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

The correct answer is B, C, and E, as these three present the highest anti-money laundering or sanctions risk and will require controls prior to launch. According to the FATF Updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers1, P2P transactions pose significant challenges for AML/CFT compliance, as they may involve anonymous or pseudonymous parties, cross-border transfers, real-time settlement, and limited information on the beneficiaries. These factors increase the risk of money laundering, terrorist financing, and sanctions evasion, as well as the difficulty of detecting and reporting suspicious activity. Therefore, the institution should implement appropriate controls to mitigate these risks, such as:

Conducting enhanced due diligence on customers who use the P2P service, especially if they are located in high-risk jurisdictions or are involved in high-risk activities1.

Implementing transaction monitoring systems that can identify and flag unusual or suspicious patterns of behavior, such as large or frequent transfers, transfers to or from sanctioned entities or countries, or transfers that do not match the customer’s profile or expected activity12.

Applying the travel rule, which requires the originator and beneficiary VASPs (or financial institutions) to exchange and retain information on the parties involved in the transfer, such as their names, account numbers, addresses, and national identification numbers13.

Establishing information-sharing and cooperation mechanisms with other VASPs, financial institutions, and regulators, to facilitate the exchange of relevant data and intelligence on P2P transactions and customers14.

The correct answer is C, as mapping scenarios are helpful in mitigating the weakness of not generating alerts when activity is consistently abnormal over a long period of time. Mapping scenarios are used to compare a customer’s activity with their expected activity based on their profile, risk rating, or historical behavior1. By using mapping scenarios, the organization can identify customers whose activity deviates significantly from their normal or expected patterns, and flag them for further investigation. Mappingscenarios can also help detect changes in customer behavior over time, and alert the organization of any potential money laundering or terrorist financing 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.

A Penza scheme, also known as a Ponzi scheme, is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors1 The scheme relies on attracting new investors with unrealistic promises of high returns and low risk, while using their money to pay off the previous investors2 An unlicensed investment advisor who offers profits other investments cannot guarantee is likely to be involved in a Penza scheme, as this is a common way to entice unsuspecting victims3 The other options are not necessarily indicative of a Penza scheme, as they could be legitimate or involve other types of fraud.

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.

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.

 The bank’s reputation is not a valid criterion for filing a SAR/STR, as it is not related to the objective assessment of the suspiciousness of the transaction or the activity. The bank should file a SAR/STR based on the facts and circumstances of the case, and not on the potential impact on its image or reputation. The other options are possible indicators of money laundering or terrorist financing, and could warrant a SAR/STR filing,depending on the context and the risk profile of the customer and the transaction. For example, a large, round number wire to an obscure organization could suggest an attempt to conceal the source or destination of the funds, or to support a criminal or terrorist entity. A beneficiary that is largely unknown or has no apparent connection to the customer could indicate a lack of transparency or a false identity. A customer activity that is unreasonable or inconsistent with the customer’s profile, business, or expected behavior could indicate a deviation from the normal or legitimate purpose of the account or the transaction.

After filing a suspicious activity report (SAR), an investigator should prepare a summary for senior management recommending client off-boarding. This is because client off-boarding is a risk-based decision that requires senior management approval and may involve legal considerations. Informing other local financial institutions about the client, restraining or blocking the client’s account(s), or contacting law enforcement directly are not appropriate actions for an investigator to take after filing a SAR, as they may compromise the confidentiality of the SAR, violate privacy laws, or interfere with ongoing investigations.

Data sharingbetween financial institutions, FIUs, and law enforcement is essential toAML compliance.

Option A (Correct):Transparent financial systemsdetermoney laundering and terrorist financing.

Option B (Incorrect):FIUsdo not impose sanctions; theycollect and analyze data.

Option C (Incorrect):While data analysis is valuable, thekey goal is financial transparency.

Option D (Incorrect):In many jurisdictions,data sharing is encouraged, withsome restrictions.

 The anti-money laundering officer (AML officer) is responsible for overseeing the implementation and effectiveness of the anti-money laundering (AML) program of a financial institution. The AML officer should have sufficient authority, independence, and access to resources to perform this role. Reporting to the Sales Director may compromise the independence and objectivity of the AML officer, as the Sales Director may have conflicting interests or incentives that could influence the AML officer’s decisions or actions. The AML officer should report to a senior management level that is independent of business functions and has direct access to the board of directors or a relevant committee. This would ensure that the AML officer can communicate any AML issues orconcerns to the board without any interference or undue influence from the business functions.

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.

When assessing and managing money laundering risks while operating in foreign jurisdictions different from that of the head office, an effective AML monitoring program should conform to the foreign jurisdiction policies to align with the head office policies. This ensures that the organization's AML/CFT risk management remains consistent across all jurisdictions, while allowing local compliance staff to assess and manage the risks specific to their jurisdiction. Additionally, the program should be tailored to the higher of standards between the jurisdictions, and should be consistent with the head office audits. Providing all foreign jurisdiction reports to the head office for approval is not necessary, as long as the program is consistent with the head office policies.

According to the CAMS Study Guide, EDD is a higher level of scrutiny applied to customers who pose a greater risk of money laundering or terrorist financing. EDD may include obtaining additional information on the customer’s identity, source of funds, businessactivities, beneficial owners, and expected transactions. Details on individuals with control over the account are relevant for EDD, as they may indicate the involvement of politically exposed persons (PEPs), sanctioned individuals, or other high-risk entities. Therefore, this information should be gathered as part of EDD for a high-risk customer.

Financing terrorism generally refers to providing money or other support, such as personnel or technology, to terrorist activities. This can include providing funds to terrorist networks, providing services to support terrorist operations, and providing resources to support terrorist activities. In this case, paying producers and reporters for television and web messaging would be considered financing of terrorism, as it is providing support for terrorist activities.

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 ACAMS CAMS Certification Study Guide (6th edition), one of the key steps of conducting an investigation of a suspicious activity is to maintain and secure supporting documentation used to perform the investigation. This includes the transaction activity that generated the alert, the analysis performed, the decision made, and the rationale for the decision. This documentation serves as evidence of the investigation process and the compliance with the relevant policies and procedures. It also helps to ensure consistency, accountability, and transparency in the investigation process1

The characteristic of the Financial Action Task Force (FATF) 40 recommendations is that they comprise global standards for countering money laundering, recognized by government bodies across the world. The FATF 40 recommendations provide a comprehensive framework of measures that countries should implement to combat money laundering and terrorist financing. The recommendations are not mandatory, but are widely recognized and followed by countries across the globe. The recommendations cover a range of areas, including customer due diligence, record-keeping, suspicious activity reporting, and international cooperation.

This is stated in the Certified Anti-Money Laundering Specialist (the 6th edition) manual on page 595, which states: “Potential indicators of money laundering associated with Trust and Company Service Providers include the use of legal persons in jurisdictions with strict secrecy laws, structuring cash deposits into third party accounts, multi-jurisdictional wire transfers with no legal purpose, and frequent deposits to or withdrawals from bank accounts.”

 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 confirmingthe source of the funds, and identifying shareholders listed on the stock exchange of corporate entities holding fifty percent of the shares.

An employee who witnesses suspicious activity from a coworker should not confront the coworker or discuss the activity with their supervisor. Instead, they should report the activity to their employer's conflict line or compliance department, who can investigate the matter and take the appropriate action. It is important to remember that employees are legally obligated to report any suspicious activity they witness.

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.

This information can be found in the Certified Anti-Money Laundering Specialist (CAMS) study guide, 6th edition, under the section on Unusual Customer Identification Scenarios. The guide explains that two indicators that should be included in awareness training for unusual customer identification scenarios are:

A. The customer opens the account in the name of a family member who begins making large deposits.

This is an indicator of potential structuring, where a customer may be attempting to avoid triggering reporting thresholds by depositing funds in smaller amounts over time. It is important for staff to be aware of this scenario and to monitor accounts for potential suspicious activity.

B. The customer's name and home address cannot be verified.

This is an indicator of potential identity theft or other fraudulent activity. If a customer's identifying information cannot be verified, it is important for staff to conduct additional due diligence to ensure that the customer is legitimate and that the account is not being used for illicit purposes.

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.

Using the customer profile and expected activity information, a financial institution should be able to identify transactions that are difficult to make economic sense. Transactions that don't make economic sense may be suspicious, and should be investigated further to determine if they may be related to money laundering or other illicit activities. For example, if a customer is profiting from a series of transactions that don't make economic sense, such as buying and selling the same stock multiple times in a short period of time, then this could be a sign of money laundering or other illicit activities.

Civil and Criminal Prosecution, Fines, and Imprisonment: The Chief AML Officer may face legal action, including both civil and criminal proceedings. This could result in fines and even imprisonment if found guilty of negligence or misconduct related to anti-money laundering compliance.

Ban from Employment: Regulators have the authority to ban individuals from working in the financial services industry if they are deemed unfit due to AML-related failures. Such a ban can significantly impact the individual’s career prospects.

Recommend Termination of Employment: While the regulator cannot directly terminate employment, they can recommend that the financial institution (FI) take appropriate action, including termination, based on the Chief AML Officer’s performance.

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.

The anti-money laundering specialist should recommend a financial institution to investigate the source of funds, identify people and companies that are clearly related, and identify a person fully, including their political history, when dealing with individuals holding important public positions. These are essential steps to conduct enhanced due diligence based on public information, as they can help to assess the risk profile, the legitimacy, and the transparency of the customer relationship. The Basel Committee on Banking Supervision’s list of public officials is not a reliable source of public information, as it is not comprehensive, updated, or verified. Therefore, it is not a sufficient criterion to check the background of potential customers.

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.

free of payment asset transfer is a trading pattern that may be indicative of money laundering in capital markets. Free of payment asset transfer is a method of transferring securities without any corresponding payment, which can be used to avoid detection of the origin or destination of the funds. This can facilitate the layering or integration stages of money laundering, as the launderer can move the assets across different accounts, jurisdictions, or institutions without leaving a clear audit trail. Free of payment asset transfer can also be used to evade taxes, sanctions, or other regulatory requirements.

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.

The primary purposes of Financial Action Task Force (FATF)-Style Regional Bodies are to promote effective implementation of FATF recommendations and to provide expertise and input in FATF policy-making. (CAMS Manual, 6th Edition, Page 180)

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.

A. Offering internal policies training: This is crucial. Employees need to understand the specific procedures and policies related to customer identification and verification. These internal policies ensure consistency and compliance.

B. Offering general background and history training: While historical context is valuable, it’s not the primary focus. AML training should prioritize practical knowledge and current best practices.

C. Offering periodic refresher training: Absolutely! Regular refresher training keeps employees up-to-date with evolving AML regulations and reinforces their understanding.

D. Offering tailored training for specific roles: This is essential. Different roles require different expertise. For example, investigators need to recognize red flags, while report writers must understand how to create effective suspicious activity reports.

Comprehensive Detailed Explanation:

Internal Policies Training: AML training should cover internal policies thoroughly. This includes customer identification and verification procedures, as well as other relevant policies specific to the organization. Employees need to understand how these policies translate into day-to-day practices.

General Background and History: While historical context can be interesting, it’s not the primary focus of AML training. Instead, the emphasis should be on practical knowledge, current best practices, and real-world scenarios.

Periodic Refresher Training: Regular refresher training is essential. AML regulations evolve, and employees need to stay informed. Annual or periodic refreshers reinforce knowledge and ensure compliance.

Tailored Training for Specific Roles: Different roles within an organization have distinct responsibilities related to AML. Tailored training ensures that employees understand their specific duties. For example, investigators need to recognize suspicious patterns, while report writers must know how to create effective reports.

The customer’s business activity as a domestic carpet cleaning company is not inherently suspicious, as it aligns with their registered business. However, the significant weekly transactions from an international reputable antique auction house raise red flags.

The sudden increase in the customer’s initial international receipt from $15,000 USD to an average of $30,000 USD per transaction per week is also noteworthy. Such a substantial change warrants further scrutiny.

The fact that 90% of the incoming deposits are matched by cash outgoings to non-related individuals could indicate layering or structuring activities associated with money laundering.

Overall, the combination of large international transactions, increased receipts, and cash outflows to unrelated parties from an antique auction house is the most concerning aspect.

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.

Thelife insurance industryis vulnerable tomoney laundering and terrorist financing, especially when policies allowpayments to unknown third parties.

Option A (Correct):Allowing policyholders to transfer funds tounknown third partiesincreases therisk of money laundering. FATF andEU AML Directiveshighlight life insurance policies as high-risk products.

Option B (Incorrect):Completing KYC does not eliminate risk. Customers can use legitimate insurance products for illicit purposes.

Option C (Incorrect):While governance violations should be addressed, themain concern here is money laundering risk, not the compliance team’s involvement in product development.

Option D (Incorrect):Fast-tracking approvalwithoutproper risk assessmentcreates regulatory and reputational risks.

Financial Intelligence Units (FIUs)serve as national centers for collecting, analyzing, and disseminating AML/CFT information.

Option B (Correct):FIUs analyze SARs and STRs to detect money laundering and terrorist financing risks.

Option D (Correct):FIUs disseminate financial intelligence to local and international law enforcement agencies and other FIUs.

Option E (Correct):FIUs receive SARs/STRs from financial institutions, which form the basis for their analysis.

Why Other Options Are Incorrect:

Option A (Incorrect):FIUs do not prosecute cases; they refer findings to law enforcement agencies.

Option C (Incorrect):FIUs share intelligence, but prosecution is handled by judicial authorities, not FIUs.

Best Practices for FIUs:

Enhance data-sharing agreements with domestic and international agencies.

Use AI and analytics tools to detect suspicious financial patterns.

Ensure secure handling of sensitive AML/CFT data.

Aneffective AML programbalancesalert accuracy and operational efficiency.

Option D (Correct):The true positive vs. false positive ratio reflects the efficiency and accuracy of an AML transaction monitoring system.

Option A (Incorrect):The number of alerts does not indicate system effectiveness—many could be false positives.

Option B (Incorrect):Clients exiting for commercial reasons are unrelated to AML efficiency.

Option C (Incorrect):Tracking high-risk customer onboarding is important but does not measure AML effectiveness.

Best Practices for Measuring AML Effectiveness:

Monitor system efficiency through alert validation metrics.

Reduce false positives while maintaining regulatory compliance.

Enhance machine learning and AI models for transaction monitoring.

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.

The clients are not willing to have their names provided to the bank is a red flag that should stop the agent from discussing this potential purchase further, as this could indicate that the clients are trying to evade customer due diligence (CDD) or know your customer (KYC) requirements, or hide their beneficial ownership or source of funds. According to the U.K. Money Laundering Regulations 2017, real estate agents must conduct CDD on their customers and any beneficial owners, and verify their identity and address1. The U.K. also has a register of people with significant control (PSC) over companies, which requires companies to disclose their beneficial owners2. The use of private companies and wire transfers could also be a sign of layering, a money laundering technique that involves moving funds through multiple accounts or entities to obscure their origin3.

When a prosecutor instructs a bank to freeze the assets and bank accounts held by one of its clients, the bank must take the following actions:

Ensure the client and beneficiaries are unable to access any frozen assets during the freeze order. This means the bank must prevent any withdrawals, transfers, payments, or other transactions from the frozen accounts or assets. The bank must also notify the client and beneficiaries of the freeze order and the reason for it. The bank must comply with the freezeorder until it is lifted by the court or the prosecutor12.

An affidavit must accompany the freeze order for the bank to comply with the request. An affidavit is a sworn statement that provides the legal basis and evidence for the freeze order. The affidavit must specify the name of the client, the amount and location of the assets to be frozen,the nature and source of the funds, the suspected criminal activity, and the legal authority for the freeze order3 .

The institution should obtain a copy of the court order to freeze the assets of the named individuals. A court order is a legal document that authorizes the bank to freeze the assets and accounts of the client. The court order must be signed by a judge or a magistrate and must include the same information as the affidavit. The bank should keep a copy of the court order for its records and to verify its validity .

 Money laundering has severe social and economic impacts, including increased crime rates, corruption and erosion of public trust. Money laundering fuels criminal activities by providing the necessary financial resources for criminals to continue their operations. As illicit funds circulate within the financial system, they enable the growth of criminal organizations and contribute to an increase in crime rates, including organized crime1. Money laundering also facilitates corruption and undermines public trust in financial institutions and the wider economy. This erosion of public trust is exacerbated by trade-based money laundering, which involves the manipulation of international trade transactions to disguise the origins of illicit funds2. Money laundering also weakens financial institutions by exposing them to reputational, operational, legal and regulatory risks. Money launderers exploit the vulnerabilities of financial systems and compromisetheir integrity and stability. Money laundering can also distort the allocation of resources, create inflationary pressures, and undermine the effectiveness of monetary policy3.

Broker-dealers cannot have correspondent accounts with a foreign bank that does not have a physical presence in any country. The USA PATRIOT Act has an extraterritorial effect in that it prohibits broker-dealers from having correspondent accounts with foreign banks that do not have a physical presence in any country. This rule is designed to help prevent money laundering and terrorist financing by making it more difficult for funds to be moved to or through jurisdictions with less stringent anti-money laundering laws.

Red flags in connection with a company involved in illegal logging include: D. Expeditious shipment of wood to far away jurisdictions, E. Use of heavy machinery in non-protected areas, and F. Executive's association with politically exposed persons. These red flags could be indicative of attempts to conceal the origin of illegally harvested wood and to avoid detection by government authorities.

The methods that are typically used to launder money using insurance companies are:

The policy holder overpays the policy and moves the funds out of the policy despite paying early withdrawal penalties. This method involves placing large amounts of illicit funds into an insurance policy, usually a life insurance or an annuity, and then requesting a refund or a surrender of the policy. The policy holder may incur some fees or penalties for the early withdrawal, but they will receive a check or a wire transfer from the insurance company that appears to be a legitimate source of income. This method allows the launderer to layer and integrate the funds into the financial system.

The policy holder uses an offshore company to pay the insurance installments. This method involves setting up a shell company or a trust in a jurisdiction with low or no tax and weak or no anti-money laundering regulations. The launderer then uses the offshore entity to purchase an insurance policy or a bond from a reputable insurance company. The offshore entity pays the premiums or the installments using the illicit funds, and the launderer can claim thebenefits or the returns from the policy or the bond as clean money. This method allows the launderer to hide the true ownership and origin of the funds.

The other options are not typical methods of money laundering using insurance companies, because:

The policy holder enters a sibling as a beneficiary of the insurance policy rather than themselves. This method does not involve any movement or disguise of the illicit funds, and it does not generate any income or return for the launderer. The beneficiary of the policy will only receive the payout upon the death of the policy holder, and the insurance company will conduct due diligence on the beneficiary before releasing the funds.

The policy holder purchases a bond and redeems it at a discount prior to its full term. This method does not make sense for a money launderer, because it involves losing money rather than gaining money. A bond is a fixed-income instrument that pays a regular interest and a principal amount at maturity. If the bond is redeemed before its full term, the bond holder will receive less than the face value of the bond, and will also forfeit the future interest payments. This method does not help the launderer to conceal or legitimize the source of the funds.

The policy holder is strongly interested in how many costs are incurred when taking out an insurance policy. This method does not indicate any money laundering activity, but rather a prudent and rational behavior of a potential customer. The policy holder may want to compare different insurance products and providers, and to understand the fees, charges, commissions, and taxes associated with the policy. This method does not involve any placement, layering, or integration of the illicit funds.

According to the Financial Action Task Force (FATF) 40 Recommendations, countries should implement measures to prevent the abuse of non-profit organizations (NPOs) for the financing of terrorism. One of these measures is to ensure that NPOs cannot be used to conceal or obscure the diversion of funds intended for legitimate purposes to terrorists’ organizations. This means that countries should have effective mechanisms to monitor and supervise NPOs, especially those that are at risk of terrorist financing abuse, and to take appropriate actions against NPOs that are involved in such activities. Countries should also ensure that NPOs maintain adequate records of their activities and transactions, and that these records are accessible to competent authorities. Furthermore, countries should promote transparency and accountability in the NPO sector, and encourage NPOs to conduct due diligence on their donors, beneficiaries, and associates.

The board of directors is ultimately responsible for ensuring that the financial institution has an effective anti-money laundering program that complies with the applicable laws and regulations. If the institution receives a regulatory enforcement action, the board should take prompt and corrective actions to address the deficiencies and mitigate the risks of further violations or penalties. One of the most important actions is to instruct the compliance officer to develop a plan to remediate the institution’s anti-money laundering program, which should include a root cause analysis, a gap assessment, a timeline, and a budget. The board should also monitor the implementation and progress of the remediation plan, and communicate with the regulators on a regular basis.

The other options are not appropriate actions for the board of directors to take in response to a regulatory enforcement action. Terminating the compliance officer and staff may not solve the underlying issues of the anti-money laundering program, and may create more disruption and instability. Purchasing and installing a new suspicious activity monitoring system may not be necessary or sufficient to address the deficiencies, and may entail additional costs and challenges. Hiring an attorney to protest the enforcement action may not be in the best interest of the institution, and may antagonize the regulators and escalate the situation.

 Having inadequate privacy policies and procedures can expose an organization to legal risks such as industry or regulatory sanctions and charges of deceptive business practices. Industry or regulatory sanctions can result from violating the laws and regulations that govern data privacy and protection, such as the GDPR, the CCPA, or the GLBA.These sanctions can include fines, penalties, injunctions, or revocation of licenses. Charges of deceptive business practices can arise from misleading or false statements about how the organization collects, uses, or discloses personal data, or from failing to comply with its own privacy policies and procedures. These charges can lead to lawsuits, settlements, or enforcement actions by authorities such as the FTC or the state attorneys general.

these are the enhanced customer due diligence measures that the 5th EU Money Laundering Directive requires for high-risk third country nationals. According to the directive, entities must obtain the approval of senior management for establishing or continuing the business relationship, obtain information on the reasons for intended or performed transactions, and obtain information on the source of funds and source of wealth of the customer and of the beneficial owner(s). These measures are intended to increase the transparency and scrutiny of the customers and their transactions, and to prevent the misuse of the financial system for money laundering or terrorist financing purposes.

One of the criteria that the Financial Action Task Force (FATF) uses to define non-cooperative countries and territories (NCCTs) is the lack of adequate rules for the licensing and creation of financial institutions, especially those with no or minimal presence, and the lack of effective systems for checking the backgrounds of managers and beneficial owners of such institutions. This criterion aims to prevent the establishment and operation of shell banks or other entities that can be used for money laundering or terrorist financing purposes. The FATF requires that countries and territories should have laws and regulations that ensure that financial institutions are subject to adequate licensing or registration procedures, that the authorities have the power to deny or revoke licenses or registrations, and that the authorities have access to information on the identity, reputation, and financial soundness of the managers and beneficial owners of financial institutions.

'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.

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.

According to the CAMS Study Guide (the 6th edition), page 184, when an FI receives a formal law enforcement request to produce documents, such as a subpoena, a search warrant, or a court order, it should designate a person responsible for the internal investigation in preparation of documents for the request. This person should be familiar with the FI’s policies and procedures, the applicable laws and regulations, and the nature and scope of the request. The designated person should also coordinate with the FI’s legal counsel, compliance officer, and senior management, and ensure that the FI preserves the confidentiality and integrity of the documents and the investigation.

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.

The Egmont Group is an international body of Financial Intelligence Units (FIUs) from around the world. Its primary purpose is to serve as a forum for FIUs to exchange information, and it also sets international standards for AML/CFT measures. Additionally, the Egmont Group does not serve as a prudential regulator for global financial institutions or as an authoritative body in the field of anti-corruption.

The Asian/Pacific Financial Action Task Force-Style Regional Body (APG) helps its members implement recommendations from the FATF by facilitating the adoption and implementation of internationally accepted AML measures by member jurisdictions (CAMS Manual, 6th Edition, Page 22). The APG also encourages cooperative AML efforts in the region, which can include information-sharing and mutual evaluations to assess member compliance with FATF recommendations (CAMS Manual, 6th Edition, Page 25). Therefore, options C and D are the correct answers.

According to the Basel Committee on Banking Supervision, banks should apply a risk-based approach to customer due diligence, which means that they should adopt enhanced measures for higher-risk customers and simplified measures for lower-risk customers. Enhanced due diligence (EDD) may include obtaining additional information on the customer’s identity, source of funds, business activities, beneficial owners, and expected transactions, as well as conducting more frequent and intensive monitoring ofthe account activity. EDD is especially important for customers who are politically exposed persons (PEPs), who are from or have connections with high-risk countries or jurisdictions, or who are involved in high-risk industries or sectors. Therefore, performing EDD including enhanced ongoing monitoring of the account activity is the correct way for banks to deal with high-risk customers.

 The internal review would most likely recommend that the institution provide product-specific anti-money laundering training to all relevant employees, not just actuaries. This is because life insurance products can be used for money laundering purposes, such as purchasing policies with illicit funds, surrendering policies for cash value, or using policies as collateral for loans. Therefore, all employees who are involved in selling, servicing, or processing life insurance products should be aware of the money laundering risks and red flags associated with these products, and how to report any suspicious activity. The institution should also ensure that the training is timely, effective, and tailored to the specific roles and responsibilities of the employees.

The other options are not as relevant or appropriate as the correct answer. Option A is too broad, as not all staff need to be trained on anti-money laundering, only those who are relevant to the institution’s business activities and exposure to money laundering risks. Option C is too narrow, as it only focuses on actuaries and does not address the need for training other employees who may deal with life insurance products. Option D is not sufficient, as e-learning alone may not be effective in ensuring that employees understand and retain the anti-money laundering content, and the institution should also conduct follow-up assessments to measure the impact and outcomes of the training.

Export and import restrictions are sanctions imposed by countries to limit or prevent the import or export of certain goods and services. Export and import restrictions are typically used in order to protect a country's economic or political interests, or to prevent the proliferation of weapons or other dangerous materials. Export and import restrictions are often the first type of sanctions used in order to avoid escalating violent conflicts and/or proliferation of weapons. Examples of export and import restrictions include embargoes, quotas, or tariffs.

According to the CAMS Study Guide, one of the methods to launder money using TCSPs is to create a complex web of transactions involving multiple entities and jurisdictions, often using shell companies and nominees. The payment of consultancy fees to unrelated companies and service providers established in a foreign jurisdiction could be a sign of such a scheme, as it could be used to disguise the origin and destination of illicit funds, or to evade taxes and regulations. Therefore, this transaction indicator warrants further escalation to the compliance officer.

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.

According to the Anti-Money Laundering Specialist (the 6th edition) study guide, an effectiveanti-money laundering program should be subject to periodic independent testing by a qualified party, such as an internal or external auditor, a consultant, or a compliance professional1. This ensures that the program is compliant with the applicable laws and regulations, and that it meets the standards of sound risk management and internal controls2. The regulatory authorities, a member of senior management, or the anti-money laundering specialist may not have the necessary expertise, objectivity, or independence to conduct a thorough and unbiased evaluation of the program.

According to the Basel Committee on Banking Supervision standards, the following statements best describe sound practices in relation to customer due diligence (CDD) policies and procedures:

Banks should take into consideration the occasional banking transaction or the size/level of assets to build an understanding of the customer’s profile and behavior. This is because the nature and frequency of transactions and the size of the account balance may indicate the level of risk associated with the customer and the need for ongoing monitoring1

Banks should develop and implement clear acceptance policies and procedures to identify the types of customer that are likely to pose a higher risk of financing terrorism or money laundering. This is because banks should not enter into or maintain relationships with customers who pose unacceptable risks to the bank or the financial system. Banks should also apply a risk-based approach to CDD and apply more stringent measures to higher-risk customers12

Banks should implement enhanced due diligence measures for entering business relationships with high-risk customers, such as approval by senior management. This is because banks should ensure that they have adequate information and controls to manage the risks posed by such customers and to comply with the relevant laws and regulations. Senior management should be involved in the decision-making process and be accountable for the outcomes12

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.

 The Board of Directors is the primary governing body of a financial institution and has the fiduciary duty to oversee and approve the BSA/AML compliance program. One of the key responsibilities of the Board is to ensure the appointment of a qualified chief AML officer who has the authority, expertise, and resources to implement and manage the BSA/AML program effectively. The chief AML officer is accountable to the Board and senior management for the performance of the BSA/AML program and should report regularly on the status, issues, and challenges of the program. The Board should also evaluate the chief AML officer’s performance and provide feedback and guidance as needed.

A. Promoting the record-keeping obligations of banks to the maximum amount of data necessary for the purposes of AML investigations: "The Fifth AML Directive emphasizes that record-keeping obligations of banks must extend to the maximum amount of data necessary for the purposes of anti-money laundering investigations" (CAMS Manual, 6th Edition, page 79).

C. Extending AML rules to entities that provide virtual currency services: "The 5AMLD expands the scope of the EU’s anti-money laundering rules to include virtual currency exchange platforms and custodian wallet providers" (CAMS Manual, 6th Edition, page 80).

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Company ownership is held in bearer share form. Bearer share ownership can make it difficult to identify the actual owners of a company and is therefore considered a high risk for money laundering or terrorist financing. Enhanced due diligence measures may include obtaining additional identification and ownership information, conducting more frequent reviews of the account, and monitoring transactions more closely.

 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.

Conducting anonymous transactions is the most likely activity to facilitate money laundering through online banking systems with inadequate controls. Anonymous transactions allow money launderers to hide their identity, source and destination of funds, and the purpose of their transactions from the authorities and the financial institutions. Online banking systems that do not have proper KYC, customer due diligence, and transaction monitoring controls are vulnerable to being exploited by money launderers who can use various techniques, such as encryption, proxy servers, virtual currencies, prepaid cards, and online gambling, to conduct anonymous transactions123.

 Conducting small cash transactions at multiple locations during the same day is the strongest example of avoiding reporting thresholds. This is a common technique used by money launderers to evade the attention of financial institutions and regulators, who are required to report cash transactions above a certain amount (usually $10,000) to the authorities. By splitting the large sum of money into smaller amounts and depositing them at different branches or ATMs, the money launderer can avoid triggering the reporting requirement and conceal the source and destination of the funds. This practice is also known as smurfing or structuring12.

According to the web sources I found, FATF Recommendation 18 requires financial institutions to implement group-wide programmes against money laundering and terrorist financing that include policies and procedures for sharing information within the group for AML/CFT purposes12. These programmes should also include compliance management arrangements, screening procedures for hiring employees, an independent audit function and ongoing employee training1.

this activity is unusual and inconsistent with the expected behavior of an accounting firm’s operational account. The account should normally receive fees from clients that are proportional to the services rendered and reflect the market rates. Receiving international payments that are substantially higher than other fees could indicate that the account is being used to launder money or finance terrorism by disguising illicit funds as legitimate income. This could trigger a red flag for the bank and prompt a comprehensive review of the account.

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.

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.

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.

Aproper investigation of unusual transactions requires a mix of data analysis, contextual review, and expert judgmentto assess potential risks.

Option B (Correct):Cross-referencing transactions with external factors(e.g.,political events, commodity price fluctuations, news reports) helps identifypotential links to illicit activities.

Option C (Correct):Therelationship managermay provide insights intowhether a transaction aligns with the customer’s known profile and business activity.

Option D (Correct):Arisk-based approachensures thathigher-risk transactions receive enhanced scrutiny, while lower-risk ones undergo standard monitoring.

Why Other Options Are Incorrect:

Option A (Incorrect):Focusing only on transaction amountsignorescontextual factors, such asunusual behavior in low-value transactions.

Option E (Incorrect):Automated alerts are valuable but cannot replace human analysis and judgment.Manual reviews remain necessary for complex cases.

Red Flags in Unusual Transactions:

Large or frequent transactions inconsistent with a customer’s normal profile.

Payments from/to high-risk jurisdictions without a clear purpose.

Use of intermediaries or shell companies to move funds.

Best Practices for AML Investigations:

Use both qualitative and quantitative factorsto assess transaction risks.

Collaborate with business units(e.g., relationship managers) to understand client behavior.

Apply a risk-based approach to allocate investigation resources efficiently.

AML compliancemust balance financial crime prevention with data privacy regulationssuch asGDPR (EU) and CCPA (U.S.).

Option B (Correct):Data minimization ensures that only essential data is collected and processed, reducing privacy risks.

Option C (Correct):Regularly updating policies helps organizations align with evolving privacy laws and AML requirements.

Why Other Options Are Incorrect:

Option A (Incorrect):Unrestricted access to customer data increases the risk of data breaches and privacy violations.

Option D (Incorrect):Repurposing data beyond AML purposescan violatedata protection laws (e.g., GDPR's purpose limitation principle).

Key Data Privacy Considerations for AML Compliance:

Data minimization:Only collect data necessary for risk assessment.

Access controls:Limit employee access to customer data based on job role.

Transparency:Inform customers about how their data is used for AML compliance.

According to the FATF Guidance on Politically Exposed Persons1, financial institutions should assess the money laundering and terrorist financing risks associated with a business relationship or transaction with a PEP, their family members and close associates, on a case-by-case basis. This includes obtaining information on the source of wealth and source of funds of the customer and the beneficial owner, as well as conducting enhanced ongoing monitoring of the business relationship. Therefore, the appropriate next step for the analyst is to review the beneficial ownership of the customer to determine if the PEP or any other person poses a higher risk, and to apply additional measures accordingly. Removing the PEP as the authorized signatory, re-categorizing the customer as high-risk, or categorizing the authorized PEP signatory as high-risk are not necessarily required or sufficient steps, as they do not take into account the specific circumstances and risk factors of the customer and the PEP.

AFinancial Intelligence Unit (FIU)acts as thecentral hub for AML/CFT intelligencein a country.

Option A (Correct):FIUs collect, analyze, and disseminate financial intelligencerelated tosuspicious transactionsto law enforcement and regulators.

Option B (Incorrect):FIUsdo not prosecute cases; theyrefer cases to law enforcementfor prosecution.

Option C (Incorrect):FIUsanalyze databut donot develop surveillance technology.

Option D (Incorrect):FIUs share intelligencewith authorized entities, butnot real-time criminal datawith the private sector.

Types of FIUs:

FIU Model

Description

Example

Administrative FIU

Operates under agovernment agency or central bank.

FinCEN (USA), AUSTRAC (Australia)

Law Enforcement FIU

Operates within alaw enforcement body.

UK NCA (UK), IMPA (Israel)

Judicial FIU

Operates within ajudicial authority.

Belgium CTIF-CFI

Why FIUs Are Important:

They bridge the gap between banks, regulators, and law enforcement.

They ensure confidential handling of SARs.

They support domestic and international cooperation in AML/CFT efforts.

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.

Lawyers’ trust accounts arecommonly exploited for money laundering, particularly forlayering and integration stages.

Option A (Correct):Receiving and immediately forwarding wire transfers from unknown sources in a high-risk jurisdiction is a strong red flag for money laundering.

Option B (Incorrect):While legal professionals in high-risk countries require monitoring, the transaction itself is not necessarily suspicious.

Option C (Incorrect):Insurance company payments are typically traceable, reducing money laundering risk.

Option D (Incorrect):Lawyers handling real estate transactions is normal unless the deal structure is highly irregular.

Red Flags for Money Laundering in Legal Professions:

Use of client accounts to receive and distribute funds without legal purpose.

Multiple transactions involving unrelated third parties.

Legal services that do not align with the nature of payments received.

Best Practices for AML in Legal Professions:

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

Monitor transactions involving high-risk jurisdictions.

File Suspicious Activity Reports (SARs) for unexplained transactions.

Financial institutions (FIs) are required to cooperate with law enforcement agencies (LEAs) in their investigations of money laundering, terrorist financing, and other financial crimes. However, sometimes LEAs may submit requests for information or documents that are overly broad, unduly intrusive, or unreasonable in scope or volume. Such requests may pose challenges or risks for FIs, such as violating customer privacy, compromising data security, disrupting business operations, or incurring excessive costs.

The most appropriate response for an FI in such a situation is to narrow the request through a prompt response to the LEA. This means that the FI should communicate with the LEA as soon as possible to clarify the purpose, scope, and relevance of the request, and to negotiate a more reasonable and proportionate request that meets the LEA’s needs and the FI’s capabilities. The FI should also explain the potential difficulties or consequences of complying with the original request, and propose alternative or additional sources of information that may be more useful or accessible. The FI should document the communication and the agreed terms of the request, and comply with the request in a timely and accurate manner.

By narrowing the request through a prompt response, the FI can demonstrate its good faith and willingness to cooperate with the LEA, while also protecting its own interests and obligations. This can help avoid or resolve any conflicts or misunderstandings between the FI and the LEA, and facilitate a more efficient and effective investigation.

One of the core components of a strong AFC (Anti-Financial Crimes) compliance program is establishingclear roles, responsibilities, and lines of accountability, especially forescalating and addressing AFC risks and compliance issues. This governance clarity ensures effective implementation, transparency in decision-making, and timely resolution of compliance concerns.

While external audits (option A) and internal controls (option B) are important,defining governance structure and escalation responsibilities (option D)is a foundational element. Additionally, the board of directors (option C) provides oversight—not day-to-day compliance monitoring.

Wash tradingis aform of market manipulationwheretwo parties coordinate to create artificial trading activity, often formoney laundering, tax fraud, or price manipulation.

Why Option C (Wash Trading) is Correct:

No real market risk is taken—transactions are simply cycled between the same parties.

Creates an illusion of liquidityorinflates asset prices artificially.

Common in commodities, stocks, cryptocurrency, and futures markets.

Red flag for money laundering: Criminals may use wash trading tolayer illicit funds through financial markets.

Why Other Options Are Incorrect:

Option A (Short Position):Ashort positioninvolvesselling an asset one does not ownand repurchasing it later at a lower price—this does not describe the described scheme.

Option B (Reverse Flip):Areverse flipis areal estate money laundering typology, not applicable here.

Option D (Bid-Ask Spread):This refers tothe difference between the highest price a buyer is willing to pay and the lowest price a seller will accept, but it does not involve fraudulent trading.

AML Risks in Wash Trading:

Can be used to move illicit funds through financial markets.

Artificially increases trading volume and market price manipulation.

Frequently flagged in AML transaction monitoring systems.

Best Practices for Detecting Wash Trading:

Monitor repetitive trading between related entities.

Look for circular transactions with no economic justification.

Use AI-based transaction monitoring to detect high-frequency wash trades.

Human trafficking and modern slaveryinvolveillicit financial transactions, often conductedthrough banks, money service businesses (MSBs), or virtual assets.

Option B (Correct):Frequent payments for online advertisementscan indicaterecruitment for illicit labor or traffickingoperations.

Option C (Correct):Incoming funds from third-party processors with unclear originatorssuggestconcealed financial flows linked to illicit activities.

Why Other Options Are Incorrect:

Option A (Incorrect):Transactional activity with a virtual currency exchange alone is not a strong human trafficking red flag.

Option D (Incorrect):Cash payments to workers could indicate labor law violations but do not necessarily indicate human trafficking.

Common Financial Red Flags for Human Trafficking:

Unexplained cash deposits and withdrawals from multiple accounts.

Frequent wire transfers to high-risk jurisdictions.

Use of prepaid cards to move funds anonymously.

Best Practices for Detecting & Preventing Human Trafficking-Related Transactions:

Train frontline staff to recognize financial indicators of trafficking.

Monitor unusual transaction patterns in industries with high labor exploitation risks.

File Suspicious Activity Reports (SARs) when trafficking-related transactions are suspected.

Ongoing Due Diligence: FATF emphasizes the importance of continuous monitoring of business relationships and transactions. This involves regularly assessing the risk associated with a customer and ensuring that the information remains up-to-date. It includes monitoring transactions for any suspicious activity or red flags.

Beneficial Owners: Identifying beneficial owners is crucial, but it must be done with verification of their true identity. This is part of the initial due diligence process.

Risk Assessment: Conducting risk assessments is essential, but it is not specific to customer due diligence. Risk assessment applies broadly to anti-money laundering (AML) programs.

Products and Services Suitability: While understanding the suitability of products and services is relevant, it is not a direct measure within customer due diligence.

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 first step in a financial investigation is to review and analyze allinternalsources of information related to the suspicious transaction.

Option C (Correct):Gathering and assessing internal data helps investigators establish a baseline for normal vs. suspicious customer behavior. This includes reviewing KYC (Know Your Customer) documentation, transaction history, and any previous alerts on the customer.

Option B (Incorrect):This is part of the investigation, but an investigator first needs togatherdata before determining consistency with expected behavior.

Option A (Incorrect):An FIU is typically contactedafterinternal analysis has been completed and a Suspicious Activity Report (SAR) is warranted.

Option D (Incorrect):External information is useful, but internal data should be reviewed first to confirm whether a case needs escalation.

FIs must handlelaw enforcement subpoenas carefullytocomply with legal and AML obligations.

Option A (Correct):Legal counsel must review subpoenasto ensure compliance withAML and privacy laws.

Option B (Incorrect):Original documentsshould only be provided underspecific legal conditions.

Option C (Incorrect):Account closure decisionsmust followAML risk-based assessment.

Option D (Incorrect):Tipping offa customer about an investigation isillegalunder AML laws.

Enhanced Due Diligence (EDD) applies to high-risk customers and transactions, includingpolitically exposed persons (PEPs), high-risk jurisdictions, and correspondent banking relationships.

Option C (Correct):Correspondent banking relationships with high-risk jurisdictions require EDDto prevent cross-border financial crime.

Option D (Correct):Ambassadors are considered PEPs, which require EDD due to corruption risks.

Option E (Correct):A current prime minister is a high-profile PEP, requiringEDD and ongoing transaction monitoring.

Why Other Options Are Incorrect:

Option A (Incorrect):The individual no longer holds a PEP position and is in a low-risk country, soEDD is not required.

Option B (Incorrect):A local footballer does not present a high financial crime risk warranting EDD.

EDD Best Practices for High-Risk Customers:

Verify the source of wealth and funds for PEPs.

Conduct ongoing transaction monitoring on high-risk accounts.

Apply stricter controls on correspondent banking with high-risk jurisdictions.

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.

 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.

Casinos and gambling institutionsare highly vulnerable to money launderingbecause they allow theconversion of cash into chips, checks, or electronic credits, which can later be redeemed as “clean” funds.

Option A (Correct):A privately held company funding multiple patrons' betting accounts is highly suspiciousand may indicate:

Structuring/smurfing, where multiple individuals are used to move illicit funds.

Third-party money laundering, where the real source of funds is obscured.

Trade-based money laundering, if linked to non-gaming businesses.

Why Other Options Are Incorrect:

Option B (Incorrect):Placing multiple bets on the same eventis not inherently suspiciousunless linked tofraudulent betting patterns.

Option C (Incorrect):Large chip purchases in cashmay requirereporting, but they do not necessarily indicatemoney laundering.

Option D (Incorrect):Transferring winnings to another operator may beunusual, butnot automatically suspiciousunless the amount is large and unjustified.

Common Money Laundering Techniques in Casinos:

Chip Walking– Buying chips with illicit funds and cashing them out later as "clean" funds.

Casino Account Transfers– Using multiple accounts or third-party accounts to move funds.

High-Value Gambling with No Loss Intent– Betting on both sides of an event to ensure clean withdrawal of funds.

Best Practices for Casino AML Compliance:

Monitor suspicious large transactions and third-party funding activities.

Perform enhanced due diligence (EDD) on high-risk patrons.

File Suspicious Transaction Reports (STRs) for unusual gambling activity.

OFAC sanctions apply extraterritoriallyto ensureU.S. financial and economic interests are protected.

Option A (Correct):U.S. citizensmust comply with OFAC sanctionsregardless of where they are located.

Option D (Correct):U.S.-incorporated entities and their foreign branchesare required to followOFAC restrictions.

Option E (Correct):Permanent U.S. resident aliensare subject toOFAC complianceeven outside the U.S.

Option B (Incorrect):Non-U.S. financial institutionsare notdirectly subject to OFACunless they have aU.S. presenceordeal in USD transactions.

Option C (Incorrect):Selling U.S.-origin goods does not automatically subject merchants to OFAC laws, unless they are in asanctioned jurisdiction.

Senior management and AML officers may face personal liability if they knowingly allow AML violations to persist.

Option A (Correct):If senior management or the AML officer was aware of violations and failed to act, they could face regulatory or criminal liability.

Option B (Incorrect):Criminal liability depends on intent and negligence—an AML officer is not automatically prosecuted because a bank receives a regulatory order.

Option C (Incorrect):Liability extends beyond the AML officer—other senior executives can also be held accountable.

Option D (Incorrect):Violations can result in both civil and criminal prosecution, depending on the severity.

Legal Risks for AML Compliance Failures:

Civil penalties (fines and sanctions) for AML program deficiencies.

Criminal charges if executives knowingly ignore violations.

Regulatory enforcement actions leading to license revocation.

Money laundering through real estate transactions involves integrating illicit funds into the legitimate financial system while providing a relatively “safe” property investment. In this context,the most relevant factor to examine is the beneficial owner of the asset. Identifying the true owner behind a property helps uncover potential money laundering schemes. Criminals often use third parties, shell companies, or complex ownership structures to distance the transaction from the source of illicit funds. Investigating the beneficial owner’s identity is crucial for detecting and preventing real estate-related money laundering12.

Financial institutionsmust close accounts that violate sanctions laws or pose a severe AML risk.

Option C (Correct):Doing business with Specially Designated Nationals (SDNs) violates U.S. OFAC and EU sanctions, requiring account closure.

Option A (Incorrect):Multiple SARs do not always require account closure; the institution may continue monitoring the customer.

Option B (Incorrect):Tuition payments are normal transactions and do not justify account closure.

Option D (Incorrect):A civil subpoena does not imply financial crime and does not require closure.

Key Account Closure Triggers:

Violation of OFAC, EU, or UN sanctions laws.

Confirmed criminal activity (e.g., fraud, money laundering, terrorist financing).

Regulatory directive or legal requirement to terminate the account.

Best Practices for Account Closure:

Document the justification for closure (e.g., sanctions compliance, AML concerns).

Notify the customer in a manner that does not constitute "tipping off."

File SARs where required before closing high-risk accounts.

During a money laundering investigation, law enforcement agents often employ the “follow the money” approach. This investigative technique focuses on tracing financial transactions and identifying patterns to uncover illicit activities. By analyzing the movement of funds, investigators can reveal hidden connections, identify suspicious behavior, and build a case against money launderers. It involves tracking the flow of funds through various accounts, financial institutions, and jurisdictions to understand the underlying criminal activity12.

Effective AML programs promote aculture of compliance, which includes an environment where staff are empowered to raise concerns, challenge decisions, and continuously improve through cross-functional learning.Providing effective challengeis a supervisory expectation and best practice in institutions that value AML governance integrity.

While AML officer authority (option B) supports oversight, it is not as impactful on daily operational effectiveness as fostering a challenging and adaptive compliance culture.

FIs must haveeffective sanctions screeningprocesses toprevent transactions involving designated persons or entities.

Option A (Correct):Automated screening systemshelp financial institutionsidentify sanctioned individuals, entities, and countries in real time.

Option B (Incorrect):If a customer islisted on a sanctions list, the FImust freeze the account, not simply mark it "high-risk" and continue transactions.

Option C (Incorrect):Prohibited entities should not undergo EDD—transactions with them must beblocked or reported.

Option D (Incorrect):Freezing sanctioned assetsdoes not require board approval; it must bedone immediatelyas per regulations.

Sanctions Compliance Requirements:

Sanctioning Body

Examples of Sanctions Lists

U.S. (OFAC)

Specially Designated Nationals (SDN) List

United Nations (UN)

UN Security Council Sanctions List

European Union (EU)

EU Consolidated Sanctions List

UK (OFSI)

UK Sanctions List

Why Sanctions Screening is Important:

Failing to comply can result in billions in fines (e.g., BNP Paribas paid $8.9 billion in OFAC fines).

Transactions involving sanctioned entities can be blocked, leading to regulatory scrutiny.

Automated screening tools (e.g., SWIFT, World-Check, LexisNexis) improve compliance efficiency.

1. A. Micro-structuring cash:

The customer’s behavior of putting high-denomination cash notes into a poker machine without placing bets and then collecting winnings in the form of a check resembles “structuring” or “smurfing.” Structuring involves breaking down large sums of money into smaller transactionsto avoid detection. In this case, the customer may be attempting to legitimize illicit funds by converting them into casino winnings1.

2. B. Legitimizing illicit funds:

By using the poker machine to convert cash into a check, the customer is potentially legitimizing illicit funds. The casino winnings obtained through this process may appear legitimate, even though the initial source of the cash remains suspicious1.

A. Micro-structuring cash:

The customer’s actions of repeatedly inserting high-denomination cash notes into the poker machine without placing bets and then collecting winnings in the form of a check resemble structuring. Structuring involves deliberately breaking down large amounts of cash into smaller transactions to avoid detection. Money launderers engage in structuring to obscure the origin of funds and make them appear legitimate. In this case, the customer’s behavior raises red flags and warrants further investigation.

B. Legitimizing Illicit Funds:

By converting cash into casino winnings (in the form of a check), the customer may be attempting to legitimize illicit funds. The casino winnings obtained through this process could be used to create a veneer of legitimacy, even though the initial source of the cash remains suspicious. Casinos are attractive for money launderers due to the anonymity and fluidity of transactions, making it challenging to trace the origin of funds1.

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:

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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.

An effective AML transaction monitoring system must align withthe bank’s operational complexity, risk exposure, and analytical capabilities.

Option A (Correct):The system must be tailored to the bank’s specific risk profile to ensure effectiveness.

Option D (Correct):A strong AML system should support trend analysis to identify long-term suspicious behaviors.

Why Other Options Are Incorrect:

Option B (Incorrect):While vendor controls are important, they do not determine system suitability.

Option C (Incorrect):User access settings should be based on the bank’s internal risk framework, not industry standards alone.

Best Practices for Implementing an AML Monitoring System:

Ensure scalability to adapt to evolving financial crime risks.

Leverage AI and machine learning to enhance detection accuracy.

Integrate real-time screening and transaction trend analysis.

Sanctions compliance is mandatory for financial institutions (FIs)to prevent transactions withsanctioned individuals, entities, and countries.

Option A (Correct):Automatic sanctions screening is essential for detecting and blocking transactions involving sanctioned individuals or entities.

Option B (Incorrect):If a customer is sanctioned, their transactions must be frozen immediately, not just monitored.

Option C (Incorrect):EDD is not relevant for prohibited entities—sanctions require immediate asset freezing.

Option D (Incorrect):Funds must be frozen immediately, without waiting for board approval.

Best Practices for Sanctions Compliance:

Use automated screening tools to detect sanctioned entities.

Immediately block and report prohibited transactions.

Regularly update sanctions screening lists (e.g., OFAC, UN, EU).

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.

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.

Economic sanctions are measures imposed by countries or international bodies to exert pressure on individuals, entities, or nations that engage in undesirable behavior or actions. Sanctions aim to restrict or prohibit certain economic activities with the targeted parties, such as trade, investments, or financial transactions. They serve various purposes, including achieving foreign policy and national security objectives and deterring undesired actions by countries or entities. Sanctions can be comprehensive (affecting an entire country) or targeted (specific businesses, groups, or individuals), with a recent trend toward minimizing harm to innocent civilians12.

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.

U.S. AML lawshave significantextraterritorial effectsdue tothe dominance of the U.S. dollar in global finance.

Option C (Correct):Section 319(b) of the USA PATRIOT Actallows theseizure of funds from foreign correspondent bank accountsin the U.S.

Option D (Correct):OFAC sanctionscan affectnon-U.S. entitiesif theyengage in prohibited transactions using U.S. dollars.

Option A (Incorrect):TheTravel Rule applies only to financial institutions under U.S. jurisdiction.

Option B (Incorrect):TheAML Act of 2020strengthensU.S. financial crime enforcement, butdoes not govern all USD transactions worldwide.

Thetimely filing of SARs is legally mandated, and financial institutions mustfollow jurisdiction-specific reporting deadlines.

Option A (Correct):Regulatory requirements dictate SAR filing deadlines(e.g., in the U.S., SARs must be filed within30 calendar daysof detecting suspicious activity).

Option B (Incorrect):30 days is the U.S. standard, but different jurisdictions may havedifferent SAR deadlines(e.g.,EU AMLD mandates prompt reporting).

Option C (Incorrect):Complexity-based reporting delaysare not permitted if theyexceed regulatory timelines.

Option D (Incorrect):Relying solely on professional judgmentrather than regulatory rules can lead tonon-compliance.

SAR Filing Deadlines in Different Jurisdictions:

Jurisdiction

SAR Filing Deadline

United States (FinCEN)

30 calendar days(60 days if no suspect is identified)

United Kingdom (FCA/NCA)

As soon as practicable

European Union (6AMLD)

"Promptly" (no fixed number of days)

Australia (AUSTRAC)

3 business daysfor terrorism financing,14 business daysfor other cases

Why Timely SAR Filing Matters:

Delays in reporting can result in regulatory penalties.

Early SAR filing enables FIUs to take swift action against financial crime.

Non-compliance can lead to fines, criminal charges, and reputational damage.

When assessing the risk rating of customers, financial institutions should consider various factors that may indicate the potential for money laundering, terrorist financing, or other illicit activities. According to the ACAMS Study Guide for the CAMS Certification Examination1, some of the key risk factors are:

Customer risk: This refers to the characteristics of the customer that may affect their risk profile, such as their identity, occupation, source of funds, business activities, reputation, and political exposure. For example, customers who are politically exposed persons (PEPs), cash-intensive businesses, non-resident customers, or customers with complex ownership structures may pose a higher risk of money laundering or terrorist financing.

Geographic risk: This refers to the location of the customer, their business, or their transactions, and the level of risk associated with that location. For example, customers who are based in, operate in, or transact with jurisdictions that have weak anti-money laundering (AML) regulations, high levels of corruption, or are subject to sanctions or embargoes may pose a higher risk of money laundering or terrorist financing.

Product risk: This refers to the type of products or services that the customer uses or offers, and the level of risk associated with those products or services. For example, customers who use or offer products or services that are anonymous, complex, or facilitate cross-border transactions may pose a higher risk of money laundering or terrorist financing.

Other risk factors that may be considered include transaction risk, delivery channel risk, and industry risk2. However, these are not among the options given in the question.

Money laundering can have serious consequences for financial institutions. They may face increased investigation costs and fines from regulators and law enforcement agencies for failing to detect or prevent money laundering activities. Additionally, money laundering can result in a loss of profitable business as customers and counterparties may no longer want to do business with the institution due to its reputation for being associated with illicit activity.

A customer who is the brother of a prominent member of a foreign judiciary is considered a politically exposed person (PEP) or a family member of a PEP. PEPs are individuals who hold or have held positions of public trust or influence in a foreign country, such as heads of state, senior politicians, high-ranking military officers, judges, or executives of state-owned enterprises. PEPs pose a higher risk of money laundering, corruption, or bribery due to their access to public funds, influence over policy decisions, or connections to other powerful individuals. Therefore, financial institutions are required to perform enhanced due diligence (EDD) on PEPs and their family members, as well as monitor their transactions and activities more closely. EDD is a set of additional measures that go beyond the standard customer due diligence (CDD) to obtain more information about the customer, such as their source of wealth, source of funds, expected account activity, business relationships, and reputation. EDD also involves conducting ongoing reviews and updating the customer risk profile regularly. EDD helps the financial institution to mitigate the risks associated with PEPs and detect any signs of money laundering or other illicit activities.

Using self-hosted wallets, or wallets that are stored on the user’s computer, is one of the tactics that may be used to finance terrorism with virtual assets such as Bitcoin. By creating many different donation addresses that are updated continuously, law enforcement will have a harder time tracing transactions. It is also important to note that using the same donation address across multiple donation campaigns and media types, as well as forming relationships with virtual asset service providers that have strong KYC processes in place, can draw attention from law enforcement and should be avoided.

According to the Basel Committee on Banking Supervision guidelines, the internal audit functionshould evaluate the adequacy and effectiveness of the bank’s compliance function and its compliance risk management framework1. This includes assessing the compliance risk inherent in the bank’s activities, products, services, and systems, as well as the compliance policies, procedures, controls, and reporting mechanisms2. The internal audit function should also review the transactions and records of the bank to ensure compliance with applicable laws, regulations, and internal standards3.

The other statements are incorrect because:

B. An internal audit program of adequacy of the bank’s compliance function should be established, but should not include review of transactions. This statement is false because the internal audit function should review the transactions and records of the bank to ensure compliance, as mentioned above3.

C. The compliance function and internal audit function should be combined. This statement is false because the compliance function and the internal audit function should be separate and independent from each other, to avoid conflicts of interest and ensure objectivity and credibility.

D. The auditors should not discuss internal audit findings with compliance management to maintain independence. This statement is false because the internal audit function should communicate and coordinate with the compliance function on a regular basis, to share information, insights, and recommendations, and to avoid duplication of work. However, the internal audit function should maintain its independence and report directly to the board of directors or the audit committee.

Financial institutions are required by law to maintain records and documentation of customer transactions and to provide this information to law enforcement agencies upon request. However, financial institutions should also have policies and procedures in place to ensure that they comply with legal and regulatory requirements and protect customer privacy. Providing protected documents that are privileged under attorney-client privilege or freezing an account immediately may not be the appropriate response and may expose the financial institution to legal or reputational risks.

Anenterprise-wide risk assessment (EWRA)must beupdated when major changesoccur thatimpact AML risk exposure.

Option A (Correct):New products and services(e.g., cryptocurrency trading, private banking)can introduce new money laundering risks.

Option B (Correct):Restructuring compliance teams can impact AML oversightand risk assessment effectiveness.

Option E (Correct):Mergers and acquisitionsmay bringlegacy compliance issues and different risk cultures.

Why Other Options Are Incorrect:

Option C (Incorrect):Changes in product leadership do not automatically change risk exposureunless the product itself changes.

Option D (Incorrect):Using new technology for existing products does not inherently change AML risks, thoughnew digital products might.

Best Practices for Enterprise-Wide AML Risk Assessment Updates:

Review AML program effectiveness before launching new services.

Assess legacy compliance issues when acquiring or merging with another entity.

Align risk frameworks with regulatory changes.

According to the ACAMS Study Guide for the CAMS Certification Exam (6th edition), page 211, dealers in precious metals and stones (DPMS) are vulnerable to money laundering and terrorist financing risks due to the high value, portability, and fungibility of their products. Therefore, DPMS should apply a risk-based approach to their AML/CFT compliance program and monitor their customers and transactions for any red flags or suspicious activities. One of the red flags for DPMS is receiving payments from or sending payments to unknown or unverified third parties, especially if they are located in high-risk jurisdictions that have weak AML/CFT controls, are subject to sanctions, or are known to be sources or destinations of illicit funds. Such payments may indicate that the DPMS is being used as a conduit or a front for money laundering, terrorist financing, tax evasion, or other criminal activities. Therefore, if a precious metals dealer opens a new account with a bank and receives or makes payments that reference unknown companies from high-risk jurisdictions, the bank should refer the account to AML investigations for further review and verification of the source and purpose of the funds, the identity and legitimacy of the third parties, and the nature and rationale of the business relationship.

1. Information Technology Staff: These employees handle systems, databases, and software used for transaction monitoring, customer due diligence (CDD), and other AML processes. They need to understand how to configure and maintain AML systems, recognize suspicious patterns, and ensure data security.

2. Customer Facing Staff: Frontline employees, such as tellers, relationship managers, and customer service representatives, interact directly with customers. They play a crucial role in identifying red flags, conducting enhanced due diligence (EDD), and reporting suspicious activities. Training helps them recognize unusual behavior and follow proper procedures.

3. AML/Compliance Staff: These professionals are directly responsible for AML program management, policy development, and regulatory compliance. They need in-depth knowledge of AML laws, regulations, and best practices. Training ensures they stay updated and can effectively implement AML controls.

The United Nations Security Council (UNSC) is authorized under the UN Charter to imposebinding sanctions measureson member states. These sanctions may target countries, entities, or individuals and can include arms embargoes, travel bans, asset freezes, and restrictions on trade or financial services.

Statement Ais correct:

Circumventing or evading UNSC sanctionsmay constitute a criminal offenseif the jurisdiction has incorporated UN obligations into domestic law. While the UNSC does not directly impose criminal penalties,member states must implement these measures locally, andmany jurisdictions have lawsthat make such violations criminal acts.

Statement Bis incorrect:

The UNSC is empowered toimpose broad restrictions, includingtrade bans beyond arms, such as on luxury goods, fuel, or specific commodities. Therefore, the idea that it cannot prohibit exports beyond arms is inaccurate.

Statement Cis correct:

Member countries of the United Nations are expected to implement and enforce UNSC sanctions, in accordance with their obligations under the UN Charter (specifically Chapter VII). Countries are responsible for transposing these sanctions into their national legal frameworks.

Statement Dis incorrect:

Although member countries are required to enforce sanctions,not all countries automatically consider breaches a criminal offense. Whether a violation is criminal depends on how each country enacts UN sanctions domestically.

When investigating an AML event, the following techniques would be used to investigate suspected mule accounts:

A. Determine if the suspected accounts are being accessed by a common person, telephone number, or device. This can help identify if the accounts are controlled by the same person or group, or if they are part of a larger network of mules. It can also help detect if the accounts are opened using synthetic identities or stolen credentials12.

B. Reconcile the stated purpose of the account with actual transaction history and compare with peer groups. This can help assess if the account activity is consistent with the customer profile, risk rating, and expected behavior. It can also help identify anomalies, such as sudden changes in transaction patterns, large or frequent transfers, or transactions with high-risk jurisdictions or entities12.

E. Establish the frequency with which the funds are moved in and out of the accounts. This can help measure the velocity and volume of the funds flowing through the accounts, which can indicate if the accounts are used for layering or integration of illicit funds. It can also help detect if the accounts are used for smurfing, which is a technique of breaking down large amounts of cash into smaller deposits to avoid detection or reporting thresholds13.

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 investigations itself, 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 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.

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.

A compliance officer should consider the following three factors as part of the approach to implement an enterprise-wide anti-money laundering program for a bank that operates in multiple countries:

The types of customers serviced by the bank: Different types of customers may pose different levels of money laundering risk, depending on their nature, source of funds, geographic location, transaction patterns, and other factors. A compliance officer should identify and assess the money laundering risk associated with each customer type and segment, and apply appropriate due diligence measures, monitoring systems, and risk mitigation strategies accordingly12.

The extent of anti-money laundering regulations in the various countries: A compliance officer should be aware of the legal and regulatory requirements and expectations for anti-money laundering compliance in each country where the bank operates, and ensure that the bank’s policies and procedures are consistent with them. A compliance officer should also monitor any changes or updates in the anti-money laundering laws and regulations in the various countries, and adjust the bank’s program accordingly34.

The anti-money laundering risk posed by the products and services offered by the bank: Different products and services may have different features and functionalities that could be exploited by money launderers, such as anonymity, cross-border transfers, cash transactions,complex structures, or new technologies. A compliance officer should evaluate the money laundering risk associated with each product and service offered by the bank, and implement appropriate controls, safeguards, and oversight mechanisms to prevent and detect money laundering activities5 .

 A key reason why a FI conducts an enterprise-wide AML risk assessment is to assess money laundering and terrorist financing risks and ensure there are adequate controls to mitigate those risks. An enterprise-wide AML risk assessment allows the FI to identify and appropriately manage the ML/TF and other illicit financial activity risks within its banking operations. It also helps the FI to establish global AML control standards and determine the effectiveness of its AML risk management program, including internal preventive and detective controls. By understanding its risk profile, the FI can better apply appropriate risk management processes to the BSA/AML compliance program to mitigate and manage risk and comply with BSA regulatory requirements. The BSA/AML risk assessment should provide a comprehensive analysis of the FI’s ML/TF and other illicit financial activity risks, and should be documented in writing and communicated to all relevant stakeholders.

According to the FATF typology report 2000-20011, lawyers can provide a range of functions that can be useful to a potential money launderer, such as:

Creating complex legal arrangements, such as trusts, foundations, or corporations, that can obscure the identity and ownership of the beneficial owners or the origin and destination of the funds.

Buying and selling property, such as real estate, art, or jewelry, that can be used to transfer or store illicit proceeds or to provide a legitimate cover for the source of funds.

Performing financial transactions on behalf of a client, such as opening bank accounts, transferring funds, issuing checks, or exchanging currencies, that can facilitate the movement or concealment of illicit funds.

Providing legal advice, on the other hand, is not a function that can be directly exploited by a money launderer, unless the advice is related to the above functions or to the avoidance or evasion of anti-money laundering laws and regulations.

According to section 312 of the USA PATRIOT Act, U.S. financial institutions that maintain correspondent accounts for foreign financial institutions must apply due diligence to such accounts. The due diligence must include obtaining information relating to the foreign bank’s anti-money laundering program, as well as the identity of any person who owns 10% or more of the foreign bank, unless the foreign bank is publicly traded. These requirements are intended to prevent the use of correspondent accounts by foreign shell banks or other entities that may pose a high risk of money laundering or terrorist financing.

An institution should focus on the appropriateness of having a centralized review of suspicious transactions and recommendations to file an STR to ensure consistency. This is because a centralized review process can help to avoid duplication, inconsistency, or omission of STRs, as well as to ensure compliance with regulatory requirements and internal policies. A centralized review process can also facilitate the analysis of trends, patterns, and typologies of suspicious transactions across the institution, and enable the communication and coordination with relevant stakeholders, such as law enforcement, regulators, or other financial institutions.

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

 MSBs are frequently accused of being high risk for money laundering because they offer services that can facilitate the movement and conversion of illicit funds, such as currency exchange, money transmission, cheque cashing, and online payment. However, not all MSBs pose the same level of risk, and the degree of regulatory oversight and compliance requirements for MSBs may differ significantly depending on the jurisdiction they operate in. Some countries may have robust anti-money laundering (AML) regimes for MSBs, while others may have weak or inconsistent regulations, or even no regulations at all. This creates challenges and vulnerabilities for MSBs that operate across borders, as they may face different expectations and obligations from different authorities, or encounter gaps or loopholes in the AML framework. Moreover, some MSBs may operate informally or illegally, without registering or obtaining licenses from the relevant regulators, making them harder to detect and supervise. Therefore, MSBs are often perceived as high risk for money laundering, as they may be exploited by criminals who seek to take advantage of the regulatory discrepancies or deficiencies among countries.

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.

it describes a reason why trusts established in certain offshore jurisdictions make good vehicles to layer money, which is names of the settlor and beneficiaries are not publicly available. This means that the true owners and controllers of the funds or assets held by the trust are hidden from the public and the authorities, and can only be accessed by the trustee or the protector, who may be complicit or unaware of the money laundering scheme. This creates a high level of anonymity and secrecy for the money launderers, who can use the trust to move, disguise, or conceal the origin and destination of their illicit funds.

The other options are not necessarily reasons why trusts established in certain offshore jurisdictions make good vehicles to layer money, although they may have some advantages or disadvantages depending on the circumstances and the risk profile of the customers and countries involved. Option B describes a possible motive for setting up a trust in an offshore jurisdiction, which is to minimize taxes, but this does not imply that the trust is used to layer money, as there may be legitimate tax planning or optimization purposes. Option C describes a possible challenge or obstacle for setting up a trust in an offshore jurisdiction, which is offshore jurisdictions are unfamiliar with trust, but this does not imply that the trust is used to layer money, as there may be other legal or financial vehicles available in those jurisdictions. Option D describes a possible characteristic or feature of a trust, which is trusts may hold assets of significant size, but this does not imply that the trust is used to layer money, as there may be valid reasons or sources for the large assets.

According to 18 U.S.C. § 1956, the money laundering statute, the property involved in a financial transaction must represent the proceeds of some form of unlawful activity, which is defined as a specified unlawful activity (SUA). SUAs include over 250 crimes in six categories, such as RICO predicate offenses, certain offenses against foreign nations, acts constituting a criminal enterprise under the Controlled Substances Act, and federal health care offenses. Therefore, in order to pursue a money laundering conviction, the government must prove that at least one SUA was committed and that the property involved in the transaction was derived from that SUA.

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.

According to the Financial Action Task Force (FATF) 40 Recommendations, simplified customer due diligence (CDD) or reduced measures could be acceptable for certain types of products or transactions that have a low risk of money laundering or terrorist financing, based on a reasonable assessment of the risk by countries or by financial institutions. These include:

Life insurance policies where the annual premium is no more than USD/EUR 1,000 or a single premium of no more than USD/EUR 2,500. This is because the amount of money involved is relatively small and the payout is usually contingent on a specific event, such as death or disability, which reduces the likelihood of abuse by criminals.

Insurance policies for pension schemes if there is no surrender clause and the policy cannot be used as collateral. This is because the beneficiaries of these policies are usually predetermined and the funds are locked in until retirement age, which limits the possibility of transferring or withdrawing the money for illicit purposes.

A pension, superannuation or similar scheme that provides retirement benefits to employees, where contributions are made by way of deduction from wages and the scheme rules do not permit the assignment of a member’s interest under the scheme. This is because the source of funds is known and verified by the employer and the scheme is regulated and supervised by competent authorities, which reduces the risk of money laundering or terrorist financing.

The other option, trusts where the settlor, trustee and beneficiaries are identified and the shares are in bearer form, is not eligible for simplified CDD or reduced measures, because the use of bearer shares poses a high risk of anonymity and concealment of beneficial ownership, which could facilitate money laundering or terrorist financing.

On-line banking offers a significant money laundering risk to a financial institution because:

The nature of on-line banking can make it difficult to establish who is controlling the account. On-line banking allows customers to access their accounts remotely, without face-to-face contact with the financial institution. This can pose challenges for verifying the identity and legitimacy of the account holder, especially if the account is opened on-line or through a third-party intermediary. On-line banking can also facilitate the use of anonymous or fictitious identities, or the use of proxies or nominees to hide the true beneficial owner of the account.

The ease of access through the internet enables cross border movement of funds. On-line banking allows customers to transfer funds quickly and easily across different jurisdictions, without physical movement of cash or other instruments. This can increase the risk of money laundering, as funds can be moved to or from high-risk countries or regions, or through multiple accounts or financial institutions, to obscure the origin, destination, or purpose of the funds. On-line banking can also enable customers to access or use alternative payment systems or virtual currencies, which may have lower regulatory oversight or transparency standards than traditional banking systems.

The speed of electronic transaction enables execution of multiple complex transactions within short time frame. On-line banking allows customers to conduct transactions in real time, with minimal or no human intervention or verification. This can increase the risk of money laundering, as customers can execute multiple transactions in a short period of time, or use complex transaction structures or patterns, to avoid detection or reporting thresholds, or to conceal the source, nature, or ownership of the funds. On-line banking can also enable customers to use automated or algorithmic trading systems, which may generate large volumes of transactions that are difficult to monitor or analyze.

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.

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.

 these are the essential components of an effective anti-money laundering program for any financial institution, especially an offshore one. According to the CAMS Study Guide, 6th Edition, an anti-money laundering program should include the following elements1:

A risk assessment that identifies and evaluates the money laundering and terrorist financing risks faced by the institution, and the measures taken to mitigate them.

A compliance program that establishes policies, procedures, and controls to prevent, detect, and report money laundering and terrorist financing activities, and to comply with the applicable laws and regulations of the host and chartering countries.

A designated compliance officer who is responsible for overseeing the implementation and maintenance of the compliance program, and for liaising with the relevant authorities and stakeholders.

A training program that provides regular and appropriate education and awareness to senior management and staff on their roles and responsibilities in relation to anti-money laundering and terrorist financing, and on the latest trends and typologies in these areas.

An independent audit function that reviews and tests the adequacy and effectiveness of the compliance program, and reports the findings and recommendations to senior management and the board of directors.

The Basel Committee on Banking Supervision’s capital adequacy requirements for the host country (answer A) are not directly related to anti-money laundering, but rather tothe prudential regulation and supervision of banks. They are important for ensuring the financial soundness and stability of banks, but they are not sufficient to prevent or combat money laundering and terrorist financing2.

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.

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.

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 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.

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.

 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.

The junior account manager should file a suspicious transaction report (STR) with the Financial Intelligence Unit (FIU) of Country A, as he has reasonable grounds to suspect that the customer is involved in money laundering or terrorist financing. The customer’s attempt to deposit a large sum of cash, followed by a series of smaller wire transfers from a high-risk jurisdiction, indicates a possible case of structuring or smurfing, which are techniques used by criminals to avoid detection and reporting thresholds. The junior account manager should not close the account, as this could alert the customer and disrupt the investigation by the FIU or law enforcement. The junior account manager should also not notify the anti-money laundering specialist of his bank, as this could create a conflict of interest or breach of confidentiality, unless the bank’s policy requires such notification. The junior account manager should also not offer the customer a more secure method of depositing, as this could be seen as facilitating or condoning the customer’s illicit activities, or exposing the bank to legal or reputational risks.

These designated nonfinancial businesses and professions (DNFBPs) include — casinos when customers engage in financial transactions equal to or above a designated threshold………. — real estate agents when they are involved in transactions for clients concerning buying and selling properties; — dealers in precious metals and stones when they engage in any cash transaction with a customer at or above a designated threshold; — lawyers, notaries and independent legal professionals and accountants when they prepare or carry out transactions for clients concerning buying and selling real estate; …….; and — trust and company service providers when they prepare or carry out transactions for a client concerning certain activities ….

Wire stripping is a technique used by money launderers to remove or alter information that identifies the originator or beneficiary of a wire transfer, in order to avoid detection or tracing. To detect wire stripping, a bank employee should compare the wire transaction as it enters and after it leaves the bank, and look for any discrepancies or missing information in the fields related to the originator or beneficiary. The employee should also check for suspicious phrases usually used to conceal originator or beneficiary identity, such as “for further credit”, “in favor of”, “on behalf of”, or “as instructed”.

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.

 The correct answer is B, because it describes a method of money laundering known as structuring or smurfing. This is when a customer or a group of customers break down large amounts of illicit funds into smaller transactions that are below the reporting threshold, and then send them to another customer or entity, often in another country. This way, they avoid triggering any suspicion or regulatory reporting by the bureau de change or money services business (MSB) that processes the wire transfers. Structuring or smurfing is a common technique used by money launderers to move funds across borders and disguise their origin and destination.

The other options are not necessarily indicative of money laundering, although they may require further investigation depending on the circumstances and the risk profile of the customers and countries involved. Option A describes a regular and small wire transfer that may be legitimate, such as a remittance to a family member or a friend. Option Cdescribes a large volume of wire transfers that may be related to a seasonal or business activity, such as a holiday or a trade event. Option D describes a series of small wire transfers that may be coincidental or random, and do not necessarily add up to a significant amount.

The European Union Fourth Anti-Money Laundering Directive (4th AMLD) is a legal framework that aims to prevent the use of the Union’s financial system for the purposes of money laundering and terrorist financing. One of the provisions of the 4th AMLD is to lower the currency threshold for cash payments from €15,000 to €10,000. This means that any person who makes or receives cash payments of €10,000 or more, whether in a single transaction or in several linked transactions, is subject to customer due diligence and record-keeping obligations. The 4th AMLD also extends its applicability to providers of gambling services, which are now listed as ‘obliged entities’.

According to the ACAMS Study Guide 6th Edition, Chapter 2, page 38, one of the steps that a financial institution should take when it suspects money laundering activity is to file a suspicious transaction report (STR) or a suspicious activity report (SAR) to the relevant authorities. This will alert the regulators and law enforcement of the potentialmoney laundering scheme and provide them with valuable information to trace the funds and identify the perpetrators.

Another step that a financial institution should take is to identify any unusual or suspicious wire transfers initiated by casas de cambio to jurisdictions outside of Mexico that bear no apparent business relationship with that casa de cambio. This could indicate that the casas de cambio are involved in layering and integration stages of money laundering, where they are moving the illicit funds across borders and disguising their origin and ownership. The financial institution should monitor and document these wire transfers and report them to the authorities if necessary.

Option B is not a relevant step to trace funds through the bank, as it does not provide any information about the source, destination, or purpose of the funds. A decrease in the sale of large denomination U.S. bank notes to casas de cambio by the bank could be due to various factors, such as market demand, exchange rates, or regulatory changes, and does not necessarily indicate money laundering activity.

Option C is also not a relevant step to trace funds through the bank, as it does not indicate any connection to the suspected money laundering scheme. Deposits by casas de cambio that include third-party items, such as sequentially numbered monetary instruments, could be legitimate transactions that are part of the normal business operations of the casas de cambio. Unless there is evidence that these deposits are related to the sale of large denomination U.S. bank notes or the Mexican syndicate, they are not useful for tracing the funds.

Precious metals, such as gold and silver, pose a high risk of money laundering because they have some features that make them attractive to criminals. According to the FATF Guidance on the Risk-Based Approach for Dealers in Precious Metals and Stones1, these features include:

Some precious metals can be formed into other objects, making easier to transport. For example, gold can be melted and shaped into jewellery, coins, bars, or other items that can be easily concealed and moved across borders. This makes it difficult for law enforcement and customs authorities to detect and seize the illicit proceeds of crime.

Precious metals have high intrinsic value in a relatively compact form and are easy to convert into currency. For example, gold has a stable and universal value that can be exchanged for cash or other assets in any market. This makes it easy for criminals to store, transfer, and launder their illicit funds without leaving a trace in the formal financial system.

The other two options, C and D, are not as relevant to the risk of money laundering. The value of precious metals is determined by the market forces of supply and demand, and it is not easy to inflate or manipulate it. Precious metals can be used in many high-tech commercial applications, but this does not necessarily make them more valuable or more prone to money laundering.

 the internal investigation did not examine the brokerage account, which could be a potential source of money laundering. According to the CAMS Study Guide, 6th Edition, one of the common methods of money laundering is to use securities brokers to move funds through the purchase and sale of stocks, bonds, or other instruments1. The customer’s frequent transfers from the business account to the brokerage account, and the increased volume of activity in the business account, could indicate that the customer is trying to disguise the origin or ownership of illicit funds by investing them in money market securities. Therefore, the anti-money laundering specialist should recommend the internal investigator to concentrate on the trades made in the brokerage account, and to look for any signs of market manipulation, insider trading, or unusual patterns of transactions1.

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.

An internal investigation log is primarily intended to track the status of investigations into unusual activity. This is to ensure that the investigations are conducted in a timely, thorough, and consistent manner, and that the results and recommendations are documented and communicated to the relevant parties12. An internal investigation log can also help the organization to identify any trends, patterns, or gaps in its anti-money laundering (AML) compliance program, and to measure its effectiveness and efficiency3.

An internal investigation log is not intended to provide training on investigations to the anti-money laundering officer and Financial Intelligence Unit (FIU), report status of investigations to the Board of Directors, or detect and monitor possible suspicious activity. These are separate functions that may involve the use of the internal investigation log, but are not its primary purpose.

According to the ACAMS study guide, one of the best practices for dealing with law enforcement inquiries is to verify the identity and authority of the law enforcement officer before providing any information (p. 224). This is to ensure that the inquiry is legitimate and not a phishing attempt or a breach of confidentiality. The compliance officer should also document the inquiry and the information provided, and consult with legal counsel if necessary. The other options are not appropriate, as they may either violate the law, compromise the investigation, or create unnecessary work.

Section 313 of the USA PATRIOT Act prohibits U.S. financial institutions from establishing, maintaining, administrating or managing correspondent accounts for foreign shell banks. A foreign shell bank is a foreign bank that does not have a physical presence in any country. To ensure compliance with this prohibition, U.S. financial institutions must obtain from each foreign bank that maintains a correspondent account the identity of each owner of the foreign bank and the nature and extent of each owner’s ownership interest. This information must be updated within 30 days of any change.

Designating a country as being of “prime money laundering concern” allows the U.S. government to impose one or more of five special measures under Section 311 of the USA PATRIOT Act12. These special measures are intended to protect the U.S. financial system from the risks posed by the designated country, such as money laundering, terrorist financing, or other illicit activities. The fifth special measure, which is the most severe, authorizes the Treasury Department to prohibit U.S. financial institutions from opening or maintaining correspondent or payable-through accounts for foreign financial institutions that involve the designated country12. Correspondent accounts are accounts that enable foreign banks to access the U.S. financial system and provide services to their customers, while payable-through accounts are accounts that allow foreign banks to offer their customers direct access to the U.S. financial system3. Closing these accounts effectively cuts off the designated country from the U.S. financial system and imposes significant costs and burdens on its financial sector.

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.

The method of purchasing chips with cash and redeeming them for a check is used to launder money in casinos. This is because the check can be deposited into a bank account or cashed at another location, creating a paper trail that appears to be legitimate. The check can also be used to conceal the source and amount of the cash, as well as the identity of the person who obtained it. This method is also known as “chip washing” or “chip dumping” and is one of the common ways that money launderers exploit casinos12.

According to the CDD Rule, covered financial institutions must establish and maintain written procedures that are reasonably designed to identify and verify beneficial owners of legal entity customers and to include such procedures in their anti-money laundering compliance program1. These procedures should also be updated as necessary to reflect changes in the law or the institution’s risk profile2. Moreover, the institution should provide adequate training to its employees on the new requirements and monitor their compliance3.

 The integration stage of money laundering is where the illicit funds are reintroduced into the legitimate financial system, making them appear as lawful income or assets. This may include using multiple accounts, transferring funds between different banks or jurisdictions, and engaging in various financial activities to legitimize the illicit funds. The integration stage aims to make the illicit funds appear legitimate and indistinguishable from lawful funds within the financial system1.

Option C is an example of the integration stage of money laundering involving a bank or another deposit-taking institution, as it involves moving the illicit funds from one bank account to another, creating a complex trail of transactions that obscures the origin and ownership of the funds. This technique is also known as wire transfer laundering or electronic funds transfer laundering2.

Option A is an example of the placement stage of money laundering, as it involves depositing the illicit funds into the financial system for the first time, using a front company as a cover for the illegal source of the funds. A front company is a legitimate business that is used to conceal or facilitate illicit activity.

Option B is an example of the layering stage of money laundering, as it involves converting the illicit cash into other forms of value that are less conspicuous and easier to move, such as negotiable instruments. Negotiable instruments are documents that promise payment to a specified person or the bearer, such as checks, money orders, or traveler’s checks.

Option D is not an example of the integration stage of money laundering involving a bank or another deposit-taking institution, as it does not involve any financial transactions or accounts. It is rather an example of the integration stage of money laundering involving the purchase of goods or services, such as a luxury vehicle, with the illicit funds that had previously been deposited and layered through the financial system.

A law enforcement agency may request account opening documents and account statements from the institution to facilitate its investigation of a suspicious transaction report (STR). These documents can provide valuable information about the identity, background, source of funds, and transaction patterns of the customer, as well as any red flags or anomalies that may indicate money laundering or other criminal activities. Account opening documents may include identification documents, verification documents, customer due diligence forms, risk assessment forms, etc. Account statements may include transaction details, balances, fees, charges, etc.

Physical certificates are documents that represent ownership of securities, such as stocks or bonds, that are issued by a company or a government. Physical certificates present a money laundering risk to broker-dealers for two reasons:

The trade information on a physical certificate can be easily altered, such as the name of the owner, the date of issuance, or the number of shares. This can facilitate the concealment or falsification of the origin, ownership, or value of the securities, and enable the laundering of illicit funds through the purchase or sale of the securities.

Physical certificates may be provided to nominees for deposit or settled in off-market transactions, such as private placements, bearer bonds, or direct transfers. This can bypass the normal reporting or recordkeeping requirements of the broker-dealer, and avoid the scrutiny or verification of the identity, source of funds, or beneficial ownership of the securities.

According to the ACAMS Study Guide 6th Edition, Chapter 2, page 37, one of the red flags of money laundering or terrorist financing is the use of nominees, trusts, or third parties to hide the identity, ownership, or control of the funds or assets involved in the transaction. Nominees are individuals or entities that act on behalf of the actual or beneficial owners of a company, trust, or account, and may be used to conceal the source, destination, or purpose of the funds or assets. Nominees may also be used to evade taxes, sanctions, or regulatory requirements.

In this case, the compliance officer is unable to verify the identity of the beneficial owners of the company, and only information on the nominee owners was provided. This raises the suspicion that the company may be involved in money laundering or terrorist financing activities, and that the nominee owners may be acting as fronts or intermediaries for the actual or beneficial owners. The compliance officer should conduct further due diligence on the company, the nominee owners, and the beneficial owners, and report any suspicious or unusual activity to the relevant authorities.

According to the ACAMS Study Guide 6th Edition, Chapter 2, page 36, one of the methods that financial institutions can use to identify suspicious or unusual activity is to monitor transactions for red flags or indicators of money laundering or terrorist financing. Some of the common red flags are:

Transactions that are inconsistent with the customer’s profile, business, or source of funds

Transactions that involve high-risk countries or jurisdictions, especially those with weak or inadequate anti-money laundering regulations, or those known to be sources or destinations of illicit funds

Transactions that involve the use of complex or unusual financial instruments or structures, such as multiple accounts, intermediaries, or offshore entities, that have no apparent economic or lawful purpose

Transactions that involve the use of large amounts of cash, checks, or monetary instruments, especially if they are structured or aggregated to avoid reporting or recordkeeping requirements

Transactions that involve the use of third parties or nominees, such as relatives, associates, or shell companies, to conceal the identity, ownership, or control of the funds or assets

Option B is a transaction type that warrants investigation, as it involves sending large number of high dollar international wires to different countries, which could indicate that the customer is involved in layering or integration stages of money laundering, where the illicit funds are moved across borders and disguised as legitimate transfers. This transaction type also raises the risk of exposure to sanctions, terrorist financing, or other illicit activities, depending on the destination and purpose of the wires.

Option D is also a transaction type that warrants investigation, as it involves depositing a lot of checks drawn on banks in foreign countries, which could indicate that the customer is involved in placement or layering stages of money laundering, where the illicit funds are introduced into the financial system or converted into other forms of value. This transaction type also raises the risk of exposure to fraud, counterfeit, or forgery, depending on the origin and authenticity of the checks.

Option A is not a transaction type that warrants investigation, as it involves making regular cash deposits of a few hundred dollars every few days, which could be consistent with the customer’s profile, business, or source of funds, especially if the customer is an ice cream vendor who operates in cash. This transaction type does not raise any red flags of money laundering or terrorist financing, unless there is evidence that the cash deposits are structured or aggregated to avoid reporting or recordkeeping requirements.

Option C is also not a transaction type that warrants investigation, as it involves writing multiple checks for a few hundred dollars to the same dozen payees every two weeks, which could be consistent with the customer’s profile, business, or source of funds, especially if the payees are suppliers, employees, or contractors of the customer. This transaction type does not raise any red flags of money laundering or terrorist financing, unless there is evidence that the checks are used to facilitate illicit activities, such as bribery, kickbacks, or tax evasion.

U.S. law requires that assets and accounts of an OFAC-specified country, entity, or individual be blocked when such property is located in the United States, is held by U.S. individuals or entities, or comes into the possession or control of U.S. individuals or entities.

For example, if a funds transfer comes from offshore and is being routed through a U.S. bank to an offshore bank, and there is an OFAC-designated party to the transaction, it must be blocked. The definition of assets and property is broad and is specifically defined within each sanction program. Assets and property includes anything of direct, indirect, present, future, or contingent value (including all types of bank transactions). Banks must block transactions that:

• Are by or on behalf of a blocked individual or entity;

• Are to or go through a blocked entity; or

• Are in connection with a transaction in which a blocked individual or entity has an interest.

 Section 311 of the USA PATRIOT Act grants the Secretary of the Treasury the authority to designate foreign jurisdictions, financial institutions, classes of transactions, or types of accounts as being of primary money laundering concern, and to impose one or more of five special measures on them. These special measures range from requiring enhanced recordkeeping and reporting to prohibiting U.S. financial institutions from opening or maintaining correspondent accounts for the designated entities. The purpose of these special measures is to protect the U.S. financial system from money laundering and terrorist financing risks posed by the designated entities.

The inherent level of anti-money laundering risk across the entire organization depends on various factors, such as the nature, size, complexity, and structure of the business, the customers, the products and services, and the countries or jurisdictions involved. Among the four options given, the transaction monitoring program and the customer due diligence program are not factors that determine the inherent risk, but rather measures that mitigate the risk. Therefore, they are not relevant for the compliance officer’s purpose. The countries that the bank operates in and the products and services offered by the bank are important factors that affect the inherent risk, as they may expose the bank to different levels of money laundering threats, vulnerabilities, and regulatory requirements. For example, some countries or jurisdictions have high levels of corruption, unstable governments, or are known as money laundering havens1. They could also have inadequate AML/CFT regulatory and judicial frameworks, or be subject to economic sanctions2. Similarly, some products and services may pose higher risks thanothers, such as those that involve cash transactions, cross-border transfers, anonymous or non-face-to-face customers, or complex or innovative features34.

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.

According to the ACAMS Study Guide, 6th Edition, page 184, “The decision to close an account should be made in consultation with the institution’s legal counsel and AML compliance officer, and in accordance with the institution’s policies and procedures.” Closing an account may not always be the best option, as it may trigger the customer’s suspicion, interfere with law enforcement investigations, or expose the institution to legal risks. Therefore, the institution should carefully weigh the pros and cons of closing an account, and follow its own internal guidelines.

"Transaction Monitoring Systems and Ongoing Monitoring: Since the transactional monitoring system is key to mitigating ML risk within the bank, the Committee recognizes that AML risks require more than just appropriate policies and procedures; banks must have adequate and appropriate monitoring systems. For most banks, this will involve an IT monitoring system. If the bank does not believe it needs an IT monitoring system, it should document the rationale for why it does not need one.

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.

Before sharing customer records within the same jurisdiction, an FI should consider the legal and regulatory framework that governs the protection of personal data and the disclosure of client information. Different jurisdictions may have different laws and rules regarding the privacy and confidentiality of customer data, the consent and notification requirements for data sharing, the purposes and scope of data sharing, and the safeguards and accountability measures for data protection. An FI should ensure that it complies with the applicable restrictions and obligations when sharing customer records within the same jurisdiction, and that it does not violate the rights and expectations of its customers.

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.

Implementing a sound customer due diligence (CDD) program is the most effective way to prevent money laundering through financial institutions, according to experts. CDD is the process of identifying and verifying the identity of customers and assessing their risk profile, source of funds, and expected activity. CDD helps financial institutions to detect and prevent money laundering by enabling them to know their customers, monitor their transactions, and report any suspicious or unusual behavior. CDD is also a key requirement of the international standards and best practices for anti-money laundering and combating the financing of terrorism (AML/CFT), such as the Financial Action Task Force (FATF) Recommendations and the Basel Committee on Banking Supervision (BCBS) Guidelines.

The other options are not as effective as CDD, as they are either too narrow or too broad in scope. Ensuring that transaction monitoring systems can identify terrorist financing is important, but it does not address the broader issue of money laundering, which may involve other types of criminal proceeds or activities. Collecting information on beneficial owners and foreign customers is a part of CDD, but it is not sufficient by itself, as it does not cover the risk assessment and ongoing monitoring aspects of CDD. Instituting a policy prohibiting the acceptance of funds intended for terrorist financing is a good practice, but it is not a preventive measure, as it relies on the assumption that the funds are already identified as such, which may not be the case.

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.

One of the key components of an effective anti-money laundering (AML) program is to implement adequate customer due diligence (CDD) measures for new accounts. This includes verifying the identity of the party opening the account, determining the beneficial owner(s) of the account, and seeking to determine the source of deposited funds. These measures help the financial institution (FI) to understand the nature and purpose of the customer relationship, assess the risk profile of the customer, and detect and report any suspicious or unusual activity. Documenting the identity of the party opening the account and the beneficial owner(s) of the account also helps the FI to comply with the record-keeping and reporting requirements of the AML laws and regulations, and to cooperate with the authorities in case of investigations or inquiries. Seeking to determine the source of deposited funds helps the FI to prevent the introduction of illicit funds into the financial system, and to identify any discrepancies or inconsistencies between the customer’s profile and activity.

 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.

The first line training program is the training that is provided to the employees who are directly involved in the day-to-day operations of the business, such as sales, customerservice, or compliance staff1. The first line training program should cover the essential knowledge and skills that are required for the employees to perform their roles effectively and in compliance with the anti-money laundering and counter-terrorism financing (AML/CFT) policies and procedures of the organization2. The first line training program should also be updated regularly to reflect any changes in the business environment, the regulatory framework, the customer base, the products and services, or the risk assessment of the organization2.

Among the four activities listed, the one that would require an update to the first line training program is the expansion to customer segments that will utilize newly established products. This is because the new customer segments and products may pose different or higher AML/CFT risks than the existing ones, and the employees need to be aware of these risks and how to mitigate them. For example, the new customer segments may include politically exposed persons, non-resident customers, or high-net-worth individuals, who may have higher exposure to corruption, tax evasion, or fraud risks3. The new products may include prepaid cards, mobile payments, or cryptocurrencies, which may have higher vulnerability to money laundering, terrorist financing, or cybercrime risks. Therefore, the first line training program should be updated to include the relevant information and guidance on how to identify, verify, monitor, and report these new customer segments and products, and how to apply the appropriate customer due diligence and transaction monitoring measures2.

The other three activities do not necessarily require an update to the first line training program, unless they involve significant changes in the AML/CFT policies and procedures of the organization. The implementation of a new system that provides information for monitoring customer accounts may improve the efficiency and effectiveness of the existing AML/CFT processes, but it does not change the nature or level of the AML/CFT risks. The maintenance of regulatory requirements for onboarding documentation collections of a customer base is a routine and ongoing task that should already be covered by the existing first line training program. The onboarding of a new customer type which was previously reviewed and risk rated does not introduce any new AML/CFT risks, as long as the risk rating and the corresponding controls are consistent with the organization’s risk appetite and policy.

 A startup virtual currency exchange that operates as a money services business (MSB) must comply with the anti-money laundering (AML) regulations and standards applicable to MSBs, such as the Bank Secrecy Act (BSA) in the United States. One of the key requirements for MSBs is to develop and implement an effective AML compliance program that covers the following four pillars: internal controls, independent testing, designated compliance officer, and training12.

Before launching its operations, the startup should consider the following two AML responsibilities that are essential for its compliance program:

A customer onboarding process: The startup should establish a customer identification program (CIP) that verifies the identity of its customers and collects relevant information, such as name, address, date of birth, and identification number12. The startup should also perform customer due diligence (CDD) and enhanced due diligence (EDD) for higher-risk customers, such as those who engage in large or frequent transactions, use anonymous or pseudonymous digital wallets, or originate from high-risk jurisdictions34. The startup should also screen its customers against sanctions lists and other watchlists to prevent dealing with prohibited or suspicious entities12.

Transaction limits consistent with risk appetite: The startup should set appropriate transaction limits for its customers based on its risk assessment and risk appetite. Transaction limits can help mitigate the exposure to money laundering and terrorist financing risks, as well as comply with the reporting and recordkeeping obligations under the BSA. For example, the startup should report any cash transactions over $10,000 or any suspicious transactions over$2,000 to the Financial Crimes Enforcement Network (FinCEN)12. The startup should also monitor its customers’ transactions for any unusual or inconsistent patterns or behaviors that may indicate money laundering or other illicit activities34.

The bank’s internal investigation is aimed at understanding the activities and legitimacy of the client who wants to open multiple accounts for their swimming pool company, with each account assigned to a debit card for the company’s technicians. The purpose of these accounts, as stated by the client, is to facilitate the purchase of pool chemicals. To conduct a thorough investigation, the bank can consider several available sources of information. Let’s analyze each option:

A. Client’s credit bureau report: The client’s credit bureau report primarily contains information related to the individual’s credit history, including loans, credit cards, payment patterns, and any financial obligations. While this information may be useful in assessing the client’s creditworthiness, it may not provide substantial insight into the specific activities and legitimacy of the swimming pool company or the need for multiple accounts.

B. Local law enforcement investigation report: The local law enforcement investigation report may contain information about any criminal or suspicious activities involving the client or the swimming pool company, such as fraud, money laundering, tax evasion, or other offenses. However, this source may not be readily available to the bank, as it may require a formal request or a subpoena to access. Moreover, the report may not be comprehensive or up-to-date, as it may depend on the scope and progress of the law enforcement investigation.

C. Interview swimming pool technicians and chemical suppliers: The interview with the swimming pool technicians and chemical suppliers may provide some information about the nature and frequency of the transactions involving the pool chemicals, such as the amount, the price, the payment method, and the delivery mode. However, this source may not be reliable or verifiable, as the technicians and suppliers may be biased or influenced by the client. Moreover, the interview may not be feasible or practical, as it may require the bank to contact and arrange meetings with multiple parties, which may be time-consuming and costly.

D. Internet search showing how such business are typically operated: The internet search showing how such business are typically operated may provide some information about the industry standards and best practices for running a swimming pool company, such as the average number of technicians, the typical expenses, the common suppliers, and the expected revenue. This source may be useful in comparing and contrasting the client’s business model and operations with the industry norms and identifying any red flags or anomalies. Moreover, this source may be easily accessible and inexpensive, as it may only require the bank to use a web browser and a search engine.

Therefore, the best available source for the bank’s internal investigation on this client’s activities is option D.

When an FI is being investigated for possible money laundering, it is important that it cooperates with the law enforcement agencies (LEAs) in a professional and transparent manner. This means that the FI should take the following steps:

Maintain centralized control over all requests and responses to ensure completeness and timely responses. This will help the FI to avoid duplication, inconsistency, or omission of information, as well as to track the status and progress of the requests and responses. It will also facilitate the communication and coordination between the FI and the LEAs, and demonstrate the FI’s willingness to cooperate12.

Review subpoenas and other information requests by senior management and an investigations group or counsel. This will help the FI to assess the scope, relevance, and legality of the requests, as well as to identify any potential risks, conflicts, or sensitivities. It will also enable the FI to prepare and provide the requested information in an accurate and timely manner, and to seek clarification or negotiation if necessary13.

The other options are not advisable, as they may indicate a lack of cooperation, obstruct the investigation, or damage the FI’s reputation. For example:

Making employees, including corporate officers, unavailable for interviews and refusing documents upon receipt of a subpoena may be considered as non-compliance, evasion, or contempt of court, and may result in legal sanctions or penalties4.

Addressing the document destruction policy to ensure the relevant documents are destroyed may be seen as tampering with evidence, destroying records, or concealing information, and may constitute a criminal offence or a breach of regulatory obligations5.

Not answering inquiries from the media directly, but rather replying, “No comment” may create a negative impression, fuel speculation, or invite criticism, and may harm the FI’s image, credibility, or trustworthiness.

The Egmont Group is a global network of Financial Intelligence Units (FIUs) that aims to enhance the capabilities and cooperation of its members in combating money laundering, terrorist financing, and other financial crimes. The Egmont Group supports its FIU members by helping them to expand and systematize the exchange of financial intelligence and information, improve expertise and capabilities of personnel, and enable secure communication with one another12. The Egmont Group does not issue due diligence models for financial institutions, as this is the responsibility of national regulators and standard-setting bodies. The Egmont Group does not issue strategic products for law enforcement agencies and FIUs, as this is the role of other international organizations such as the Financial Action Task Force (FATF) and the United Nations Office on Drugs and Crime (UNODC). The Egmont Group does not expand the ability of FIUs to enforce laws and exchange information globally, as this depends on the legal and operational frameworks of each FIU and the bilateral or multilateral agreements they have with other FIUs.

 The compliance officer should provide a high level summary of the activity and the interactions with law enforcement to the board of directors, as this would be the most appropriate way to escalate the information without compromising the confidentiality of the STR or the ongoing investigation. Providing a copy of the STR or the letter from law enforcement could expose the bank to legal risks or jeopardize the investigation. Informing the regulator to bring it up with the board would not be sufficient, as the compliance officer has the responsibility to report directly to the board on significant compliance issues.

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

 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.

 Reciprocity is one of the high-level principles that govern the relationship between the FATF and the FSRBs. It means that both the FATF and the FSRBs should respect and acknowledge each other’s work, such as standard setting, mutual evaluations, and follow-up processes. Reciprocity also implies that the FATF and the FSRBs should have similar mechanisms or practices for ensuring effective participation of their members in their activities.

According to the Financial Action Task Force (FATF) 40 Recommendations, financial institutions should obtain senior management approval before establishing new correspondent banking relationships1. This is to ensure that the financial institution has assessed the money laundering and terrorist financing risks associated with the respondent institution and has applied appropriate due diligence measures. The FATF also requires financial institutions to gather sufficient information about the respondent institution, its business activities, its reputation, its supervision, and its anti-money laundering and counter-terrorist financing policies and procedures1. Additionally, the FATF recommends that financial institutions document the respective responsibilities of each institution and prevent the use of their accounts by shell banks1.

A financial institution should examine the country or location where the customer is from or does business, the type and size of the business the customer runs, and the legal structure of the customer’s business, because these factors can indicate the level ofmoney laundering risk associated with the customer. For example, some countries or locations may have weak anti-money laundering laws or high levels of corruption, some types or sizes of businesses may be more prone to generating or concealing illicit funds, and some legal structures may be more complex or opaque than others, making it harder to identify the beneficial owners or controllers of the customer.

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.

 the bank teller should not provide any information to the police officer without consulting the compliance officer first. The compliance officer is responsible for ensuring that the bank follows the applicable laws and regulations regarding customer privacy, dataprotection, and anti-money laundering. The compliance officer can verify the authenticity and validity of the request, determine the appropriate response, and obtain any necessary approvals or authorizations before releasing any information. The bank teller should not reject the request outright, as this could be seen as uncooperative or obstructive. The bank teller should also not provide the information after management approval, as this could bypass the compliance officer’s role and expose the bank to legal or regulatory risks.

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.

High-risk: The risks here are significant, but are not necessarily prohibited. To mitigate the heightened risk presented, the financial institution should apply more stringent controls to reduce the ML/FT risk, such as conducting enhanced due diligence and more rigorous transaction monitoring. Countries that maintain a reputation for corruption or drug trafficking are generally considered high-risk. High-risk customers may include politically exposed persons (PEPs) or certain types of money services businesses orcash-intensive businesses; high-risk products and services may include correspondent banking and private banking.

having an outdated and incomplete risk assessment could expose the financial institution to significant money laundering and terrorist financing risks that are not identified, measured, or mitigated. The risk assessment is a key component of an effective anti-money laundering program, and it should be updated regularly to reflect the changes in the business environment, customer profile, product offerings, delivery channels, and regulatory requirements12. A risk assessment that is several years old and does not cover all current products and services could fail to capture the emerging threats and vulnerabilities that the financial institution faces, and could result in inadequate or inappropriate controls, policies, and procedures. This could lead to the highest potential for unmitigated risk, as the financial institution could be exploited by money launderers and terrorist financiers, and face regulatory sanctions, reputational damage, and financial losses.

Financial Intelligence Units (FIUs) are national agencies that collect, analyze, and disseminate information on suspicious or unusual financial activity, such as money laundering and terrorist financing, to relevant authorities. One of their main functions is to disseminate the results of their analysis to law enforcement agencies in a timely manner, so that they can initiate investigations or prosecutions. This is also one of the standards set by the Financial Action Task Force (FATF), the global body that sets the anti-money laundering and counter-terrorist financing (AML/CFT) policies and recommendations. The other options are not the primary responsibilities of FIUs, although they may perform them as part of their mandate or in cooperation with other agencies.

The company regularly understating the value of goods exported is an indicator of possible money laundering because it may suggest that the company is involved in trade-based money laundering (TBML), which is the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimise their illicit origins or finance their activities. One of the common TBML techniques is over-invoicing or under-invoicing, which involves manipulating the price, quantity or quality of goods or services in order to transfer value between the importer and exporter. By understating the value of goods exported, the company may be transferring funds to a foreign counterpart who is either a co-conspirator or a third-party money launderer, who will then pay the company the difference in cash or through other means. This way, the company can avoid currency reporting requirements, evade taxes, conceal the source and destination of funds, and integrate the illicit proceeds into the formal economy.

"The first European Union Directive, “Prevention of the Use of the Financial System for the Purpose of Money Laundering (Directive 91/308/EEC),” was adopted by the Council of the European Communities in June 1991. Like all directives adopted by the Council, it required member states to achieve (by amending national law, if necessary) the specified results. This First Directive required the members to enact legislation to prevent their domestic financial systems from being used for money laundering"

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.

Based on the USA PATRIOT Act, one action that the US might take to demonstrate extraterritorial reach is to send requests for information to a non-US based financial institution (FI). The USA PATRIOT Act expanded the authority of the US government to issue subpoenas and other legal orders to foreign banks that maintain a correspondent account in the US, requiring them to produce records relating to such account or any account at the foreign bank, including records maintained outside the US12. This provision was intended to enhance the ability of the US to investigate and prosecute money laundering and terrorist financing activities that involve foreign FIs3.

the Office of Foreign Assets Control (OFAC) has the authority to prohibit or reject any trade or financial transactions involving specified countries, entities, and individuals that are subject to U.S. economic sanctions, unless such transactions are authorized by a general or specific license issued by OFAC. This applies to transactions that occur within the U.S. territory, as well as transactions that involve U.S. persons, U.S. goods, or the U.S. financial system, regardless of where they take place. This is one of the key aspects of OFAC’s extraterritorial reach, which means that OFAC can enforce its sanctions programs beyond the U.S. borders.

The Third European Union Money Laundering Directive (3MLD) is a legal framework that aims to prevent the use of the financial system for the purposes of money laundering and terrorist financing. It was adopted in 2005 and repealed by the Fourth European Union Money Laundering Directive (4MLD) in 2015. The 3MLD applies to a range of entities that are considered to be exposed to the risk of money laundering and terrorist financing, such as:

Financial institutions, which include credit institutions, financial intermediaries, insurance companies, investment firms, and payment service providers.

Casinos, which include both online and offline gambling services that involve wagering a stake with monetary value.

Real estate agents, which include both natural and legal persons that act as intermediaries in the buying and selling of real property or rights over it.

The 3MLD requires these entities to implement a number of measures to prevent and detect money laundering and terrorist financing, such as:

Conducting customer due diligence, which involves identifying and verifying the customer and the beneficial owner, understanding the purpose and nature of the business relationship, and applying enhanced or simplified measures depending on the level of risk.

Keeping records of customer and transaction data for at least five years after the end of the business relationship or the execution of the transaction.

Reporting suspicious transactions or activities to the competent authorities without delay and without tipping off the customer.

Establishing internal policies, procedures, and controls to ensure compliance with the 3MLD, and providing adequate training and awareness to staff.

Cooperating with the relevant supervisory and regulatory authorities and financial intelligence units.

The 3MLD does not apply to defense attorneys, as they are not considered to be obliged entities under the directive. However, the 3MLD does apply to other legal professionals, such as notaries, lawyers, and accountants, when they perform certain activities on behalf of their clients, such as:

Buying and selling of real property or business entities

Managing of client money, securities, or other assets

Opening or managing bank, savings, or securities accounts

Organizing contributions for the creation, operation, or management of companies

Creating, operating, or managing trusts, companies, foundations, or similar structures

The Patriot Act, enacted in 2001, introduced several provisions to enhance the anti-money laundering and counter-terrorist financing (AML/CFT) measures for U.S. banks and their foreign correspondent relationships. Some of the potential issues for foreign financial institutions (FFIs) maintaining correspondent accounts with U.S. banks under the Patriot Act are:

Cancellation of correspondent banking relationships: The Patriot Act requires U.S. banks to conduct due diligence and enhanced due diligence on their foreign correspondent accounts, and to terminate any account that poses a significant risk of money laundering or terrorist financing. This may result in the cancellation of correspondent banking relationships with FFIs that do not meet the U.S. standards or cooperate with the U.S. authorities. The loss of correspondent banking relationships may affect the FFIs’ ability to access the U.S. financial system and provide services to their customers.

Forfeiture of funds in a U.S. interbank account: The Patriot Act authorizes the U.S. government to seize and forfeit any funds in a U.S. interbank account that are involved in or traceable to money laundering or terrorist financing activities. This means that FFIs may face the riskof losing their funds in a U.S. interbank account if they or their customers are suspected or accused of engaging in illicit activities. The forfeiture of funds may have significant financial and reputational consequences for the FFIs and their customers.

Prohibition of correspondent accounts for shell banks: The Patriot Act prohibits U.S. banks from establishing or maintaining correspondent accounts for shell banks, which are banks that have no physical presence in any country and are not affiliated with a regulated financial group. This means that FFIs that are shell banks or have relationships with shell banks cannot access the U.S. financial system through correspondent accounts. The prohibition of correspondent accounts for shell banks aims to prevent the use of shell banks as vehicles for money laundering and terrorist financing.