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

Screening customers at onboarding and quarterly thereafter is not sufficient to ensure compliance with economic sanctions, as sanctions lists may change frequently and the financial institution may not be aware of the latest updates. Screening should occur promptly after list updates to ensure that the financial institution is not dealing with a sanctioned individual or entity, or facilitating a prohibited transaction. This is recommended by the international guidance from the Financial Action Task Force (FATF) and the Wolfsberg Group12. Screening and performing enhanced due diligence on new relationships is also important, but not the only step to ensure compliance.

References:

CAMS Certification Package - 6th Edition | ACAMS, Chapter 3: Sanctions, page 86

The Wolfsberg Group Correspondent Banking Due Diligence Questionnaire 2014, Section 5: Sanctions Policy, page 12

ACAMS CAMS Certification Video Training Course - Exam-Labs, Video 3.1: Sanctions

Exam CAMS: Certified Anti-Money Laundering Specialist (the 6th edition), Question 109

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’.

References:

Directive - 2015/849 - EN - Fourth Anti-Money Laundering Directive - EUR-Lex, Article 11 and Recital 23.

EUR-Lex - 02015L0849-20210630 - EN - EUR-Lex, Article 11 and Recital 23.

Key elements of the 4th EU Anti-Money Laundering Directive, Section: Cash payments.

Anti-money laundering and countering the financing of terrorism legislative package, Section: New EU AML/CFT Regulation.

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 than others, such as those that involve cash transactions, cross-border transfers, anonymous or non-face-to-face customers, or complex or innovative features34.

References: =

1: AML risk-rating models | McKinsey

2: Money laundering and terrorist financing risks - Financial Action Task Force (FATF)

4: AML Red Flags – What are the Top 10 Indicators? - ComplyAdvantage

5: Anti Money Laundering Risk Assessment - Financial Crime Academy

The purchaser being a nominee is a red flag that indicates high potential for money laundering in a real estate purchase. A nominee is a person or entity that acts on behalf of another person or entity, usually to conceal the identity or beneficial ownership of the real owner. Money launderers may use nominees to purchase real estate with illicit funds, and then transfer the property to the real owner or sell it for a profit. This way, they can obscure the source and ownership of the funds, and integrate them into the legitimate economy12.

References:

ACAMS, CAMS Examination Study Guide, 6th Edition, Chapter 3, pp. 77-78

FATF, Money Laundering and Terrorist Financing through the Real Estate Sector, June 20073, pp. 19-20

it describes the action that the anti-money laundering specialist should take next, which is to consult with senior management and the legal advisor. This is because the specialist needs to seek guidance and approval from the higher authorities and the legal experts on how to handle the situation without compromising the ongoing criminal investigation or violating the anti-money laundering laws and regulations. The specialist also needs to ensure that the institution’s internal policies and procedures are followed and that the appropriate measures are taken to mitigate the risks and protect the reputation of the institution.

The other options are not necessarily actions that the anti-money laundering specialist should take next, although they may be considered or implemented later depending on the outcome of the consultation and the investigation. Option A describes a possible consequence for the employee, which is to recommend the immediate termination of the employee, but this may not be the best course of action at this stage, as it may alert the employee or the dealer of the investigation, or it may be premature or disproportionate without sufficient evidence or due process. Option B describes a possible measure for the dealer, which is to advise that the dealer’s accounts should be closed, but this may not be feasible or advisable at this stage, as it may also tip off the dealer or the employee of the investigation, or it may interfere with the collection of evidence or the prosecution of the case. Option D describes a possible reporting obligation for the institution, which is to inform the institution’s regulatory agency of the situation, but this may not be required or appropriate at this stage, as it may conflict with the instructions of the competent authority or the confidentiality of the investigation, or it may expose the institution to legal or regulatory liabilities or sanctions.

References:

ACAMS CAMS Certification Video Training Course - 6th Edition1

Exam CAMS: Certified Anti-Money Laundering Specialist (the 6th edition)2

ACAMS CAMS Study Guide - 6th Edition, Chapter 6, pages 132-133

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

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.

References: =

FATF 40 Recommendations, Recommendation 8 and Interpretive Note to Recommendation 8

Best Practices on Combating the Abuse of Non-Profit Organisations, FATF, June 2015

COMBATING THE ABUSE OF NON-PROFIT ORGANISATIONS (RECOMMENDATION 8), FATF, June 2015

According to the ACAMS CAMS Certification Study Guide (6th edition), senior management and the Board of Directors have the ultimate responsibility for the effectiveness of the AML program and the compliance with the relevant laws and regulations. Therefore, they should be informed of all significant STRs and the numbers and trends of the filings, as this would help them to assess the level of risk exposure and the adequacy of the controls and resources. The other options are either too restrictive or too burdensome for senior management and the Board of Directors, and may interfere with the timely and confidential filing of STRs.

References: ACAMS CAMS Certification Study Guide (6th edition), page 361; ACAMS CAMS Certification Video Training Course, Module 2, Lesson 12

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.

References:

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

An institution should incorporate on-going training, periodic audits, and ability to incorporate relevant legislative and regulatory AML changes in its AML policies and procedures. These are essential elements of an effective AML program, as they ensure that the staff are aware of their roles and responsibilities, the institution is compliant with the applicable laws and regulations, and the AML program is updated and adapted to the changing risks and environment.

References: =

CAMS Certification Package - 6th Edition | ACAMS1

CAMS Certifications: How to Get CAMS Certified | ACAMS2

ACAMS CAMS Certification Video Training Course - Exam-Labs3

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

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.

References:

ACAMS Study Guide 6th Edition, Chapter 2, page 37

Beneficial Ownership Meaning and Regulation - Investopedia

What is a nominee shareholder? | LawBite

Online banking is vulnerable to all three stages of money laundering, namely placement, layering, and integration, because it allows the movement of funds across different accounts, jurisdictions, and institutions with speed, anonymity, and convenience. Online banking can facilitate the following money laundering methods:

Placement: The initial stage of money laundering, where illicit funds are introduced into the financial system. Online banking can enable placement by allowing the deposit of cash or checks through ATMs, mobile devices, or remote deposit capture, or the transfer of funds from prepaid cards, digital wallets, or cryptocurrencies to bank accounts.

Layering: The second stage of money laundering, where illicit funds are moved, disguised, or concealed to obscure their origin and ownership. Online banking can enable layering by allowing the transfer of funds between multiple accounts, often in different jurisdictions or currencies, or the purchase of financial products or services, such as money orders, wire transfers, or online gambling, that create complex transaction trails.

Integration: The final stage of money laundering, where illicit funds are reintroduced into the legitimate economy as apparently legal income or assets. Online banking can enable integration by allowing the transfer of funds to legitimate businesses, investments, or charities, or the purchase of goods or services, such as real estate, luxury items, or travel, that provide a cover for the source of funds.

References:

ACAMS CAMS Certification Video Training Course1, Module 2: Money Laundering Risks and Methods, Lesson 2.1: The Three Stages of Money Laundering

ACAMS CAMS Study Guide, 6th Edition2, Chapter 2: Money Laundering Risks and Methods, Section 2.1: The Three Stages of Money Laundering, pp. 29-34

ACAMS CAMS Examination Preparation Seminar, 6th Edition3, Chapter 2: Money Laundering Risks and Methods, Section 2.1: The Three Stages of Money Laundering, Slides 9-13

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

References:

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

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

According to the ACAMS study guide1, some of the common red flags for money laundering or financing terrorism are:

Customers who provide insufficient or suspicious information, such as unusual or unverifiable identification documents, different taxpayer identification numbers, or vague or inconsistent information about their business or source of funds.

Transactions that have unusual features, such as large cash payments, unexplained payments from a third party, use of multiple or foreign accounts, complex or illogical transactions, or transactions that are inconsistent with the customer’s profile or expected behavior.

Geographic concerns, such as transactions involving high-risk jurisdictions, offshore financial centers, secrecy havens, or countries subject to sanctions or embargoes.

Ultimate beneficial ownership that is unclear, such as customers who use shell companies, trusts, or other legal entities to obscure their identity or the identity of the true owners or controllers of the funds or assets.

In this scenario, two red flags that could indicate money laundering or financing terrorism are:

B. The guarantor company’s ownership structure is overly complex. This could be an attempt to hide the true source or destination of the funds, or to evade regulatory or law enforcement scrutiny. The use of a trust formed in a Caribbean island and a holding company based in a European secrecy haven could also indicate geographic concerns, as these jurisdictions are known for their low transparency and high confidentiality.

D. The ultimate beneficial owner is a young lady who has gained her wealth through a small business. This could be a case of false or misleading information, as the source of funds is not commensurate with the size or nature of the transaction. The fitness studio business could be a front or a cover for illicit activities, or the young lady could be a nominee or a straw man for the real owner or beneficiary.

References: = 1 ACAMS. (2020). Study Guide for the Certification Examination: Sixth Edition. Miami, FL: ACAMS.

Suspicious transaction report (STR) information is confidential and should not be disclosed to anyone outside the compliance function or law enforcement authorities. Providing STR information to the credit department could compromise the integrity of the reporting process and expose the institution to legal risks. The compliance officer should decline to provide the STR information to the credit department and explain the reasons for doing so.

References:

CAMS Certification Package - 6th Edition | ACAMS, Chapter 4: Conducting and Supporting the Investigation Process, page 136

CAMS Certifications: How to Get CAMS Certified | ACAMS, Candidate Handbook, page 16

ACAMS CAMS Certification Video Training Course - Exam-Labs, Video 4.3: Suspicious Transaction Reporting

Exam CAMS: Certified Anti-Money Laundering Specialist (the 6th edition), Practice Test 1,

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 potential money 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.

References:

ACAMS Study Guide 6th Edition, Chapter 2, page 38

Combating Money Laundering and Other Forms of Illicit Finance

Sting Operation Snares Casa de Cambio for Allegedly Laundering Millions Through U.S. Banks

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

References:

CAMS Certification Package - 6th Edition | ACAMS

The correct answer is C. Wires received in large, even dollar amounts are a suspicious behavior, as they may indicate an attempt to avoid reporting thresholds or to conceal the source of funds. Large and round numbers are often used by money launderers to simplify calculations or to avoid arousing suspicion12. The other options are not necessarily suspicious, as they may reflect the normal business operations of a wholesale auto business that ships vehicles internationally. The dock shipping receipts match the vehicles (A), vehicles are regularly shipped internationally (B), and account debits are payable to transport companies (D) are all plausible and legitimate activities for such a business.

References:

ACAMS CAMS Certification Video Training Course3, Module 3: Risks and Methods of Money Laundering and Terrorism Financing, Lesson 2: Methods of Money Laundering

ACAMS CAMS Certification Study Guide1, Chapter 3: Risks and Methods of Money Laundering and Terrorism Financing, Section 3.2: Methods of Money Laundering, pp. 79-80

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

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

References:

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

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

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

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

 This involves breaking down large amounts of cash into smaller transactions that are below the reporting threshold of $10,000 in the United States, in order to avoid detection and reporting by the financial institution. Structuring is a red flag for money laundering and should be reported to the authorities as a suspicious activity. The other options are not necessarily indicative of money laundering, as they could have legitimate explanations. For example, the customers may have a family or business connection to the same recipient in Country B, or they may have a regular need to send money three times a week.

References:

ACAMS CAMS Certification Video Training Course, Chapter 2: Money Laundering Risks and Methods, Section 2.2: Common Money Laundering Techniques

Exam CAMS: Certified Anti-Money Laundering Specialist (the 6th edition), Question 91

CAMS Certification Package - 6th Edition, Study Guide, Chapter 2: Money Laundering Risks and Methods, Page 38

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.

References:

ACAMS CAMS Certification Video Training Course

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

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.

References:

FATF 40 Recommendations, Recommendation 10 and Interpretive Note to Recommendation 10, paragraphs 17-18.

Institutions that violate anti-money laundering laws may face various risks and consequences, such as legal, regulatory, reputational, and operational risks. As demonstrated by the 2012 HSBC settlement with United States authorities, two of the most significant risks are:

Forfeiture of assets. This means that the institution may have to surrender some or all of its assets that are related to the money laundering activities or violations. For example, HSBC agreed to forfeit $1.256 billion as part of its deferred prosecution agreement with the US Department of Justice1.

Civil money penalties. This means that the institution may have to pay fines or penalties to the government or other regulatory agencies for violating the anti-money laundering laws or regulations. For example, HSBC agreed to pay $665 million in civil money penalties to various US regulators, including the Office of Foreign Assets Control, the Federal Reserve Board, and the Office of the Comptroller of the Currency1.

The other two options, C and D, are not as common or relevant to the 2012 HSBC settlement. Loss of bank charter/license may occur in extreme cases where the institution is deemed unfit to operate or poses a serious threat to the financial system. Imprisonment of bank employees may occur if the employees are found guilty of criminal charges, such as fraud, conspiracy, or wilful violation of anti-money laundering laws. However, these outcomes are usually reserved for individuals, not institutions, and depend on the specific facts and circumstances of each case.

References:

1: HSBC announces settlements with authorities, 2012, https://www.hsbc.com/-/files/hsbc/investors/stock-exchange-announcements/2012/december/2012-12-11-hsbc-announces-settlements-with-authorities.pdf

2: Settlement Agreement between the U.S. Department of the Treasury’s Office of Foreign Assets Control and HSBC Holdings plc, 2012, https://ofac.treasury.gov/recent-actions/20121211_33

3: HSBC settles on record US fee, 2012, https://www.dw.com/en/hsbc-settles-in-us-money-laundering-probe/a-16443391

4: HSBC pays record $1.9bn fine to settle US money-laundering accusations, 2012, https://www.theguardian.com/business/2012/dec/11/hsbc-bank-us-money-laundering

5: HSBC to pay $1.9bn in US money laundering penalties, 2012, https://www.bbc.com/news/business-20673466

 Under USA PATRIOT Act Section 311, the U.S. government can impose special measures against a foreign jurisdiction, institution, or transaction that is of primary money laundering concern1. These measures can range from requiring additional recordkeeping and reporting to prohibiting or restricting the opening or maintaining of correspondent or payable-through accounts for the designated entity2. A payable-through account is a type of correspondent account that allows customers of a foreign bank to access the U.S. financial system by writing checks or making wire transfers from the foreign bank’s account at a U.S. bank3.

In this case, the U.S. government has enacted special measures against a designated entity that has a payable-through account with an EU bank, which in turn has a correspondent banking relationship with a U.S. bank. One of the possible actions that the U.S. bank might be required to take regarding the EU bank’s services for the designated entity is to obtain additional information about customers permitted to use this account. This is to ensure that the U.S. bank can identify and monitor the transactions and activities of the designated entity and its customers, and to prevent any money laundering or terrorist financing risks4.

The other actions listed are not likely to be required by the U.S. government under Section 311. Ensuring the designated entity’s confidential information is not shared with other entities is not a special measure, but a general obligation of any financial institution under privacy laws. Verifying that the EU bank serves the designated entity is not a relevant action, since the U.S. government has already designated the entity as a primary money laundering concern. Performing enhanced due diligence on the EU bank is not a specific action related to the payable-through account, but a broader requirement for any correspondent account under Section 312 of the USA PATRIOT Act5.

References:

1: USA PATRIOT Act | FinCEN.gov1 2: 311 Actions | U.S. Department of the Treasury2 3: Overview of Correspondent Banking and “De Risking” Issues - CRS Reports3 4: U.S. TREASURY DEPARTMENT OFFICE OF PUBLIC AFFAIRS4 5: Fact Sheet: Overview of Section 311 of the USA PATRIOT Act5

 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.

References:

USA PATRIOT Act | FinCEN.gov

FACT SHEET for Section 312 of the USA PATRIOT Act Final Regulation and Notice of Proposed Rulemaking | FinCEN.gov

International Financial Crime: Treasury’s Roles and Responsibilities Should Be Updated - GovInfo

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

References:

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

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

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

Bank A should file a suspicious transaction report (STR) on the transaction in Country A, as it is the financial institution that observes and processes the suspicious activity in its jurisdiction. According to the FATF Recommendations, financial institutions should report any transaction that they have reason to suspect is related to money laundering, terrorist financing, or other criminal activities, regardless of the amount involved1. The STR should include information about the originator, the beneficiary, and the purpose of the transaction, as well as the reasons for suspicion2. Bank A should also comply with any legal or regulatory requirements in Country A regarding the reporting of cross-border wire transfers3.

References:

1: FATF Recommendation 20 - Reporting of suspicious transactions

2: FATF Interpretive Note to Recommendation 20

3: FATF Recommendation 16 - Wire transfers

 Before disclosing any supporting documentation for a suspicious transaction report (STR) to a law enforcement agency, the financial institution should confirm that the request is legitimate and authorized by verifying the identity and credentials of the requester1. This is to prevent unauthorized access or misuse of the confidential information by impostors or fraudsters. The other options are not true, as they may either compromise the security, integrity, or timeliness of the disclosure, or violate the confidentiality or privacy rights of the customer.

References:

ACAMS, CAMS Examination Study Guide, 6th Edition, Chapter 4, p. 117

FATF Guidance: The Role of Hawala and Other Similar Service Providers in Money Laundering and Terrorist Financing, October 20132, p. 20

Basel Committee on Banking Supervision, Sound management of risks related to money laundering and financing of terrorism, June 20173, p. 11

 According to the BSA/AML Manual1, once a financial institution files a SAR, it should maintain a copy of the SAR and the original or business record equivalent of any supporting documentation for a period of five years from the date of filing the SAR. The supporting documentation should be identified and maintained by the financial institution as such, and be deemed to have been filed with the SAR. The financial institution should make all supporting documentation available to FinCEN or any federal, state, or local law enforcement agency, or any federal regulatory authority that examines the financial institution for compliance with the BSA, upon request. Therefore, the best action to take regarding a particular account once suspicious activity is reported by the institution is to secure all supporting documentation, as it may be needed for further investigation or examination.

References:

BSA/AML Manual1

Suspicious Activity Reporting - Overview2

Suspicious Activity Report (SAR) Basics3

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.

References:

1: How to Conduct Effective AML Investigations - Blog | Unit211 2: BSA/AML Internal Audit: PwC2 3: Anti-Money Laundering: 5 Steps to Conduct an Audit3

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.

References:

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

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

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

These are the information that can help the correspondent bank to assess the risk profile, the regulatory compliance, and the operational capacity of the respondent bank, and to verify its identity and legitimacy. The correspondent bank should obtain and verify the following information about the respondent bank:

Respondent’s management, nature of license, and major business activity. This can help the correspondent bank to understand the governance, the legal status, and the core functions of the respondent bank, and to evaluate its reputation, integrity, and competence.

The quality of supervision in the home country. This can help the correspondent bank to determine the level of oversight and regulation that the respondent bank is subject to, and to identify any potential gaps or weaknesses in the anti-money laundering and counter-terrorist financing (AML/CTF) framework of the home country.

Respondent’s location, in particular the existence of a real physical presence. This can help the correspondent bank to verify the actual existence and operation of the respondent bank, and to avoid dealing with shell banks or banks located in high-risk or non-cooperative jurisdictions.

The other option is not necessarily information that should be included to establish a rigorous “Know Your Respondent” procedure, although it may have some relevance or importance depending on the circumstances and the nature of the correspondent relationship. Option 2 describes computer equipment and software capability, which may be useful to assess the technical and operational compatibility and efficiency of the respondent bank, but it is not essential to evaluate its risk or compliance level.

References:

ACAMS CAMS Certification Video Training Course - 6th Edition1

Exam CAMS: Certified Anti-Money Laundering Specialist (the 6th edition)2

ACAMS CAMS Study Guide - 6th Edition, Chapter 7, pages 154-155

https://www.acams.org/wp-content/uploads/2019/09/ACAMS-CAMS-Study-Guide-6th-Edition-Chapter-7.pdf

According to the BSA/AML Manual1, a financial institution is required to file a SAR for any transaction conducted or attempted by, at, or through the institution that involves or aggregates at least $5,000 in funds or other assets, and the institution knows, suspects, or has reason to suspect that the transaction (or a pattern of transactions of which the transaction is a part): (a) involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity; (b) is designed to evade any requirements of the BSA or its implementing regulations; © has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the institution knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction; or (d) involves use of the institution to facilitate criminal activity. In this case, Bank A is the institution that processes the wire transfer and deems it suspicious, based on its own assessment of the transaction and the customer. Therefore, Bank A is responsible for filing a SAR for the transaction in Country A, where it is located and where the transaction takes place. Bank A does not need to file a SAR for the transaction in Country B or Country C, as it does not have jurisdiction or authority over those countries or the other banks involved. However, Bank A may share information about the suspicious transaction with Bank B or Bank C, subject to certain conditions and limitations, as described in the BSA/AML Manual1.

References:

BSA/AML Manual1

Suspicious Activity Reporting - Overview2

Suspicious Activity Report (SAR) Basics3

From Microsoft Start Partners

Another simpler way of looking at the problem is by seeing this case as a Correspondent Banking relationship:

-A is the primary correspondent bank.

-B is the respondent bank.

-C is the receiving bank (of the wire transfer).

Since A is conducting the transaction on behalf of B's customer via the correspondent relationship deemed suspicious, it is the transaction in Country A by the correspondent bank that files the STR. Also, per the regular process, it is on the transaction, not the bank, that the STR is filed against.

 the account officer should avoid disclosing any details of the investigation to the customer, as this could compromise the integrity of the law enforcement inquiry, or even constitute tipping off, which is a criminal offense in many jurisdictions12. The account officer should only inform the customer that a legal request has been made, and that the bank is obliged to comply with it, without revealing the nature or scope of the request3. The account officer should also document the communication with the customer, and report it to the appropriate internal authority, such as the compliance officer or the legal department4.

References:

1: CAMS Study Guide, 6th Edition, Chapter 5: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), page 151-152. 2: Tipping Off: What It Is and How to Avoid It, ACAMS Today, March 2019. 3: How to Handle Law Enforcement Requests, ACAMS Webinar, June 2018. 4: Best Practices for Responding to Law Enforcement Inquiries, ACAMS White Paper, October 2017.

The Basel Committee on Banking Supervision (BCBS) issued a paper in October 2001 titled Customer due diligence for banks, which outlined four essential elements of a sound Know Your Customer (KYC) programme. These elements are: customer acceptance policy, customer identification, on-going monitoring of higher risk accounts, and risk management. The paper also recommended that these standards should be applicable to all banks in all countries, regardless of their size, nature, or location. The paper stated that "KYC safeguards go beyond simple account opening and record-keeping and require banks to formulate a customer acceptance policy and a tiered customer identification programme that involves more extensive due diligence for higher risk accounts, and includes proactive account monitoring for suspicious activities."1

References:

Customer due diligence for banks by the Basel Committee on Banking Supervision, October 2001.

Consolidated KYC Risk Management by the Basel Committee on Banking Supervision, October 2004.

Editorial The Basel Committee on Banking Supervision report on customer … by Journal of Banking Regulation, 2002.

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

References:

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

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

Financial Action Task Force - Wikipedia, Typologies.

An anti-money laundering officer should coordinate with human resources when implementing a new hire screening program, because human resources is responsible for managing the recruitment, hiring, and training of employees, as well as ensuring compliance with labor laws and regulations. A new hire screening program is a key component of an effective anti-money laundering (AML) program, as it helps to prevent the hiring of individuals who may pose a risk of facilitating money laundering, terrorist financing, or other financial crimes, or who may have a criminal or disciplinary history that could compromise the integrity of the institution. A new hire screening program should include background checks, verification of credentials and references, and assessment of skills and competencies relevant to the AML function. An anti-money laundering officer should work closely with human resources to establish the criteria, procedures, and documentation for the screening program, as well as to monitor its implementation and effectiveness.

References:

ACAMS CAMS Certification Video Training Course1, Module 4: Developing an AML Program, Lesson 4.2: Developing an AML Program

ACAMS CAMS Study Guide, 6th Edition2, Chapter 4: Developing an AML Program, Section 4.2: Developing an AML Program, pp. 81-82

ACAMS CAMS Examination Preparation Seminar, 6th Edition3, Chapter 4: Developing an AML Program, Section 4.2: Developing an AML Program, Slide 20

Art and Antiquities: Conduits for Money Laundering and Terrorist Financing

Why Fight the Antiquities Trade?

More recently, groups like Daesh (Islamic State [IS]), al-Qaida, the Taliban and their affiliates have been engaged in ****cultural racketeering and terrorism in Iraq, Syria, Yemen, Afghanistan and elsewhere, converting patrimony into cash for weapons and troops****.

https://www.un.org/press/en/2015/sgsm17427.doc.htm

As Terrorists Diversify Fundraising Tactics, Greater Efforts Needed to Shut Down Illicit Channels, Secretary-General Tells Finance Ministers’ Meeting

Terrorists continue to adapt their tactics and diversify their funding sources. Today, Da’esh runs a multi-million-dollar economy in territories under its control. Da’esh terrorists raise money through the oil trade, extortion, undetected cash couriers, kidnapping for ransom, trafficking of humans and arms and racketeering. They loot and sell precious cultural property, shamelessly profiting from the destruction of humanity’s common heritage.

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.

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

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.

References:

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

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

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

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

According to the 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 finance terrorism, 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.

References: 5678910

https://egmontgroup.org/en/content/about

"The Egmont Group is a united body of 165 Financial Intelligence Units (FIUs). The Egmont Group provides a platform for the secure exchange of expertise and financial intelligence to combat money laundering and terrorist financing (ML/TF). This is especially relevant as FIUs are uniquely positioned to cooperate and support national and international efforts to counter terrorist financing and are the trusted gateway for sharing financial information domestically and internationally in accordance with global Anti Money Laundering and Counter Financing of Terrorism (AML/CFT) standards.

According to the Basel Committee on Banking Supervision’s Customer Due Diligence for Banks, the compliance function should provide an evaluation of a bank’s policies and procedures independent from its management. The compliance function is responsible for ensuring that the bank adheres to the relevant laws, regulations, and standards on customer due diligence, anti-money laundering, and combating the financing of terrorism. The compliance function should also monitor the implementation and effectiveness of the bank’s customer due diligence policies and procedures, identify and report any breaches or deficiencies, and recommend corrective actions or improvements. The compliance function should have sufficient authority, independence, resources, and access to information to perform its duties effectively.

References:

Customer due diligence for banks, Basel Committee on Banking Supervision, October 2001, paragraphs 55-56

CAMS Study Guide - 6th Edition, Chapter 6, page 172

CAMS Certification Exam Outline, Domain 3, Task 3.1, Skill 3.1.2

Anti-Money-Laundering Guidance: Basel Committee Consultative Paper …, Office of the Comptroller of the Currency, February 2001, page 2

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.

References:

ACAMS Study Guide 6th Edition, Chapter 2, page 36

Red Flags And Atypical Customer Behavior: Anti-Money Laundering Awareness

4 Red Flags of Money Laundering or Terrorist Financing

Wire transfers to high-risk jurisdictions and large cash deposits from a high-risk jurisdiction are two red flags that may indicate money laundering. These activities suggest that the customer is trying to move funds from or to a country that has weak anti-money laundering (AML) controls, or that is known to be a source or destination of illicit funds12. Wire transfers can also be used to obscure the origin or destination of the funds, or to layer transactions through multiple accounts or intermediaries3. Large cash deposits can indicate that the customer is trying to avoid the reporting or record-keeping requirements that apply to cash transactions, or that the customer is dealing with proceeds from illegal activities45. The other two options are not necessarily red flags, as the bank may have legitimate reasons to allow cash deposits, and the client may reside in a high-risk jurisdiction for legitimate reasons.

References: 1: FFIEC BSA/AML Examination Manual, Appendix F: Money Laundering and Terrorist Financing Red Flags, Geographic Concerns, 6; 2: AML Red Flags – What are the Top 10 Indicators?, ComplyAdvantage, 5; 3: FFIEC BSA/AML Examination Manual, Appendix F: Money Laundering and Terrorist Financing Red Flags, Transaction Has Unusual Features, 6; 4: FFIEC BSA/AML Examination Manual, Appendix F: Money Laundering and Terrorist Financing Red Flags, Unusual Source of Funds, 6; 5: Money Laundering Red Flags | Key Behaviours and Indicators, High Speed Training, 8.

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.

References:

1: U.K. Government, Money Laundering Regulations 2017, Part 2: Customer Due Diligence, Section 5-6 2: U.K. Government, People with significant control (PSC) register, Overview 3: ACAMS CAMS Certification Study Guide, 6th Edition, Chapter 1: Risks and Methods of Money Laundering and Terrorist Financing, Page 19

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 of money. 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.

References:

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

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

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

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

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.

A sound Customer Due Diligence Program (CDD) is a key component of an effective anti-money laundering and counter-terrorism financing (AML/CFT) framework. According to the Financial Action Task Force (FATF), the global standard-setter for AML/CFT, CDD involves the following elements1:

Identifying the customer and verifying their identity using reliable, independent sources of information or documents.

Identifying the beneficial owner and taking reasonable measures to verify their identity, so that the financial institution understands who ultimately owns or controls the customer or the funds.

Understanding and obtaining information on the purpose and intended nature of the business relationship.

Conducting ongoing due diligence on the business relationship and scrutinizing transactions to ensure that they are consistent with the financial institution’s knowledge of the customer, their business and risk profile, and the source of funds.

Therefore, the three elements of a sound CDD program that are listed in the question are:

Determination of what type of customer the financial institution will accept: This involves defining the customer acceptance policy and risk appetite of the financial institution, and applying appropriate risk-based measures to accept or reject customers based on their risk profile and the financial institution’s ability to manage and mitigate those risks2.

Training as to how and to what extent to identify prospective customers: This involves providing adequate and regular training to the staff who are responsible for conducting CDD, and ensuring that they are aware of the legal and regulatory requirements, the internal policies and procedures, the risk indicators, the verification methods, and the reporting obligations3.

Obtaining date of birth and address of a prospective customer: This is part of the basic information that is required to identify and verify the customer’s identity, and to establish their risk profile and the source of funds. The date of birth and address can also be used to check against various databases and watchlists to detect any potential matches with sanctioned or high-risk individuals or entities4.

The element that is not part of a sound CDD program is:

Determination of who in the institution should be assigned to the prospective customer as a liaison: This is not a mandatory or essential element of CDD, although it may be a good practice to assign a dedicated relationship manager or contact person to each customer, especially for high-risk or complex customers, to ensure effective communication, monitoring, and service delivery.

References:

FATF Guidance on Customer Due Diligence and Financial Inclusion 1

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

ACAMS Study Guide for the CAMS Certification Examination (6th Edition), Chapter 4: Developing an AML/CFT Program 3

ACAMS Study Guide for the CAMS Certification Examination (6th Edition), Chapter 5: Conducting and Supporting the Investigation Process 4

Wolfsberg Group Guidance on Customer Due Diligence (CDD)

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

References: =

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

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

ACAMS CAMS Certification Practice Exam, Question 145, page 2863

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

References: =

CAMS Certification Package - 6th Edition | ACAMS1

CAMS Certifications: How to Get CAMS Certified | ACAMS2

ACAMS CAMS Certification Video Training Course - Exam-Labs3

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

FATF Recommendations, Recommendation 29: Financial Intelligence Units

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

 According to the Financial Action Task Force (FATF), the global standard-setter for anti-money laundering and counter-terrorist financing, two channels that can be utilized during a cross-border money laundering investigation to assist in gathering information are contacting existing liaison officers in the foreign jurisdiction and exchanging information between national law enforcement agencies. These are two of the methods that the FATF recommends in its guidance on international cooperation1. The FATF states that liaison officers can facilitate the exchange of information and intelligence, provide operational support, and coordinate joint investigations1. The FATF also encourages the use of bilateral or multilateral agreements or arrangements to enable the exchange of information and intelligence between national law enforcement agencies, as well as the use of informal networks or mechanisms, such as the Egmont Group of Financial Intelligence Units1.

Option C is incorrect because contacting the potential suspect or their family members to request information is not a recommended channel for cross-border money laundering investigations. This method may alert the suspect of the investigation, compromise the confidentiality of the information, or violate the legal rights of the suspect or their family members. Moreover, the information obtained from the suspect or their family members may not be reliable or admissible in court.

Option D is incorrect because submitting only formal requests for information to a financial intelligence unit (FIU) is not a sufficient channel for cross-border money laundering investigations. While FIUs play an important role in collecting, analyzing, and disseminating financial information, they are not the only source of information for cross-border investigations. The FATF guidance states that investigators should also seek information from other competent authorities, such as law enforcement, supervisory, or judicial authorities, depending on the nature and purpose of the information sought1. Furthermore, the FATF guidance advises investigators to use both formal and informal channels of communication, as formal requests may take longer or face legal obstacles1.

References:

1: FATF, International Co-operation Review Group, Guidance on Investigating and Prosecuting Money Laundering and the Financing of Terrorism, October 2012, pp. 13-18.

 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.

References:

Understanding risks and taking action for money service businesses1

What Is A Money Services Business?2

Money Services Business (MSB) Information Center3

Money Services Business (MSB): Types, Examples, & AML Compliance4

 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.

References:

1: CAMS Study Guide, 6th Edition, Chapter 2: Money Laundering Risks and Methods, page 55-56.

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.

References:

USA PATRIOT Act | FinCEN.gov, Section 313

US PATRIOT ACT | State Street

it describes the word “certification” as a written representation by a respondent bank, certifying that they do not do business with shell banks. This is one of the requirements for correspondent accounts in the USA PATRIOT Act, which is a law enacted in 2001 to enhance the anti-money laundering and counter-terrorist financing (AML/CTF) measures in the United States. The USA PATRIOT Act requires that correspondent banks, which are banks that provide services to other banks, such as clearing, settlement, or cash management, to obtain a certification from their respondent banks, which are banks that receive services from correspondent banks, to ensure that they are not involved in money laundering or terrorist financing activities. One of the elements of the certification is that the respondent bank does not do business with shell banks, which are banks that have no physical presence or meaningful supervision in any jurisdiction, and are often used by money launderers and other criminals to hide their identity and funds.

The other options are not necessarily the word “certification” as a written representation by a respondent bank under the USA PATRIOT Act, although they may have some relevance or importance depending on the circumstances and the nature of the correspondent relationship. Option A describes a possible certification by a federal receiver, which is a person appointed by a court to take custody and control of the assets of a failed bank, but this is not related to the correspondent accounts requirements in the USA PATRIOT Act. Option B describes a possible certification by a respondent bank, certifying that they do not do business with politically exposed persons (PEPs), which are individuals who hold or have held prominent public positions or their close associates or family members, and who may pose a higher risk of money laundering or corruption, but this is not a mandatory element of the certification under the USA PATRIOT Act, although it may be a good practice or a risk-based measure. Option C describes a possible certification by a correspondent bank, certifying that they do not open correspondent accounts for alternative remittance companies, which are businesses that provide money transfer or payment services outside the formal banking system, and which may pose a higher risk of money laundering or terrorist financing, but this is not a requirement for the respondent bank under the USA PATRIOT Act, although it may be a regulatory obligation or a risk-based measure for the correspondent bank.

References:

ACAMS CAMS Certification Video Training Course - 6th Edition1

Exam CAMS: Certified Anti-Money Laundering Specialist (the 6th edition)2

ACAMS CAMS Study Guide - 6th Edition, Chapter 7, pages 156-157

https://www.acams.org/wp-content/uploads/2019/09/ACAMS-CAMS-Study-Guide-6th-Edition-Chapter-7.pdf

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

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.

References:

1: FATF Guidance for a Risk-Based Approach for the Banking Sector1

2: OCC Bulletin 2020-10: Customer Due Diligence and Bank Secrecy Act/Anti-Money Laundering Examination Procedures2

3: ACAMS Study Guide for the CAMS Certification Examination3

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.

References:

Customer Due Diligence - FATF-GAFI.ORG

Sound management of risks related to money laundering and financing of terrorism - Bank for International Settlements

CAMS Study Guide 6th Edition, page 36-37.

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.

References:

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

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

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.

References:

What are Financial Intelligence Units (FIUs)? | Dow Jones

Financial Intelligence Units: An Overview - IMF

Financial Intelligence Units - Egmont Group

FATF Recommendation 29 - Financial Intelligence Units (page 17)

According to the FATF Recommendation 10, financial institutions should conduct ongoing due diligence on the business relationship and scrutiny of transactions undertaken throughout the course of that relationship to ensure that the transactions being conducted are consistent with the institution’s knowledge of the customer, their business and risk profile, including, where necessary, the source of funds. This is one of the core measures of customer due diligence (CDD) that aim to prevent and detect money laundering and terrorist financing risks.

References: = The main reference for this question is the document titled “International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation - The FATF Recommendations” published by the FATF in February 2018. You can access it by clicking here. You can also find more information about the CDD measures and the risk-based approach on the FATF website, the CFATF website, the Central Bank of Ireland website, and the Medium blog.

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.

References:

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

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

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

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

 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.

References:

1: ACAMS CAMS Certification Package - 6th Edition, Chapter 6: AML Compliance Program, pp. 139-1461

2: ACAMS CAMS Certification Video Training Course, Module 6: AML Compliance Program, Lesson 6.1: The Four Pillars of an AML Compliance Program3

3: ACAMS CAMS Certification Package - 6th Edition, Chapter 4: Customer Due Diligence, pp. 87-1061

4: ACAMS CAMS Certification Video Training Course, Module 4: Customer Due Diligence, Lesson 4.1: Customer Identification Program and Lesson 4.3: Enhanced Due Diligence3

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

References:

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

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

A money laundering risk assessment is a crucial component of an effective anti-money laundering (AML) program. It involves identifying, assessing, and understanding the specific risks related to money laundering and terrorist financing that the institution may face. A risk assessment helps the institution to design and implement appropriate controls, policies, procedures, and training to mitigate the risks. A risk assessment should be updated regularly and whenever there are significant changes in the institution’s business activities, products, services, customers, or geographic locations. In this scenario, the financial institution has experienced significant deficiencies in its AML program during a recent regulatory examination. The deficiencies were primarily attributed to the lack of oversight by the institution’s leadership in implementing adequate controls over the new products and services that were added as part of the institution’s aggressive growth strategy. To correct these weaknesses in the AML program, the leadership should first address the area of international control known as “Money laundering risk assessment” (Option C). By conducting a new and comprehensive risk assessment, the leadership can identify the potential vulnerabilities and gaps in the AML program that may arise from the new products and services. The risk assessment can also help the leadership to prioritize the actions and resources needed to address the deficiencies and enhance the AML program. Once the risk assessment is completed, the leadership can then work on updating the AML policy, providing adequate training, and ensuring sufficient compliance staff to implement and monitor the controls.

References:

1, Chapter 2: Risk Assessments

2, Section 2: Anti-Money Laundering Compliance Program

3, Question 145

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

References:

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

these are the main factors that determine the inherent money laundering risk of a financial institution. The customer base, location, products and services of a financial institution affect the type, volume, and complexity of transactions that it processes, as well as the exposure to high-risk customers, jurisdictions, and activities12. A financial institution should review these factors regularly and conduct a comprehensive risk assessment to identify, measure, and mitigate its money laundering risk34.

References:

Anti Money Laundering Risk Assessment - Financial Crime Academy1

Anti-Money-Laundering (AML) Risk Approach Explained | Okta2

Anti-Money Laundering (AML) Risk Assessment | ACAMS4

2024 National Money Laundering Risk Assessment (NMLRA)5

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, customer service, 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.

References:

1: What is First Line of Defense? | Definition and Overview

2: Training and Awareness | FATF

3: Politically Exposed Persons (Recommendations 12 and 22) | FATF

: Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers | FATF

 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.

References:

1: Enterprise Wide AML, CTF, Sanctions Risk Assessment (EWRA … - Eloquens2

3: BSA/AML Risk Assessment - FFIEC BSA/AML3

2: ACAMS Study Guide for the CAMS Certification Examination2

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.

References:

CAMS Study Guide - 6th Edition, Chapter 3, Section 3.4, page 83

CAMS Dumps Certified Anti-Money Laundering Specialist (the 6th edition), Question 352, page 8

CAMS Dumps Certified Anti-Money Laundering Specialist (the 6th edition), Question 352, page 8

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.

References:

1: Guidance on Correspondent Banking Services, FATF, 2016

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

References:

THE THIRD EU DIRECTIVE ON MONEY LAUNDERING AND TERRORIST FINANCING, page 11-12

Anti-money laundering and countering the financing of terrorism legislative package, page 1

CAMS Study Guide - 6th Edition, Chapter 1, Section 1.2, page 11

V

This potential action is authorized by Section 319 of the USA PATRIOT ACT, which allows the U.S. government to seize funds from a foreign bank’s correspondent account in the U.S. if the foreign bank refuses to cooperate with a request for records relating to an investigation of money laundering or terrorist financing. The U.S. government can seize an amount equal to the funds in the account of the target of the investigation, regardless of whether those funds are actually in the correspondent account. In this case, the U.S. government can seize $1 million from Bank A’s correspondent account in the U.S. because Bank A holds $1 million in the account of the WTS, which is the target of the forfeiture action.

The other potential actions are not authorized by the USA PATRIOT ACT or other U.S. laws. The U.S. government cannot seize Bank A’s entire $5 million correspondent account in the U.S. because that would exceed the amount in the WTS’s account and would violate the principle of proportionality. The U.S. government cannot seize the WTS’s $1 million account at the non-U.S. branch of Bank A because that would require the cooperation of the foreign jurisdiction where the branch is located, which may not be forthcoming. The U.S. government cannot seize $5 million from the non-U.S. branch of Bank A where the WTS’s account is located because that would also require the cooperation of the foreign jurisdiction and would exceed the amount in the WTS’s account.

References:

CAMS Certification Package - 6th Edition | ACAMS, Chapter 3: International Standards and Global Initiatives, pp. 67-68

CAMS Certifications: How to Get CAMS Certified | ACAMS, CAMS Study Guide, pp. 54-55

How Does the Patriot Act Affect Criminal Investigations? | Nolo, Section 319: Forfeiture of Funds in United States Interbank Accounts

The USA PATRIOT Act at 20: Sneak and Peek Searches - CRS Reports, Section 319: Forfeiture of Funds in United States Interbank Accounts

According to the Anti-Money Laundering Specialist (the 6th edition) resources, the Egmont Group is an international network of FIUs that facilitates and prompts the exchange of information, knowledge, and cooperation among its members to combat money laundering, terrorist financing, and associated predicate offences1. The Egmont Group suggests that one of the core objectives that would lead to an effective national FIU is to have absolute trust amongst national and international stakeholders before sensitive information will be exchanged with confidence2. This means that the FIU should establish and maintain a high level of credibility, professionalism, and integrity in its operations, and ensure that the information it receives and disseminates is protected and used appropriately. The FIU should also comply with the Egmont Group’s principles and standards for information exchange, and foster a culture of mutual trust and cooperation with other FIUs and relevant authorities3.

The other three options are incorrect because:

The FIU must operate from physically separated premises from other law enforcement agencies and government offices is not a core objective that the Egmont Group suggests for an effective national FIU. While the FIU should have operational independence and autonomy, and be free from undue influence or interference, it does not necessarily have to be physically separated from other agencies or offices. The FIU may be located within the judicial, law enforcement, administrative, or hybrid model, depending on the country’s legal and institutional framework4.

The FIU meets the Egmont Group assessment criteria is not a core objective that the Egmont Group suggests for an effective national FIU. While meeting the Egmont Group assessment criteria is a requirement for becoming and remaining a member of the Egmont Group, it is not an objective in itself. The assessment criteria are based on the FATF recommendations and the Egmont Group’s own documents, and they serve as a benchmark for evaluating the FIU’s compliance and effectiveness5.

The FIU must be able to promote the value of the government’s commitment to embed a corruption free society within the country is not a core objective that the Egmont Group suggests for an effective national FIU. While the FIU may contribute to the prevention and detection of corruption, as well as the recovery of illicit assets, by analyzing and sharing financial intelligence, it is not the sole or primary responsibility of the FIU to promote the value of the government’s commitment to embed a corruption free society within the country. This is a broader and more complex goal that involves multiple actors and factors, such as political will, legal framework, institutional capacity, civil society, media, and international cooperation.

References:

1: ACAMS, CAMS Study Guide, 6th Edition, Chapter 3, p. 64 2: Egmont Group, Egmont Group of Financial Intelligence Units Principles for Information Exchange Between Financial Intelligence Units, June 2013, 3, p. 2 3: Egmont Group, Egmont Group of Financial Intelligence Units Principles for Information Exchange Between Financial Intelligence Units, June 2013, 3, p. 3-4 4: ACAMS, CAMS Study Guide, 6th Edition, Chapter 3, p. 67 5: Egmont Group, Egmont Group of Financial Intelligence Units Support and Compliance Process, June 2013, [6], p. 3-4 : ACAMS, CAMS Study Guide, 6th Edition, Chapter 4, p. 91-92

Sanctions screening and transaction monitoring rules are two of the most common controls that FIs use to identify suspicious money-laundering activity. Sanctions screening is the process of checking customers, transactions, and counterparties against various lists of sanctioned individuals, entities, and countries issued by national and international authorities. Sanctions screening helps FIs to avoid doing business with or facilitating the activities of those who are involved in terrorism, proliferation, human rights violations, or other criminal activities. Transaction monitoring rules are the criteria or scenarios that FIs use to detect unusual or potentially suspicious patterns of transactions or behaviors of customers or accounts. Transaction monitoring rules help FIs to identify transactions that deviate from the expected norms, such as large cash deposits, frequent wire transfers, or transactions with high-risk jurisdictions. Transaction monitoring rules also help FIs to comply with their reporting obligations, such as filing Suspicious Activity Reports (SARs) or Currency Transaction Reports (CTRs).

References: = ACAMS CAMS Certification Video Training Course, Chapter 4: Developing an Effective Anti-Money Laundering Program, Section 4.2: Customer Identification Program (CIP) and Customer Due Diligence (CDD); Money laundering and terrorist financing, Section: Anti Money Laundering (AML) regulations; The Three Stages Of Money Laundering And How Money Laundering Works, Section: How to Prevent Money Laundering.

According to the FFIEC BSA/AML Manual1, a U.S. bank should have policies, procedures, and processes to monitor and report suspicious activity associated with U.S. dollar drafts, which are bank drafts or checks denominated in U.S. dollars and made available at foreign financial institutions. These drafts are drawn on a U.S. correspondent account by a foreign financial institution and can be used to facilitate money laundering or terrorist financing. The manual states that "[t]he potential for facilitating money laundering or terrorist financing, OFAC violations, and other serious crimes increases when a U.S. bank is unable to identify and adequately understand the transactions of the ultimate users (all or most of whom are outside of the United States) of its account with a foreign correspondent."2 Therefore, the compliance officer should notify Foreign Bank A of the discovery and seek documentation supporting Foreign Bank A was collusive and a willing partner with Foreign Bank B in the activity, as this would indicate a breach of the correspondent banking agreement and a possible violation of U.S. laws and regulations. The compliance officer should also document the findings and actions taken, and escalate the matter to senior management and the board of directors as appropriate.

The other options are not the best steps for the compliance officer to take. Option A is not relevant, as the issue is not related to tax evasion, but to money laundering or terrorist financing. Option B is premature, as the compliance officer should first verify the nature and extent of the suspicious activity and the involvement of Foreign Bank A before deciding whether to terminate or restrict the correspondent relationship. Option D is not feasible, as the compliance officer does not have the authority or the means to notify other U.S. financial institutions who maintain U.S. dollar correspondent accounts for Foreign Bank A and Foreign Bank B, and this could also interfere with ongoing investigations or law enforcement actions.

References:

FFIEC BSA/AML Manual, Risks Associated with Money Laundering and Terrorist Financing, U.S. Dollar Drafts

Denting Dirty Dollar-Clearing: US Court of Appeals Upholds Money-Laundering Convictions Based on the Use of US Correspondent Banking Accounts, Freshfields Blog

AMLA Expands DOJ Grand Jury Subpoena Power Over Correspondent Bank Accounts and Foreign Banks, Money Laundering News

 According to the AML Directive of the EU, obliged entities, such as banks and other financial institutions, are required to apply enhanced vigilance in business relationships and transactions involving high-risk third countries, which are those identified by the Commission as having strategic deficiencies in their anti-money laundering and countering the financing of terrorism regimes1. The types of enhanced vigilance requirements are basically extra checks and control measures which are defined in article 18a of the Directive1. However, these requirements are not exhaustive, and obliged entities should also implement additional mitigating measures that are complementary to the enhanced customer due diligence procedures, in accordance with a risk based approach1. This means that obliged entities should assess the level of risk posed by each customer, product, service, transaction, or delivery channel, and apply appropriate measures to mitigate those risks2. The additional mitigating measures may include, for example, obtaining additional information on the customer and the beneficial owner, applying additional elements of enhanced monitoring, increasing the frequency and intensity of transaction testing, or requiring the first payment to be carried out through an account in the customer’s name with a bank subject to similar customer due diligence standards1.

References:

1: Directive (EU) 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives 2009/138/EC and 2013/36/EU (Text with EEA relevance)

2: Guidance on Risk Factors, EBA, 2021

A financial intelligence unit (FIU) is a national body or government agency that collects, analyzes, and disseminates financial information related to potential financial crimes, such as money laundering and terrorist financing. One of the core functions of an FIU is to receive disclosures filed by reporting entities, such as banks, money service businesses, casinos, and other obliged entities, that are required to report suspicious or unusual financial activity. These disclosures, also known as suspicious activity reports (SARs) or suspicious transaction reports (STRs), provide valuable intelligence for the FIU and other competent authorities to identify and investigate financial crimes and trace illicit funds. The other statements do not describe the duties of an FIU, but rather the roles of other agencies or bodies, such as the Office of Foreign Assets Control (OFAC) in the US, which administers and enforces economic and trade sanctions, or the Financial Action Task Force (FATF), which sets international standards for anti-money laundering and counter-terrorist financing (AML/CFT) supervision and regulation.

References:

ACAMS CAMS Certification Video Training Course, Module 1: Risks and Methods of Money Laundering and Terrorist Financing, Lesson 1: The Financial Intelligence Unit

The Financial Intelligence Unit: Role of the FIU and International Cooperation, Financial Crime Academy

What We Do, Financial Crimes Enforcement Network (FinCEN)

One of the key components of an effective anti-money laundering (AML) program is customer due diligence (CDD), which involves verifying the identity of the customer, understanding the nature and purpose of the customer’s relationship with the financial institution (FI), and assessing the risk of money laundering or terrorist financing that the customer poses. CDD is essential for preventing and detecting the misuse of the FI’s services by criminals, and for complying with the relevant laws and regulations.

However, CDD can be challenging for FIs that offer online services to customers, as there is a greater difficulty in matching the customer with the provided identification documentation. Unlike face-to-face interactions, online services rely on electronic or remote methods of identification and verification, such as scanned copies of documents, biometric data, digital signatures, or third-party verification services. These methods may not be as reliable or secure as physical verification, and may expose the FI to the risk of identity fraud, document forgery, or impersonation. Moreover, online services may attract customers from different jurisdictions, which may have different standards and requirements for identification and verification, and may pose different levels of risk.

Therefore, FIs that offer online services to customers should implement enhanced due diligence (EDD) measures to mitigate the risk of money laundering, such as obtaining additional information or documentation from the customer, applying more stringent verification procedures, conducting more frequent and intensive monitoring of the customer’s transactions and behavior, and restricting or limiting the types or amounts of transactions that the customer can perform online.

References:

CAMS Study Guide - 6th Edition, Chapter 3, Section 3.4, page 82

Anti-Money Laundering in a Nutshell, Chapter 4, Section 4.2, page 63

Guidance on Digital Identity, Section 2, page 8

Anti-Money Laundering, The Basics: Installment 1, Section 3.2, page 5

 An automated transaction monitoring system is a tool that analyzes transactions and customer behavior for signs of money laundering or other financial crimes, and generates alerts when suspicious or unusual activity is detected. The system relies on a set of rules and parameters that define what constitutes normal and abnormal transactions, based on the risk profile and business nature of the financial institution or business. These rules and parameters need to be periodically reviewed and updated to ensure that they are effective and compliant with the latest regulations and best practices.

One of the factors that would most likely result in a change in the monitoring system parameters is when the national Financial intelligence Unit (FIU) issues new risk indicators. The FIU is a central authority that collects, analyzes, and disseminates financial intelligence related to money laundering, terrorist financing, and other financial crimes. The FIU also provides guidance and feedback to financial institutions and businesses on how to comply with their anti-money laundering (AML) obligations and improve their transaction monitoring systems. The FIU may issue new risk indicators based on its analysis of emerging trends, typologies, and threats in the financial sector, or based on international standards and recommendations. These risk indicators are intended to help financial institutions and businesses identify and report suspicious transactions more effectively and efficiently.

Therefore, when the FIU issues new risk indicators, the financial institution or business should review its existing monitoring system parameters and adjust them accordingly to reflect the new risks and scenarios. For example, the FIU may issue new risk indicators related to the use of cryptocurrencies, virtual assets, or online platforms for money laundering or terrorist financing. In that case, the financial institution or business should update its monitoring system parameters to include new rules, thresholds, or patterns that capture these activities and generate alerts for further investigation.

References:

1: The Complete Guide to Transaction Monitoring: Everything to Know

2: AML Scenarios: Transaction Monitoring Challenges

3: Setting AML Transaction Monitoring Thresholds

4: Automated Transaction Monitoring – Considerations for System Implementation

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

The following were the key features of the Second Directive:

• It extended the scope of the First Directive beyond drug-related crimes. The definition of “criminal activity” was expanded to cover not just drug trafficking, but all serious crimes, including corruption and fraud against the financial interests of the European community.

• It explicitly brought bureaux de change and money remittance offices under AML coverage.

• It clarified that knowledge of criminal conduct can be inferred from objective factual circumstances.

The compliance officer is the person who has the day-to-day responsibility of communicating and reinforcing the established anti-money laundering (AML) compliance culture and program within the organization. The compliance officer is also responsible for overseeing the implementation, maintenance, and improvement of the AML policies, procedures, controls, and training. The compliance officer should have sufficient authority, independence, and resources to perform their duties effectively and report to senior management and the board of directors on the status and effectiveness of the AML program.

References:

1, Chapter 4: Designing and Implementing an AML Compliance Program

2, FFIEC BSA/AML Examination Manual, Compliance Program - Overview

3, FinCEN Advisory, Guidance on Promoting a Culture of Compliance

Wire stripping is the process of removing or altering the identifying information associated with a wire transfer to make it difficult to trace the origin or destination of the funds. This technique is commonly used in money laundering schemes to conceal the illicit source of funds and avoid detection by authorities or sanctions screening systems. In this case, the bank’s operations team deliberately removed the reference to the sanctioned company from the wire transfer message, thus violating the FinCEN “Travel Rule” and facilitating the evasion of sanctions.

References:

Wire Stripping in Anti Money Laundering Parlance

Wire Transfer Red Flags: Understanding Money Laundering and Fraud Risks

Wire Stripping

According to the ACAMS CAMS Study Guide, one of the most common methods of placement is to deposit cash into a bank account, either directly or through intermediaries. This allows the money launderer to introduce the illicit funds into the legitimate financial system, and to create a paper trail that can be used to justify the source of the funds. However, this method also exposes the money launderer to the risk of detection by the bank’s anti-money laundering (AML) policies and procedures, such as customer identification, transaction monitoring, and reporting of suspicious activities1.

References:

ACAMS CAMS Study Guide, 6th Edition, page 271

An enterprise-wide compliance culture is a centralized, coordinated approach to ethics and compliance program design and assessment that cuts across multiple business units within an organization1. One key aspect of promoting such a culture is that the relevant information should be shared throughout the organization, so that all employees are aware of the compliance risks, policies, procedures, and expectations, and can act accordingly2. Sharing information also facilitates collaboration, communication, and feedback among different functions and levels of the organization, and helps identify and address any gaps or issues in the compliance program3. By contrast, the other options are not conducive to an enterprise-wide compliance culture, as they either create silos, conflicts, or inefficiencies in the compliance function.

References:

1: Enterprise Compliance Risk Management Services | Deloitte US

2: Enterprise Risk Management and Risk Culture - McKinsey & Company

3: FRB: Speech, Bies–Enterprise-wide Compliance Programs–February 4, 2004

A qualified independent party/auditor is the most effective resource to evaluate the effectiveness of an anti-money laundering program. This is because an independent auditor can provide an objective and unbiased assessment of the program, identify any weaknesses or gaps, and make recommendations for improvement. An independent auditor can also verify the compliance of the program with the relevant regulations and best practices, and test the adequacy and functionality of the internal controls, customer due diligence processes, and transaction monitoring systems. An independent auditor can also help an organization prepare for regulatory examinations and audits, and avoid potential penalties or sanctions.

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

The document titled “Frequently Asked Questions Conducting Independent Reviews of Money Services Business Anti-Money Laundering Programs” published by the Financial Crimes Enforcement Network (FinCEN) in July 2010. You can access it by clicking here.

The document titled “AML Audit: How to Effectively Assess Your Compliance Program” published by Alessa in May 2023. You can access it by clicking here.

The document titled “Mutual Evaluations” published by the Financial Action Task Force (FATF). You can access it by clicking here.

Reviewing parameter settings based on the latest risk assessment should be included in the evaluation of system settings for anti-money laundering alert surveillance. This is because parameter settings determine the thresholds and criteria for generating alerts based on the risk profile of the customers, products, services, channels, and jurisdictions involved in the transactions. A risk assessment is a periodic and comprehensive analysis of the potential money laundering and terrorist financing risks faced by an organization, and it should inform the design and implementation of an effective anti-money laundering program, including the alert surveillance system. By aligning the parameter settings with the risk assessment, an organization can ensure that the system is capturing the most relevant and high-risk transactions, and reducing the number of false positives or irrelevant alerts.

References:

CAMS Study Guide 6th Edition, page 37-38.

Implementing AML Transaction Monitoring Systems: Critical Considerations, page 2-3.

3 techniques to improve AML transaction monitoring strategies, page 2.

 MLROs are responsible for implementing and enforcing an appropriate risk-based approach for their firm, ensuring compliance with the relevant laws and regulations, and reporting any suspicious activities to the authorities. If they fail to discharge their duties, they may face personal liability and civil or criminal sanctions. MLROs are not the only individuals that can be held responsible for AML program deficiencies, as other senior managers, directors, or partners may also be liable depending on their role and involvement. However, MLROs are often the primary focus of enforcement actions due to their specific responsibilities and obligations. MLROs cannot avoid liability by agreeing to a civil penalty, as this does not absolve them from their legal duties or potential criminal prosecution. Banks can also be found liable for AML program deficiencies and face fines, penalties, or other sanctions.

References:

Technical factsheet The role of the money laundering reporting officer

Consequences of not complying | AUSTRAC

Money Laundering Reporting Officer: The Role Of MLRO

FinCEN Penalizes U.S. Bank Official for Corporate Anti-Money Laundering Failures

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

References:

Basic Information on OFAC and Sanctions

OFAC Consolidated Frequently Asked Questions

Office of Foreign Assets Control — Overview

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.

References:

1: USA PATRIOT Act, Section 319(b)

2: Britannica, USA PATRIOT Act, History & Society

3: Princeton Legal Journal, FISA and the USA PATRIOT Act: Reforms and Legal Implications

Economic sanctions are penalties imposed by one or more countries against another country, group, or individual for violating international norms or threatening national interests1. The ultimate goal of economic sanctions is to protect national security by changing the behavior or policies of the target, or by weakening its capabilities or resources2. Sanctions can be used to advance various foreign policy objectives, such as counterterrorism, nonproliferation, democracy promotion, human rights protection, conflict resolution, and cybersecurity1. Sanctions can take different forms, such as travel bans, asset freezes, trade embargoes, arms restrictions, and aid reductions1. Sanctions can be applied unilaterally by one country, or multilaterally by a coalition of countries or an international organization, such as the United Nations or the European Union1.

References:

1: What Are Economic Sanctions? | Council on Foreign Relatio

2: How Economic Sanctions Work - Investopedia

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.

References:

1: CAMS Certification Package - 6th Edition | ACAMS 2: CAMS Certifications: How to Get CAMS Certified | ACAMS 3: ACAMS CAMS Certification Video Training Course - Exam-Labs 4: Exam CAMS: Certified Anti-Money Laundering Specialist (the 6th edition) 5: Bank’s Internal Investigation on Client’s Activities | CAMS Exam Prep 6: South Florida: Couple arrested for more than $2 million fraud 7: Answers to Frequently Asked Questions Regarding Suspicious Activity Reporting and Other Anti-Money Laundering Considerations

 A free-look provision is a period of time, typically 10 to 30 days, in which a new life insurance policy owner can terminate the policy and have their premium refunded1. This can help criminals to launder money by purchasing a policy with illicit funds and then cancelling it within the free-look period to receive a clean check from the insurance company2. This way, they can disguise the source and origin of their funds and avoid any penalties or charges that would otherwise apply to early termination of the policy.

References:

1: Investopedia, What Is a Free Look Period and How Does It Work?

2: FinCEN, Anti-Money Laundering Program and Suspicious Activity Reporting Requirements for Insurance Companies

 According to the Egmont Group of Financial Intelligence Units, which is a global network of FIUs that promotes information exchange and cooperation, FIUs making requests to another FIU should disclose the reason and purpose for the request, and provide feedback on how the information was used12. These actions are intended to enhance mutual trust, transparency, and accountability between FIUs, and to facilitate the effective use of financial intelligence and information for combating money laundering, terrorist financing, and other financial crimes12. FIUs making requests should also respect the confidentiality and data protection requirements of the FIU receiving the request, and avoid imposing unreasonable or unduly restrictive conditions12.

FIUs making requests should not send the same request to all FIUs, as this would be inefficient, unnecessary, and potentially harmful. FIUs should only send requests to FIUs that are relevant and competent to provide the information they need, based on the nature and scope of the case12. Sending the same request to all FIUs could overload the system, create duplication, and compromise the security and confidentiality of the information12. FIUs making requests should also make best efforts to provide complete and factual information, but this is not an action they should take when submitting a request, but rather when responding to a request from another FIU12.

References:

Egmont Group of Financial Intelligence Units Operational Guidance for FIU Activities and the Exchange of Information

Principles for Information Exchange Between Financial Intelligence Units

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 of money 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.

References:

ACAMS CAMS Certification Video Training Course1, Module 2: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), Lesson 2: Know Your Customer (KYC) and Customer Due Diligence (CDD)

ACAMS CAMS Certification Study Guide2, Chapter 2: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), Section 2.2: Know Your Customer (KYC) and Customer Due Diligence (CDD), Pages 42-44

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

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

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

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

Trade-based money laundering (TBML) is a method to finance terrorism that involves falsifying transaction-related documents, such as invoices, contracts, bills of lading, or customs declarations, to conceal the origin, destination, value, or purpose of illicit funds. TBML can be used to move money, goods, or services to or from sanctioned or high-risk jurisdictions, to evade taxes, duties, or currency controls, to launder proceeds of crime, or to support terrorist activities. TBML can involve over- or under-invoicing, over- or under-shipping, multiple-invoicing, or falsely describing goods or services. TBML can also be linked to other methods of money laundering or terrorist financing, such as bribery, black market peso exchange, or informal value transfer systems.

References:

ACAMS CAMS Certification Video Training Course, Module 2: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), Lesson 4: Trade-Based Money Laundering

Money Laundering and Terrorist Financing Related to Counterfeiting of Currency, Financial Action Task Force (FATF), page 28

Tracing terrorist finances, INTERPOL

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

References:

CAMS Study Guide, page 1731

CAMS Exam Questions and Free Practice Test, Question 2872

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.

References:

Cooperation between FIUs, Law Enforcement Authorities, and Prosecutors

AML and Financial crimes investigation

Mechanisms for interaction of law enforcement agencies in the field of counteracting and combating money laundering

Recommendation 30: Responsibilities of law enforcement and investigative authorities

Money laundering and illicit finance

According to the Egmont Group of Financial Intelligence Units, which is a network of over 160 FIUs that promotes international cooperation and information exchange, FIUs should share information with foreign FIUs spontaneously, without prior request, when they have reasonable grounds to believe that the information is relevant for the receiving FIU1. This principle is also reflected in the FATF Recommendation 40, which states that FIUs should exchange information with other FIUs, especially when this information concerns money laundering, predicate offences, or terrorist financing2. Spontaneous information sharing can enhance the effectiveness of FIUs, as it can help to identify new leads, trends, patterns, or typologies, as well as to prevent or disrupt criminal activities1.

The other options are not consistent with the best practices of FIU information sharing. For example:

In accordance with Wolfsberg guidelines, submit the information to the other FIU in written form. The Wolfsberg Group is an association of 13 global banks that issues guidance and standards on anti-money laundering and counter-terrorist financing. However, the Wolfsberg guidelines are not binding for FIUs, and they do not specify the format or channel of information exchange between FIUs3. Moreover, submitting information in written form may not be the most efficient or secure way of communication, as it may cause delays, errors, or breaches of confidentiality.

Take no action until contacted by the other FIU. This option contradicts the principle of spontaneous information sharing, as it implies that the FIU with the relevant information will wait for a formal request from the other FIU, instead of proactively sharing the information. This may result in missed opportunities, inefficiencies, or failures in detecting or preventing money laundering or terrorist financing.

Request approval from the Egmont Group prior to sharing the information with the other FIU. This option is unnecessary and impractical, as the Egmont Group does not have the authority or the capacity to approve or deny individual information requests or exchanges between FIUs. The Egmont Group provides a platform and a framework for FIU cooperation, but it does not interfere with the operational autonomy or the bilateral relations of its members4.

References:

FATF Recommendation 40: Other Forms of International Co-operation

Egmont Group of Financial Intelligence Units Principles for Information Exchange Between Financial Intelligence Units

Wolfsberg Group

Egmont Group

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.

References:

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

Shell Companies and Money Laundering

The Role of Shell Companies in Money Laundering

According to the Basel Committee on Banking Supervision (BCBS), a sound KYC program should contain four essential elements: (i) customer acceptance policy; (ii) customer identification; (iii) on-going monitoring of higher risk accounts; and (iv) risk management1. These elements correspond to the options B in the question, as customer identification involves verifying the identity and beneficial ownership of the customers, risk assessment involves determining the level of risk posed by the customers and their activities, customer screening involves checking the customers against relevant sanctions and watch lists, and monitoring involves reviewing the customers’ transactions and behavior for any anomalies or red flags.

References:

Consolidated KYC Risk Management - Bank for International Settlements

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 or cash-intensive businesses; high-risk products and services may include correspondent banking and private banking.

 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.

References: = The main reference for this question is the document titled “High-Level Principles and Objectives for FATF and FATF-style regional bodies” published by the FATF in February 2019. You can access it by clicking here. You can also find more information about the FSRBs and their roles on the FATF website and the Sygna blog.

According to the Anti-Money Laundering Specialist (the 6th edition) by ACAMS, an institution’s anti-money laundering program should be reassessed at least annually to ensure that it is current, effective, and compliant with the applicable laws and regulations. The reassessment should include a review of the institution’s risk assessment, policies and procedures, internal controls, training, and independent testing. The reassessment should also consider any changes in the institution’s products, services, customers, geographic locations, or business environment that may affect its exposure to money laundering and terrorist financing risks1.

The other options are not consistent with the best practices of maintaining an up-to-date anti-money laundering program. For example:

The program should be evaluated and updated at least every six months by the Board of Directors. While the Board of Directors has the ultimate responsibility for overseeing the institution’s anti-money laundering program, it is not required to evaluate and update the program every six months. This may be too frequent and impractical, especially for large and complex institutions. The Board of Directors should, however, approve the program and any significant changes, and ensure that senior management implements and enforces the program effectively1.

The program should be reviewed by a federal law enforcement officer for gaps in controls. While federal law enforcement agencies may conduct investigations or examinations of the institution’s anti-money laundering program, they are not responsible for reviewing the program for gaps in controls. This is the role of the institution’s internal audit function or an external independent party, who should conduct periodic testing of the program’s adequacy and effectiveness1.

The program should be sent to the institution’s government regulator on a periodic basis. While the institution’s government regulator may request or review the institution’s anti-money laundering program as part of its supervisory or enforcement activities, the institution is not obligated to send the program to the regulator on a periodic basis. The institution should, however, report any suspicious or unusual transactions or activities to the relevant authorities, such as the Financial Crimes Enforcement Network (FinCEN) or the Office of Foreign Assets Control (OFAC)1.

References:

Anti-Money Laundering Specialist (the 6th edition) by ACAMS

A fundraising organization is a type of non-profit organization that may be vulnerable to money laundering and terrorist financing risks, as they often operate in high-risk areas, deal with large amounts of cash, and have complex and opaque structures. Therefore, a fundraising organization warrants enhanced due diligence, which is a higher level of customer verification and monitoring that goes beyond the standard customer due diligence measures. Enhanced due diligence may include obtaining additional information on the source of funds, the purpose of the relationship, the beneficiaries, and the governance of the organization.

References:

ACAMS Study Guide for the CAMS Certification Examination, 6th Edition, Chapter 2: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), Section 2.2: Customer Due Diligence, p. 33-34

Anti-money laundering – a guide to customer due diligence

Customer due diligence | The Law Society

A suspicious transaction report (STR) is a document that financial institutions must file with the relevant authorities when they detect or suspect any activity that may be related to money laundering, terrorist financing, or other criminal offences. An STR should include the details of the customer, the transaction, the reason for suspicion, and any other relevant information.

One of the indicators of suspicious activity is the use of financial instruments, such as checks, money orders, or cashier’s checks, that are drawn on other institutions and deposited in amounts under the currency reporting thresholds. This may suggest that the customer is trying to avoid the detection and reporting of large cash transactions, which is a technique known as structuring or smurfing. Structuring is illegal and may indicate that the customer is laundering money from illicit sources or evading taxes.

Another indicator of suspicious activity is the use of financial instruments that are sequentially numbered, meaning that they have consecutive serial numbers. This may suggest that the customer has obtained the instruments from the same source or issuer, and that they are using them to launder money or finance illegal activities. Sequentially numbered instruments may also indicate that the customer is involved in fraud, such as check kiting or counterfeit checks.

Therefore, if a bank conducts a quarterly review on a retail customer’s account and finds that the customer has made a number of large deposits of financial instruments drawn on other institutions in amounts under the thresholds, and that the instruments were sequentially numbered, the bank will most likely file an STR. This is because this activity does not fit the customer’s historical profile, and it raises a high level of suspicion that the customer is engaged in money laundering or other criminal activities.

References:

CAMS Study Guide - 6th Edition, Chapter 4, Section 4.2, page 108

Answers to Frequently Asked Questions Regarding Suspicious Activity Reporting and Other Anti-Money Laundering Considerations, Question 5, page 7

Anti-money laundering – handling suspicious activity, Section 6.3, page 3

Tell us about suspicious activity that may be linked to money laundering, Section 3, page 1

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

References:

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

ACAMS: Certified Anti-Money Laundering Specialist | ACAMS2

Anti-Money Laundering – The Law Society of Singapore3

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

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

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

References:

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

FATF Recommendation 11, paragraph 2

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

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

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

This customer action indicates possible money laundering because it could be a sign of layering, which is the second stage of the money laundering process. Layering involves moving the illicit funds around to create distance and confusion between the source and the destination of the money. Transferring all funds to another bank on the same day of large cash deposits could be an attempt to avoid detection by the bank’s transaction monitoring system or by the authorities. It could also be a way to break the audit trail and obscure the origin of the funds.

The other customer actions are not necessarily indicative of money laundering, although they could raise some red flags depending on the context and the customer profile. Continually making weekly small cash deposits could be a sign of structuring, which is a technique to avoid reporting requirements by depositing amounts below the threshold. However, this could also be a legitimate behavior for a tutor who receives cash payments from students. Periodically initiating wire transfers to another account owned by a relative could be a sign of funneling, which is a technique to move funds between accounts that are not related to the business or personal activities of the customer. However, this could also be a legitimate behavior for a tutor who supports their family members financially. Opening a savings account and making frequent transfers from the checking account could be a sign of commingling, which is a technique to mix illicit funds with legitimate funds from a legal source. However, this could also be a legitimate behavior for a tutor who wants to save money for future expenses.

References:

CAMS Certification Package - 6th Edition | ACAMS, Chapter 2: Money Laundering Risks and Methods, pp. 35-40

CAMS Certifications: How to Get CAMS Certified | ACAMS, CAMS Study Guide, pp. 28-32

ACAMS CAMS Certification Video Training Course - Exam-Labs, Module 2: Money Laundering Risks and Methods, Video 2.2: The Three Stages of Money Laundering

Exam CAMS: Certified Anti-Money Laundering Specialist (the 6th edition), Question 311, Answer C

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

2.4 Senior Management Approval

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

Management must approve entering into new relationships.

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

Results of related audits and examinations are the most useful report for an anti-money laundering specialist to inform senior management about the status of the anti-money laundering program across the organization. This is because audits and examinations provide an independent and objective assessment of the effectiveness, efficiency, and compliance of the anti-money laundering program, as well as identify any gaps, weaknesses, or areas for improvement. Audits and examinations can also help senior management to monitor the performance of the anti-money laundering program, ensure accountability and oversight, and demonstrate commitment to regulatory expectations and best practices.

References:

Anti-Money Laundering Preparedness Survey Report 2020 - Deloitte US, page 4.

CAMS Study Guide 6th Edition, page 39.

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.

References:

ACAMS Study Guide, 6th Edition, page 184

What steps should the institution take? - Exam4Training

Suspicious Transaction Report (STR) / Suspicious Activity Report (SAR) | AML-CFT

"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.

an employee who avoids taking periodic vacations despite having accrued vacation time may be trying to conceal fraudulent or illegal activities that would be exposed in their absence. This is a common red flag for internal fraud and money laundering, as it indicates a lack of segregation of duties, internal controls, and oversight. Employees who engage in such behavior may also exhibit other signs of stress, defensiveness, or secrecy.

References:

Learn about red flags for internal fraud, section “An employee may be a higher internal fraud risk when a combination of the following red flags are present”, bullet point 1: “Unwilling to share duties or take leave.”

Money Laundering Red Flags | Key Behaviours and Indicators, section “Employee Red Flags”, bullet point 1: “Avoiding taking holidays or time off work.”

Top 10 AML Red Flags: Warning Signs and Financial Risks, section “AML Red Flags Categories”, sub-section “Employee Red Flags”, bullet point 1: “Avoiding taking vacations or sick leaves.”

"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"

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

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

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 Wolfsberg Anti-Money Laundering (AML) Principles for Correspondent Banking, one of the key aspects of establishing and maintaining a correspondent relationship is to conduct a risk-based due diligence on the respondent bank, which includes obtaining approval from at least one person other than the person sponsoring the relationship12. This is to ensure that the correspondent bank has a clear understanding of the nature, purpose, and expected activity of the relationship, as well as the respondent bank’s ownership, governance, AML policies, and customer base12.

Another aspect of the Wolfsberg AML Principles is to recognize and assess the factors that may increase the risk inherent in a correspondent relationship, such as the involvement of politically exposed persons (PEPs), the presence of downstream (nested) correspondents, the geographic location of the respondent bank and its customers, and the types of products and services offered by the respondent bank12. These factors may require enhanced due diligence, monitoring, and reporting of suspicious activities by the correspondent bank, as well as the application of appropriate risk mitigation measures12.

References:

1: Wolfsberg Correspondent Banking Principles 20221

2: Wolfsberg Anti-Money Laundering Principles for Correspondent Banking2

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.

References:

Anti-Money Laundering (AML) | FINRA.org1

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

 According to the Anti-Money Laundering Specialist (the 6th edition) resources, one of the challenges of online financial technologies is the difficulty of verifying the identity and legitimacy of the customers and counterparties. This creates opportunities for money launderers and other criminals to exploit the anonymity and speed of online transactions to move and conceal illicit funds. The other options are not directly related to the money laundering risk posed by online financial technologies.

References:

ACAMS Study Guide for the Certified Anti-Money Laundering Specialist (the 6th edition), Chapter 5: Risk-Based Approach, page 133.

ACAMS Study Guide for the Certified Anti-Money Laundering Specialist (the 6th edition), Chapter 7: Money Laundering Risks and Methods, page 203.

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.

References:

ACAMS Study Guide 6th Edition, Chapter 2, Section 2.3, page 56: “The EU’s Fifth Anti-Money Laundering Directive”.

ExamTopics, Question 456: “According to the 5th EU Money Laundering Directive, member states require entities to apply enhanced customer due diligence measures with respect to business relationships or transactions involving high-risk third country nationals. Which are included in these requirements? (Choose three.)”

The anti-money laundering officer should advise the bank that compliance should have been involved during product development to perform a risk assessment of the product. This is because stored-value cards are considered high-risk products for money laundering and terrorist financing, as they can be used to store, transfer, or access funds anonymously, across borders, or through third parties. A risk assessment would help the bank identify and mitigate the potential vulnerabilities and threats associated with the product, such as customer due diligence, transaction monitoring, record keeping, reporting, and training. A risk assessment would also help the bank comply with the regulatory requirements and expectations for offering such products, as well as the industry best practices and standards.

References:

ACAMS CAMS Certification Study Guide, 6th Edition, Chapter 5, Section 5.3.2, p. 140-1411

ACAMS CAMS Certification Exam Outline, 6th Edition, Domain 1, Task 1.1, p. 42

FATF Guidance on the Risk-Based Approach for Prepaid Cards, Mobile Payments and Internet-Based Payment Services, June 2013, p. 9-103

According to the CAMS Certification Package - 6th Edition1, one of the essential components of customer due diligence is verifying the identity of the customer using reliable and independent sources. This verification process should be done before or during the establishment of the business relationship, and should not be delayed unless there is a low risk of money laundering or terrorist financing, and the delay is necessary to avoid interrupting the normal course of business. Therefore, after customers have provided acceptable identification, the financial institution should next confirm the validity of the customer information, as option A suggests. Option B is not necessary, as an electronic picture of each customer is not a mandatory requirement for customer verification, and may not be feasible or effective in some cases. Option C is not the next step, as closely monitoring the account for 30 days is part of the ongoing due diligence process, which should be performed after the customer verification is completed and the account is established. Option D is not advisable, as establishing the account based on the information provided without verifying its validity may expose the financial institution to money laundering and terrorist financing risks, and may violate the KYC and AML regulations.

References:

1: CAMS Certification Package - 6th Edition | ACAMS, Chapter 3: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), pages 69-70.

The primary responsibility of a financial intelligence unit is to act as an intermediary between the entities subject to money laundering obligations and law enforcement agencies. Financial intelligence units are responsible for receiving and analyzing suspicious activity reports (SARs) from entities subject to money laundering obligations, and then forwarding relevant information to the appropriate law enforcement agencies. Additionally, the financial intelligence units are responsible for providing expertise to Egmont working groups to help develop new techniques to detect and prevent money laundering.

--- Wire transfers are one of the most common methods of moving funds across borders and jurisdictions, and therefore pose a high risk of violating OFAC sanctions. A bank’s OFAC sanctions screening audit program should include a test to review the wire transfer screening processes to ensure that potential name hits are investigated promptly and appropriately, and that any blocked or rejected transactions are reported to OFAC in a timely manner. This test would help the bank to assess the effectiveness of its screening system, identify any gaps or weaknesses, and demonstrate its compliance with OFAC regulations.

References:

A Framework for OFAC Compliance Commitments1, page 4, section 4: Testing and Auditing

OFAC Framework for Sanctions Compliance Programs2, page 2, section 4: Testing and Auditing

OFAC Sanctions List Search Tool3

The customer activity that poses the highest risk of money laundering is making multiple cash deposits slightly below a required reporting limit. This could indicate a practice known as structuring or smurfing, which is a method of breaking down large amounts of cash into smaller transactions to avoid detection or reporting by financial institutions12. Structuring is a common technique used by money launderers to conceal the source, ownership, or destination of illicit funds3.

The other options are not necessarily indicative of money laundering, although they may require further due diligence or monitoring depending on the customer profile and the nature of the transaction. For example:

Transferring funds to pay for flight training lessons could be a legitimate educational expense, or it could be related to terrorist financing or other criminal activities. The financial institution should verify the identity and background of the customer and the recipient, and check for any red flags or suspicious indicators4.

Paying a supplier of precious metals at regular quarterly intervals could be a normal business practice, or it could be a way of moving or storing value in an alternative asset class. The financial institution should assess the customer’s source of funds, business rationale, and market conditions, and monitor for any changes or inconsistencies.

Conducting business in a country that represents a high risk of money laundering could be a legitimate commercial opportunity, or it could be a sign of involvement in illicit activities or tax evasion. The financial institution should apply enhanced due diligence measures, such as verifying the identity and reputation of the customer and the counterparties, obtaining information on the purpose and nature of the business relationship, and screening for any sanctions or adverse media.

References:

ACAMS CAMS Certification Video Training Course - Exam-Labs3

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

ACAMS Study Guide for the Certification Examination, 6th Edition, Chapter 2, page 29: https://www.acams.org/wp-content/uploads/2019/08/ACAMS-Study-Guide-6th-Edition-Chapter-2.pdf

ACAMS Study Guide for the Certification Examination, 6th Edition, Chapter 6, page 121: https://www.acams.org/wp-content/uploads/2019/08/ACAMS-Study-Guide-6th-Edition-Chapter-6.pdf

ACAMS Study Guide for the Certification Examination, 6th Edition, Chapter 7, page 139: https://www.acams.org/wp-content/uploads/2019/08/ACAMS-Study-Guide-6th-Edition-Chapter-7.pdf

ACAMS Study Guide for the Certification Examination, 6th Edition, Chapter 4, page 77: https://www.acams.org/wp-content/uploads/2019/08/ACAMS-Study-Guide-6th-Edition-Chapter-4.pdf

Paying a large amount in cash for an art purchase is a typical red flag of potential money laundering, as it may indicate an attempt to avoid traceability and reporting requirements. Cash transactions are often used by criminals to launder illicit funds, as they are difficult to track and verify. According to the FATF guidance on money laundering and terrorist financing risks in the art trade, cash payments above a certain threshold should be subject to enhanced due diligence and reporting obligations by art market participants (AMPs). AMPs should also be wary of customers who provide insufficient or inconsistent information about the source of funds, the purpose of the transaction, or the identity of the beneficial owner.

References:

Money Laundering and Terrorist Financing Risks and Vulnerabilities Associated with Gold, FATF, July 2023, p. 22-23.

Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals, FATF, June 2023, p. 38-39.

Red Flags Money laundering and terrorist financing risks, Responsible Art Market, 2017, p. 2.

According to the Basel Committee on Banking Supervision, banks should adopt a risk-based approach to customer due diligence, which includes four essential elements1:

A customer acceptance policy that defines the types of customers that are likely to pose a higher than average risk to the bank.

A customer identification program that collects and verifies information about the customer’s identity, beneficial ownership, and purpose of the account or relationship.

An on-going monitoring of high-risk accounts to detect and report any unusual or suspicious activity, and to keep customer information up-to-date.

A risk management program that ensures that the bank’s policies and procedures are implemented effectively, and that the bank’s staff are trained and aware of their AML/CFT obligations.

Therefore, documenting a customer acceptance policy and establishing on-going monitoring of high-risk accounts are the correct choices for the essential elements that should be included in the program based on Basel’s KYC principles.

References: 1: Basel Committee on Banking Supervision, Customer due diligence for banks, October 2001, page 8.

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

References: 1: ACAMS CAMS Certification Study Guide (6th edition), page 156.

The Basel Committee on Banking Supervision’s Customer Due Diligence for Banks Paper recommends that banks should verify the bank has a physical presence in the country where it is incorporated and confirm the bank is subject to regulatory supervision with adequate anti-money laundering laws before opening a correspondent account. These steps are intended to prevent the establishment of relationships with shell banks, which are banks that have no physical presence in any country and are not affiliated with a regulated financial group. Shell banks pose a high risk of money laundering and terrorist financing, as they can be used to hide the identity and source of funds, evade regulatory oversight, and facilitate illicit transactions. Therefore, banks should conduct enhanced due diligence on correspondent banks that operate in offshore jurisdictions, where the regulatory standards and transparency may be lower or insufficient.

References:

ACAMS CAMS Certification Study Guide, 6th Edition, Chapter 4, Section 4.3.1, p. 1091

ACAMS CAMS Certification Exam Outline, 6th Edition, Domain 2, Task 2.2, p. 52

Basel Committee on Banking Supervision, Customer Due Diligence for Banks, October 2001, p. 13-143

 A financial institution should regularly update its AML risk assessment in order to ensure that the results of the assessment are accurate and reflect the current money laundering and other illicit financial activity risks that the institution may face. This helps to ensure the institution has a comprehensive understanding of the risks associated with its activities and can implement adequate controls and procedures as necessary.

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.

References:

Anti-Money Laundering Specialist (the 6th edition) resources.

ACAMS AML Glossary (definitions of terms related to AML).1

ACAMS AML Foundations Certificate (overview of AML concepts and responsibilities).2

ComplyAdvantage: 6th Money Laundering Directive (6AMLD) (details on AML regulations and penalties).3

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

 According to the Basel Committee guidelines, banks should formulate a customer acceptance policy and a tiered customer identification programme that involves more extensive due diligence for higher risk customers12. The customer acceptance policy should be approved by senior management and include clear guidelines on the types of customers that are likely to pose a higher than average risk to the bank1. Senior management should also ensure that the bank has adequate resources and systems to effectively manage the risks associated with higher risk customers1. Therefore, senior management should determine whether or not to enter business relationships with higher risk customers, based on the bank’s risk appetite, policies, and procedures.

References:

CAMS Study Guide (the 6th edition), page 1843

Customer due diligence for banks - Bank for International Settlements1

The Basel Committee: The Important Set Of International Banking Regulations2

A large cash deposit is a red flag for money laundering when it is inconsistent with the customer’s profile, behavior, or business activity. A customer who has never conducted a transaction in cash before may be trying to avoid detection or conceal the source of the funds. A customer who transacts in segments smaller than the reporting thresholds at various times during the day may be engaging in structuring or smurfing, which are techniques to evade currency transaction reporting requirements. A customer who follows a large cash deposit with an immediate wire transfer to an offshore secrecy haven may be attempting to layer or move the funds to a jurisdiction with weak anti-money laundering controls or high confidentiality. These scenarios indicate a high risk of money laundering and warrant further investigation and reporting.

A customer who operates a cash-based business may have a legitimate reason to make a large cash deposit, depending on the nature and scale of the business. However, this does not mean that the customer is exempt from scrutiny or monitoring, as cash-based businesses are also vulnerable to money laundering abuse. The bank should verify the source and purpose of the funds, and compare the deposit with the customer’s expected activity and turnover.

References:

CAMS Certification Package - 6th Edition, Chapter 4: Conducting and Supporting the Investigation Process, pp. 97-98.

Warning signs of money laundering | The Law Society, Section: Cash deposits and withdrawals.

Typical events to identify and investigate potential AML activities include: A) blocked transactions involving individuals included in the Office of Foreign Assets Control Specially Designated Nationals and Blocked Persons List; B) internal tips from employees of the bank about potential suspicious activity; and C) alerts triggered by the automated AML monitoring system [1]. Blocked transactions are those which involve individuals included on the Specially Designated Nationals and Blocked Persons List – this is a list maintained by the Office of Foreign Assets Control of individuals who are subject to economic or trade sanctions [1], or who may be involved in money laundering or terrorist activities [2]. Internal tips are those which are provided by employees of the bank who may have observed suspicious activity, or have reason to believe that certain transactions or activities may be related to potential money laundering. Alerts triggered by the automated AML monitoring system are those which are generated by the banks systems and processes which are designed to detect potential money laundering.

According to the Basel Committee on Banking Supervision guidelines, the internal audit function should 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.

References:

1: The internal audit function in banks, Principle 10, p. 9

2: The internal audit function in banks, Principle 10, p. 10

3: The internal audit function in banks, Principle 10, p. 11

: The internal audit function in banks, Principle 2, p. 4

: The internal audit function in banks, Principle 10, p. 11

An offshore company is a legal entity that is incorporated or registered in a foreign jurisdiction, usually with low or no taxes, high confidentiality, and minimal regulation1. Offshore companies are often used to hide beneficial ownership, as they can create complex and opaque structures that obscure the identity and control of the real owners and beneficiaries of the assets or transactions involved2. Offshore companies can also use nominee directors and shareholders, trust and company service providers, and shell companies to further conceal beneficial ownership3. According to the web search results, offshore companies are among the most common vehicles for money laundering, tax evasion, corruption, and other illicit activities4 .

References:

1: What is an offshore company? - ACAMS

2: Guidance on Transparency and Beneficial Ownership - FATF

3: Concealment of Beneficial Ownership - FATF-Egmont Group

4: What’s a Beneficial Owner and Why Does it Matter? - Dun & Bradstreet

: The Panama Papers: Exposing the Rogue Offshore Finance Industry - ICIJ

Wider exposure to organized crime and corruption: When individuals or communities are exposed to organized crime networks or corrupt practices, they may become more susceptible to engaging in illicit activities. Organized crime groups often exploit vulnerabilities, leading to money laundering.

Weaker development of economy and job opportunities: In regions with limited economic growth and scarce job prospects, individuals may turn to illicit activities as a means of survival. Poverty and lack of legitimate income sources can drive people toward money laundering.

References:

1. World Bank Document: “Illicit Activity and Money Laundering from an Economic Growth Perspective” 1.

2. The Social Impact Of Money Laundering 2.

3. Money Laundering: History, Regulations, and Techniques 3.

4. The IMF and the Fight Against Illicit Financial Flows 4.

5. SSRN Paper: “Illicit Activity and Money Laundering from an Economic Growth” 5.

Making payments via a company located in a jurisdiction that is known to have lax anti-money laundering controls is a sign of suspicious activity and should be reported. When making a payment of this nature, the insurance company should be aware of the client's source of funds and the possible risks associated with the transaction.

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

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.

References: = Some of the references that support this answer are:

About the Non-Cooperative Countries and Territories NCCT Initiative, Section “The review and listing process”: “The FATF established at that time four regional review groups (Americas, Asia/Pacific, Europe, Africa/Middle East) consisting of representatives from the FATF member governments that served as the main points of contact with the reviewed country or territory. … The review groups gathered relevant laws, regulations and other relevant information, analysed this information against the 25 NCCT criteria, and drafted a report that was sent to the jurisdictions for comment.”

Annual Review of Non-Cooperative Countries and Territories 2006-2007: Eighth NCCT Review, Annex 1: “List of Criteria for Defining Non-Cooperative Countries or Territories”, Criterion 1: “Licensing and creation of financial institutions, in particular those with no physical presence, and the ability to obtain information on the beneficial ownership and control of such institutions.”

FATF (Financial Action Task Force) Countries 2024 - World Population Review, Section “Blacklisted Countries”: “These are countries which were previously placed on the grey list and advised by the FATF to adopt the recommended financial security procedures, but have either failed or refused to do so. Blacklisted countries may be labeled as Non-Cooperative Countries or Territories (NCCTs).”

 The Head of Compliance is responsible for overseeing and managing the AML compliance program of the organization. When an external auditor identifies a finding that indicates a failure to comply with a regulatory requirement, the Head of Compliance should take prompt and appropriate action to address the issue and prevent recurrence. The best course of action is to submit a corrective action plan with a target timeline to the auditor and the relevant regulator, demonstrating the organization’s commitment to remediate the finding and improve its AML compliance program. The corrective action plan should include the root cause analysis of the finding, the specific actions to be taken, the responsible parties, the expected outcomes, and the deadlines for completion. The Head of Compliance should also monitor the progress of the corrective action plan and report any updates or challenges to the auditor and the regulator.

References: = Some of the references that support this answer are:

JPMorgan Chase & Co. Global Anti-Money Laundering Compliance Program, page 2: “The Firm’s Global Head of Financial Crimes Compliance is responsible for overseeing the implementation and effectiveness of the AML Program and reports to the Firm’s Chief Compliance Officer. … The Global Head of Financial Crimes Compliance is also responsible for ensuring that the Firm responds appropriately to any regulatory inquiries, examinations, or investigations relating to AML matters, and that any identified issues or deficiencies are promptly remediated.”

The Board’s Role in AML Compliance, Section “Board Oversight of AML Compliance Program”: “The board should also ensure that the institution has a process in place to identify, report and correct any compliance deficiencies or violations in a timely manner. This includes ensuring that the institution responds to any regulatory inquiries, examinations or enforcement actions, and implements any required corrective actions.”

AML Compliance Officer: the Role, Skills, and Responsibilities, Section “AML Compliance Officer Responsibilities”: “The AML Compliance Officer is also responsible for: … Reporting to the regulators and auditors on the AML compliance program and its effectiveness; … Developing and implementing corrective action plans for resolution of problematic issues, and providing general guidance on how to avoid or deal with similar situations in the future.”

According to the ACAMS CAMS Study Guide (the 6th edition), one of the key steps in conducting an effective investigation of a potential money laundering or terrorist financing activity is to gather all relevant information about the customer and the transaction, including the nature and purpose of the account, the source and destination of funds, the expected account activity, and the customer’s risk profile1. In this case, the compliance officer should meet with the staff who opened the new account for the public official to obtain this information and assess whether the account is consistent with the customer’s profile and needs, or whether it indicates a possible attempt to conceal or launder illicit funds. Waiting for the new account to receive funds, calling the competent authorities, or calling the official’s office are not appropriate actions at this stage, as they may compromise the investigation, alert the customer, or violate confidentiality rules1.

References:

ACAMS CAMS Study Guide (the 6th edition), Chapter 4: Conducting or Supporting the Investigation Process, page 1311

According to the Anti-Money Laundering Specialist (the 6th edition) study guide, one of the main challenges of providing on-line services to customers is the verification of their identity and the authentication of their transactions1. The lack of face-to-face contact and the use of electronic documents increase the risk of identity fraud, impersonation, and account takeover2. Therefore, financial institutions offering on-line services need to implement robust customer due diligence (CDD) measures, such as using multiple sources of information, verifying biometric data, and applying risk-based monitoring3.

References:

1: CAMS Study Guide, 6th Edition, Chapter 4, Section 4.1, page 103

2: CAMS Study Guide, 6th Edition, Chapter 4, Section 4.2, page 104

3: CAMS Study Guide, 6th Edition, Chapter 4, Section 4.3, page 105

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.

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

References:

ACAMS CAMS Study Guide (the 6th edition), Chapter 2: Money Laundering Risks and Methods, page 671

FATF Guidance for a Risk-Based Approach for the Life Insurance Sector, pages 18-192

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

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.

References:

Anti-Money Laundering Specialist (the 6th edition) resources.

ACAMS AML Glossary (definitions of terms related to AML).1

ACAMS AML Foundations Certificate (overview of AML concepts and responsibilities).2

ComplyAdvantage: 6th Money Laundering Directive (6AMLD) (details on AML regulations and penalties).3

AML risk assessments are a key component of the risk-based approach to AML compliance, as required by the MLR 20171 and the FATF Recommendations2. AML risk assessments help FIs to identify, assess, and mitigate the money laundering and terrorist financing risks they face, taking into account their specific products, services, customers, and geographic locations. AML risk assessments also help FIs to allocate their resources and implement their AML policies and procedures in a proportionate and effective manner. AML risk assessments are not meant to be a one-off exercise, but rather an ongoing process that should be updated regularly to reflect changes in the FI’s risk profile and the external environment.

References:

1: The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017

2: The FATF Recommendations - International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation

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

According to the ACAMS CAMS Certification Study Guide, 6th Edition, one of the four pillars of an effective anti-money laundering compliance program is the training of appropriate employees on their responsibilities and the institution’s policies and procedures. Training is essential to ensure that employees are aware of the risks of money laundering and terrorist financing, the applicable laws and regulations, the red flags and indicators of suspicious activity, and the reporting and record-keeping requirements. Without proper training, employees may not be able to perform their duties effectively and efficiently, and may expose the institution to legal, regulatory, reputational, and operational risks.

References:

ACAMS CAMS Certification Study Guide, 6th Edition, Chapter 2, Section 2.1.4, page 39.

ACAMS CAMS Certification Video Training Course, Module 2, Lesson 2.1.4.

 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 or concerns to the board without any interference or undue influence from the business functions.

References: = Some of the references that support this answer are:

ACAMS Study Guide for the CAMS Certification Examination, Chapter 2, Section 2.2.1, page 41: “The AML officer should report to a senior management level that is independent of the business line and has direct access to the board of directors or a relevant committee.”

Money Laundering Reporting Officer: The Role Of MLRO, Section “Role Of Money Laundering Reporting Officer”: “The MLRO should have independent monitoring and should be able to connect directly with people who make business decisions, such as senior management or the board of directors.”

Money Laundering Reporting Officer (MLRO)? | Dow Jones, Section “What is a Money Laundering Reporting Officer (MLRO)?”: “A Money Laundering Reporting Officer (MLRO) is tasked with overseeing a firm’s compliance with the Financial Conduct Authority’s (FCA) rules on money laundering. … The MLRO should have sufficient authority and independence within the firm to carry out their responsibilities effectively.”

This includes civil monetary penalties, criminal prosecution, and other enforcement actions. These penalties can be enforced against foreign individuals, regardless of whether the individual is located within the US or abroad. Additionally, OFAC has the authority to impose sanctions on foreign countries and foreign individuals, including individuals and entities located outside of the US.

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

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

References:

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

Main Objective of Conducting Investigations - exam-answer.com

According to the USA PATRIOT Act, US authorities do have the power to subpoena records from foreign banks that maintain correspondent accounts with US banks. This is known as a "section 314(a) request," which allows law enforcement to obtain information related to suspected terrorist financing or money laundering.

However, US authorities are not limited to seizing only funds transferred under OFAC sanctions if there is an equivalent UN sanctions regime that has been contravened. The US government can impose its own sanctions that are independent of the UN, and can seize funds or take other actions to enforce those sanctions.

Therefore, the correct answers to the question are A and C:

A. If the funds are seized, then the foreign bank would be within its rights to dispute such seizure. C. The USA PATRIOT Act authorizes the Secretary of the Treasury or the Attorney General to subpoena records from the foreign bank that maintains a correspondent account with a US bank.

A risk-based compliance program is one that identifies and prioritizes the highest compliance risks to the FI and implements controls, policies and procedures to mitigate them. A data-based option is the most suitable for a risk-based compliance program, as it allows the FI to collect, analyze and monitor relevant data on its customers, transactions, products, services, geographies and other risk factors. A data-based option also enables the FI to measure the effectiveness of its compliance program and adjust it as needed to respond to changing risks and regulatory expectations12.

References:

1: Risk-Based Approach to Compliance Management2

2: A Risk-Based Approach to Regulatory Compliance1

Under the Egmont Group Principles, information exchange among financial intelligence units (FIUs) should be conducted freely, spontaneously, and upon request, on the basis of reciprocity. This means that FIUs should be willing to share information without the expectation of reciprocity on how the information will be used. The goal is to facilitate the cooperation and exchange of information among FIUs to combat money laundering, terrorist financing, and other financial crimes.

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.

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, business activities, 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.

References: CAMS Study Guide, 6th Edition, Chapter 4, page 121.

Senior management bears the ultimate responsibility for approving a financial institution's relationship with a politically exposed person (PEP). The institution must ensure that appropriate measures are taken to manage the risks associated with a PEP, including conducting enhanced due diligence and applying appropriate mitigating measures. The relationship manager and the OKYC analyst may identify the risks associated with the PEP and recommend mitigating measures, but it is ultimately the responsibility of senior management to approve the relationship and ensure that the appropriate measures are taken. The enhanced due diligence compliance officer is responsible for ensuring that all due diligence requirements are met.

The individual responsible for setting the anti-money laundering software parameters should recommend ensuring that the alert parameters are based on risk, rather than on default software rules. This means that the software should be configured to generate alerts only when transactions or customers exhibit a high level of risk, based on factors such as the source and destination of funds, the amount and frequency of transactions, the type and purpose of the account, the customer profile and behavior, and the presence of any red flags or indicators of money laundering or terrorist financing. By aligning the alert parameters with the risk assessment of the financial institution, the software can reduce the number of false positives and focus on the most relevant and suspicious cases, thus improving the efficiency and effectiveness of the anti-money laundering staff.

References:

Setting AML Transaction Monitoring Thresholds 1, ComplyAdvantage, 2020.

Machine learning techniques for anti-money laundering (AML) analysis: a survey 2, Springer, 2018.

Anti Money Laundering (AML) Definition: Its History and How It Works 3, Investopedia, 2021.

According to the Certified Anti-Money Laundering Specialist (the 6th edition), Section 2.2.2 The EU Fourth AML Directive, the release of the EU’s Fourth AML Directive resulted in the threshold for reporting suspicious transactions decreasing from 15,000 EUR to 10,000 EUR (Answer A) and all financial institutions were required to identify and verify the beneficial owner of legal entities (Answer B). The directive also defined money laundering and terrorist financing as separate crimes, which expanded the directive's measures (Answer C). Answer D is incorrect as the scope of obliged entities was not enlarged from casinos to all providers of gambling services, but rather to all providers of payment services. Answer E is also incorrect as the directive does not provide that knowledge of criminal conduct can be inferred from objective factual circumstances. Reference: Certified Anti-Money Laundering Specialist (the 6th edition), Section 2.2.2 The EU Fourth AML Directive, p. 12.

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.

According to the ACAMS Study Guide for the CAMS Certification Exam (6th edition), page 215, one of the best practices for banks to prevent and detect mortgage fraud is to conduct internal investigations when there are red flags or suspicions of fraud involving bank employees. The investigation should include reviewing the employee’s loan files, interviewing the employee and other relevant parties, verifying the information and documents provided by the employee, and documenting the findings and actions taken. Filing a suspicious activity report (SAR) may be appropriate after the investigation is completed and the bank has reasonable grounds to suspect fraud. Filing a police report or initiating civil litigation may also be options depending on the outcome of the investigation and the bank’s policies, but they are not the first steps to take when the bank suspects an employee of mortgage fraud.

References:

ACAMS Study Guide for the CAMS Certification Exam (6th edition), page 2151

Mortgage Fraud: Understanding and Avoiding It2

Mortgage Fraud: What You Need To Know3

The Egmont Group assists financial intelligence unit members to accomplish their goals by providing support to expand and systematize cooperation related to the reciprocal exchange of information, fostering better and secure communication through the application of technology, and encouraging operational autonomy of financial intelligence units. Additionally, the Egmont Group also maintains uniform global formats for funds transfers that assist in the detection of money laundering and supplies information on the common money laundering tactics used by terrorists and financial supporters of terrorism.

The risk-based approach (RBA) is an essential foundation of the FATF Recommendations, as it allows countries, competent authorities and financial institutions to adopt a more flexible set of measures to target their resources more effectively and apply preventive measures that are commensurate to the nature of risks, in order to focus their efforts in the most effective way. The RBA is not optional, but a prerequisite for the effective implementation of the FATF Standards. The RBA requires the identification, assessment and understanding of the ML/TF risks to which the countries and FIs are exposed, and the implementation of AML/CFT measures that are proportionate and tailored to those risks. The RBA is not a “zero failure” approach, but a way to mitigate the risks in the most efficient and effective manner.

References:

FATF Recommendations, Introduction, page 11

FATF Guidance on the Risk-Based Approach to Combating Money Laundering and Terrorist Financing - High Level Principles and Procedures, page 3

Risk-based Approach (RBA), What is the Risk-based Approach (RBA)?

The board of directors or designated specialized committee should be provided with statistical data regarding SARs/STRs filed during the reported period, such as the number, type, value, and geographic distribution of the reports, as well as any trends or patterns identified. This information helps the board or committee to oversee the effectiveness of the firm’s AML program, assess the level of compliance risk, and allocate appropriate resources and training. Providing all possible details, names of customers, or copies of SARs/STRs may compromise the confidentiality of the reports, violate data protection laws, or expose the firm to legal liability.

References:

ACAMS Study Guide for the Certified Anti-Money Laundering Specialist (6th Edition), Chapter 5, Section 5.3.2, page 223.

The Role of the Money Laundering Reporting Officer - ICAEW, page 14.

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

These two options are indicative of money laundering red flags associated with money service businesses, as they may suggest attempts to avoid reporting requirements, conceal the source or destination of funds, or use false or stolen identities. Money service businesses are vulnerable to money laundering due to the high volume and anonymity of transactions, the ease of cross-border transfers, and the lack of effective regulation and supervision in some jurisdictions12. Therefore, they should implement robust anti-money laundering policies and procedures, and monitor and report any suspicious activity.

References:

ACAMS CAMS Certification Study Guide, 6th Edition, Chapter 3, page 631

ACAMS CAMS Certification Video Training Course, Module 3, Lesson 42

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

References:

1: This web page explains the BSA requirement that financial institutions provide SAR supporting documentation in response to requests by FinCEN and appropriate law enforcement or supervisory agencies, and the need to verify the requestor’s identity.

2: This document provides answers to frequently asked questions regarding SARs and other AML considerations, including the question of how to handle “keep open” requests from law enforcement.

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

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

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

 According to the Egmont Group of Financial Intelligence Units Principles for Information Exchange Between Financial Intelligence Units, one of the channels for the exchange of information between FIUs is the Egmont Secure Web (ESW), which is a secure and encrypted communication system that allows FIUs to share information and expertise1. The ESW is accessible to all members of the FIU who have been authorized by the FIU head or his/her delegate1. The other options are not correct because:

B. Information sharing is not always conducted according to processes contained in Memoranda of Understanding (MOUs). The Egmont Group encourages FIUs to exchange information regardless of the existence of an MOU1.

C. Intelligence is not shared via messaging applications. This would not be a secure or reliable way of exchanging sensitive information.

D. Investigators are not allowed to request information from a foreign FIU directly. Requests for information must be made through the FIU of the requesting country1.

References:

Egmont Group of Financial Intelligence Units Principles for Information Exchange Between Financial Intelligence Units

The Egmont Group of Financial Intelligence Units | FinCEN.gov

The Egmont Group of The Egmont Group of Financial Intelligence Units

Verified Answer: = A. Collect further customer reference data and determine what must be screened and at which frequency. and C. Deploy an independent risk-based test to ensure the screening on this customer is effective.

Comprehensive Detailed Explanation: = When an existing customer changes its business scope and jurisdictions, banks need to manage sanctions compliance risk effectively. Here are the steps they should take:

1. Collect Further Customer Reference Data: Obtain updated information about the customer’s new business activities, locations, and counterparties. Understand the nature of their transactions and assess the associated risks. Determine what specific data elements need to be screened (e.g., names, addresses, beneficial owners) and establish the appropriate screening frequency.

2. Deploy an Independent Risk-Based Test: Conduct a comprehensive risk assessment tailored to the customer’s changes. This assessment should consider factors such as the customer’s industry, geographic exposure, and transaction volume. The risk assessment helps identify high-risk areas that require enhanced scrutiny.

3. Screen Directors and Ultimate Beneficial Owners: Perform sanctions screening not only on the customer but also on their directors and ultimate beneficial owners. This ensures that any potential risks associated with these individuals are identified and mitigated.

4. Perform Politically Exposed Person (PEP) and Negative Media Screenings: Continue to screen the customer and related parties against PEP lists and negative media sources. This helps detect any adverse information related to politically exposed individuals or entities.

By following these steps, banks can proactively manage sanctions compliance risk and safeguard their institution’s reputation while adhering to regulatory requirements12.

References:

1. Protiviti: Sanctions Risk Assessment: A Key Risk Management Tool

2. Moody’s: What Businesses Need to Know About Sanctions Compliance

 According to the ACAMS CAMS Certification Study Guide, 6th Edition, one of the four pillars of an effective anti-money laundering compliance program is the training of appropriate employees on their responsibilities and the institution’s policies and procedures. Training is essential to ensure that employees are aware of the risks of money laundering and terrorist financing, the applicable laws and regulations, the red flags and indicators of suspicious activity, and the reporting and record-keeping requirements. Without proper training, employees may not be able to perform their duties effectively and efficiently, and may expose the institution to legal, regulatory, reputational, and operational risks.

The other options are less serious deficiencies, but still need to be addressed and corrected. The compliance officer should have regular meetings with upper management to inform them of the current money laundering trends and the status of the compliance program, but this is not as critical as providing training to the employees. The company’s anti-money laundering manual should be updated to reflect any changes in the internal controls, policies, or procedures, but this is not as urgent as ensuring that the employees are familiar with the existing ones. The company should download the most recent regulation from the Financial Intelligence Unit web site, but this is not as important as complying with the existing ones.

References:

ACAMS CAMS Certification Study Guide, 6th Edition, Chapter 2, Section 2.1.4, page 39.

ACAMS CAMS Certification Video Training Course, Module 2, Lesson 2.1.4.

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

References:

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

2: Mutual legal assistance treaty - Wikipedia

3: International Exchange of Information Manual - GOV.UK

4: Convention on Mutual Administrative Assistance in Tax Matters

 According to the USA PATRIOT Act, a shell bank is defined as “a bank that has no physical presence in any country” (Section 313(a)(1)). A physical presence means “a place of business that is maintained by a bank and is located at a fixed address, other than solely a post office box or an electronic address, in a country in which the bank is authorized to conduct banking activities, at which location the bank employs one or more individuals on a full-time basis and maintains operating records related to its banking activities” (Section 313(a)(2)). Therefore, option A is the correct answer, as it describes a bank that has no physical presence or employees in any country. Options B, C, and D are not correct, as they describe banks that have some form of physical presence or affiliation with another bank in a country.

References:

USA PATRIOT Act, Title III, Subtitle A, Section 313, Prohibition on United States Correspondent Accounts with Foreign Shell Banks, 1.

ACAMS Study Guide for the Certified Anti-Money Laundering Specialist (the 6th edition), Chapter 4: International Standards and Global Initiatives, page 103.

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

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

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

References:

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

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

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

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

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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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.

References:

CAMS Study Guide (the 6th edition), page 1841

Mule accounts: how to track them down - Linkurious2

Money Mules — FBI3

Correspondent banking is a service that allows banks to access financial services in different jurisdictions through intermediary banks, known as correspondent banks. Correspondent banking can facilitate cross-border transactions, foreign exchange, and other financial activities for banks and their customers. However, correspondent banking also poses various risks, such as money laundering, terrorist financing, fraud, corruption, tax evasion, and sanctions evasion. Correspondent banks may have no direct relationship with the customers of the respondent banks, making it difficult to verify their identity and monitor their transactions. Correspondent banks may also rely on the compliance programs of the respondent banks, which may not meet the standards of the correspondent banks’ jurisdictions.

One of the risk factors that increases the risk for a correspondent bank is being a major service provider to money service businesses (MSBs). MSBs are entities that provide money transmission, currency exchange, check cashing, prepaid cards, and other similar services. MSBs are often considered high-risk customers, because they may serve as conduits for illicit funds, especially if they operate in jurisdictions with weak anti-money laundering regulations or oversight. MSBs may also have a large and diverse customer base, making it challenging to conduct customer due diligence and transaction monitoring. Therefore, correspondent banks that provide services to MSBs may face higher exposure to money laundering and other financial crimes, and may need to apply enhanced due diligence and risk mitigation measures.

References:

Understanding Risk in Correspondent Banking

GUIDANCE ON CORRESPONDENT BANKING SERVICES

Correspondent Bank: Definition and How It Works

Correspondent banking – why it’s important to understand the risks

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.

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

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

References:

Concealment of Beneficial Ownership - Financial Action Task Force

What’s a Beneficial Owner and Why Does it Matter? - Dun & Bradstreet

[ACAMS Study Guide, 6th Edition, Chapter 6, pp. 171-172]

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.

References:

1: 311 Actions | U.S. Department of the Treasury

2: Press Releases - U.S. Department of the Treasury

3: Anti-Money Laundering Laws and Regulations USA 2023-2024

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.

References:

Two Reasons Physical Certificates Pose Money Laundering Risks to Broker …

CAMS Certifications: How to Get CAMS Certified | ACAMS

ACAMS Online Certificates | ACAMS