments.

Option A (Incorrect):Limiting online activities is not a standard CDD (Customer Due Diligence) measure. Risk-based controls are applied but do not involve blanket restrictions.

Option C (Incorrect):While online verification is useful,in-person or government-sourced verificationis preferred.

A customer’s account appears to function as a funnel account whereby cash deposits occur in cities/states where the customer does not reside or conduct business. Frequently, in the case of funnel accounts, the funds are quickly withdrawn (same day) after the deposits are made

A: Selling assets at a significant loss, especially shortly after purchase, is a classic red flag for asset laundering and value manipulation, which can be used to disguise the true nature of proceeds.

C: Transactions involving individuals from high-risk jurisdictions, as identified by the EU and FATF, warrant heightened scrutiny due to increased ML/TF risk.(CAMS 6th Edition, Red Flags for Complex Asset Transactions; EU List of High-Risk Third Countries)

B and D may contribute to complexity but are not the primary red flags in this scenario.

According to the Anti-Money Laundering Specialist (the 6th edition) resources, one of the red flags for money laundering in real estate transactions is the use of an appraiser who is not on the approved list of the financial institution. This could indicate a possible collusion between the appraiser and the borrower or the underwriter to inflate the value of the property and obtain a higher loan amount. The anti-money laundering specialist should document the underwriter’s actions and the reasons for approving the exception, as well as the discrepancy between the appraised value and the market value of theproperty. The specialist should then file a suspicious transaction report (STR) to the relevant authorities, as required by the local regulations .

ACAMS Study Guide for the Certified Anti-Money Laundering Specialist (the 6th edition), Chapter 7: Money Laundering Risks and Methods, page 201.

ACAMS Study Guide for the Certified Anti-Money Laundering Specialist (the 6th edition), Chapter 8: Anti-Money Laundering Programs, page 227.

ACAMS Study Guide for the Certified Anti-Money Laundering Specialist (the 6th edition), Chapter 9: Conducting or Supporting the Investigation Process, page 255.

The United Nations Security Council (UNSC) is the only body with the legal authority under international law to impose binding sanctions on countries, entities, or individuals.

“The Security Council’s primary function in imposing sanctions is to maintain or restore international peace and security. These sanctions are legally binding on all UN member states.”

(CAMS 6th Edition, Chapter: International Sanctions and Proliferation Financing; United Nations Charter, Article 41)

Incorrect Options:

B: Sanctions may address AML/CFT failings, but the core mandate is international peace/security.

C: The UNSC does not primarily conduct research or impact analysis.

D: The purpose is international peace/security, not only domestic financial stability.

Microstructuring is a method of money laundering that involves breaking down large transactions into smaller amounts that are below the reporting threshold or the level of scrutiny of financial institutions. One of the red flags of microstructuring is frequent visits to make cash deposits of nominal amounts, as this may indicate an attempt to avoid detection and conceal the source or destination of illicit funds. Other red flags of microstructuring include checking accounts receiving cash deposits in amounts under $1,000 as infrequently as several times a month, followed by ATM withdrawals in foreign countries, or deposits that are inconsistent with the customer’s profile or business activity.

FinCEN Advisory – FIN-2010-A001, page 4

Red Flags of Money Laundering | PPT, slide 9

Red Flags of Microstructuring | CAMS Exam Preparation | ACAMS

According to the USA PATRIOT Act, the four minimum elements required for an anti-money laundering program for a foreign bank with branches in the United States are:

An ongoing employee training program. This is to ensure that the employees are aware of the anti-money laundering policies and procedures, the legal and regulatory requirements, the red flags and indicators of suspicious activity, and their roles and responsibilities in detecting and reporting money laundering and terrorist financing.

The designation of a compliance officer. This is to ensure that there is a person responsible for overseeing the implementation and effectiveness of the anti-money laundering program, ensuring compliance with the applicable laws and regulations, and liaising with the regulators and law enforcement agencies.

An independent audit function to test the program. This is to ensure that the anti-money laundering program is periodically reviewed and evaluated by an independent and qualified auditor, who can assess the adequacy and effectiveness of the program, identify any weaknesses or deficiencies, and recommend corrective actions or improvements.

The development of internal policies, procedures, and controls. This is to ensure that the foreign bank has a written and documented anti-money laundering program that establishes the standards, guidelines, and processes for preventing, detecting, and reporting money laundering and terrorist financing, and that the program is consistent with the risk profile and business activities of the foreign bank.

The development of a Know Your Customer program is not a minimum element required under the USA PATRIOT Act, although it is a recommended best practice and may be required by other laws or regulations.

CAMS Study Guide - 6th Edition, Chapter 5, pages 141-142

CAMS Certification Exam Outline, Domain 2, Task 2.2, Skill 2.2.1

Anti-Money Laundering Initiatives Under the USA Patriot Act, FindLaw, March 2008

[The U.S. PATRIOT Act and AML: What You Need to Know], Dow Jones Risk & Compliance, June 2020

The main objective when a financial institution (FI) conducts an investigation is to track the movement of the money. Money laundering is a process of disguising the proceeds of criminal activity to make them appear legitimate. The movement of money is an essential element in the process of money laundering. Therefore, tracking the movement of funds is a crucial step in identifying and preventing money laundering. A financial institution must be able to recognize suspicious transactions and report them to the relevant authorities. An investigation is conducted to gather evidence and establish a clear understanding of the transaction flow, the parties involved, and the nature of the activity. This information is used to determine if the transaction is suspicious and if it violates any laws or regulations.

While keeping policies and procedures updated, keeping documentation, and knowing the customer are essential components of a comprehensive anti-money laundering (AML) program, these activities are not the primary objective of an investigation. Policies and procedures need to be updated to reflect changes in regulatory requirements and emerging money laundering risks. Documentation must be retained to provide evidence of the investigation process and outcomes. Knowing the customer is essential to identify and verify the customer’s identity and assess the risk associated with the relationship.

ACAMS Study Guide for the CAMS Certification Examination - 6th Edition, Chapter 3: AML Programs, Section 3.2: AML Program Components, Subsection 3.2.4: Transaction Monitoring and Investigation, pp. 87-88

Main Objective of Conducting Investigations - exam-answer.com

A (ISO): Ensures information security controls are aligned with AFC efforts, protecting sensitive data and reducing the risk of cyber-enabled financial crime.

D (DPO): Helps ensure compliance with data privacy laws and enables secure, lawful information-sharing for AML purposes.

“Collaboration with the ISO and DPO is critical to maintaining data security and privacy within AFC compliance frameworks.”(CAMS 6th Edition, Governance and Cross-Functional Collaboration)

 A significant reduction in suspicious transaction report (STR) filings at a particular branch could indicate that the branch is not properly identifying and reporting suspicious activities, or that the branch is experiencing a change in customer behavior or risk profile. Therefore, the most appropriate action for an anti-money laundering specialist is to review the branch exception reports, which are reports that highlight transactions or activities that deviate from the expected or normal patterns, based on the customer profiles and risk assessments. By reviewing the branch exception reports, the specialist can determine whether there are any changes in activity that warrant further investigation or reporting, or whether there are any gaps or weaknesses in the branch’s compliance program or procedures.

The other options are not as appropriate as reviewing the branch exception reports, as they do not directly address the issue of suspicious activity reporting. Placing the branch on the watchlist may be a subsequent action, but it does not provide immediate insight into the reason for the reduction in STR filings. Analyzing the branch activity reports may show whether there has been a decrease in branch activity, but it does not explain why the activity has decreased, or whether the remaining activity is suspicious or not. Reviewing the staff records may reveal whether inexperienced personnel are in critical positions without appropriate training, but it does not account for other factors that may affect the branch’s compliance performance, such as management oversight, internal controls, or customer risk.

ACAMS CAMS Certification Study Guide (6th edition), page 361; ACAMS CAMS Certification Video Training Course, Module 2, Lesson 12; What Is a Suspicious Activity Report (SAR)? Triggers and Filing3; Reporting suspicious transactions to FINTRAC4.

According to the Wolfsberg Principles on Correspondent Banking1, an institution should consider the following three elements in its enhanced due diligence process for higher risk respondent bank customers:

The quality of the respondent’s AML and client identification controls: The correspondent should assess the adequacy and effectiveness of the respondent’s AML policies, procedures, and systems, as well as its compliance with applicable AML laws and regulations. The correspondent should also verify that the respondent has implemented appropriate customer identification and verification measures, and that it maintains sufficient records of its customers and transactions.

A risk-based determination as to whether or not the respondent is a shell bank: The correspondent should ensure that the respondent is not a shell bank, which is defined as a bank that has no physical presence in any country and is not affiliated with a regulated financial group. The correspondent should also avoid establishing or maintaining relationships with banks that are known to allow their accounts to be used by shell banks.

Whether a Politically Exposed Person (PEP) has an interest or management role in the respondent: The correspondent should identify and assess the potential risks associated with any PEPs who have an ownership or management interest in the respondent, or who are customers of the respondent. The correspondent should apply enhanced scrutiny and monitoring to such relationships, and obtain senior management approval before establishing or continuing them.

Wolfsberg Correspondent Banking Principles 2022 by the Wolfsberg Group, October 2022.

One of the methods that FATF-style regional bodies (FSRBs) use to understand the inherent money laundering and terrorist financing risks in their regions is to conduct regional-level research and analysis of the methods and trends used by criminals and terrorists to exploit the vulnerabilities of the financial system. This research and analysis is done using the standards and templates developed by the FATF for its typologies reports, which are documents that describe the common features, techniques, and patterns of money laundering and terrorist financing activities. By producing their own typologies reports, FSRBs can identify the specific risks and challenges faced by their member countries and jurisdictions, and provide guidance and recommendations on how to mitigate them.

What are the 9 FATF-Style Regional Bodies (FSRBs)? - Sygna, What are FATF and FSRB typologies?

FATF-Style Regional Bodies (FSRBs) - Asia/Pacific Group on Money Laundering, What are the main duties of FSRBs?

Financial Action Task Force - Wikipedia, Typologies.

AML risk assessments must beupdatedwhen there aresignificant changes in business operations.

Option A (Correct):New products (e.g.,cryptocurrency services, trade finance) introducenew AML risks.

Option D (Correct):Technology changes(e.g.,AI in transaction monitoring, new digital banking platforms) impactfraud and AML controls.

Option E (Correct):Mergers or acquisitionsintroducenew customer bases, jurisdictions, and compliance frameworks, requiringrisk reevaluation.

Option B (Incorrect):While compliance restructuring is important,it does not change inherent risk exposure.

Option C (Incorrect):Management changesmay affect oversight, but they donot directly alter risk exposure.

FIUs act as central hubs for financial crime intelligence, receiving and analyzingSuspicious Activity Reports (SARs)and other data to support law enforcement.

Option A (Correct):FIUscollect, analyze, and disseminate financial intelligencerelated tomoney laundering and terrorist financing.

Option B (Incorrect):FIUsdo not prosecute cases—they refer cases tolaw enforcement agenciesfor prosecution.

Option C (Incorrect):FIUs analyze financial crime data butdo not develop surveillance technology.

Option D (Incorrect):FIUs share intelligencewith law enforcement and regulatory bodies, not directly with private companies.

Types of FIUs and Their Roles:

A screenshot of a web page Description automatically generated

Key FIU Responsibilities:

Collect Suspicious Activity Reports (SARs)from financial institutions.

Analyze financial transactionsto identify money laundering patterns.

Disseminate intelligence to law enforcement and regulatory authorities.

According to the Certified Anti-Money Laundering Specialist (CAMS) Manual , 6th edition, if a bank's transaction surveillance system triggers an alert for a deposit of 250.000 USD into a client's account, the bank should take the following actions:

Request information and documentation from the client on the background of the transaction (CAMS Manual, 6th edition, page 46).

Contact the client advisor to learn if he has any insight on the transaction background (CAMS Manual, 6th edition, page 47).

Review the transaction background in the bank's transaction platform (CAMS Manual, 6th edition, page 47).

Discarding the alert as a false positive hit and reviewing the alert if the deposit is made in cash should not be done.

The bank should request additional information and documentation from the client to better understand the nature of the transaction. Additionally, the bank should reach out to the client advisor to learn if they have any insight on the transaction background. Finally, the bank should review the transaction background in the bank's transaction platform to determine if any additional alerts or anomalies are present. (CAMS Manual, 6th Edition, Pages 117-118)

All of the three options reflect money laundering risk indicators in relation to a securities account, as they could suggest attempts to conceal the source or destination of illicit funds, or to avoid detection or reporting by authorities. According to the FATF Guidance for a Risk-Based Approach for the Securities Sector1, some of the common indicators of money laundering in securities transactions include:

A high level of activity in securities accounts inconsistent with the customer’s profile or investment objectives

Frequent or large movements of funds between accounts or institutions, especially involving high-risk jurisdictions or offshore locations

Use of debit cards or other payment instruments to access funds from securities accounts

Use of complex or unusual transactions or structures without apparent economic or legal purpose

 1 FATF Guidance for a Risk-Based Approach for the Securities Sector, pages 43-44.

Trade finance transactions involve the financing of the movement of goods and services across borders. Trade finance products include letters of credit, guarantees, documentary collections, open account, and supply chain finance. Trade finance transactions are exposed to various risks, such as credit risk, operational risk, fraud risk, and money laundering risk. Money laundering risk refers to the possibility that trade finance transactions are used to conceal the origin, ownership, or destination of illicit funds, or to evade taxes, sanctions, or exchange controls. Trade-based money laundering (TBML) is a form of money laundering that involves the manipulation of trade transactions, such as mispricing, misinvoicing, over- or under-shipping, or falsifying documents, to transfer value or obscure the true nature of the funds12.

An analyst reviewing trade finance transactions should be alert to any red flags or indicators of potential TBML, such as significant discrepancies between the value or quantity of the goods and the invoice, payment, or contract; unusual or complex shipment routes or methods; involvement of high-risk jurisdictions, entities, or commodities; or lack of transparency or documentation of the trade transaction12. If the analyst notices an increase in price of 25% over 12 months for commodities with the same specification and quantity, this could be a sign of mispricing, which is a common technique of TBML. Mispricing involves inflating or deflating the price of the goods to transfer value or evade taxes or duties. For example, an exporter may overprice the goods to move funds out of a country with exchange controls, or an importer may underprice the goods to reduce the customs duty payable12.

However, an increase in price of 25% over 12 months for commodities with the same specification and quantity does not necessarily indicate TBML, as there could be other legitimate factors that may have affected the transaction cost, such as market fluctuations, supply and demand, quality, transportation, insurance, or other fees. Therefore, the analyst should not jump to the conclusion that TBML is occurring, but rather conduct a thorough investigation to verify the validity and rationale of the price change. The analyst should produce an investigation report that considers the client activity and factors that may have legitimately affected the transaction cost, such as:

The nature and purpose of the client’s business and trade activities

The client’s profile, risk rating, and transaction history

The source and destination of the funds and the goods

The market price and trends of the commodities involved

The contractual terms and conditions of the trade transaction

The supporting documents, such as invoices, bills of lading, certificates of origin, inspection reports, etc.

The due diligence and verification procedures performed by the bank or the third parties

The compliance with the relevant laws, regulations, and standards of the jurisdictions involved

The investigation report should document the findings, analysis, and conclusions of the analyst, and provide evidence and references to support the assessment. The investigation report should also include any recommendations or actions to be taken by the bank or the authorities, such as:

Requesting additional information or clarification from the client or the counterparties

Conducting enhanced due diligence or monitoring of the client or the transaction

Escalating the case to the senior management or the compliance department

Reporting the case to the Financial Investigation Unit (FIU) or the relevant regulator

Filing a Suspicious Activity Report (SAR) or a Suspicious Transaction Report (STR) if there are reasonable grounds to suspect TBML or other criminal activity

Therefore, the best action for the analyst to take is to produce an investigation report that considers the client activity and factors that may have legitimately affected the transaction cost, as this would allow the analyst to determine whether the price increase is justified or indicative of TBML, and to take appropriate measures accordingly.

Trade Finance and Trade-Based Money Laundering

Trade-Based Money Laundering: Red Flag Indicators

The principles of the Egmont Group of Financial Intelligence Units (FILLs) aimed at maximizing cooperation between FILLs to more effectively combat money laundering are[1]:

B. Information exchange should take place informally, without too many formal prerequisites. (CAMS Manual, 6th Edition, Page 55)

E. It is within an FlU's authority to sign Memorandums of Understanding independently. (CAMS Manual, 6th Edition, Page 56)

According to the Wolfsberg Financial Crime Principles for Correspondent Banking1, a shell bank is defined as a bank that has no physical presence in the jurisdiction in which it is incorporated and licensed, and which is unaffiliated with a regulated financial group that is subject to effective consolidated supervision. Physical presence means meaningful mind and management located within a country. The existence simply of a local agent or low level staff does not constitute physical presence. Therefore, a shell bank meets the criteria A, B, and D, as it does not conduct business at a fixed address, does not employ one or more individuals or maintain operating records at that address, and is not subject to inspection by the banking authority that licensed it. Criterion C is not specific to shell banks, as any bank, whether shell or not, may or may not be subject to AML laws that require it to implement an AML program, depending on the jurisdiction.

Wolfsberg Financial Crime Principles for Correspondent Banking1, Section: Definitions, pp. 3-4.

A multinational institution may face challenges in conducting a full investigation of unusual activity across its foreign operations, due to the different legal and regulatory frameworks that apply in each jurisdiction. One of the main obstacles is the local privacy and data protection laws that may restrict the access, transfer, or disclosure of customer information, especially personal or sensitive data, to other entities within the same group or to external parties, such as law enforcement or regulators. Therefore, the institution should be aware of the local laws and regulations that govern the collection, processing, and sharing of customer data, and ensure compliance with them12.

ACAMS Study Guide, 6th Edition, page 191

Which statement about a multinational institution’s ability to fully investigate unusual activity in all its foreign operations is correct? - Exam4Training

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A multinational institution may face challenges in conducting a full investigation of unusual activity across its foreign operations, due to the different legal and regulatory frameworks that apply in each jurisdiction. One of the main obstacles is the local privacy and data protection lawsthat may restrict the access, transfer, or disclosure of customer information, especially personal or sensitive data, to other entities within the same group or to external parties, such as law enforcement or regulators. Therefore, the institution should be aware of the local laws and regulations that govern the collection, processing, and sharing of customer data, and ensure compliance with them12.

The auditor should include the regulatory violation in the audit report and report it to the board of directors. This is because the auditor has the responsibility to report any findings of non-compliance or material weaknesses in the institution’s internal controls, policies, and procedures. The auditor should also provide recommendations for corrective actions and follow-up on their implementation. The board of directors has the ultimate oversight and accountability for the institution’s compliance program and should be informed of any significant issues or risks that may affect the institution’s reputation, operations, or regulatory status12.

1: CAMS Certification Package - 6th Edition | ACAMS, Chapter 6: Developing an Effective Anti-Money Laundering Program, p. 125-126 2: The Wolfsberg Group, The Wolfsberg Anti-Money Laundering Principles for Correspondent Banking, October 2014, p. 7, https://www.wolfsberg-principles.com/sites/default/files/wb/pdfs/Wolfsberg-Correspondent-Banking-Principles-2014.pdf

The potential client is attempting to commit the illegal activity of using insider information to trade securities. Insider information is any material, non-public information that could affect the price or value of a security, such as earnings reports, mergers, acquisitions, or regulatory actions. Insider trading is the act of buying or selling securities based on insider information, which gives the trader an unfair advantage over other investors who do not have access to such information. Insider trading violates the principles of market integrity, fairness, and transparency, and can undermine investor confidence and trust. Insider trading is also a form of market abuse and financial crime, and is subject to civil and criminal penalties.

ACAMS Study Guide for the CAMS Certification Examination - 6th Edition, Chapter 1: Risks and Methods of Money Laundering and Terrorism Financing, Section 1.3: Financial Crime, Subsection 1.3.3: Market Abuse, pp. 25-26

ACAMS CAMS Certification Video Training Course, Module 1: Risks and Methods of Money Laundering and Terrorism Financing, Lesson 1.3: Financial Crime, Sublesson 1.3.3: Market Abuse, Video Time: 2:00-3:30

Exam CAMS: Certified Anti-Money Laundering Specialist (the 6th edition), Question 12, Answer C

Evaluating the risk scoring model and conducting the risk assessment itself may need to be performed annually, every eighteen to twenty-four months, before the launch of a new product, or when an acquisition of another financial institution occurs.

The Belgian bank should freeze the assets of the customer and report to OFAC, as this is the required action for any US person or entity, or any person or entity within the US, that holds or controls property or interests in property of a person or entity on the OFAC Specially Designated Nationals and Blocked Persons List (SDN List). The SDN List is a list of individuals and entities that are subject to US sanctions and whose assets are blocked by OFAC. The Belgian bank, by maintaining a branch in New York, is subject to the jurisdiction and authority of OFAC, and must comply with its regulations and directives. Allowing transactions, closing the account, or continuing business as usual would violate the sanctions and expose the bank to civil and criminal penalties.

The Office of Foreign Assets Control (OFAC) is a department of the US Treasury that administers and enforces economic and trade sanctions imposed by the US against countries and groups of individuals, such as terrorists and narcotics traffickers. The sanctions can be either comprehensive or selective, using the blocking of assets and trade restrictions to accomplish foreign policy and national security goals. The main purpose of the US Treasury Department for OFAC’s extraterritorial reach is to apply these sanctions to any person or entity that is subject to US jurisdiction, or that engages in transactions involving US persons, US dollars, or US goods or services. This way, the US can exert pressure on the targets of the sanctions and prevent them from accessing the US financial system or market. OFAC’s extraterritorial reach is authorized by Congressional legislation or presidential emergency powers, and is often based on UN Security Council resolutions or multilateral agreements.

Office of Foreign Assets Control (OFAC): Definition, Sanctions

About OFAC | Office of Foreign Assets Control

OFAC’s Extraterritorial Reach: Purpose of the US Treasury Department

United Nations (UN) sanctionsarebindingon allUN member states, but their effectiveness depends onswift adoption and enforcement by national governments.

Option B (Correct):For UN sanctions to be effective, they must be enforced by all member statesthroughstrong domestic legal mechanisms.

Option A (Incorrect):UN sanctions are not necessarily implemented faster than unilateral sanctions (e.g., U.S. OFAC sanctions).

Option C (Incorrect):While UN sanctions apply internationally, enforcement depends on national governments, making implementation inconsistent.

Option D (Incorrect):Clarity of sanction measures is important, but enforcement is the primary factor determining effectiveness.

Key Features of UN Sanctions:

Mandated by the UN Security Council under Chapter VII of the UN Charter.

Binding on all 193 UN member states.

May include asset freezes, travel bans, and trade embargoes.

Best Practices for UN Sanctions Compliance:

Ensure national enforcement aligns with UN Security Council resolutions.

Monitor sanctioned individuals/entities through real-time screening tools.

Cooperate with international organizations to prevent sanctions evasion.

A TCSP providing services should have policies and procedures in place to identify critical information of the signatory, as this is one of the key elements of the customer due diligence (CDD) process. The signatory is the person who has the authority to sign documents or contracts on behalf of the customer, such as a company, a trust, or a partnership. The signatory may also be the beneficial owner, the controller, or a nominee of the customer. The TCSP should verify the identity and the capacity of the signatory, as well as the source and origin of the funds or assets involved in the transaction or business relationship. The TCSP should also monitor the activities of the signatory and report any suspicious or unusual transactions or changes in the signatory’s behaviour or profile.

ACAMS Study Guide for the CAMS Certification Examination - 6th Edition, Chapter 2: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), Section 2.2: Customer Due Diligence (CDD), Subsection 2.2.1: CDD Process, pp. 51-52

RISK-BASED APPROACH GUIDANCE FOR TRUST AND COMPANY SERVICE PROVIDERS (TCSPs), Section III – Guidance for TCSPs, Subsection III.1: Risk Assessment, pp. 23-24

SRA | Trust and Company Service Provider guidance | Solicitors Regulation Authority, Section: Definition, Paragraph 2

A Trust and Company Service Provider (TCSP) providing services should have policies and procedures in place to identify critical information of the:, Answer B

According to the Anti-Money Laundering Specialist (the 6th edition) study guide, individuals who violate anti-money laundering laws can face severe consequences, such as imprisonment, fines, asset forfeiture, and sanctions. These penalties can apply not only to the perpetrators of money laundering, but also to the employees, managers, directors, and officers of financial institutions or other entities that fail to comply with their anti-money laundering obligations. Therefore, violations of anti-money laundering laws can pose a significant risk to individuals, both personally and professionally.

Anti-Money Laundering Specialist (the 6th edition) study guide, page 9

ACAMS website, section on CAMS certification

Money Laundering website, article on “The Consequences of Non-Compliance with Anti-Money Laundering Laws”

Economic sanctionsare used as anon-military toolto enforceforeign policy and national security objectives.

Option D (Correct):Sanctions aim tochange the behaviorof entities engaged inmoney laundering, terrorist financing, or other illicit activities.

Option A (Incorrect):Sanctions do not necessarily indicatemilitary action.

Option B (Incorrect):NGOs may be exempt from sanctions, but this is not their primary purpose.

Option C (Incorrect):Whilehuman rights concernscan lead to sanctions, they are primarily imposed tochange behavior.

Terrorist financing can be facilitated on gaming platforms particularly through the trading of in-game items for fiat currency. This mechanism allows for the movement of value outside the formal financial system, potentially evading detection and reporting requirements.

“One of the key ML/TF risks in online gaming is the ability to convert virtual assets or in-game items into real-world (fiat) currency, thereby providing a channel for laundering money or funding terrorist activities.”

(CAMS 6th Edition, Chapter: Risks and Methods of Money Laundering and Terrorist Financing; FATF, Virtual Assets Guidance 2019)

Incorrect Options:

A: Buying in-game items with in-game currency does not in itself facilitate terrorist financing.

B: Exchanging items between players may be a step in layering but is not direct TF unless items are traded for fiat.

D: Obtaining items by in-game activity is standard gameplay and not a TF method.

 According to the ACAMS study guide, one of the insurance products that is particularly vulnerable to money laundering is annuity, which is “a contract that provides a series of payments over a specified period of time, usually for the life of the annuitant” (p. 223). Annuities can be used by money launderers to deposit large sums of illicit funds in a single transaction, or to receive regular payments from a legitimate source after paying the premiums with dirty money. Annuities can also be surrendered or transferred to third parties, making it difficult to trace the origin and destination of funds.

ACAMS. (2020). Study Guide for the Certification Examination for Anti-Money Laundering Specialists (6th ed.). Miami, FL: ACAMS.

ComplyAdvantage. (2023)AML in Insurance: How to Detect & Combat Money Laundering 1. Retrieved from https://complyadvantage.com

Financial Crime Academy. (2023)Anti Money Laundering (AML) In Insurance Industry In 2021 2. Retrieved from https://financialcrimeacademy.org

Money launderersexploit corporate structuresthat offeranonymityandreduced transparency.

Option A (Correct):Nominee shareholders and directorscan be used tohide true beneficial ownership.

Option C (Correct):Bearer sharesallowownership to transfer anonymously, amajor AML risk.

Option E (Correct):Tax haven companieswithsecrecy lawsare frequently used formoney laundering.

Option B (Incorrect):A private companywithout activitydoes not inherently pose anAML risk.

Option D (Incorrect):LLCscan be transparentif properKYC and reporting measuresare in place.

The USA PATRIOT Act stipulates that US banks that maintain correspondent accounts for foreign banks must keep identification records of foreign bank owners with 50% or more ownership in the bank. This ensures that the US government can track the flow of funds through the correspondent accounts and prevent money laundering and terrorist financing. Additionally, the US federal banking agency can require foreign banks to produce records or information related to any account opened in the US or other countries. This allows the agency to monitor the activities of foreign banks and ensure compliance with US regulations.

The bank should request a formal letter be submitted to verify the validity of the request, as this is the best practice to ensure compliance with the law and protect customer privacy. The bank should not confirm or deny the existence of a customer relationship, nor provide any information without proper authorization. The bank should also not inform the board of directors before responding to the request, as this could compromise the confidentiality of the investigation or alert the customer.

ACAMS CAMS Certification Video Training Course, Module 2: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), Section 2.3: Data Protection and Privacy, Slide 10

ACAMS CAMS Certification Study Guide, 6th Edition, Chapter 2: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), Page 51

The compliance officer should evaluate the request, determine whether it is valid, and provide the necessary information, subject to management approval. It is important to follow the bank's policies and procedures for responding to law enforcement requests, including verifying the authenticity of the request and the identity of the officer making the request. Additionally, it is important to protect customer privacy and ensure that sensitive information is not released to unauthorized individuals. (Reference: Certified Anti-Money Laundering Specialist (the 6th edition), Chapter 6)

 One of the common methods used by money launderers to hide the origin and destination of illicit funds is to create complex corporate structures that obscure the identity of the real owners or controllers of the assets. Lawyers can facilitate this process by providing legal services such as setting up shell companies, trusts, foundations, or other entities in jurisdictions with weak AML regulations or high secrecy. By doing so, lawyers can help their clients evade taxes, avoid sanctions, conceal criminal activities, or launder money. This is why lawyers are considered high-risk professionals for AML purposes and are subject to due diligence and reporting obligations.

= Some of the references that support this answer are:

ACAMS Study Guide for the CAMS Certification Examination, Chapter 3, Section 3.2.2, page 77: “Lawyers are often used to create complex corporate structures that can be used to hide the beneficial ownership of assets.”

Money Laundering Reporting Officer: The Role Of MLRO, Section “Money Laundering Risks For Lawyers”: “Lawyers are at risk of being used by criminals to launder money through various means, such as creating corporate entities, conducting transactions, or providing advice.”

New York Lawyer Pleads Guilty to Ponzi Scheme, Money Laundering, Section “Lawyer agrees to forfeit $19 million from investment scheme”: “A New York lawyer admitted Monday to money laundering and orchestrating an $18.8 million Ponzi scheme using his Forest Hills-based law firms, Wisnicki & Associates LLP and Wisnicki Neuhauser LLP.”

Assessing AML/CFT is an ongoing and evolving component of maintaining a compliant AML/CFT program. Evaluating the risk-scoring model and conducting the risk assessment itself may need to be performed annually, every 18 to 24 months, before the launch of a new product or when an acquisition of another financial institution occurs.

Under the USA PATRIOT Act, a U.S. bank that maintains a correspondent account for a foreign bank operating under an offshore license must obtain from the foreign bank the name and address of a person residing in the United States who is authorized to accept service of legal process for records related to the correspondent account1. This requirement is intended to facilitate the U.S. authorities’ access to information and records regarding the correspondent account and its underlying transactions, especially in cases where the foreign bank is located in a jurisdiction that does not cooperate with U.S. law enforcement or regulatory requests2.

USA PATRIOT Act, Section 319(b)(2)(A)1

ACAMS, CAMS Examination Study Guide, 6th Edition, Chapter 5, pp. 151-152

Money laundering risks arise whentransaction patternsareinconsistent with a business’s expected activity.

Option D (Correct):Multiple cash deposits in different branchesis a knownstructuring (smurfing) technique, used toevade cash transaction reporting thresholds.

Option A (Incorrect):Depositing intoboth checking and savings accountsisnormal behavior.

Option B (Incorrect):Irregular incoming paymentsmay require further review but arenot inherently suspicious.

Option C (Incorrect):Industry-related expenses (e.g., conference tickets)arenormal business activity.

Money laundering negatively affects economic stability by discouraging investment, distorting markets, and eroding public trust.

Option A (Correct):A financial system tainted by money laundering loses credibility, leading to reduced investor and consumer confidence.

Option D (Correct):Foreign investors avoid jurisdictions with weak AML controls due to the risk of sanctions and reputational damage.

Option B (Incorrect):While tax evasion is linked to money laundering, it does not directly affect the decision to implement tax incentives.

Option C (Incorrect):Unemployment may result from economic instability, but money laundering does not directly cause job losses.

Option E (Incorrect):Money laundering often increases volatility in financial markets, not reduces it.

OFAC-issued regulations apply to all U.S. persons, including U.S. banks, bank holding companies, and non-bank subsidiaries, regardless of where they are located. This means that foreign subsidiaries of U.S. banks and U.S. branches of a foreign bank are also subject to OFAC compliance. However, intermediaries transacting with U.S. banks, foreign banks with U.S. customers, and foreign import-export companies are not necessarily subject to OFAC regulations, unless they are involved in transactions that involve U.S. jurisdiction or U.S. persons.

Basic Information on OFAC and Sanctions

OFAC Consolidated Frequently Asked Questions

Office of Foreign Assets Control — Overview

 According to the CAMS Study Guide, the most commonly used risk criteria for assessing the money laundering and terrorist financing risks are country risk, customer risk, and product and service risk. These criteria are based on the FATF Recommendations and the Basel Committee’s guidance on sound management of risks related to money laundering and financing of terrorism.

Country risk refers to the level of exposure to potential money laundering and terrorist financing activities in a specific jurisdiction, based on factors such as the quality of its AML/CFT regime, its level of corruption, its political and economic stability, its involvement in illicit activities, and its cooperation with international bodies.

Customer risk refers to the level of exposure to potential money laundering and terrorist financing activities associated with a specific customer or customer segment, based on factors such as the nature and purpose of the business relationship, the source and destination of funds, the type and volume of transactions, the customer’s profile and behavior, and the customer’s geographic location.

Product and service risk refers to the level of exposure to potential money laundering and terrorist financing activities associated with a specific product or service offered by a financial institution, based on factors such as the complexity, transparency, anonymity, and accessibility of the product or service, the delivery channels and payment methods used, and the degree of oversight and monitoring applied.

Reputation risk is not a risk criterion for assessing the money laundering and terrorist financing risks, but rather a potential consequence of failing to manage those risks effectively. Reputation risk refers to the potential damage to the public trust and confidence in a financial institution due to its involvement or association with money laundering and terrorist financing activities, whether directly or indirectly.

CAMS Study Guide, 6th Edition, Chapter 2: Risk Assessments, pp. 41-461

FATF Recommendations, Recommendation 1: Assessing Risks and Applying a Risk-Based Approach2

Basel Committee on Banking Supervision, Sound management of risks related to money laundering and financing of terrorism, June 2017, pp. 9-143

A compliance officer should cooperate with the law enforcement inquiry as much as possible, but also ensure that the request is valid, lawful, and does not violate any confidentiality or privacy obligations. Therefore, the compliance officer should collaboratewith the FI’s designated department, such as the legal counsel, the senior management, or the board of directors, to determine the appropriate course of action to comply withthe request12. The compliance officer should also ensure that all communication, written and oral, is funneled through a centralized place, and that the FI maintains a record of the request and the response12.

1: Requests by Law Enforcement for Financial Institutions to Maintain Accounts, FinCEN, 2014

2: Best Practices for Compliance and Enforcement-Related Information Requests, EPA, 2018

The U.S. Department of the Treasury Office of Foreign Assets Control (OFAC) administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals. OFAC publishes lists of individuals and entities that are subject to various sanctions programs, such as the Specially Designated Nationals and Blocked Persons List (SDN List), the Sectoral Sanctions Identifications List (SSI List), and the Foreign Sanctions Evaders List (FSE List). These lists are updated frequently and can be accessed through OFAC’s website or other sources12.

The Financial Action Task Force (FATF) is an inter-governmental body that sets standards and promotes effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. FATF publishes lists of jurisdictions that have strategic deficiencies in their anti-money laundering and counter-terrorist financing (AML/CTF) regimes, and calls on its members and other countries to apply enhanced due diligence or counter-measures to protect themselves from the risks emanating from these jurisdictions. These lists are updated periodically and can be accessed through FATF’s website or other sources34.

1: CAMS Certification Package - 6th Edition | ACAMS, Chapter 3: Sanctions, p. 63-64 2: U.S. Department of theTreasury Office of Foreign Assets Control, https://home.treasury.gov/policy-issues/financial-sanctions 3: CAMS Certification Package - 6th Edition | ACAMS, Chapter 4: FATF Recommendations, p. 77-78 4: Financial Action Task Force, http://www.fatf-gafi.org/countries/#high-risk

The anti-money laundering officer should advise the account-opening officer to verify the identity of all the partners as an initial step. This is because opening a bank account for an offshore company with multiple owners from different jurisdictions poses a high risk of money laundering and terrorist financing. Therefore, the bank should apply enhanced due diligence measures to ensure that the offshore company and its owners are legitimate and not involved in any criminal activities. One of the key measures is to verify the identity of all the partners, not just the one who presents the power of attorney. This will help the bank to establish the beneficial ownership and control structure of the offshore company, as well as to detect any possible fraud, forgery, or coercion in the power of attorney document. The bank should also verify the authenticity and validity of the power of attorney, and the scope and purpose of the authority granted to the partner who requests the account opening.

The other options are less important or irrelevant as initial steps. Verifying the source of the deposit is also a part of the enhanced due diligence process, but it should be done after verifying the identity of the partners and the offshore company. Filing a suspicious transaction report with the appropriate Financial Intelligence Unit or the Egmont Group is a possible action that the bank may take if it detects any indicators of money laundering or terrorist financing in the account opening process, but it is not an initial step. The Egmont Group is an international network of Financial Intelligence Units that facilitates information exchange and cooperation, but it is not a reporting authority.

ACAMS Study Guide, Chapter 3: Customer Identification and Verification, 1

ACAMS Study Guide, Chapter 4: Customer Risk Assessment, 2

ACAMS Study Guide, Chapter 5: Ongoing Monitoring, 3

Powers of attorney: opening a bank account, 4

A bank’s risk assessment is a process of identifying, measuring, and mitigating the potential risks that the bank faces in its operations, products, services, and customers. According to the ACAMS Study Guide, a bank should focus on the following areas when performing a risk assessment1:

The type and location of the institution’s clients. This involves analyzing the customer base, the types of accounts and transactions, the source and destination of funds, the level of due diligence and verification, and the risk profile of the customers. For example, a bank should consider whether its customers are individuals or entities, domestic or foreign, politically exposed persons, high-net-worth individuals, non-profit organizations, or cash-intensive businesses. The location of the customers may also indicate the level of exposure to money laundering, terrorist financing, sanctions, or tax evasion risks.

The nature and breadth of the services and products the institution provides. This involves evaluating the range and complexity of the products and services offered by the bank, the delivery channels, the payment methods, and the innovation and technology involved. For example, a bank should consider whether it offers wire transfers, correspondent banking, trade finance, private banking, trust and fiduciary services, prepaid cards, mobile banking, or cryptocurrency services. The nature and breadth of the services and products may also affect the level of transparency, traceability, and compliance of the transactions.

The geographic locations where the institution does business. This involves assessing the jurisdictions where the bank operates, where its customers reside, where its counterparties are located, and where the funds flow. For example, a bank should consider whether it has branches, subsidiaries, or affiliates in high-risk countries, whether it serves customers from high-risk countries, whether it engages in cross-border transactions, and whether it complies with the local laws and regulations of the countries where it does business. The geographic locations where the institution does business may also influence the level of exposure to political, legal, regulatory, or reputational risks.

1: ACAMS Study Guide, Chapter 2: Risk Assessments, 1

The most important consideration when deciding whether to recommend closing the account is the institution’s anti-money laundering policy. This is because the policy should provide clear and consistent criteria for account closure decisions, based on the risk assessment, the nature and severity of the suspicious activity, the customer due diligence information, and the legal and regulatory obligations of the institution. The policy should also ensure that the account closure process is independent, objective, and transparent, and that it does not compromise the confidentiality of the suspicious transaction report or the investigation.

=

ACAMS Study Guide for the CAMS Certification Examination, 6th Edition, Chapter 5, Section 5.4.2, page 1971

ACAMS CAMS Certification Video Training Course, Module 5, Lesson 5.4, video time 9:00-10:302

ACAMS CAMS Certification Practice Exam, Question 145, page 2863

According to the Anti-Money Laundering Specialist (the 6th edition) study guide, the Financial Action Task Force (FATF) is an inter-governmental body that sets the global standards for anti-money laundering and counter-terrorist financing (AML/CTF). The FATF also monitors the compliance and implementation of its recommendations by its members and other jurisdictions. To enhance its global reach and effectiveness, the FATF works with nine FATF-style regional bodies (FSRBs) that cover different regions of the world. These FSRBs have similar objectives and functions as the FATF, but they also take into account the specific characteristics and challenges of their regions. Two ways that FSRBs influence AML/CTF standards within their respective regions are:

They issue typologies specific to their geographical region. Typologies are reports or studies that analyze the methods, trends, and patterns of money laundering and terrorist financing in a particular sector, industry, or region. FSRBs produce typologies that reflect the regional context and risks of their members and provide guidance and best practices to address them. For example, the Asia/Pacific Group on Money Laundering (APG) has issued typologies on trade-based money laundering, wildlife trafficking, and virtual assets in the Asia-Pacific region12.

They administer mutual evaluations of participating members. Mutual evaluations are peer reviews that assess the level of compliance and effectiveness of a country’s AML/CTF system against the FATF standards. FSRBs conduct mutual evaluations of their members and publish the results and recommendations in detailed reports. These reports help identify the strengths and weaknesses of each country’s AML/CTF regime and provide a basis for follow-up actions and technical assistance. For example, the Caribbean Financial Action Task Force (CFATF) hasconducted mutual evaluations of its members such as Barbados, Jamaica, and Trinidad and Tobago34.

Anti-Money Laundering Specialist (the 6th edition) study guide, page 27

APG website, section on Typologies

Anti-Money Laundering Specialist (the 6th edition) study guide, page 28

CFATF website, section on Mutual Evaluations

 The correct answer is B, as a customer acceptance policy is an essential element of KYC standards according to the Basel Committee’s Customer Due Diligence for Bankspaper1. A customer acceptance policy defines the types of customers that the bank is willing to accept, and the conditions and limitations that apply to such relationships. A customer acceptance policy helps the bank to avoid customers who are likely to pose a higher than average risk of money laundering or terrorist financing, or who are not willing to provide sufficient information for identification and verification purposes1.

 1: Customer due diligence for banks - Bank for International Settlements, page 9.

An effective anti-money laundering training program should include real-life money laundering examples to illustrate the concepts and strategies for detecting and preventing money-laundering activity. Real-life examples can help employees to understand the risks, methods, indicators, and impacts of money laundering, as well as the roles and responsibilities of different staff members in combating it. Real-life examples can also enhance the engagement, retention, and application of the knowledge gained from the training program.

= The main references for this question are the following sources:

The document titled “Anti-Money Laundering Awareness Training” published by ACAMS. You can access it by clicking here. This document states that “ACAMS AML General Awareness Training equips employees with knowledge of basic anti-money laundering (AML) principles” and that it is “based on real-life industry scenarios with interactive content to help learning stick”.

The document titled “Anti-Money Laundering (AML) Training” published by LIMRA. You can access it by clicking here. This document states that “LIMRA’s AML training program provides training for insurance and securities producers and home office employees” and that it “uses real-life scenarios to help learners understand how to apply AML principles to their everyday work”.

The Basel Committee on Banking Supervision (BCBS) is an international body that sets standards and guidelines for the prudential regulation of banks. One of its key publications is the Customer Due Diligence for Banks, which outlines the essential elements of Know Your Customer (KYC) standards for banks. According to this document, customer acceptance, customer due diligence, and record-keeping policies and procedures should be changed as necessary to address variations in risk among each line of business within the organization. This means that banks should adopt a risk-based approach to KYC, taking into account the different types, levels, and sources of risk associated with different customers, products, services, transactions, and delivery channels. By doing so, banks can allocate their resources more efficiently and effectively, and mitigate the potential for money laundering, terrorist financing, and other financial crimes.

According to the CAMS Certification Package - 6th Edition1, a financial institution that processes a wire transfer is required to file a suspicious transaction report (STR) in thejurisdiction where it is located, if it detects any red flags or indicators of money laundering, terrorism financing, or other financial crimes. The financial institution does not need to file an STR in the jurisdictions of the originator or the beneficiary of the wire transfer, unless it has a branch or a subsidiary there. Therefore, the correct answer is A. The transaction in Country A.

CAMS Certification Package - 6th Edition1, Chapter 4: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), Section: Wire Transfers, pp. 161-162.

https://www.bis.org/publ/bcbs85.pdf - page 12

Banks should gather sufficient information about their respondent banks to understand fully the nature of the respondent’s business. Factors to consider include: information about the respondent bank’s management, major business activities, where they are located and its money-laundering prevention and detection efforts; the purpose of the account; the identity of any third party entities that will use the correspondent banking services; and the condition of bank regulation and supervision in the respondent’s country. Banks should only establish correspondent relationships with foreign banks that are effectively supervised by the relevant authorities. For their part, respondent banks should have effective customer acceptance and KYC policies.

The best course of action for the FI in this scenario is to consider retaining qualified, experienced legal counsel. This is because the investigation request from the local law enforcement agency may involve complex legal issues, such as confidentiality, privacy, data protection, and cooperation obligations. The FI may need to balance the interests of the customer, the law enforcement agency, and the FI itself, and ensure that it complies with the applicable laws and regulations in responding to the request. The legal counsel can advise the FI on the scope, validity, and implications of the request, and help the FI to prepare and submit the required information in a timely and appropriate manner. The legal counsel can also protect the FI from any potential liability or litigation arising from the investigation.

1: Requests by Law Enforcement for Financial Institutions to Maintain Accounts and/or Conduct Transactions1

2: Answers to Frequently Asked Questions Regarding Suspicious Activity Reporting and Other Anti-Money Laundering Considerations2

3: ACAMS Study Guide for the CAMS Certification Examination3

Key challenges in adopting new AML/CFT technologies are:

A: Data privacy—new tech often requires processing more personal data, raising privacy/regulatory concerns.

C: The Travel Rule—meeting global standards for information sharing in payments is a technology challenge.

D: Data quality—effective systems rely on accurate, comprehensive, timely data.

E: Complexity—integrating and managing new technology can increase operational complexity.(CAMS 6th Edition, Technology in AML/CFT; FATF Guidance on Digital ID and Fintech)

 The important fact to include in the STR is the recent change in the timing of deposits and withdrawals in the account, as this indicates a possible change in the customer’s source and use of funds, and may suggest money laundering or other illicit activity. The customer’s work history, the amount of his monthly retirement check, the fact that he is well known to the bank staff, and the fact that he has lived in the area and banked at this bank for 25 years are not relevant for the STR, as they do not explain the unusual pattern of transactions in his account.

CAMS Certification Package - 6th Edition | ACAMS, Chapter 4: Conducting and Supporting the Investigation Process, page 131

CAMS Certifications: How to Get CAMS Certified | ACAMS, CAMS Examination Preparation, page 8

ACAMS CAMS Certification Video Training Course - Exam-Labs, Video 4.2: Suspicious Transaction Reporting

Exam CAMS: Certified Anti-Money Laundering Specialist (the 6th edition), Question 97

A: “Hawala and similar informal value transfer systems are difficult to monitor, making it challenging to identify the originator, recipient, and source of funds.”

D: “Hawala operates through informal networks for cross-border transfers, often outside the formal banking system, increasing AML/CFT risk.”(CAMS 6th Edition, Alternative Remittance Systems; FATF, Guidance on Money Transfer Services)

The threat of US sanctions against foreign individuals and entities continues to exist despite the absence of a US nexus. This is stated in the Certified Anti-Money Laundering Specialist (the 6th edition) manual on page 591, which states: “It is important to note that the threat of US sanctions against foreign individuals and entities continues to exist even when there is no direct US nexus (i.e., no US persons or assets involved).”

According to the Certified Anti-Money Laundering Specialist (CAMS) Manual[1], 6th edition, financial entities that violate Anti-Money Laundering (AML) laws can face several reputational risks such as loss of high-profile customers, seizure of assets, increased audit costs to monitor behavior, and monetary penalties. For example, the US Treasury's Financial Crimes Enforcement Network (FinCEN) imposes civil money penalties on "persons who willfully violate, attempt to violate, conspire to violate, or cause any violation of any provision of the Bank Secrecy Act or its implementing regulations." (CAMS Manual, 6th edition, page 26).

According to the ACAMS CAMS Study Guide, one of the methods that attorneys may use to facilitate money laundering is to make payments to third parties on behalf of their clients, using funds from their client accounts. This may obscure the source and destination of the funds, and create a false appearance of legitimate transactions. Therefore, making payment to various people is a red flag for potential money laundering in this situation.

ACAMS CAMS Study Guide, 6th Edition, page 117

FATF Report on Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals, June 2013, page 341

AML/CFT Red Flags for Lawyers, AML-CFT.net, October 20202

The Wolfsberg Group is an association of 13 global banks that aims to develop frameworks and guidance for the management of financial crime risks. The group started as a meeting of banks in 1999 to address anti-money laundering (AML) in private banking, which carries an increased degree of risk from a money laundering perspective. In the course of discussions, they articulated principles that reflected uniformly high standards for this client segment. These principles became the first guidance published by the group under the name Wolfsberg Principles.

The Wolfsberg Group - Institute on Governance

Wolfsberg Group - Wikipedia

The Group first came together in 2000 at the Wolfsberg castle in Switzerland, accompanied by representatives of Transparency International, to draft anti-money laundering guidelines for private banking

AnEnterprise-Wide Risk Assessment (EWRA)helpsfinancial institutionsidentify and mitigatemoney laundering risks.

Option B (Correct):Wolfsberg Group and FATF emphasize that an EWRA should focus onhigher-risk customers, products, and geographies, ensuringappropriate controlsare in place.

Option A (Incorrect):Institutions shouldnot blindly adopt third-party frameworkswithoutcustomizing themto their specific risk exposure.

Option C (Incorrect):While new clients are important, an EWRA mustassess risks across all customers and transactions.

Option D (Incorrect):EWRAmust address residual risk, not just inherent risk. Effectivemitigation strategiesare essential.

RefThis transaction should result in a SAR/STR filing because it indicates possible structuring, which is a form of money laundering that involves breaking down large amounts of cash into smaller deposits to avoid detection or reporting requirements. Structuring is often done to conceal the source or destination of illicit funds, or to evade taxes, regulations, or sanctions. A small business owner who deposits checks just below the $10,000 USD threshold on a daily basis without providing a legitimate purpose raises a red flag for suspicious activity and should be reported to the relevant Financial Intelligence Unit.

Suspicious Transaction Report (STR) / Suspicious Activity Report (SAR)

What Is a Suspicious Activity Report (SAR)? Triggers and Filing

How to decide if SAR filing is needed

erence: https://aml-cft.net/library/suspicious-transaction-report-str-suspicious-activity-report-sar/

TheFATF 40 Recommendationsprovide aglobal AML/CFT framework, and theImmediate Outcomesassess effectiveness.

Option A (Correct):Therisk-based approach (RBA)is the foundation ofmodern AML complianceand is mandated byFATF Recommendation 1.

Option B (Incorrect):Interpretive notes are public documentsavailable to all jurisdictions, not private.

Option C (Incorrect):The40 Recommendations are regularly updated, incorporating new technology (e.g., virtual assets in 2019).

Option D (Incorrect):The11 Immediate Outcomesassess theeffectiveness of AML systems globally, not just for high-risk countries.

According to the CAMS study guide, chapter 4, page 1191, transaction records include any records that reflect the movement of funds or assets, such as wire transfers, checks, deposits, withdrawals, securities trades, etc. Therefore, items 1, 2, and 4 are examples of transaction records that should be delivered in response to a legal request. Item 3, signature cards, are not transaction records, but rather account opening documents that contain the customer’s name, address, identification, and signature. These documents may be relevant for customer due diligence or identification purposes, but they do not reflect the transaction activities of the customer.

1: ACAMS CAMS Study Guide - 6th Edition, Chapter 4, page 119: https://www.acams.org/wp-content/uploads/2019/09/ACAMS-CAMS-Study-Guide-6th-Edition-Chapter-4.pdf

The Egmont Group is a united body of 174 Financial Intelligence Units (FIUs) that uniquely support national and international efforts to counter terrorist financing and share financial information per global anti-money laundering and counter-financing of terrorism (AML/CFT) standards. Its primary objective is to enhance international cooperation in the investigation and prosecution of money laundering and financing of terrorism. The Egmont Group facilitates the exchange of expertise and financial intelligence among FIUs to combat money laundering, terrorist financing, and associated predicate offenses. While it does not conduct financial investigationsitself, it plays a crucial role in improving stakeholders’ understanding of ML/TF risks and informing policy considerations related to AML/CFT implementation and reforms12.

According to the FATF Recommendations, financial institutions should maintain all necessary records on transactions and customers for at least five years, and make them available to competent authorities upon appropriate authority1. This includes records and documents related to suspicious transactions that have been reported to the financial intelligence unit (FIU) or other designated authorities. Providing the supporting documentation to competent authorities upon request is essential for the investigation and prosecution of money laundering and terrorist financing offences, as well as for the identification and tracing of criminal assets2.

Hinting to the customer that she should come in and explain her behavior is not a correct answer, as it may tip off the customer about the suspicion and compromise the effectiveness of the reporting system. Financial institutions should not disclose to the customer or to third parties that a suspicious transaction report (STR) or related information is being reported to the FIU3.

Maintaining adequate written documentation of all individuals and transactions reported is not a sufficient answer, as it does not imply cooperation with competent authorities. Financial institutions should not only keep records, but also provide them to the authorities when requested.

Submitting information upon receiving a legal request from parties involved in a civil lawsuit is not a relevant answer, as it does not relate to the cooperation with competent authorities for AML/CFT purposes. Civil lawsuits are not part of the AML/CFT framework, and financial institutions should not disclose confidential information to private parties without proper legal grounds.

FATF Recommendation 11: Record-keeping 1

FATF Recommendation 31: Powers of law enforcement and investigative authorities 2

FATF Recommendation 21: Tipping-off and confidentiality 3

According to the FATF Procedures for the Fourth Round of AML/CFT Mutual Evaluations1, jurisdictions that are determined to have strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing are subject to the FATF’s International Cooperation Review Group (ICRG) process. The ICRG process involves the following actions for such jurisdictions:

Demonstrate a high-level commitment to swiftly resolve the identified deficiencies in the FATF mutual evaluation report. This commitment should be made in writing to the FATF President and should include an action plan with specific deadlines and milestones to address the deficiencies.

Report to FATF on the implementation of their progress under the enhanced follow-up mechanism. The FATF will monitor the progress of the jurisdiction through regular reports and on-site visits, and will decide whether the jurisdiction has made sufficient progress to exit the ICRG process or whether further actions are required, such as public statements, counter-measures, or suspension of membership.

The other options are not resulting actions for jurisdictions with strategic deficiencies, as they are either not part of the FATF procedures or not consistent with the FATF’s objectives and principles. For example, the FATF does not issue private statements regarding the level of compliance of a jurisdiction, nor does it allow a jurisdiction to appeal for a technical compliance re-rating based on its own criteria. The FATF also does not grant extensions of deadlines for jurisdictions to improve their regimes, as this would undermine the credibility and effectiveness of the mutual evaluation process.

1: Mutual Evaluations - Financial Action Task Force

2: Procedures for the FATF Fourth Round of AML/CFT Mutual Evaluations

TheBoard of Directorsholdsultimate responsibilityforAML/CFT compliance and governance.

Option B (Correct):TheBoardmustoversee, approve, and ensure AML programs are effective.

Option A (Incorrect):TheCOO manages operations, butdoes not hold ultimate accountability.

Option C (Incorrect):While theAML officer executes compliance programs, theBoard provides oversight.

Option D (Incorrect):TheCEO is responsible for strategy, butAML failures fall under Board accountability.

The most important risk factor in this scenario is the proposed offshore jurisdiction that is known for its strong privacy laws limiting access to customer information by law enforcement. This indicates that the customer may be trying to evade tax, hide the source or destination of funds, or engage in other illicit activities that could expose the bank to money laundering or terrorist financing risks. Offshore jurisdictions are often used by criminals to create complex corporate structures that obscure the beneficial ownership and control of the entities involved. The bank should conduct enhanced due diligence on the customer, the offshore company, and the nature and purpose of the transactions.

ACAMS CAMS Certification Study Guide, 6th Edition, Chapter 2, page 35-36, 38-39

ACAMS CAMS Certification Video Training Course, Module 2, Lesson 2.3, Offshore Financial Centers

1, CAMS Certification Package - 6th Edition | ACAMS, Offshore Financial Centers and Money Laundering

2, CAMS Certifications: How to Get CAMS Certified | ACAMS, CAMS Exam Outline, Domain 2, Task 2.3

A money laundering investigation that involves multiple countries can be challenging due to different legal systems, languages, cultures, and levels of cooperation. Two factors that can assist such an investigation are:

Law enforcement and other authorities should have access to financial information that is pertinent to the investigation. This can help them trace the flow of illicit funds, identify the perpetrators and beneficiaries, and gather evidence for prosecution. Financial information can be obtained from various sources, such as financial institutions, financial intelligence units, regulators, and international organizations.

Law enforcement and other authorities should be allowed to establish and utilize joint investigative teams with law enforcement in other countries. This can enhance coordination, communication, and information sharing among the authorities involved, and allow them to pool resources, expertise, and evidence. Joint investigative teams can also facilitate mutual legal assistance and extradition requests.

Financial Action Task Force (FATF), International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, The FATF Recommendations, February 2012, updated June 2019, Recommendation 40, pp. 120-123

FATF, Best Practices on Establishing and Operating a Joint Investigative Team, June 2020, pp. 5-6

FATF, Money Laundering and Terrorist Financing Investigations, June 2018, pp. 11-12

This is the correct answer because the institution must ensure that the beneficiaries of the transfers are not on a terrorist watch list, such as the United Nations Security Council Consolidated List, the U.S. Treasury Office of Foreign Assets Control (OFAC) Specially Designated Nationals and Blocked Persons List, or the European Union Terrorism List. These lists contain the names of individuals, entities, and groups that are subject to sanctions or other measures due to their involvement or association with terrorism or terrorist financing. The institution must screen the beneficiaries of the transfers against these lists and report any matches or hits to the relevant authorities. Failing to do so may expose the institution to legal, regulatory, or reputational risks, as well as facilitate the financing of terrorism.

ACAMS CAMS Certification Video Training Course1, Module 3: International AML/CTF Standards, Lesson 3.2: International AML/CTF Standards

ACAMS CAMS Study Guide, 6th Edition2, Chapter 3: International AML/CTF Standards, Section 3.2: International AML/CTF Standards, pp. 57-58

ACAMS CAMS Examination Preparation Seminar, 6th Edition3, Chapter 3: International AML/CTF Standards, Section 3.2: International AML/CTF Standards, Slide 12

In many jurisdictions, it is a requirement to report certain information regarding STRs to senior management and/or the board of directors. This information may be limited to the number of reports filed, the dollar amounts involved and significant trends as observed by compliance personnel. In some cases, if the activity presents a significant or potentially ongoing risk to the institution, the leaders of the institution should be made aware so that high-level decisions can be made regarding potential changes tosystems, staffing, products, services or particular relationships maintained by the institution.

Banks are required by the SAR regulations of their federal banking agency to notify the board of directors or an appropriate board committee that SARs have been filed. However, the regulations do not mandate a particular notification format and banks should have flexibility in structuring their format. Therefore, banks may, but are not required to, provide actual copies of SARs to the board of directors or a board committee. Alternatively, banks may opt to provide summaries, tables of SARs filed for specific violation types, or other forms of notification. Regardless of the notification format used by the bank, management should provide sufficient information on its SAR filings to the board of directors or an appropriate committee in order to fulfill its fiduciary duties, while being mindful of the confidential nature of the SAR.https://bsaaml.ffiec.gov/manual/AssessingComplianceWithBSARegulatoryRequirements/0

 According to the Anti-Money Laundering Specialist (the 6th edition) study guide, a risk-based approach for EDD means that the FI applies more or less stringent measures depending on the level of risk posed by each client1. This allows the FI to allocate its resources more efficiently and effectively, and to focus on the clients that pose the highest risk of money laundering or terrorist financing2. Applying EDD for every new client, regardless of their risk profile, may not be the best use of the FI’s resources, and may not reflect the proportionality and relevance of the EDD measures3.

'https://www.wolfsberg-principles.com/sites/default/files/wb/pdfs/wolfsberg-standards/8.%20Wolfsberg-Correspondent-Banking-Principles-2014.pdf - page 6 Monitoring and Reporting of Suspicious Activities The institution shall implement bank-wide policies and procedures to detect and investigate unusual or suspicious activity and report any such activity as required by applicable law. These will include guidance on what is considered to be unusual or suspicious and give examples thereof. The policies and procedures shall include appropriate monitoring of the Correspondent Bank’s activity, incorporating due diligence results such as customer risk rating and other factors considered meaningful in the assessment of transaction activity risk. In turn, the results of suspicious activity monitoring shall be factored into the periodic review of the client’s file, particularly when the results of transaction monitoring indicate elevated risk levels.

Using cash to buy multiple cashier's checks over a period of time is considered suspicious activity of money laundering. This method is commonly known as structuring, where individuals or entities use cash to buy multiple monetary instruments such as cashier's checks in small amounts, to avoid reporting requirements. This behavior could be an attempt to evade transaction monitoring and reporting requirements by a financial institution. Additionally, the fact that the account also receives multiple electronic transfers for the same amount could be a red flag for money laundering as it is a common technique used to layer or disguise the origin of illicit funds.

The USA PATRIOT Act, enacted in 2001, is a comprehensive legislation that aims to enhance the US government’s ability to combat terrorism, money laundering, and other criminal activities. One of the aspects of the Act that has extraterritorial reach is the requirement for US financial institutions (FIs) to apply certain due diligence and reporting obligations to their correspondent accounts and private banking accounts for foreign FIs and non-US persons, respectively12. These obligations are intended to prevent foreign FIs and individuals from using the US financial system to facilitate money laundering, terrorist financing, or other illicit activities. The Act also authorizes the Secretary of the Treasury to impose special measures, such as recordkeeping, reporting, or prohibitions, on certain foreign jurisdictions, FIs, or transactions that are found to be of primary money laundering concern34. These special measures can have significant impact on the access and operations of foreign FIs and persons in the US financial market.

1: USA PATRIOT Act, Title III, Subtitle A, Section 3121

2: 31 CFR 1010.610 - Due diligence programs for correspondent accounts for foreign financial institutions2

3: USA PATRIOT Act, Title III, Subtitle A, Section 3113

4: 31 CFR 1010.651 - Imposition of special measure against foreign jurisdictions, foreign financial institutions, classes of international transactions, or types of accounts of primary money laundering concern4

 According to the Anti-Money Laundering Specialist (the 6th edition) study guide, when a financial institution receives a law enforcement inquiry, it should cooperate as much as possible and respond to all formal requests for information, unless there is a valid objection that can and should be made1. The institution should also file a suspicious transaction report (STR) if the inquiry or the customer’s activity triggers any red flags or indicators of money laundering or other financial crimes2. Additionally, the institution should monitor the account for suspicious activity and review the money laundering risk posed by the account, as these are part of the ongoing due diligence and risk assessment processes3. Closing the account immediately is not a recommended action, as it may alert the customer or interfere with the investigation4.

1: ACAMS, CAMS Certification Package - 6th Edition, Chapter 4, page 121

2: ACAMS, CAMS Certification Package - 6th Edition, Chapter 4, page 122

3: ACAMS, CAMS Certification Package - 6th Edition, Chapter 4, page 123

4: ACAMS, CAMS Certification Package - 6th Edition, Chapter 4, page 124

Large and frequent credit balances on a credit card resulting in request for refunds is an indicator of suspicious activity because it may suggest that the cardholder is using the credit card to launder money or to conceal the source of funds. This is also known as credit card refund fraud or credit card laundering. The cardholder may make purchases with the credit card using illicit funds, then request refunds to another account or in cash, thus transferring the funds to a legitimate or less traceable channel. This activity may also be used to evade currency reporting requirements or to avoid detection by law enforcement or financial institutions.

ACAMS Study Guide for the CAMS Certification Examination, 6th Edition, Chapter 2: Money Laundering Risks and Methods, page 381

Suspicious Activity Reporting Indicators and Examples, U.S. Department of Homeland Security, Indicator 14: Excess Purchases or Transactions2

Credit Card Laundering, Money Laundering Bulletin, Issue 245, October 2019

As part of its enforcement efforts, OFAC publishes a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific. Collectively, such individuals and companies are called "Specially Designated Nationals" or "SDNs." Their assets are blocked and U.S. persons are generally prohibited from dealing with them. So it's covering all

When considering sharing information across the institution or within the same jurisdiction, the key legal issue that poses challenges to sharing customer-related information is data protection and privacy laws. Data protection and privacy laws exist in most countries and can vary significantly from jurisdiction to jurisdiction. These laws place restrictions on how customer data can be used, shared, and stored, and can limit the ability of financial institutions to share customer-related information with each other. Additionally, these laws may also require financial institutions to take additional steps to ensure the protection of customer data.

Financial institutions closely monitor customer accounts for suspicious activity related to money laundering, terrorist financing, or other illicit activities. If an account consistently triggers multiple suspicious activity reports (SARs), it raises red flags. These reports indicate unusual or potentially illegal transactions, such as large cash deposits, frequent transfers to high-risk jurisdictions, or patterns inconsistent with the customer’s profile. To mitigate risk and comply with anti-money laundering (AML) regulations, the financial institution may decide to close the account. Regular SAR filings are essential for maintaining the integrity of the financial system and preventing illicit financial flows12.

According to the FATF Recommendations, the competent authority that should directly receive suspicious or unusual transaction reports is the financial intelligence unit (FIU). The FIU is a central, national agency responsible for receiving, analyzing and disseminating information related to money laundering and terrorist financing. The FIU should have operational independence and autonomy, and should be able to exchange information with other domestic and foreign authorities. The FIU should also provide feedback to the reporting entities on the use and value of their reports.

=

CAMS Certification Package - 6th Edition | ACAMS1

CAMS Certifications: How to Get CAMS Certified | ACAMS2

ACAMS CAMS Certification Video Training Course - Exam-Labs3

Exam CAMS: Certified Anti-Money Laundering Specialist (the 6th edition)4

FATF Recommendations, Recommendation 29: Financial Intelligence Units

http://www.fatf-gafi.org/media/fatf/documents/recommendations/pdfs/FATF%20Recommendations%202012.pdf

The Financial Action Task Force (FATF) 40 Recommendations address the transparency and beneficial ownership of legal persons (such as companies, foundations, associations, etc.) and legal arrangements (such as trusts, fiducies, anstalts, etc.) in Recommendations 24 and 25. These recommendations aim to prevent the misuse of legal persons and arrangements for money laundering, terrorist financing and other illicit purposes, by requiring countries to ensure that accurate and up-to-date information on the natural persons who ultimately own or control them (the beneficial owners) is available to the competent authorities in a timely manner.

CAMS Study Guide - 6th Edition, Chapter 4, page 112

CAMS Certification Exam Outline, Domain 1, Task 1.2, Skill 1.2.2

Guidance on Transparency and Beneficial Ownership, FATF, October 2014

Recommendation 24: Transparency and beneficial ownership of legal persons, FATF

[Recommendation 25: Transparency and beneficial ownership of legal arrangements], FATF

A: FIs should ensure they have a general understanding of virtual assets and VASP operations to assess risks accurately.

C: Enhanced KYC measures are recommended for VASPs due to their higher ML/TF risk profile.

“FIs must understand the business model and risk of VASPs and apply enhanced due diligence as required by FATF and regulatory guidance.”(CAMS 6th Edition, Virtual Assets and VASPs; FATF Guidance)

Incorrect:

B: While monitoring transactions is important, it’s not a primary initial consideration for onboarding.

D: The FI’s own holdings are not relevant to due diligence on VASPs.

Financial Intelligence Units (FIUs) are the primary channels for sharing financial intelligence both within countries and across borders. FIUs cooperate with each other and other relevant law enforcement, regulatory, or intelligence agencies in the fight against money laundering, terrorism financing, and other financial crimes.

In accordance with Financial Action Task Force (FATF) standards [1][2], when the minimum AML requirements of the host country where a financial institution (Fl) operates are less strict than those of the Fl's home country, the Fl is required to ensure that their branches and majority-owned subsidiaries in host countries implement the requirements of the home country, to the extent that host country laws and regulations permit. This means that the Fl should not impose more strict requirements on host country branches, disregarding if host country laws and regulation permit such action, and should not close down its operations in the host countries where minimum AML requirements are less strict than those of the home country. However, the Fl should always apply additional measures on their branches and majority-owned subsidiaries in host countries to manage the money laundering and terrorist financing risk overseas.

Paying premium several years in advance and terminating early for a refund (A):“A typical red flag is when a policyholder pays large premiums up front and then seeks early termination to receive a refund. This can be used to launder illicit funds by integrating them into the financial system and then retrieving ‘clean’ money.”(CAMS 6th Edition, Life Insurance ML/TF Risks; FATF Guidance for a Risk-Based Approach for the Life Insurance Sector)

Regularly switching policies and accepting penalties (D):“Frequent changes in insurance policies or products, even at a financial loss, are considered suspicious. This may indicate an attempt to obscure the money trail or integrate illicit proceeds.”(CAMS 6th Edition, ML/TF Red Flags in Life Insurance)

Incorrect Options:

B: Having multiple policies is common and not itself a red flag.

C: High premiums/payouts are not inherently suspicious.

E: Beneficiary payouts to elderly people are not ML/TF red flags.

 According to the Financial Action Task Force (FATF), a financial institution must take certain steps to fulfill its customer due diligence (CDD) obligations [1][2]. These steps include verifying the customer's identity, understanding the customer's business, and assessing the customer's risk profile. Additionally, the financial institution must verify that the customer is not on any sanction lists, such as the OFAC Specially Designated Nationals list. This step is important to ensure that the financial institution is not doing business with any individuals or entities that are subject to economic sanctions. Other steps include obtaining information on the intended nature of the banking relationship, securing a written declaration from the customer confirming the source of the funds, and identifying shareholders listed on the stock exchange of corporate entities holding fifty percent of the shares.

 the specialist should inform the bank’s senior legal advisor of the situation and seek guidance on how to handle the legal request and the internal memos. The specialistshould not take any action that could compromise the integrity of the legal request, the bank’s anti-money laundering program, or the specialist’s own professional obligations. The specialist should not place the memos in his personal files, as this could be seen as hiding or tampering with evidence. The specialist should not ask the bank president to document his instructions, as this could create a conflict of interest or a perception of undue influence. The specialist should not call the law enforcement agent and suggest he modify the legal request, as this could be seen as interfering with the investigation or tipping off the account holder.

Legal Sector Affinity Group (LSAG) Anti-Money Laundering Guidance for the Legal Sector (January 2021) p. 1321

ACAMS: Certified Anti-Money Laundering Specialist | ACAMS2

Anti-Money Laundering – The Law Society of Singapore3

D: “Cooperation and coordination between regulatory authorities, law enforcement agencies, and FIUs are essential for effective AML investigations, especially in cross-border cases. This is often accomplished through formal agreements, MOUs, and information-sharing mechanisms.”(CAMS 6th Edition, International Cooperation in AML/CFT; FATF Recommendations 36-40)

According to the CAMS Study Guide, page 173, “If an independent investigation provides grounds to interview the employee, the employee can be interviewed and, if necessary, terminated, but not advised that he or she is under investigation by law enforcement.” This is because informing the employee of the law enforcement investigation could compromise the integrity of the case and potentially expose the institution to legal liability. Therefore, option B is the correct answer.

CAMS Study Guide, page 1731

CAMS Exam Questions and Free Practice Test, Question 2872

An FIU is a central, national agency responsible for receiving, analyzing, and disseminating to the competent authorities disclosures of financial information concerning suspected proceeds of crime and potential financing of terrorism or required by nationallegislation or regulation1. FIUs play a crucial role in the detection and prevention of money laundering and terrorist financing by collecting, processing, and analyzing financial intelligence and sharing it with domestic and foreign counterparts2. FIUs may have different organizational structures, functions, and legal frameworks, but they all adhere tothe international standards and best practices set by the Egmont Group of FIUs3.

What We Do | FinCEN.gov

Financial Intelligence Units: An Overview (June 2004) - IMF, page 1

[Egmont Group of Financial Intelligence Units]

The Financial Action Task Force (FATF) 40 Recommendations are the international standards for combating money laundering and terrorist financing, and they apply to all countries and financial institutions. The Customer Due Diligence for Banks issued by the Basel Committee on Banking Supervision provides guidance on how banks should conduct CDD and KYC procedures, and how they should manage the risks of correspondent banking and wire transfers. The Egmont Group Statement of Purpose outlines the objectives and functions of the Egmont Group, which is an international network of financial intelligence units (FIUs) that exchange information and cooperate in the fight against money laundering and terrorist financing. These three materials are relevant and useful for the bank’s expansion plans, as they cover the main aspects of AML/CFT compliance in different jurisdictions and sectors.

The USA PATRIOT Act is a US-specific legislation that enhances the powers and obligations of US authorities and financial institutions in relation to AML/CFT, but it may not be applicable or appropriate for other countries where the bank intends to operate. Therefore, it is not a necessary reference material for the bank’s international department.

FATF 40 Recommendations

Customer Due Diligence for Banks

Egmont Group Statement of Purpose

 Mutual Legal Assistance Treaties (MLATs) are agreements between two or more countries that provide the legal framework for the exchange of information and evidence in criminal and related matters. MLATs enable law enforcement authorities and prosecutors to obtain evidence, information, and testimony abroad in a form admissible in the courts of the requesting state. MLATs also establish the procedures and channels for making and receiving requests for assistance, as well as the grounds and conditions for granting or denying such requests. MLATs are an important tool for international cooperation and information exchange to combat transnational crimes, such as money laundering, terrorist financing, fraud, and corruption.

1: Treaties and Agreements - U.S. Department of State

2: Mutual legal assistance treaty - Wikipedia

3: International Exchange of Information Manual - GOV.UK

4: Convention on Mutual Administrative Assistance in Tax Matters

The correct next course of action is to request that the new product approval committee include the compliance officer. This is because the compliance officer has the responsibility to ensure that the new financial service complies with the applicable laws, regulations, and standards, and does not pose any undue risks to the institution or its customers. The compliance officer should be involved in the new product development process from the beginning, and provide guidance and feedback on the potential compliance implications and requirements of the new service12.

1: CAMS Certification Package - 6th Edition | ACAMS, Chapter 6: Developing an Effective Anti-Money Laundering Program, p. 121-122 2: FATF Guidance: The Role of Hawala and Other Similar Service Providers in Money Laundering and Terrorist Financing, October 2013, p. 28, http://www.fatf-gafi.org/media/fatf/documents/reports/Role-of-hawala-and-similar-in-ml-tf.pdf

The primary international authoritative body that designates sanctions is the United Nations (UN). The UN Security Council has the power to impose sanctions under Chapter VII of the UN Charter, which deals with threats to the peace, breaches of the peace, and acts of aggression. The UN sanctions are legally binding on all UN member states and aim to maintain or restore international peace and security. The UN sanctions can target individuals, entities, groups, sectors, or countries, and can include measures such as arms embargoes, travel bans, asset freezes, trade restrictions, or diplomatic isolation. The UN sanctions are implemented and enforced by the member states, with the assistance of the UN Secretariat and other specialized agencies. The UN sanctions are periodically reviewed and adjusted by the Security Council, based on the reports of the sanctions committees and expert panels.

1: UN Sanctions1

2: UN Charter, Chapter VII2

3: ACAMS Study Guide for the CAMS Certification Examination3

 Predicate offenses are the criminal activities that generate the proceeds that are later laundered through money laundering schemes. A country that does not have strong predicate offenses and is lax in prosecuting AML cases could suffer from increased organized crime and corruption, as criminals would have more opportunities and incentives to engage in illicit activities and evade detection and punishment. Organized crime and corruption can have serious social and economic consequences for a country, such as undermining the rule of law, eroding public trust, threatening national security, harming human rights, reducing economic growth, and distorting market competition123.

According to the ACAMS CAMS Certification Video Training Course1, one of the red flags for money laundering is “transferring funds to or from foreign countries or jurisdictions that are known to have weak anti-money laundering standards or are considered high-risk for money laundering or terrorist financing” (Module 2, Lesson 3, Part 2). This is also consistent with the suspicious activity report (SAR) criteria, which require financial institutions to report transactions that “involve funds derived from illegal activity or are intended or conducted to hide or disguise funds or assets derived from illegal activity” or “involve the use of the financial institution to facilitate criminal activity” (31 CFR § 1020.320(a)(2)). Therefore, the customer’s request to transfer funds to accounts in three different foreign jurisdictions should be the focus of the SAR, as it may indicate an attempt to launder money or finance terrorism.

ACAMS CAMS Certification Video Training Course

[31 CFR § 1020.320 - Reports by banks of suspicious transactions]

The FATF is an inter-governmental body that sets standards and promotes effective implementation of legal, regulatory, and operational measures for combating money laundering, terrorist financing, and other related threats to the integrity of the internationalfinancial system. The FATF conducts mutual evaluations of its members and other jurisdictions to assess their compliance with the FATF Recommendations and the effectiveness of their AML/CFT regimes1.

The FATF defines effectiveness as "the extent to which a country’s AML/CFT regime is achieving the defined outcomes of an effective regime that allows them to mitigate their risks and threats of ML/TF"2. The FATF assesses effectiveness based on 11 immediate outcomes, which are grouped into three thematic goals: financial system integrity, legal system and operational issues, and international cooperation2.

One of the immediate outcomes under the financial system integrity goal is that “FIs adequately apply preventive measures commensurate with their risks, and report suspicious transactions” (IO.4)2. This outcome measures how well FIs implement the FATF Recommendations on customer due diligence, record-keeping, internal controls, risk assessment, and suspicious transaction reporting. These preventive measures are essential for FIs to identify and mitigate the risks of being misused for money laundering or terrorist financing, and to provide useful information to the authorities for investigation and prosecution2.

Therefore, the correct answer is D. FIs adequately apply preventive measures, as this is one of the FATF characteristics used to assess a country’s effectiveness of its AML regime.

FATF Methodology for assessing compliance with the FATF Recommendations and the effectiveness of AML/CFT systems

An effective system to combat money laundering and terrorist financing

Private investment companies (PICs) are potentially vulnerable to money laundering due to the difficulty in identifying the ultimate beneficial owners. PICs are often used to hold and manage private wealth, making them attractive targets for money launderers. Since these entities are privately held and not publicly traded, it can be challenging to identify the individuals whoultimately control or benefit from them. This makes it easier for money launderers to use them to disguise the origins of illicit funds.

Shell companies are business entities that exist only on paper, with no physical presence, no employees, and no operations. They are often used for legitimate purposes, such as facilitating mergers and acquisitions, protecting assets, or managing investments. However, they are also frequently exploited for illegal activities, such as tax evasion and money laundering, due to their ability to obscure ownership and financial transactions12. Money launderers can use shell companies to disguise the origin of illicit funds, evade sanctions, and avoid the anti-money laundering (AML) measures that financial institutions use to detect suspicious activity23. The process typically involves setting up a shell company in a jurisdiction known for strict privacy laws, such as a tax haven, and then using it to move and hide illicit funds while hiding the identity of the ultimate beneficiaries13.

In this scenario, the fact that the company has been a client for many years does not rule out the possibility of money laundering. The company could have changed its ownership, activities, or risk profile over time, or it could have been involved in money laundering all along without being detected. The fact that the company has added several new subsidiaries that are recently created shell companies is a red flag that indicates potential money laundering. The company could be using the shell companies to hide the source and destination of its funds, or to conceal the identity of its beneficial owners. The institution should perform enhanced due diligence on the company and its subsidiaries, and report any suspicious transactions or activities to the relevant authorities.

How Shell Companies Are Used in Money Laundering: A Detailed Guide

Shell Companies and Money Laundering

The Role of Shell Companies in Money Laundering

The board of directors has the ultimate responsibility within a bank for ensuring that the bank has a comprehensive and effective BSA/AML program and oversight framework that is reasonably designed to ensure compliance with applicable regulations. According to the Federal Financial Institutions Examination Council (FFIEC) BSA/AML Examination Manual, the board of directors must approve the BSA/AML compliance program, which includes the BSA/AML policy, internal controls, independent testing, designatedBSA/AML compliance officer, and training1. The board of directors must also provide sufficient resources, ensure qualified staff, and hold senior management accountable for implementing and adhering to the BSA/AML compliance program1.

1: FFIEC BSA/AML Examination Manual, Board of Directors and Senior Management Oversight

According to the guidance issued by FinCEN and the Federal banking agencies, when a financial institution receives a request for SAR supporting documentation from FinCEN or an appropriate law enforcement or supervisory agency, it must first verify that the requestor is, in fact, a representative of such an agency. This is to ensure the confidentiality and security of the SAR information and to prevent unauthorized disclosures. A financial institution should have procedures for such verification in its BSA/AML compliance program, which may include, for example, independent employment verification with the requestor’s field office or face-to-face review of the requestor’s credentials.

The two red flags indicating potential engagement of a bank employee in money laundering are A. Lavish lifestyle that cannot be supported by an employee's salary, and E. Maintaining friendships with customers and going to restaurants, games, and other events. A bank employee who has a lifestyle that cannot be supported by their salary could be receiving money from illicit activities. Similarly, if the employee is maintaining friendships and going to social events with customers, they could be receiving money in exchange for providing special services. These behaviors should be monitored closely to ensure that the employee is not engaging in activities that could be linked to money laundering.

The bank’s current anti-money laundering program is inadequate because it does not include a process for monitoring customer account activity, which is a key component of detecting and reporting suspicious transactions. The fact that the consultant and the bank have mutual clients does not affect the risk rating of those customers, nor does it justify a lower level of scrutiny. The bank should revise its procedures to ensure that it has a comprehensive and risk-based approach to customer due diligence, transaction monitoring, and reporting.

CAMS Certification Package - 6th Edition, Chapter 3: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), pp. 67-69.

FATF Guidance for a Risk-Based Approach: Legal Professionals, pp. 10-11, 19-20.

BSA/AML Internal Audit: PwC, pp. 1-2.

FSRBs are regional bodies that work with FATF to promote the implementation of AML and CFT standards. FSRBs are made up of member countries that have agreed to work together to combat money laundering and the financing of terrorism [1]. The tools used by FSRBs to promote the implementation of AML and CFT standards include training measures, mutual evaluations of its members, technical assistance, and the sharing of information. FSRBs may also adopt recommendations and best practices based on the FATF’s 40 Recommendations.

 A financial institution located in a Financial Action Task Force (FATF) member country should address the following issues in its anti-money laundering program when dealing with customers located in countries/jurisdictions that are not members of FATF:

The requirement to identify the beneficial owners of accounts: Beneficial owners are the natural persons who ultimately own or control a customer or a legal entity. Identifying the beneficial owners of accounts is a key component of customer due diligence (CDD) and helps the financial institution to assess the risk profile of the customer, prevent the misuse of legal entities for money laundering or terrorist financing, and comply with the FATF Recommendations12.

The requirement for customer identification for the opening of new accounts: Customer identification is the process of verifying the identity of a customer using reliable and independent sources of information or documents. Customer identification is another essential element of CDD and helps the financial institution to establish a business relationship with the customer, prevent identity fraud, and comply with the FATF Recommendations13.

The financial institution’s obligation to report suspicious transactions: Suspicious transactions are transactions that have no apparent economic or lawful purpose, or are inconsistent with the customer’s known profile or business activities, or indicate involvement in money laundering or terrorist financing. Reporting suspicious transactions to the competent authorities is a core obligation of the financial institution under the FATF Recommendations14 and helps to detect and deter illicit activities and support law enforcement investigations.

The obligation to freeze funds involved in suspicious transactions is not an issue that should be addressed in the anti-money laundering program, as it is not a requirement under the FATF Recommendations. The FATF Recommendations require the financial institution to freeze funds or other assets of designated persons and entities that are subject to targeted financial sanctions related to terrorism, proliferation of weapons of mass destruction, or other threats to the international financial system1 . However, the financial institution is not obliged to freeze funds involved in suspicious transactions, unless it receives a specific order from the competent authorities or the courts.

The FATF Recommendations, as amended November 2023

Interpretive Note to Recommendation 10 (Customer Due Diligence), paragraphs 5(b) and 6

Recommendation 10 (Customer Due Diligence), paragraph 1

Recommendation 20 (Reporting of Suspicious Transactions)

Recommendation 6 (Targeted Financial Sanctions Related to Terrorism and Terrorist Financing), Recommendation 7 (Targeted Financial Sanctions Related to Proliferation), and Recommendation 8 (Non-Profit Organisations)

RegularKYC reviewsensure that high-risk customersare monitored for potential changes in their risk profile.

Option D (Correct):TheKYC manager must determine why the required review was missed and implement corrective measures to prevent future failures.

Option A (Incorrect):A missed reviewdoes not necessarily indicate suspicious activity, so filing a SAR at this stage isnot appropriate.

Option B (Incorrect):Removing a customer from the high-risk list without reassessment is a compliance violation.

Option C (Incorrect):Suspending account access without due processmay belegally questionable.

Best Practices for KYC Compliance Management:

Ensure automated KYC review tracking to avoid missed reviews.

Conduct risk-based periodic reviews on high-risk customers.

Implement escalation protocols for overdue KYC reviews.

The red flags that should be considered prior to establishing a relationship with a third party are the lack of anti-corruption compliance clauses in agreements (A) and unusual payment or billing procedures requested by the third party (C). According to the Certified Anti-Money Laundering Specialist (CAMS) Sixth Edition manual, "red flags include, but are not limited to: [...] lack of anti-corruption compliance clauses in agreements (page 330) and unusual payment or billing procedures requested by the third party (page 331)."

The activity described in the question raises several red flags for money laundering, such as large and frequent cash deposits, transfers to offshore jurisdictions, and involvement of a charitable organization that could be a front for illicit funds. The Compliance Officer should file a suspicious transaction report (STR) with the competent authority, such as the Financial Intelligence Unit (FIU), as soon as possible, and provide all the relevant information and documentation to support the suspicion. Filing an STR is a legal obligation for financial institutions and does not require the consent or notification of the customer. The Compliance Officer should also follow the bank’s internal policies and procedures for handling such cases, which may include freezing the account, conducting further investigation, or escalating the matter to senior management.

ACAMS CAMS Certification Study Guide1, Chapter 4: Conducting or Supporting the Investigation, Section 4.4: Reporting, pp. 137-139

ACAMS CAMS Certification Video Training Course2, Module 4: Conducting or Supporting the Investigation, Lesson 4.4: Reporting

ACAMS CAMS Certification Exam Outline3, Domain 4: Conducting or Supporting the Investigation, Task 4.4: File internal and external reports, p. 18

 According to the BSA/AML Manual1, one purpose of filing SARs is to identify violations or potential violations of law to the appropriate law enforcement authorities for criminal investigation. Therefore, when an institution receives a document request from law enforcement with regard to an STR that the institution has filed, it should cooperate and provide the documents that were previously collected to support the STR. This will help the law enforcement agency to conduct its investigation and follow up on the suspicious activity reported by the institution. The institution should also maintain the confidentiality of the STR and the document request, and avoid tipping off the customer or any other person involved in the suspicious activity.

BSA/AML Manual1

Answers to Frequently Asked Questions Regarding Suspicious Activity Reporting and Other Anti-Money Laundering Considerations2

Suspicious Transaction Report STR3

SAR information ishighly sensitive, and institutionsmust follow strict confidentiality rulesto protect investigations and avoid “tipping off” customers.

Option D (Correct):Statistical summaries (e.g., the number of SARs filed, trends, typologies)help the Board monitor AML riskswithout disclosing confidential details.

Option A (Incorrect):Providingall possible detailsmay violateSAR confidentiality laws.

Option B (Incorrect):Sharing full SAR copieswith non-compliance staff isnot permittedunder AML regulations.

Option C (Incorrect):Naming specific customers under SAR reviewrisks"tipping off"or leaking confidential information.

Best Practices for SAR Reporting to the Board:

Provide anonymized statistics on SAR trends.

Highlight emerging AML risks and compliance effectiveness.

Avoid disclosing specific cases or customer names.

Cash couriers are individuals who physically transport cash or other monetary instruments across borders or within a country, often to avoid detection by authorities or reporting obligations. Cash couriers are a common method used by terrorist financiers to move funds without leaving an audit trail, as cash is anonymous, portable, and widely accepted12.

1: ACAMS CAMS Certification Video Training Course, Module 4: Terrorist Financing, Section 4.2: Methods of Terrorist Financing, Slide 9 2: ACAMS CAMS Certification Study Guide, 6th Edition, Chapter 4: Terrorist Financing, Page 97

The art and antiquities market is highly vulnerable to money laundering and terrorist financingdue toanonymity in transactions, lack of regulatory oversight, and difficulty in tracing ownership.

Option A (Correct):Art storage in tax-free zones can be used to obscure ownership and avoid AML scrutiny.

Option C (Correct):Using third-party art advisors can facilitate anonymous transactions and shield beneficial ownership.

Option D (Correct):High-value art sold on social media without proper provenance raises ML/TF risksdue tolack of financial oversight.

Why Other Options Are Incorrect:

Option B (Incorrect):Paying fair market value does not indicate illicit activity—underpricing or rapid resale are bigger red flags.

Option E (Incorrect):Authenticity verification is common in legitimate art transactions and is not a direct ML/TF red flag.

Red Flags for Art & Antiquities Money Laundering:

Frequent high-value art transactions with no clear business purpose.

Use of intermediaries to conceal beneficial ownership.

Rapid resale of newly purchased art at below-market prices.

Best Practices for AML in the Art Market:

Conduct enhanced due diligence (EDD) on high-value art transactions.

Monitor transactions involving politically exposed persons (PEPs).

Report suspicious transactions linked to high-risk art traders.

The FATF communicates its findings regardingjurisdictions with strategic AML/CFT deficiencies by issuing two formal documents three times per year, namely the FATF Public Statement and the Improving Global AML/CFT Compliance: On-going Process document1. These documents identify the jurisdictions that have serious and/or systemic deficiencies in their AML/CFT regimes and the progress they have made in addressing them. The FATF also calls on its members and other jurisdictions to apply counter-measures or enhanced due diligence measures to protect the international financial system from the risks emanating from these jurisdictions1.

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1: High-risk and other monitored jurisdictions - Financial Action Task Force (FATF)

According to the CAMS Certification Package - 6th Edition1, the ultimate responsibility for an institution’s anti-money laundering program rests with the institution’s board of directors. The board of directors is responsible for creating a culture of compliance, approving the AML policies and procedures, appointing the AML compliance officer, overseeing the implementation and effectiveness of the AML program, and ensuring adequate resources and training are provided to the staff. The board of directors is also accountable for any deficiencies or violations of the AML program and must take corrective actions when necessary.

CAMS Certification Package - 6th Edition | ACAMS

 Option B is closest to the definition of money laundering provided by the United Nations Convention against Transnational Organized Crime and Other Protocols, which states that money laundering is “the conversion or transfer of property, knowing that such property is the proceeds of crime, for the purpose of concealing or disguising the illicit origin of the property or of helping any person who is involved in the commission of the predicate offence to evade the legal consequences of his or her action”. In this scenario, the person is knowingly financing a resort development with the proceeds of arms trafficking, which is a crime, and thus concealing or disguising the illicit origin of the property.

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CAMS Certification Package - 6th Edition | ACAMS1

CAMS Certifications: How to Get CAMS Certified | ACAMS2

ACAMS CAMS Certification Video Training Course - Exam-Labs3

Exam CAMS: Certified Anti-Money Laundering Specialist (the 6th edition)4

United Nations Convention against Transnational Organized Crime and the Protocols Thereto

Terrorist financing (TF) differs from traditional money laundering, as funds can originate fromlegitimate sources(e.g., donations, charities) and often involvelow-value transactions.

Option A (Correct):Non-profits with no online presencecan beshell organizations used to finance terrorism.

Option C (Correct):Small-dollar payments to high-risk jurisdictions(e.g., FATF-listed countries)may indicate terrorist funding activity.

Why Other Options Are Incorrect:

Option B (Incorrect):Crowdfunding payments with transparency and project detailsare generallylow-risk.

Option D (Incorrect):Charities helping refugeesmay behigh-risk but not automatically suspicious.

Option E (Incorrect):Structuring below reporting thresholds is more indicative of money laundering than terrorist financing.

Red Flags for Terrorist Financing:

Frequent low-value transactions to conflict zones.

Use of charities and non-profits as fronts for terror groups.

Funds moving through unregulated crowdfunding platforms.

Best Practices for Detecting Terrorist Financing:

Identify transactions involving known terrorist financing typologies.

Enhance monitoring of non-profit organizations operating in high-risk regions.

Use negative news screening to detect links to sanctioned entities.

TheAML supervisory authorityis responsible for overseeing financial institutions' compliance with AML/CFT regulations.

Option D (Correct):AML supervisory authorities, such as theFinancial Conduct Authority (FCA) in the UK,FinCEN in the US, orEuropean Central Bank (ECB) for EU institutions, conduct inspections, issue reports, and enforce penalties when AML deficiencies are found.

Option A (Incorrect):Self-regulatory bodies provide guidelines butdo not have legal authorityto withdraw banking licenses.

Option B (Incorrect):Law enforcement may investigate criminal conduct, butregulatory compliance issuesfall under AML supervisory authorities.

Option C (Incorrect):FATF provides guidance and assessments but doesnot directly enforcecompliance at individual financial institutions.

According to the Basel Committee's principles on customer due diligence, banks must obtain the necessary information to establish the identity of their customers, beneficial owners, and any persons acting on behalf of their customers. This includes verifying the identity of the customer and the beneficial owners and assessing the customer's risk profile. Additionally, banks must conduct ongoing due diligence to ensure that the customer does not give rise to suspicions of money laundering or terrorist financing [1].

According to the ACAMS CAMS Study Guide (the 6th edition), one of the common methods of money laundering in the insurance sector is to purchase policies with illicit funds, overpay premiums, and then cancel or surrender the policies to receive refunds or payouts1. This allows criminals to move and disguise the source of their funds through the insurance company. Therefore, the regular withdrawals from the policy by the end of the month could indicate a money laundering scheme. Moreover, the FATF Guidance for a Risk-Based Approach for the Life Insurance Sector states that unidentified third parties depositing cash to the policy could also pose a high money laundering risk, as cash transactions are difficult to trace and third parties may act as intermediaries or nominees for the real beneficiaries2. Therefore, the insurance company should conduct enhanced due diligence on the policyholder and the third parties, and monitor the transactions for any suspicious activity.

According to section 313 of the USA PATRIOT Act, a covered financial institution (generally any U.S. bank or broker dealer in securities) is prohibited from establishing, maintaining, administering, or managing a correspondent account in the U.S. for, or on behalf of, a foreign shell bank. A foreign shell bank is defined as a foreign bank that does not have a physical presence in any country. The only exception to this prohibition is if the foreign shell bank is a regulated affiliate of a depository institution, credit union, or foreign bank that maintains a physical presence in the U.S. or a foreign country, respectively. In that case, the U.S. financial institution must obtain a written certification from the foreign bank that it does not provide banking services to any other foreign shell banks.

A. Geographic risks should be used to identify the priority of the Fl in this scenario. According to the CAMS Manual (6th Edition), "Geographic risk refers to the possibility that the location of a customer, transaction, or product may increase the likelihood of money laundering or terroristfinancing because of weak or nonexistent AML/CFT controls" (p. 59). In this scenario, the expansion to an area of the world with weak AML laws would increase the Fl's geographic risk.

Money laundering can have negative effects on a country’s currencies and interest rates, as it distorts the allocation of resources and the demand and supply ofmoney. According to the IMF1, money laundering can also adversely affect currencies and interest rates as launderers reinvest funds where their schemes are less likely to be detected, rather than where rates of return are higher. This can create artificial fluctuations and imbalances in the exchange and interest rates, and undermine the effectiveness of monetary policy. For example, if launderers invest in low-yield assets such as government bonds or real estate, they may drive up the prices and lower the yields of these assets, while reducing the availability of funds for more productive investments. This can also affect the inflation and growth prospects of the country.

1: Macroeconomic Implications of Money Laundering by Peter J. Quirk, IMF Working Paper, 1996

2: Understanding Money Laundering: How It Impacts the Global Economy by Tookitaki, 2019

3: Money Laundering by U.S. Department of the Treasury, 2021

4: The Consequences of Money Laundering and Financial Crime by John McDowell and Gary Novis, U.S. Department of State, 2001

According to the Certified Anti-Money Laundering Specialist (CAMS) Sixth Edition manual, elements that can trigger a review of the existing relationship during the opening of a new account include recent adverse media on the client (page 60) and incoming transfers from high-risk jurisdictions (page 61). The other elements listed, such as regular checks on the flow of funds, a false positive result for name screening, and an estimated total income decrease, are not triggers for a review.

Non-compliance with anti-money laundering (AML) laws and regulations can lead to severe consequences for both financial institutions and individuals. One of the indirect consequences is the imposition of punitive fines. These fines can vary based on the type of violation and the institution’s willingness to address the issue. Additionally, non-compliance may damage a company’s reputation, impacting its standing in the market and potentially leading to financial losses beyond the fines themselves123.

C: Privacy coins (like Monero, Zcash) are designed to obscure transaction details, making tracing difficult.

D: Crypto-mixers (or tumblers) mix potentially identifiable cryptocurrency funds with others, obscuring the source.

“Privacy coins and mixing services are specifically cited as high ML/TF risk tools, enabling greater anonymity.”(CAMS 6th Edition, Cryptoassets ML/TF Risks; FATF, Virtual Assets Guidance)

 A key risk indicator associated with terrorism financing is the link between the charity group and a known terrorist group. This indicates that the funds transferred to the charity group may be used to support the terrorist group’s activities, such as recruitment, training, propaganda, or attacks. Charities are often vulnerable to abuse by terrorist financiers, as they may operate in high-risk areas, have access to large amounts of cash, and enjoy public trust and legitimacy. Therefore, financial institutions (FIs) should conduct due diligence on the charity group, its directors, its beneficiaries, and its sources and uses of funds, and monitor the transactions for any red flags, such as unusual patterns, amounts, or destinations. FIs should also comply with the relevant sanctions and regulatory requirements, and report any suspicious or unusual activity to the authorities.

1: FATF Guidance on Private Sector Information Sharing1

2: Mitigating the risks of terrorist financing | Crowe LLP3

3: ACAMS Study Guide for the CAMS Certification Examination3

TheEgmont Groupis aninternational network of Financial Intelligence Units (FIUs)thatenhances cooperation and information sharing to combat financial crime.

Option A (Correct):The Egmont Groupimproves global cooperationby enabling FIUsto exchange financial intelligence securely.

Option C (Correct):Thegroup facilitates secure communication channelsforsharing money laundering and terrorist financing intelligence.

Option E (Correct):TheEgmont Group fosters trust between FIUs, allowing them to work collaborativelyon cross-border investigations.

Why Other Options Are Incorrect:

Option B (Incorrect):The Egmont Groupdoes not negotiate case-by-case memoranda of understanding (MoUs)for individual cases.

Option D (Incorrect):The Egmont Groupdoes not draft AML legislation; itprovides guidance but does not have regulatory authority.

Key Functions of the Egmont Group:

Facilitating cross-border cooperation among FIUs.

Providing a secure network (Egmont Secure Web) for intelligence sharing.

Developing best practices for AML/CFT investigations.

According to the Bank Secrecy Act (BSA), a financial institution or business must establish an anti-money laundering (AML) program that includes at least four elements: (a) a system of internal policies, procedures and controls to prevent, detect and report money laundering and other illicit activities; (b) a designated compliance officer who is responsible for overseeing the implementation and effectiveness of the AML program; © an ongoing employee training program that covers the legal and regulatory obligations, the risks and red flags of money laundering, and the roles and responsibilities of the staff in the AML program; and (d) an independent audit function that tests and evaluates the adequacy and compliance of the AML program12.

While the Office of Foreign Assets Control (OFAC) is a key agency that enforces economic and trade sanctions against targeted foreign countries, entities and individuals, it is not part of the BSA or the AML program requirements. However, financial institutions and businesses are expected to comply with OFAC regulations and screen their customers and transactions against the OFAC lists of sanctioned parties. Failure to do so may result in civil or criminal penalties34. Therefore, it is advisable for financial institutions and businesses to have an OFAC program that is integrated with their AML program, but it is not a mandatory element that they have to specifically address in their AML program.

1: Financial Crimes Enforcement Network (2020). Anti-Money Laundering Programs

2: ACAMS (2020). CAMS Certification Package (6th Edition)

3: Office of Foreign Assets Control (2023). Sanctions Programs and Country Information

4: Moses & Singer LLP (2023). Anti-Money Laundering, Bank Secrecy and OFAC Regulations

 A beneficial owner is the natural person who ultimately owns or controls a legal entity or arrangement, such as a company, a trust, or a foundation. Identifying the beneficial owner is essential for preventing and detecting money laundering, terrorist financing, tax evasion, and other illicit activities that may involve the misuse of corporate vehicles. However, some individuals or entities may attempt to conceal the true beneficial ownership of a company by using various techniques, such as complex ownership structures, shell companies, bearer shares, or nominees. A nominee is a person or an entity that acts on behalf of another person or entity, usually for a fee or a commission, without disclosing the identity of the real owner or controller. Nominees can be used to protect or conceal the identity of the beneficial owner and controller of a company or asset. A nominee can help overcome jurisdictional controls on company ownership and circumvent directorship bans imposed by courts and government authorities. While the appointment of nominees is lawful in most countries, the use of nominees for money laundering purposes is illegal and a red flag for suspicious activity. Therefore, the person filling out an application on the company’s behalf indicating that a beneficial owner is a nominee for another person not named in the company’s documentation is an indicator that there is an attempt to conceal the company’s true beneficial ownership12.

The other options are not necessarily indicators of concealment of beneficial ownership, as they may have legitimate explanations or reasons. The company having a subsidiary in another jurisdiction with a local investor as a beneficial owner may be a normal business practice or a strategic decision, as long as the ownership information is transparent and accurate. Recent changes to the company’s ownership structure may reflect the company’s growth, development, or adaptation to market conditions, as long as they are documented and reported to the relevant authorities. Beneficial ownership information from the time that the company was formed several years ago not matching the current information may be due to natural changes in the company’s shareholders, directors, or managers, as long as they are updated and verified periodically.

https://www.wolfsberg-principles.com/sites/default/files/wb/pdfs/wolfsbergstandards/10.%20Wolfsberg-Private-Banking-Prinicples-May-2012.pdf

2.4 Senior Management Approval

The bank's internal policies should indicate whether, for any one or more among these categories, Senior

Management must approve entering into new relationships.

Relationships with Politically Exposed Persons may only be entered into with the approval of Senior Management.

According to the Anti-Money Laundering Specialist (the 6th edition) study guide, an AML training program should include the requirement that new staff receive training during employee orientation or shortly thereafter on bank procedures. This is because new staff need to be aware of the bank’s policies and procedures for complying with the money laundering regulations, such as customer due diligence, transaction monitoring, record-keeping, and reporting of suspicious activities. Training new staff as soon as possible also helps to reduce the risk of human errors or oversights that could facilitate money laundering or terrorist financing.

ACAMS, CAMS Certification Package - 6th Edition, Chapter 5, page 143

ACAMS, CAMS Certification Package - 6th Edition, Chapter 5, page 144

Technical factsheet Anti-money laundering (AML) training: frequently asked questions, page 1

The Basel Committee on Banking Supervision identified four risks to banking institutions as a result of an inadequate KYC program: legal, reputational, operational, and concentration. Legal risks include the potential for fines or sanctions for non-compliance with applicable laws and regulations. Reputational risks include the loss of customer confidence due to the institution's involvement in illicit activities. Operational risks include the potential for fraudulent or suspicious activity to go undetected. Finally, concentration risks involve the potential for a single customer or group of related customers to dominate the institution's operations.

By delivering the same annual refresher training to all employees, the compliance officer could miss the opportunity to update the staff on any new trends, developments, or risks that have emerged in the anti-money laundering field. For example, new typologies, indicators, technologies, or best practices could be relevant for the staff to be aware of and apply in their daily work. Moreover, the compliance officer could also miss the chance to share any links to enforcement actions identifying violations in other financial institutions that could serve as lessons learned or case studies for the staff to avoid similar mistakes or gaps in their compliance program.

ACAMS CAMS Certification Video Training Course, Module 5: Risk Management, Lesson 5.4: Training1

ACAMS CAMS Certification Study Guide, 6th Edition, Chapter 5: Risk Management, Section 5.4: Training2

Here is the exact information from the Financial Action Task Force (FATF) Guidance for a Risk-Based Approach for Trust and Company Service Providers:

"Understanding the management and ownership structure of a trust is crucial in assessing the ML/TF risk it poses. This includes the identity of all settlors, trustees and beneficiaries, and their respective roles and responsibilities, as well as the nature and purpose of the trust."

"TCSPs should obtain and maintain up-to-date information on the purpose and intended nature of the business relationship, the source of funds and wealth, and where relevant, the source of funds or wealth of the settlor and beneficiaries."

Based on this information, the correct answers are A and D. Trust and Company Service Providers must understand the responsibility and authority in the structure, as well as the general purpose behind the structure in order to assess the overall risk of the trust and ensure that any transactions with the trust are legitimate.

Terminating customer relationships due toAML risksrequiresclear procedures and documentation.

Option B (Correct):Astandardized termination procedureensurescompliance, fairness, and consistency.

Option C (Correct):Afinal review of transactionshelps identifysuspicious activity before closure.

Option D (Correct):Documenting termination decisionsprotects the FI fromlegal and regulatory risks.

Option A (Incorrect):Whileclear communication is important, termination decisions should beconsistent and policy-driven.

Option E (Incorrect):Customers should benotified appropriatelybut not necessarilyaftertermination.

 According to the web search results, the Egmont Group is a united body of 170 Financial Intelligence Units (FIUs) that provides a platform for FIUs tosecurely exchange expertise and financial intelligence to combat money laundering, terrorist financing, and associated predicate offences12. The goal of the Egmont Group is to provide a forum for FIUs around the world to improve support to their respective governments in the fight against money laundering, terrorist financing, and other financial crimes345. The other options are not correct because they either do not capture the full scope of the Egmont Group’s activities, or they are not the primary focus of the Egmont Group.

 https://egmontgroup.org/

https://2009-2017.state.gov/j/inl/rls/nrcrpt/2015/vol2/239473.htm\

 According to the ACAMS CAMS Certification Study Guide (6th edition), a financial institution (FI) should update its ML/TF risk assessment when there are changes in its business activities, customer base, or operating environment that may affect its exposure to ML/TF risks1 Some examples of such changes are:

When new products, services or customer types are introduced: New products, services or customer types may introduce new or increased ML/TF risks that the FI may not have previously considered or addressed. For example, offering online banking, prepaid cards, or cross-border remittances may create new opportunities for money launderers or terrorist financiers to exploit the FI’s systems and processes. Therefore, the FI should assess the ML/TF risks associated with the new products, services or customer types and implement appropriate controls to mitigate them12

When the institution faces a merger or acquisition: A merger or acquisition may result in the FI inheriting the ML/TF risks of the other entity, as well as the potential liabilities and reputational damage that may arise from any ML/TF issues or violations. Therefore, the FI should conduct a due diligence on the other entity’s ML/TF risk assessment, policies, procedures, and controls, and identify any gaps or weaknesses that need to be addressed. The FI should also integrate and harmonize the ML/TF risk assessment and compliance programs of the merged or acquired entity with its own13

 1: ACAMS CAMS Certification Study Guide (6th edition), page 32. 2: Money laundering/terrorism financing risk assessment | AUSTRAC4 3: MONEY LAUNDERING & TERRORIST FINANCING (ML/TF) RISK ASSESSMENT METHODOLOGY5, page 4.

Failure to report suspected fraud activity is a serious breach of the anti-money laundering (AML) and anti-fraud obligations of a financial institution (FI). It could expose the FI to legal risks, such as civil lawsuits, criminal prosecutions, regulatory sanctions, and reputational damage. One possible legal risk is that the FI could be held liable for the losses suffered by the victims of the fraudster, either by the victims themselves or by a third party acting on their behalf, such as a government agency or a class action representative. This could result in significant financial costs and damages for the FI, as well as loss of trust and confidence from its customers and stakeholders.

1: This web article explains what a suspicious activity report (SAR) is, who regulates it, when it is required, and what are the consequences of failing to file it.

2: This guide provides information on how to make a SAR, what to include, how to request a defence against money laundering (DAML), and what happens if you fail to report suspicious activity.

3: This blog post discusses the legal implications of not reporting an alleged crime, such as fraud, and gives examples of cases where individuals or entities were prosecuted or sued for their failure to report.

Theart and antiquities marketis frequently exploited formoney laundering and terrorist financing.

Option A (Correct):Art storage facilities in tax-free zonesallowanonymous transactions, creatinghigh AML risk.

Option C (Correct):Third-party art advisorscan be used asintermediariestoobscure true ownership.

Option D (Correct):Selling art on social mediawithout proper vetting allows foranonymous transactions.

Option B (Incorrect):Paying fair market valuedoes not indicatesuspicious activity.

Option E (Incorrect):Authenticity verificationdoes notincrease AML risk.

Transaction monitoring alerts requirefurther analysisto determine whether they indicategenuine suspicious activity or a false positive.

Option C (Correct):Requesting information from the relationship manager helps gather customer background details, past transaction patterns, and business rationale.

Option A (Incorrect):Below-the-line testing assesses system effectiveness but does not resolve an immediate AML alert.

Option B (Incorrect):Directly contacting a counterparty bank may violate privacy regulations and should only be done if escalation is required.

Option D (Incorrect):Restricting access without due diligence may lead to regulatory and reputational risks.

Best Practices for Investigating AML Alerts:

Review transaction history and customer risk profile.

Engage the relationship manager for business context.

Escalate to AML compliance teams if red flags persist.

According to the Certified Anti-Money Laundering Specialist (CAMS) study guide, 6th edition, page 105, the correct answer is C. It can be difficult to determine if there is negative media associated with counterparties solely from the customer's account activity and KYC file.

The study guide explains that negative media can include news articles, government sanctions lists, and other sources of public information that may indicate that a counterparty is involved in illicit activities. However, this information may not be readily available in a customer's account activity or KYC file, and may require additional research or investigation.

AML controls should bemeasured for effectivenessusingquantifiable metrics.

Option D (Correct):Thetrue positive/false positive ratioassesses theefficiencyof AML detection.

Option A (Incorrect):Thenumber of alerts alonedoes not measureeffectiveness, as many could befalse positives.

Option B (Incorrect):Client exitsdo not indicate whether an AML program isworking properly.

Option C (Incorrect):High-risk customer onboardingmust bemonitored, but it does not indicate AML effectiveness.

Dealers in antiques, precious metals, precious stones, jewelry, and art are advised to follow these practices to reduce the element of money laundering risk:

Verify the identities of all new vendors and customers and conduct due diligence on them. This is to ensure that the dealers know who they are dealing with and can assess the risk level of each customer or vendor. Due diligence may include obtaining and verifying identification documents, checking against sanctions lists or watchlists, obtaining information on the source and purpose of funds, and applying a risk-based approach to the level and frequency of due diligence.

Avoid accepting cash payment from the buyers. This is to prevent the dealers from being used as a conduit for laundering illicit cash or facilitating cash smuggling. Cash transactions are more difficult to trace and may indicate attempts to evade reporting or record-keeping requirements. Dealers should encourage the use of non-cash payment methods, such as bank transfers, cheques, or credit cards, and keep records of all payment transactions.

Insist all vendors submit an appropriate license issued by enforcement agencies authorizing the sale. This is to ensure that the dealers are not involved in the trade of stolen, smuggled, or counterfeit goods, which may be linked to money laundering or other criminal activities. Dealers should verify the authenticity and validity of the licenses and keep copies of them for record-keeping purposes.

FATF Guidance on the Risk-Based Approach for Dealers in Precious Metals and Stones, pages 9-10, 13-14, 17-18, 21-22

AML-CFT Handbook for Dealers in Precious Metals and Stones, pages 25-26, 37-38, 52-53

The anti-money laundering framework for precious stones and metals dealers in Singapore, pages 7-8, 11-12, 15-16

Dealers in Precious Metals, Stones or Jewels Required to Establish Anti-Money Laundering Programs, pages 2-3, 6-7, 10-11

Economic sanctions are a tool that governments and multi-national bodies can use to prevent the proliferation of weapons of mass destruction (WMDs) by imposing restrictions on trade, financial transactions, travel, or other activities with targeted countries, entities, or individuals that are involved or suspected of being involved in WMD programs. Economic sanctions aim to disrupt the supply chains, funding sources, and incentives for developing or acquiring WMDs, as well as to deter and punish any violations of international norms and obligations regarding WMDs. Economic sanctions can be imposed unilaterally by a country or multilaterally by a group of countries or an international organization, such as the United Nations, the European Union, or the Financial Action Task Force.

ACAMS CAMS Certification Video Training Course, Module 4: Preventing the Proliferation of Weapons of Mass Destruction, Lesson 4.2: Sanctions1

ACAMS CAMS Certification Study Guide, 6th Edition, Chapter 4: Preventing the Proliferation of Weapons of Mass Destruction, Section 4.2: Sanctions2

According to the ACAMS study guide, one of the red flags for money laundering in cash-intensive businesses is “the presence of privately-owned ATMs on the premises” (p. 222). This could indicate that the business is using the ATM to deposit or withdraw large amounts of cash from illicit sources, or to facilitate the movement of funds across borders. The other options are not necessarily indicative of money laundering risk, as they could be explained by legitimate factors such as the change in customer preferences, the economic situation, or the expansion of the business.

ACAMS. (2020). Study Guide for the Certification Examination for Anti-Money Laundering Specialists (6th ed.). Miami, FL: ACAMS.

CFI. (2023)Money Laundering - Overview, How It Works, Example 1. Retrieved from https://corporatefinanceinstitute.com

CALERT. (2016)How Do Criminals Launder Money Through a Restaurant? 2. Retrieved from https://calert.info

TheFATF Immediate Outcomes (IOs)measure the effectiveness of AML/CFT frameworks in jurisdictions.

Option A (Correct):International cooperationis key to combating financial crime, as outlined inImmediate Outcome 2.

Option B (Correct):Effective regulation of financial institutionsis part ofImmediate Outcome 3, which ensures compliance with AML laws.

Option E (Correct):Investigation and prosecution of money laundering offensesalign withImmediate Outcome 7.

Option C (Incorrect):FATF itself does not conduct investigations; FIUs share intelligence with domestic and international agencies.

Option D (Incorrect):While financial criminals face legal consequences, there is no global mandate to restrict their access to banking.

According to the guidance issued by the Financial Crimes Enforcement Network (FinCEN) and the federal banking agencies, a financial institution is legally permitted to discuss any aspects of the reported activity with the law enforcement officer who contacts them about the suspicious transaction report (SAR), as long as the officer provides appropriate credentials and a written request for the information. The financialinstitution is also legally permitted to send the deposit documents referenced in the SAR, as they are part of the supporting documentation that may be requested by law enforcement1

However, the financial institution is not legally permitted to provide copies of the customer’s loan documents or explain the customer’s loan payment history, as they are not directly related to the reported activity and may contain confidential information that is protected by privacy laws or contractual agreements. The financial institution should only disclose the minimum amount of information necessary to respond to the law enforcement request and should not volunteer any information that is not relevant or requested12

1: Answers to Frequently Asked Questions Regarding Suspicious Activity Reporting and Other Anti-Money Laundering Considerations, FinCEN and Federal Banking Agencies, 2021, Question 1

2: The best practices for effective Suspicious Activity Reporting, The Payments Association, 2020

Certain corporate structuresobscure beneficial ownership, making themattractive for money laundering.

Option A (Correct):Nominee shareholders and directors conceal the true owners of a company, increasing AML risk.

Option C (Correct):Bearer shares allow ownership to be transferred anonymously, making it difficult to trace transactions.

Option E (Correct):Private investment companies in tax havens with strict secrecy laws enable illicit fund movements.

Why Other Options Are Incorrect:

Option B (Incorrect):A private company that does not operate in a tax haven presents lower ML risk.

Option D (Incorrect):A foreign LLC is not necessarily high-risk unless linked to a secrecy jurisdiction.

Best Practices for Identifying High-Risk Corporate Structures:

Require full disclosure of beneficial ownership.

Apply enhanced due diligence (EDD) on tax-haven entities.

Monitor for unusual cross-border transactions.

The Office of Foreign Assets Control (OFAC) is a US agency that administers and enforces economic and trade sanctions based on US foreign policy and national security goals1. OFAC has a list of sanctions programs and country information for various regions and topics, such as Russia, Iran, North Korea, Cuba, and more2. If a charity is headquartered in a country on the OFAC list, it means that the US government has imposed restrictions or prohibitions on transactions or dealings with that country, its government, entities, or individuals. This poses a high risk of violating the sanctions regulations and exposing the bank to legal, regulatory, or reputational consequences. Therefore, the bank may decide to terminate the banking relationship with the charity to avoid such risks.

The other options are not sufficient reasons to terminate the banking relationship, as they may not indicate illegal or suspicious activities by the charity. A high turnover rate of official positions may be due to various factors, such as organizational changes, staff turnover, or personal reasons. It does not necessarily imply that the charity is involved in money laundering or terrorist financing. However, the bank should verify the identity and authority of the new officials and update the customer due diligence information accordingly. The charity may have several incoming international funds transfers because it receives donations or grants from different sources or countries. This is not unusual for an international charity, as long as the funds are consistent with its stated purpose and activities. The bank should monitor the transactions and report any anomalies or red flags to the relevant authorities. The flow of funds both in and out may be complex and hard to trace because the charity operates in multiple jurisdictions or sectors, or has a decentralized or layered structure. This may increase the risk of money laundering or terrorist financing, but it does not necessarily mean that the charity is engaged in such activities. The bank should conduct enhanced due diligence and ongoing monitoring of the charity’s transactions and beneficiaries, and apply a risk-based approach to mitigate the potential risks.

 1: Sanctions List Search Tool | Office of Foreign Assets Control 2: Sanctions Programs and Country Information | U.S. Department of the Treasury