ACAMS CAMS Certified Anti-Money Laundering Specialist (the 6th edition) Exam Dumps and Practice Test Questions Set 8 Q 141- 160

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Question 141

A corporate client suddenly opens multiple subaccounts under the same main account and begins transferring large sums between them with no clear business rationale. The client explains it is for “internal bookkeeping.” What should the institution do?

A) Accept the explanation because internal bookkeeping can justify fund transfers
B) Conduct enhanced due diligence to determine if the transfers indicate layering or structuring
C) Ignore the activity because it occurs within the same corporate group
D) Immediately freeze all subaccounts

Answer: B

Explanation

A) Accepting the explanation solely because the client claims “internal bookkeeping” is insufficient. While internal bookkeeping can involve fund movement between subaccounts, legitimate bookkeeping typically aligns with transparent documentation, reconciliations, or periodic financial statements. When transfers are large, frequent, and lack supporting evidence or business rationale, it may suggest layering, a classic step in money laundering. Criminals often use multiple subaccounts to obscure the source of illicit funds, making simple verbal explanations inadequate for regulatory compliance. Relying on the client’s statement without documentation exposes the institution to financial crime risk and regulatory penalties.

B) Conducting enhanced due diligence is the correct course of action. Enhanced due diligence includes reviewing the purpose of each transfer, identifying the beneficial owner of each subaccount, reconciling transfers against documented business activity, and assessing whether the movement pattern is consistent with legitimate operations. The institution should evaluate whether amounts correlate with revenue or operational cash flows and whether transfers occur systematically to multiple jurisdictions or high-risk regions. Enhanced due diligence may also involve requesting internal financial reports, transaction summaries, and board or managerial authorization for each movement. Monitoring for structuring, layering, and attempts to evade reporting thresholds is crucial. If discrepancies remain or if documentation is insufficient, the institution should escalate the matter to compliance and consider filing a suspicious activity report. This process aligns with risk-based AML frameworks and ensures the institution fulfills regulatory obligations while protecting itself from potential abuse.

C) Ignoring the activity because it occurs within the same corporate group is not appropriate. Internal transfers, even within a single corporate entity, can be used to launder illicit funds by creating the appearance of legitimate activity. Money launderers may exploit multiple subaccounts to obscure the origin of funds, move cash internationally, or integrate proceeds into the legitimate business system. Monitoring intra-group activity is critical, particularly when transfers are large, frequent, and unsupported by documentation. Ignoring this could constitute regulatory negligence.

D) Immediately freezing all subaccounts is an extreme measure. While the activity is suspicious, a freeze without investigation may unnecessarily disrupt legitimate operations and violate corporate customer rights. Regulatory guidance typically requires a stepwise approach: enhanced due diligence, investigation, escalation, and only if unresolved, restrictive action such as freezing or account closure. The goal is to balance risk mitigation with due process.

Enhanced due diligence ensures that the institution identifies potential laundering activity while remaining compliant and responsive. It is the most appropriate and proportionate action, making B the correct choice.

Question 142

Which red flag most strongly indicates potential trade-based money laundering?

A) A customer imports goods at unusually high prices but invoices indicate lower declared values
B) A customer makes frequent ATM withdrawals in small amounts
C) A customer receives international wires from family members
D) A client maintains multiple low-balance checking accounts

Answer: A

Explanation

A) Over-invoicing or under-invoicing of goods is a primary indicator of trade-based money laundering. Criminals manipulate trade transactions to move illicit funds across borders. Over-invoicing allows excess funds to be sent abroad under the guise of legitimate trade, while under-invoicing enables accumulation of funds in the importing country without taxation. In either case, discrepancies between commercial invoices, shipping documentation, and financial flows indicate attempts to disguise the origin, ownership, or movement of funds. Trade-based money laundering often involves multiple jurisdictions, shell companies, and falsified customs documentation. Banks and institutions are expected to detect these inconsistencies during transaction monitoring, document verification, and reconciliation between declared values and market norms.

B) Frequent ATM withdrawals in small amounts suggest possible structuring or cash placement, but this is not directly related to trade-based money laundering. While it may indicate layering or smurfing, it lacks the complexity and cross-border nature that typifies trade-based schemes. Monitoring ATM activity is necessary, but it does not specifically signal trade manipulations.

C) Receiving international wires from family members is typically considered personal remittance unless patterns or amounts exceed expected norms. While suspicious activity may arise in certain contexts, personal transfers alone do not align with trade-based laundering typologies. Banks may require verification of the source of funds or documentation of relationships, but these do not constitute direct indicators of trade misrepresentation.

D) Maintaining multiple low-balance checking accounts may be used in layering or structuring schemes but does not inherently indicate trade-based money laundering. Trade-based schemes focus on movement of funds through commercial transactions, misrepresentation of goods, and exploitation of cross-border commerce. Low-balance accounts might support unrelated laundering schemes, but they are not a hallmark of trade-based activity.

The red flag that directly ties financial activity to trade misrepresentation, cross-border fund movement, and disguised commercial value is the manipulation of invoices relative to actual goods and declared prices. This makes A the correct choice.

Question 143

A high-net-worth individual establishes an offshore trust but provides minimal information about beneficiaries or source of wealth. Which is the most important step for the bank?

A) Accept the trust because offshore structures are common for estate planning
B) Conduct enhanced due diligence on the trust, beneficiaries, and source of wealth
C) Ignore the structure because the funds come from a long-standing client
D) Automatically reject the client’s offshore arrangements

Answer: B

Explanation

A) Accepting the trust solely because offshore structures are common for estate planning is risky. While legitimate trusts are used for asset protection, inheritance, and tax planning, they require transparency regarding beneficiaries, trustees, and source of wealth. Criminal actors frequently use opaque trusts in secrecy jurisdictions to conceal illicit proceeds, avoid reporting obligations, or obscure beneficial ownership. Verbal assurances without documentation do not satisfy regulatory or risk-based AML requirements.

B) Conducting enhanced due diligence is essential. The institution should verify the identities of all beneficiaries and trustees, request detailed documentation regarding the source of wealth, confirm the legal formation of the trust, review governing documents, and assess the jurisdiction’s regulatory environment. Enhanced due diligence ensures that the bank understands potential exposure to money laundering, corruption, or sanctions risk. It may involve cross-checking beneficiaries against PEP lists, sanctions databases, negative media, and tax authorities. If gaps remain or the source of wealth cannot be verified, escalation and filing a suspicious activity report may be required. This process aligns with international AML guidance and protects the institution from regulatory, financial, and reputational risks.

C) Ignoring the structure because the client is long-standing is inappropriate. Even well-known clients can establish new arrangements that introduce risk. Longevity does not eliminate the need for investigation or verification when complex structures like offshore trusts are involved. Assuming safety based on client history undermines the institution’s AML obligations.

D) Automatically rejecting offshore arrangements is excessive. Many clients have legitimate offshore structures. Rejection should only occur if the institution cannot satisfy regulatory obligations, the client refuses to provide documentation, or the arrangement poses unacceptable risk. The correct response is investigation first, rejection only if risk remains unmitigated.

Enhanced due diligence, documentation verification, and risk assessment make B the correct action.

Question 144

Which scenario is most indicative of possible sanctions evasion?

A) A client uses multiple small payments to suppliers in sanctioned-adjacent regions
B) A business pays local vendors in a single currency
C) A customer deposits personal checks from a nearby city
D) A client opens a new checking account with minimal activity

Answer: A

Explanation

A) Multiple small payments to suppliers located in regions adjacent to sanctioned jurisdictions suggest a potential attempt to circumvent restrictions. Criminals and sanctioned entities often structure payments to avoid triggering reporting thresholds, spread transactions across multiple recipients, and disguise connections to restricted regions. This activity is indicative of layering and attempts to bypass both sanctions and monitoring systems. Even when individual payments are small, cumulative patterns can reveal concerted evasion tactics. Financial institutions are required to monitor, investigate, and escalate transactions that indicate sanction circumvention. Enhanced due diligence, beneficiary verification, and pattern analysis are critical.

B) Paying local vendors in a single currency is standard operational behavior and does not inherently indicate sanctions evasion. While such transactions should be monitored for general risk, they are not linked to the typologies of evasion, particularly when vendors are domestic and not connected to sanctioned regions.

C) Depositing personal checks from a nearby city is routine banking activity. It does not reflect deliberate attempts to bypass regulatory obligations or hide connections to sanctioned parties. While cumulative deposits may be monitored for structuring, the activity itself is not a sanctions evasion indicator.

D) Opening a checking account with minimal activity does not suggest sanctions risk. Low activity does not provide sufficient evidence to indicate any evasion attempt. Sanctions evasion requires deliberate movement of funds to or through high-risk entities or jurisdictions.

The pattern of dispersed, intentional payments in regions adjacent to restricted countries aligns most closely with sanctions evasion techniques. This makes A the correct response.

Question 145

Which factor best determines whether a transaction monitoring alert should be escalated for suspicious activity review?

A) Whether the transaction amount exceeds the institution’s internal reporting threshold
B) Whether the transaction is consistent with the customer’s known profile and expected activity
C) Whether the transaction occurred on a weekend or holiday
D) Whether the customer is a new account holder

Answer: B

Explanation

A) While exceeding a reporting threshold may prompt initial review, transaction value alone does not determine whether the activity is truly suspicious. Regulatory guidance emphasizes risk-based monitoring, which considers both amount and context. High-value transactions can be legitimate, and low-value activity can be suspicious if inconsistent with normal behavior. Therefore, amount alone is insufficient to justify escalation.

B) Consistency with the customer’s known profile and expected activity is the primary determinant. Alerts should be escalated when transactions deviate materially from the established profile, including historical behavior, declared business purpose, income, account activity, and transactional patterns. Risk-based monitoring frameworks rely on profile comparison to detect unusual or potentially illicit behavior. Escalation occurs when a transaction is inconsistent with expected activity, raising suspicion about the source of funds, purpose, or underlying intent. This method reduces false positives while focusing compliance resources on genuinely risky activity.

C) Timing, such as weekends or holidays, may affect operational review but does not inherently determine suspicion. While unusual timing may be part of a pattern that could signal evasion or layering, it is not a sufficient factor in isolation to trigger escalation.

D) Being a new account holder may be a risk consideration, but by itself does not justify escalation. New clients are expected to undergo enhanced onboarding, and alerts are evaluated in the context of known profiles, expected activity, and transaction patterns. New accounts may be higher risk, but escalation requires deviations from expected behavior.

The key factor for escalation is deviation from established patterns, making B the correct answer.

Question 146

A bank observes a client making frequent international wire transfers just below the reporting threshold to multiple accounts in a high-risk jurisdiction. The client claims the transfers are “regular supplier payments.” What is the most appropriate action for the bank?

A) Accept the explanation because the transfers are related to suppliers
B) Conduct enhanced due diligence and consider filing a suspicious activity report
C) Ignore the transactions since they are below the reporting threshold
D) Immediately close the client’s account

Answer: B

Explanation

A) Accepting the explanation solely because the transfers are labeled as “supplier payments” is not appropriate. While supplier payments are a legitimate business activity, frequent transfers just below reporting thresholds, especially to high-risk jurisdictions, are a classic indicator of structuring or smurfing. Criminals often deliberately stay under regulatory reporting limits to avoid detection while moving illicit funds. Without verifying the legitimacy of the suppliers, contractual documentation, or the purpose of each transfer, the bank cannot assume the activity is legitimate. Relying on verbal explanations alone exposes the institution to regulatory risk and possible involvement in facilitating money laundering.

B) Conducting enhanced due diligence and considering a suspicious activity report is the correct course of action. Enhanced due diligence involves verifying the identity and legitimacy of all beneficiary accounts, requesting copies of contracts, invoices, or delivery records, assessing whether the amounts and frequency align with the customer’s business activity, and evaluating the risk profile of the recipient jurisdictions. The bank should also analyze transaction patterns over time, monitor for unusual structures, and check whether transfers correspond to realistic business needs. If the review indicates that the client is deliberately structuring transactions to evade reporting obligations, escalation to compliance and filing a suspicious activity report is warranted. This approach fulfills regulatory obligations, mitigates risk, and ensures the bank is proactive rather than reactive in detecting potential financial crime.

C) Ignoring transactions because they fall below the reporting threshold is unsafe. Structuring below thresholds is a common tactic in money laundering and terrorist financing. Regulatory standards emphasize monitoring all activity relative to the customer’s profile, risk, and pattern, rather than focusing solely on absolute monetary values. Ignoring these signs could result in regulatory violations and undetected illicit activity.

D) Immediately closing the client’s account is an extreme measure. Account closure may be warranted if investigations confirm suspicious activity and the risk is unmitigable, but regulatory guidance requires a measured response: first, enhanced due diligence, then escalation, and finally potential account restrictions or closure. Immediate closure without investigation could disrupt legitimate business operations and expose the bank to legal challenges.

Enhanced due diligence with potential reporting ensures a balanced and compliant response to this high-risk pattern, making B the correct choice.

Question 147

Which activity would most likely trigger a red flag for possible insider trading-related money laundering?

A) A client rapidly deposits cash into a personal account for everyday expenses
B) A client uses complex transfers between brokerage accounts immediately after corporate announcements
C) A customer receives a small inheritance and deposits it into a savings account
D) A business pays regular payroll to its employees

Answer: B

Explanation

A) Depositing cash for ordinary expenses is routine personal banking activity. It generally does not suggest involvement in insider trading or attempts to launder illicit gains. Routine deposits are monitored for structuring or unexpected patterns, but small personal transactions are not indicative of market manipulation or illegal trading profits.

B) Rapid movement of funds between brokerage accounts immediately following corporate announcements is a classic indicator of potential insider trading and related money laundering. Individuals involved in insider trading may profit from non-public information and attempt to conceal or integrate proceeds into the financial system through rapid transfers, multiple accounts, or offshore structures. Monitoring such activity allows institutions to detect unusual trading patterns that deviate from the customer’s historical behavior, verify whether gains correspond to legitimate sources, and identify possible attempts to disguise proceeds of illegal activity. Enhanced due diligence in this context includes reviewing trade execution times, comparing activity to public market events, and ensuring compliance with applicable securities regulations. Banks and financial institutions are required to assess risk in securities-related transactions, particularly where timing and frequency suggest deliberate attempts to conceal gains.

C) Receiving a small inheritance and depositing it into a savings account is a legitimate and low-risk transaction. While proper documentation may be requested, it is not inherently suspicious, nor is it indicative of market-related illicit activity. This scenario is consistent with normal personal financial behavior.

D) Paying regular payroll is standard business activity. Payroll disbursement follows predictable patterns and does not reflect manipulations associated with insider trading or laundering. Unless irregularities or deviations from established patterns occur, this activity is low-risk and does not trigger red flags for market-related crimes.

The activity most consistent with insider trading-related laundering involves strategic timing, rapid movements between accounts, and attempts to obscure the origin of trading gains, making B the correct answer.

Question 148

Which scenario demonstrates a potential use of a “layering” technique in money laundering?

A) A client deposits a single large check into their account and leaves it untouched
B) A client transfers funds multiple times between accounts in different countries within a short period
C) A customer makes a small weekly deposit consistent with their business activity
D) A business receives regular payments from known suppliers and pays employees on schedule

Answer: B

Explanation

A) Depositing a single large check and leaving it untouched does not constitute layering. Placement is typically the first stage in money laundering, where illicit funds enter the financial system. While depositing a large sum may warrant monitoring, leaving the funds idle does not involve complex transaction structures designed to obscure the origin. Layering requires multiple movements, conversions, or transfers designed to confuse the paper trail.

B) Transferring funds multiple times between accounts in different countries within a short period exemplifies layering. Layering is the stage of money laundering where criminals move funds through various accounts, jurisdictions, and financial instruments to obscure the source of the money. Frequent cross-border transfers, especially if they involve shell companies, intermediaries, or high-risk jurisdictions, complicate tracing and make detection more difficult. Institutions are required to monitor such activity, assess the legitimacy of the transfers, and request supporting documentation. Enhanced due diligence includes verifying the necessity of cross-border movements, analyzing whether transfers align with known business operations, and checking compliance with sanctions and tax regulations. Suspicious patterns may trigger escalation to compliance, filing of reports, and further investigation to determine if the activity involves laundering, fraud, or other financial crimes.

C) Making small, regular deposits consistent with known business operations does not indicate layering. Consistent activity aligned with historical patterns typically falls within normal risk thresholds. Monitoring may continue, but the activity lacks complexity or attempts to disguise the source of funds.

D) Receiving regular payments from known suppliers and paying employees on schedule is ordinary business operation. While institutions should ensure payments are legitimate, routine accounts payable and receivable do not demonstrate the intent to obscure funds. Layering requires multiple layers of transactions to create confusion, which is absent in standard payroll and supplier activity.

The pattern of multiple international transfers designed to obscure the origin of funds best demonstrates layering, making B correct.

Question 149

A client opens an account and immediately wires large sums to multiple unrelated accounts in different countries. The client refuses to provide supporting documentation. What is the most appropriate initial response?

A) Accept the client’s explanation if the account is new
B) Conduct enhanced due diligence and consider filing a suspicious activity report
C) Ignore the transfers because the client is new
D) Close the account immediately without investigation

Answer: B

Explanation

A) Accepting the client’s explanation simply because the account is new is risky. A new client making unusually large, rapid transfers with no documentation is a classic red flag. Financial institutions are required to evaluate risk immediately, especially during onboarding, to prevent facilitating illicit activity. Trusting the verbal explanation without evidence exposes the institution to compliance and legal risk.

B) Conducting enhanced due diligence and considering filing a suspicious activity report is correct. The initial step involves requesting source-of-funds documentation, verifying beneficiary accounts, assessing whether the activity aligns with known client behavior, and determining the legitimacy of the transfers. Enhanced due diligence helps uncover whether the client is attempting to launder money, evade sanctions, or transfer illicit proceeds. If the client refuses to provide information, this increases suspicion and warrants escalation. Compliance teams may file a suspicious activity report to regulatory authorities while continuing investigation. This approach balances risk management, regulatory compliance, and operational fairness.

C) Ignoring the transfers because the client is new is inappropriate. New client activity requires heightened scrutiny. Large and unusual transactions at onboarding represent a high-risk scenario and cannot be disregarded. Ignoring such activity could result in significant regulatory penalties and facilitation of financial crime.

D) Closing the account immediately without investigation is premature. While suspicious activity is evident, best practice involves investigation, escalation, and documentation. Immediate closure without due diligence may disrupt legitimate transactions and violate customer rights. Investigation first, followed by escalation and possible action, ensures compliance.

Enhanced due diligence, documentation requests, and potential reporting are the appropriate and regulatory-compliant response, making B correct.

Question 150

Which factor is most important in assessing the risk of a client involved in high-value international real estate transactions?

A) Whether the client owns multiple properties domestically
B) Whether the client’s source of funds and identity can be verified
C) The location of the bank branch handling the transaction
D) The client’s preferred method of payment

Answer: B

Explanation

A) Domestic ownership of multiple properties alone is insufficient to determine risk. While owning several properties may indicate wealth, it does not indicate illicit activity. The mere number of properties is not a direct risk factor unless it conflicts with verified income or financial capacity.

B) Verifying the source of funds and client identity is the most critical factor. High-value real estate transactions are frequently exploited for money laundering, tax evasion, or illicit fund integration. Institutions must ensure that the funds used are legitimate, traceable, and consistent with the client’s financial profile. Verification includes reviewing bank statements, corporate records if funds are channeled through entities, tax filings, and legal documentation supporting property purchase. Additionally, confirming client identity, ultimate beneficial ownership, and related parties is essential to prevent shell companies or proxies from obscuring illicit proceeds. Due diligence also evaluates whether the transaction involves high-risk jurisdictions, politically exposed persons, or offshore entities. This comprehensive assessment mitigates the risk of facilitating money laundering or other financial crime.

C) The location of the bank branch is a secondary factor. While geographic risk is part of overall assessment, the branch location alone does not provide sufficient insight into the legitimacy of the transaction. Risk is determined by client behavior, source of funds, and compliance with regulatory requirements.

D) The client’s payment method, such as wire transfer, cash, or cheque, informs monitoring practices but is not the most important factor. Payment type can help detect unusual activity but must be considered in context of verification of identity and funds source. Without credible documentation, even standard payment methods could be risky.

The ability to verify identity and source of funds directly addresses the primary risk associated with high-value international real estate, making B correct.

Question 151

A long-standing client who typically makes small retail deposits suddenly transfers a multi-million-dollar sum to an offshore company in a high-risk jurisdiction. The client claims it is “for business expansion.” What should the bank do?

A) Accept the explanation because the client has a long history with the bank
B) Conduct enhanced due diligence on the transaction and source of funds
C) Ignore the transaction since it matches the client’s declared business purpose
D) Automatically close the client’s account

Answer: B

Explanation

A) Accepting the explanation based solely on the client’s long-standing relationship is inappropriate. While a long history may suggest credibility, it does not mitigate sudden and unusually large transactions inconsistent with past behavior. Criminals sometimes exploit trust built over years to launder illicit funds. Regulatory guidance emphasizes that all transactions must be evaluated in context of expected customer activity, regardless of relationship tenure. Ignoring the unusual nature of the transfer exposes the bank to potential liability and regulatory penalties.

B) Conducting enhanced due diligence is the correct response. Enhanced due diligence involves verifying the purpose of the transaction, requesting supporting documentation such as contracts or board resolutions, and confirming the legitimacy of the offshore entity receiving funds. It also requires tracing the source of funds to ensure they are legitimate and assessing whether the transaction aligns with the client’s known profile. The bank may examine whether the offshore jurisdiction has a history of secrecy or weak AML controls. The analysis should consider transaction patterns, cross-border regulations, sanctions screening, and the risk profile of both the client and the recipient entity. If doubts persist or documentation cannot substantiate the legitimacy of the transfer, escalation to compliance for possible suspicious activity reporting is required. This process ensures the bank acts prudently, protects itself from regulatory exposure, and fulfills its obligation to detect and prevent money laundering.

C) Ignoring the transaction because it matches the client’s stated business purpose is risky. Criminals may fabricate explanations to justify unusual transfers. Without corroborating evidence, the bank cannot assume the activity is legitimate, even if the stated purpose sounds plausible. Oversight, verification, and monitoring are essential to prevent abuse of the financial system.

D) Automatically closing the account is premature. While the transaction raises red flags, immediate closure without investigation could disrupt legitimate business operations and violate customer rights. Regulatory guidance recommends investigation and escalation before taking extreme measures.

Enhanced due diligence with documentation verification, risk assessment, and possible escalation ensures compliance and protects the bank, making B correct.

Question 152

Which pattern is most consistent with the use of multiple accounts to layer illicit funds?

A) A client maintains one account and uses it for all transactions
B) A client transfers funds frequently among numerous accounts in different banks and jurisdictions
C) A client deposits small cash amounts regularly at the same branch
D) A customer receives salary payments and pays standard monthly bills

Answer: B

Explanation

A) Using a single account for all transactions is not typical of layering. Layering requires movement of funds through multiple accounts or institutions to obscure the origin and complicate audit trails. A single account does not provide the complexity necessary to distance illicit funds from their source or confuse monitoring systems. While large sums may still be suspicious, the structural pattern required for layering is absent.

B) Frequent transfers among multiple accounts in different banks and jurisdictions are a textbook example of layering. Layering is the stage of money laundering where illicit proceeds are moved through various financial channels to make tracing difficult. This activity often involves shell companies, offshore accounts, and cross-border transactions. Banks must monitor for unusual patterns, cross-reference against known business or personal activity, and assess the legitimacy of each account involved. Enhanced due diligence includes requesting explanations, documentation, and reviewing the source and destination of funds. If the pattern aligns with known typologies, escalation to compliance and potential suspicious activity reporting is warranted. This protects the bank from regulatory sanctions and ensures compliance with AML laws.

C) Depositing small cash amounts regularly at the same branch suggests placement and possibly structuring, but it lacks the multi-layered, cross-account complexity of true layering. While it may warrant monitoring, it does not fully obscure the origin of funds, and therefore is less indicative of layering.

D) Receiving salary and paying standard bills reflects normal financial behavior. This activity does not resemble laundering techniques or efforts to obscure source of funds. Monitoring may continue as part of routine oversight, but it does not trigger immediate suspicion of layering.

Thus, the movement of funds across multiple accounts and jurisdictions for the purpose of obscuring the origin of money clearly indicates layering, making B correct.

Question 153

A client frequently wires small amounts to multiple unrelated accounts in a country subject to sanctions. Which factor most clearly increases the risk of sanctions evasion?

A) The transactions are below the reporting threshold
B) The recipient accounts are in high-risk jurisdictions
C) The client provides documentation for each transaction
D) The client has held an account at the bank for many years

Answer: B

Explanation

A) Transactions below the reporting threshold do increase monitoring requirements, but by themselves, they do not directly indicate sanctions evasion. Structuring below thresholds is suspicious, but risk assessment must also consider location, recipient, and transaction purpose. Low-value transfers alone are insufficient evidence of evasive activity.

B) Sending funds to accounts in high-risk jurisdictions significantly increases the risk of sanctions evasion. High-risk jurisdictions are often identified due to weak AML controls, political instability, or regulatory deficiencies. Combining small structured transactions with recipients in sanctioned or adjacent regions is a common tactic to avoid detection while still moving illicit funds. Banks must verify the identity of recipients, monitor patterns of transfers, perform enhanced due diligence, and, where appropriate, escalate to compliance or file a suspicious activity report. The location of the recipient is critical because it directly affects whether the transaction potentially violates international sanctions or exposes the bank to regulatory penalties.

C) Providing documentation for each transaction may reduce risk if the documentation is credible and verifiable. However, in high-risk jurisdictions, documents can be falsified or insufficient. The key risk factor is where the funds are being sent rather than whether the client submits documents.

D) Longevity of the client does not mitigate the inherent risk of transferring funds to high-risk or sanctioned regions. Even long-standing clients may engage in activities that raise compliance concerns, and past behavior does not exempt them from ongoing monitoring.

The combination of multiple small transfers and high-risk destinations is the clearest indicator of potential sanctions evasion, making B correct.

Question 154

Which situation is most indicative of trade-based money laundering?

A) An importer over-invoices goods to move excess funds abroad
B) A customer deposits monthly utility bill payments
C) A client maintains multiple low-value checking accounts for payroll
D) A small business pays for office supplies locally

Answer: A

Explanation

A) Over-invoicing of goods is a primary method of trade-based money laundering. Criminals use trade transactions to disguise illicit funds by inflating invoices for exports or imports, transferring excess funds across borders under the guise of legitimate commercial activity. This method allows for layering of illicit proceeds, concealment of ownership, and movement across multiple jurisdictions without raising suspicion. Monitoring requires verification of trade documentation, comparison to market norms, and evaluation of cross-border flows. Banks are expected to review shipping documents, contracts, customs declarations, and invoices to ensure consistency and legitimacy. Discrepancies are a red flag that triggers enhanced due diligence, potential reporting, and regulatory review.

B) Depositing monthly utility payments is routine and low risk. Utility payments do not provide an avenue for layering or concealing illicit funds, nor are they cross-border transactions. This activity is part of normal customer behavior and is not indicative of trade-based laundering.

C) Multiple low-value checking accounts for payroll are common operational tools for businesses. While they may require monitoring for structuring, they are not inherently indicative of trade-based laundering. Payroll accounts reflect employee disbursement, not movement of illicit funds through trade mechanisms.

D) Paying for office supplies locally is routine business activity. It lacks cross-border movement, misrepresentation of value, or complexity associated with trade-based laundering.

Manipulation of trade transactions through over- or under-invoicing is the defining trait of trade-based money laundering, making A correct.

Question 155

A client begins transferring funds to a newly established charity in a region known for terrorist activity. The client provides no documentation for donations. What is the most appropriate response?

A) Accept the explanation since charitable donations are common
B) Conduct enhanced due diligence on the charity and recipients
C) Ignore the activity because the amounts are small
D) Immediately close the account

Answer: B

Explanation

A) Accepting the explanation solely because donations are common is inappropriate. While charitable giving is legitimate, funds transferred to high-risk regions without documentation are suspicious. Terrorist financing often involves the use of informal charities, front organizations, or intermediaries to channel funds for illicit purposes. Banks cannot rely on verbal assurances alone.

B) Conducting enhanced due diligence is correct. This involves verifying the legitimacy of the charity, identifying all recipients, and confirming that the organization is registered, compliant with local laws, and not associated with terrorist networks. Institutions may also check sanctions lists, PEP databases, and negative media for indications of risk. Requests for documentation of donation purposes, receipts, and organizational governance help establish legitimacy. If documentation cannot be provided or risk persists, the bank should escalate to compliance for potential suspicious activity reporting. Enhanced due diligence is necessary to protect the institution from legal and reputational risk, comply with AML and counter-terrorist financing regulations, and ensure that funds are not misused for illicit purposes.

C) Ignoring the activity because donations are small is unsafe. Terrorist financing often involves small, repeated transactions designed to avoid detection. Even modest amounts warrant attention when the recipient is in a high-risk region and documentation is absent.

D) Immediately closing the account is extreme. Investigation and escalation are required first. Account closure may follow if risks cannot be mitigated, but a proactive due diligence approach ensures compliance and reduces disruption to legitimate activity.

Enhanced due diligence and thorough investigation make B correct.

Question 156

A client frequently deposits cash just below the reporting threshold and then immediately wires the funds internationally to multiple accounts in different countries. What is the most appropriate action for the bank?

A) Accept the activity because it stays below reporting thresholds
B) Conduct enhanced due diligence and consider filing a suspicious activity report
C) Ignore the transfers since they involve small amounts
D) Automatically close the client’s account

Answer: B

Explanation

A) Accepting the activity because it stays below reporting thresholds is not appropriate. Structuring cash deposits to remain under reporting thresholds is a common method to evade regulatory scrutiny. While individual transactions may appear legitimate, the pattern suggests deliberate efforts to avoid detection, which is precisely the type of behavior banks are required to monitor. Regulatory guidance emphasizes the need to examine transactional patterns, not just individual amounts, to identify potential money laundering. Accepting this activity without investigation exposes the bank to potential violations of anti-money laundering regulations and could facilitate illicit activity.

B) Conducting enhanced due diligence and considering filing a suspicious activity report is the correct course of action. Enhanced due diligence involves reviewing the customer’s historical transaction patterns, verifying the source of funds, assessing whether transfers are consistent with the client’s profile, and examining the legitimacy of the recipient accounts and jurisdictions. The bank should evaluate whether the transfers serve a legitimate business purpose or whether they may be attempts to layer illicit funds. If the investigation raises suspicion that the client is deliberately structuring transactions to evade reporting or move illicit funds, the matter should be escalated to compliance for possible suspicious activity reporting. This approach ensures regulatory compliance, mitigates risk, and aligns with the principles of a risk-based anti-money laundering framework.

C) Ignoring transfers because they involve small amounts is risky. Criminals often use low-value transactions to avoid detection, making cumulative activity suspicious. Regulatory frameworks focus on unusual patterns and risk indicators, not just the individual size of transactions. Ignoring these transfers would undermine the bank’s monitoring program and expose it to regulatory and reputational risk.

D) Automatically closing the client’s account is an extreme response. While the activity is suspicious, regulatory guidance recommends investigating and escalating before taking any restrictive action. Immediate closure could disrupt legitimate business activity and potentially violate customer rights. A measured approach that balances risk mitigation and due diligence is essential.

Enhanced due diligence and careful investigation ensure that the bank addresses potential money laundering while remaining compliant with regulatory requirements, making B the correct answer.

Question 157

Which scenario most strongly suggests potential terrorist financing activity?

A) A client regularly donates small sums to a newly established charity in a high-risk region without providing documentation
B) A business pays routine salaries and bills in its local country
C) A customer deposits personal checks from relatives in another city
D) A client makes a monthly mortgage payment on a residential property

Answer: A

Explanation

A) Regular donations to a newly established charity in a high-risk region without documentation is a strong indicator of potential terrorist financing. Terrorist financing often involves small, repeated donations that appear legitimate but are intended to fund illicit activities. New or poorly regulated charitable organizations may act as front organizations for terrorist groups, allowing funds to be funneled without raising suspicion. Enhanced due diligence in this context includes verifying the legitimacy of the charity, identifying all beneficiaries, reviewing registration and governance documents, checking sanctions and PEP lists, and monitoring for patterns of repeated donations. If the activity cannot be substantiated, escalation to compliance and filing a suspicious activity report is warranted. Monitoring and verifying charitable donations are critical components of anti-terrorist financing programs.

B) Paying routine salaries and bills in the local country is typical business activity. While it should be included in routine monitoring, it does not indicate terrorist financing. Payroll and operational payments generally do not involve high-risk jurisdictions or suspicious structures.

C) Depositing personal checks from relatives is common banking activity. While institutions may review cross-border remittances, typical personal deposits are low-risk and do not suggest terrorist financing. Only patterns that deviate from normal behavior or involve high-risk recipients warrant enhanced scrutiny.

D) Monthly mortgage payments are normal personal financial behavior. There is no indication that these payments are linked to financing illicit activities. Such transactions are low-risk and are not considered indicators of terrorist financing.

The scenario that directly aligns with common terrorist financing methods—small, repeated, undocumented donations to high-risk or new organizations—is A, making it correct.

Question 158

A client frequently receives international wires from unrelated individuals, which are then quickly transferred to multiple accounts in high-risk jurisdictions. Which red flag is most relevant here?

A) Layering and potential structuring of funds
B) Routine banking activity consistent with personal income
C) Payments for everyday household expenses
D) Small domestic transfers within the client’s city

Answer: A

Explanation

A) Receiving international wires from unrelated individuals and quickly transferring them to high-risk jurisdictions is a classic red flag for layering and potential structuring. Layering is the stage in money laundering where funds are moved across accounts and jurisdictions to obscure their origin. Quick transfers to multiple accounts in high-risk regions suggest the client may be attempting to conceal illicit proceeds or facilitate criminal activity. Financial institutions should conduct enhanced due diligence, verifying the identity of senders and recipients, reviewing supporting documentation, assessing the legitimacy of transactions, and monitoring for patterns consistent with known money laundering typologies. If suspicion persists, escalation to compliance and filing a suspicious activity report is appropriate. Recognizing layering patterns is critical to preventing the integration of illicit funds into the financial system.

B) Routine banking activity consistent with personal income does not explain rapid, multiple international transfers to high-risk jurisdictions. Normal income patterns typically involve predictable sources and uses, not rapid dispersals designed to obscure the origin of funds.

C) Payments for everyday household expenses would generally be local and predictable, not involving multiple high-risk jurisdictions. While these activities are monitored, they do not match the red flags associated with money laundering and layering.

D) Small domestic transfers within the client’s city are low-risk and do not demonstrate the cross-border complexity, layering, or structuring seen in illicit activity. Such transfers are routine and unlikely to trigger suspicion in the absence of other indicators.

The key red flag in this scenario is the combination of international origin, rapid dispersal, and high-risk jurisdictions, which corresponds to layering and structuring, making A correct.

Question 159

A corporate client opens multiple accounts for subsidiaries and immediately transfers large sums between them without clear business justification. Which is the most appropriate action for the bank?

A) Accept the activity as part of routine internal cash management
B) Conduct enhanced due diligence and verify the purpose of each transfer
C) Ignore the activity because the accounts belong to the same corporate group
D) Close all accounts immediately without investigation

Answer: B

Explanation

A) Accepting the activity as routine internal cash management is insufficient. While corporations may legitimately move funds between subsidiaries, sudden large transfers without supporting documentation may indicate layering, structuring, or misuse of funds. Banks cannot rely solely on the corporate relationship without verification. Enhanced scrutiny is necessary to assess whether the transactions align with normal business activity and regulatory compliance requirements.

B) Conducting enhanced due diligence and verifying the purpose of each transfer is correct. The bank should request documentation such as internal authorizations, board resolutions, invoices, or contracts that justify the transfers. The bank must evaluate whether the funds’ movement is consistent with the client’s stated business activities, assess whether the transfers involve high-risk jurisdictions or parties, and analyze transactional patterns. If inconsistencies or unexplained transfers persist, escalation to compliance and potential suspicious activity reporting is required. This approach ensures regulatory compliance, protects the bank from financial and reputational risk, and maintains accountability in corporate financial activity.

C) Ignoring the activity because the accounts belong to the same corporate group is inappropriate. Even intra-group transfers can be used to obscure illicit funds. Layering can occur internally, and oversight is critical to detect unusual patterns. Dismissing activity solely based on corporate affiliation undermines anti-money laundering efforts.

D) Closing all accounts immediately without investigation is excessive. Regulatory guidance emphasizes investigation, documentation, and escalation before account closure. Immediate closure may disrupt legitimate corporate operations and create unnecessary operational risk.

Enhanced due diligence, documentation review, and risk assessment provide the appropriate balance of investigation and compliance, making B correct.

Question 160

Which factor is most critical in assessing the money laundering risk of a politically exposed person (PEP) client?

A) The client’s occupation and family connections
B) The client’s favorite banking products
C) The client’s recent domestic spending habits
D) The client’s preferred branch location

Answer: A

Explanation

A) The client’s occupation and family connections are central to assessing money laundering risk for a PEP. PEPs hold prominent public positions, and family members or close associates may have access to public funds or influence over financial flows. This increases the risk of bribery, corruption, and illicit enrichment. Banks must implement enhanced due diligence for PEPs, including verifying source of wealth, monitoring account activity, reviewing related parties, and assessing geographic and political risk. Understanding family connections is also critical because funds may flow through relatives or close associates to obscure beneficial ownership. Failure to account for PEP status can expose the institution to regulatory penalties, reputational damage, and inadvertent facilitation of corruption.

B) The client’s favorite banking products is a minor consideration. Product preference does not inherently indicate risk, though certain products may require additional monitoring due to their complexity or liquidity.

C) Recent domestic spending habits are less relevant to PEP risk unless spending patterns suggest unusual accumulation or use of public funds. While monitoring is necessary, occupation and connections are far more critical.

D) Preferred branch location is not central to risk assessment. PEPs may conduct business at multiple branches or online, and location alone does not indicate laundering risk.

Occupation and family connections are key risk indicators for PEPs, making A the correct answer.