ACAMS CAMS Certified Anti-Money Laundering Specialist (the 6th edition) Exam Dumps and Practice Test Questions Set 2  Q 21- 40

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Question 21

Which of the following BEST demonstrates the placement stage of money laundering?

A) Purchasing real estate using previously laundered funds

B) Structuring multiple small cash deposits into a bank account

C) Moving funds through several shell companies to obscure origin

D) Using corporate profits to purchase luxury goods

Answer: B) Structuring multiple small cash deposits into a bank account

Explanation

A) Purchasing real estate using previously laundered funds is indicative of the integration stage, not placement. Integration occurs when laundered funds are reintroduced into the legitimate economy to make them appear lawful. Real estate purchases, high-value assets, and investments are classic examples of integration because they provide a legitimate front for illicit proceeds. While the transaction may seem suspicious if linked to prior laundering, it is not part of the initial placement of illicit funds into the financial system.

B) Structuring multiple small cash deposits into a bank account is correct. The placement stage involves introducing illicit funds into the financial system. Criminals often use structuring, also called “smurfing,” to deposit large sums of cash in amounts below regulatory reporting thresholds to avoid triggering currency transaction reports (CTRs). This technique allows the placement of illicit funds without drawing attention from authorities. Placement is the first critical stage of the money laundering cycle, setting the stage for layering and integration. Without successful placement, subsequent laundering stages cannot proceed. Financial institutions mitigate placement risk through rigorous transaction monitoring, customer identification, suspicious activity reporting, and robust internal controls. Identifying patterns of structured deposits, particularly when inconsistent with a customer’s profile, is essential to detect potential laundering activity. AML programs include training employees to recognize such behaviors and implement escalation procedures when unusual activity is detected.

C) Moving funds through several shell companies to obscure origin relates to the layering stage. Layering occurs after placement and focuses on creating distance between the illicit funds and their criminal source. By transferring funds through multiple accounts, jurisdictions, and corporate entities, launderers make tracing difficult. While shell companies are an effective tool for layering, they do not represent the placement stage, as the funds have already entered the financial system. Layering’s objective is concealment and complexity, rather than initial introduction into financial channels.

D) Using corporate profits to purchase luxury goods occurs during the integration stage. Once funds are layered and their origin is obscured, integration converts them into legitimate wealth. Purchasing high-value items provides an outward appearance of legitimate income or profits. While monitoring luxury purchases may indicate potential laundering, this activity is distinct from placement because the funds have already passed through the financial system and potentially through multiple layering mechanisms.

The reasoning for selecting structured cash deposits as the placement stage emphasizes the critical first step in money laundering: getting illicit proceeds into the financial system. Without placement, layering and integration cannot occur. Financial institutions are required to implement policies to detect structured deposits, monitor cash-intensive accounts, and understand customer profiles to distinguish legitimate cash activity from potential laundering. Regulatory frameworks, such as the Bank Secrecy Act and FATF Recommendations, define placement as the phase where funds enter banking and financial channels, and they mandate monitoring for suspicious activity. Effective detection requires attention to transaction patterns, awareness of high-risk products or jurisdictions, and escalation protocols to ensure that potentially illicit activity is investigated and reported. Properly identifying placement activities allows institutions to prevent the subsequent stages of layering and integration from being successfully executed, reducing exposure to financial crime.

Question 22

Which of the following is MOST associated with structuring as a money laundering technique?

A) Transferring funds through multiple shell companies

B) Depositing cash amounts just below the regulatory reporting threshold

C) Purchasing real estate with laundered funds

D) Over- or under-invoicing in international trade

Answer: B) Depositing cash amounts just below the regulatory reporting threshold

Explanation

A) Transferring funds through multiple shell companies is associated with the layering stage of money laundering. Layering involves creating complexity and distance between illicit funds and their source to make detection difficult. Using multiple corporate structures is a sophisticated layering technique that aims to obscure ownership and the origin of funds. While critical to laundering, this activity is not structuring because it occurs after funds have already been placed into the financial system.

B) Depositing cash amounts just below the regulatory reporting threshold is correct. Structuring, also called smurfing, is a common placement technique designed to evade reporting requirements, such as the Currency Transaction Report (CTR) threshold in the U.S., which typically triggers at $10,000. Criminals deliberately make multiple small deposits that cumulatively exceed the threshold but individually remain under the reporting level. Structuring is illegal because it is designed to circumvent AML regulations and conceal illicit activity. Financial institutions detect structuring through transaction monitoring systems, identifying patterns of repetitive cash deposits, inconsistent with the customer’s profile, or unusual timing. Employees are trained to escalate these transactions for further investigation and potential SAR filing. Structuring is considered a red flag for money laundering because it demonstrates intent to avoid regulatory scrutiny.

C) Purchasing real estate with laundered funds is part of the integration stage, not structuring. Integration involves converting previously layered or laundered funds into legitimate assets, providing criminals with usable wealth without detection. Real estate, luxury goods, or high-value investments are examples of integration mechanisms. While real estate can be involved in laundering, it does not constitute structuring as a placement tactic.

D) Over- or under-invoicing in international trade is associated with trade-based money laundering (TBML). TBML manipulates trade documentation to move illicit funds across borders while disguising their origin or value. This technique is sophisticated and generally part of layering and integration strategies rather than structuring, which specifically involves depositing cash amounts to evade reporting.

The reasoning for selecting deposits just below reporting thresholds highlights the mechanics of structuring as a laundering tactic. Structuring directly targets regulatory reporting requirements, aiming to avoid triggering alerts or SAR obligations. It is often combined with other placement tactics, such as using multiple branches, multiple institutions, or third-party intermediaries, to further obscure activity. Detection relies on pattern recognition, transaction monitoring software, and understanding normal customer behavior. Financial institutions are required to escalate suspicious activity to the compliance team for investigation and SAR filing when structuring is suspected. Regulatory guidance emphasizes structuring as a high-risk red flag for money laundering, requiring proactive detection and reporting. Proper identification of structuring protects institutions from regulatory penalties, reputational damage, and complicity in financial crime.

 

Question 23

Which of the following practices is MOST critical for mitigating money laundering risk in trade finance?

A) Accepting all trade documents without verification

B) Conducting thorough due diligence on all trade participants and verifying trade documentation

C) Focusing only on domestic shipments

D) Ignoring discrepancies in invoices if the amounts are small

Answer: B) Conducting thorough due diligence on all trade participants and verifying trade documentation

Explanation

A) Accepting all trade documents without verification is extremely risky and incorrect. Trade-based money laundering (TBML) relies on misrepresenting trade documents to disguise the movement of illicit funds. Accepting documentation at face value exposes the institution to laundering schemes and regulatory violations. Proper AML controls require verification of invoices, bills of lading, letters of credit, and other trade documents to confirm legitimacy, value, and accuracy. Failure to verify documentation allows criminals to exploit the financial system.

B) Conducting thorough due diligence on all trade participants and verifying trade documentation is correct. Effective trade finance AML controls involve understanding the parties involved, the ownership structure, the source of funds, and the legitimacy of the trade transaction. Verification includes confirming the physical existence of goods, validating the accuracy of invoices, comparing declared values to market norms, and ensuring consistency between shipment documents and payment flows. High-risk trade patterns, such as over-invoicing, under-invoicing, multiple intermediaries, or unusual routing, must be scrutinized. Regulators emphasize a risk-based approach in trade finance, focusing resources on transactions with higher exposure to laundering or terrorist financing. Proper due diligence mitigates risks by identifying potential TBML before funds are transferred, reducing exposure to illicit financial activity. Trade finance departments often integrate specialized technology, enhanced monitoring, and manual reviews to detect suspicious patterns.

C) Focusing only on domestic shipments is insufficient. TBML primarily exploits international trade and cross-border flows. Ignoring international shipments exposes the institution to high-risk jurisdictions, complex ownership structures, and potentially fraudulent documentation. Comprehensive AML programs include domestic and international transaction monitoring to capture a wide spectrum of potential risks.

D) Ignoring discrepancies in invoices, even if amounts are small, is incorrect. Even minor inconsistencies may indicate intentional manipulation for laundering purposes. TBML schemes often involve cumulative small-value transactions to avoid detection. AML programs require investigation of invoice discrepancies, verification of documentation, and assessment of transaction context to ensure that funds are not being moved illicitly.

The reasoning for selecting thorough due diligence and document verification emphasizes the central role of transparency and verification in preventing TBML. Trade finance transactions are inherently complex, involving multiple parties, documents, and jurisdictions. Criminals exploit this complexity to obscure illicit funds. By verifying trade documentation, assessing counterparties, and understanding transaction flows, financial institutions can identify and mitigate laundering risk. Compliance programs incorporate risk assessment, employee training, automated alerts, and escalation procedures to ensure that suspicious activity is promptly investigated. Effective trade finance AML controls protect the institution from regulatory penalties, financial loss, and reputational harm while supporting broader efforts to combat global money laundering.

Question 24

Which of the following BEST indicates potential structuring in cash-intensive businesses?

A) Deposits well above reporting thresholds made occasionally

B) Multiple small cash deposits just below reporting thresholds over short periods

C) Occasional withdrawals for normal business expenses

D) Payment of utilities and payroll from corporate accounts

Answer: B) Multiple small cash deposits just below reporting thresholds over short periods

Explanation

A) Deposits well above reporting thresholds made occasionally may trigger reporting but are not indicative of structuring. Large, infrequent deposits may be legitimate and consistent with business cash flows. AML monitoring systems would flag these transactions, but they do not demonstrate the deliberate pattern associated with structuring.

B) Multiple small cash deposits just below reporting thresholds over short periods is correct. Structuring involves breaking larger amounts of cash into smaller deposits to avoid regulatory reporting requirements. Cash-intensive businesses, such as restaurants, retail stores, or casinos, may be exploited by criminals to launder funds using this technique. Detecting structuring requires monitoring patterns of deposits relative to thresholds, assessing transaction timing, and evaluating consistency with expected business activity. Frequent deposits just below reporting limits are a classic red flag, often coupled with other suspicious activity indicators such as unusual customer behavior or inconsistent revenue streams. AML programs mandate reporting suspicious activity, training employees to recognize structuring, and using automated transaction monitoring systems to detect repetitive patterns. Structured deposits are considered high-risk because they demonstrate intent to evade regulatory detection, a key element of the placement stage of money laundering.

C) Occasional withdrawals for normal business expenses are low-risk. These transactions align with standard operational needs and do not indicate illicit activity. Routine cash handling for legitimate business purposes is expected and monitored within standard internal controls.

D) Payment of utilities and payroll from corporate accounts is also low-risk. These transactions reflect legitimate operational behavior and are not indicative of structuring or laundering. Monitoring ensures normal patterns are maintained but does not suggest illicit activity in the absence of other red flags.

The reasoning for selecting multiple small deposits below reporting thresholds emphasizes understanding the deliberate evasion of AML regulations. Structuring is a key placement tactic for introducing illicit funds into the financial system. Financial institutions use transaction monitoring, pattern recognition, and risk-based analysis to detect this activity. Employees are trained to escalate suspicious patterns for investigation and potential SAR filing. Detecting structuring protects institutions from regulatory violations, helps prevent criminal exploitation of financial systems, and supports broader AML compliance objectives.

Question 25

Which of the following BEST represents a red flag for potential money laundering in wire transfers?

A) Domestic wire transfers for payroll purposes

B) Frequent international wire transfers with no clear business purpose to high-risk jurisdictions

C) Transfers between accounts of the same customer within the same bank

D) Routine utility payments made internationally

Answer: B) Frequent international wire transfers with no clear business purpose to high-risk jurisdictions

Explanation

A) Domestic wire transfers for payroll purposes are low-risk. These transfers are routine, predictable, and consistent with standard operational procedures. They do not indicate unusual patterns or potential laundering activity. While monitoring is necessary for compliance, these transactions are not red flags.

B) Frequent international wire transfers with no clear business purpose to high-risk jurisdictions is correct. High-risk jurisdictions are defined by weak AML controls, corruption, high terrorist financing exposure, and limited regulatory oversight. Frequent transfers to these jurisdictions without legitimate business justification indicate potential layering or movement of illicit funds. Financial institutions assess red flags by analyzing transaction patterns, counterparty details, amounts, and frequency. Enhanced due diligence, transaction monitoring, and SAR filing may be required. Wire transfers are particularly attractive to launderers because of the speed, anonymity, and cross-border reach, making them a critical focus area for AML compliance. Monitoring systems analyze expected behavior relative to the customer profile, allowing institutions to detect deviations and escalate suspicious activity. These transfers are classic indicators of money laundering risk because they may represent layering, integration, or attempts to obscure the origin of illicit proceeds. Regulators emphasize high-risk international wire transfers as a primary focus of AML programs, requiring enhanced monitoring and reporting protocols.

C) Transfers between accounts of the same customer within the same bank are typically low-risk. These internal transfers are generally predictable and traceable. While they may warrant periodic review, they are not considered a primary red flag for money laundering unless combined with other suspicious activity.

D) Routine utility payments made internationally are low-risk. While international, these payments are predictable, low-value, and consistent with legitimate obligations. They do not represent unusual or suspicious patterns in the context of AML monitoring.

The reasoning for selecting frequent international wire transfers to high-risk jurisdictions highlights the inherent risk of cross-border transactions. Criminals exploit these mechanisms to move funds, layer transactions, and integrate illicit proceeds into legitimate economies. AML programs must incorporate risk-based monitoring, due diligence, and escalation protocols for suspicious transfers. Properly identifying red flags enables institutions to prevent criminal activity, meet regulatory requirements, and maintain financial system integrity. By analyzing frequency, destination, and purpose relative to the customer profile, institutions can distinguish between legitimate international activity and potential laundering schemes. Proactive monitoring and reporting are critical to mitigating exposure to financial crime and regulatory penalties.

Question 26

Which of the following is MOST effective for identifying politically exposed persons (PEPs) in banking relationships?

A) Verifying customer identity documents only at account opening

B) Using automated screening against global PEP databases and ongoing monitoring

C) Relying solely on customer self-disclosure forms

D) Assuming high-value clients are not PEPs if they have no criminal record

Answer: B) Using automated screening against global PEP databases and ongoing monitoring

Explanation

A) Verifying customer identity documents only at account opening is insufficient for identifying PEPs. While identity verification is necessary to establish the customer’s identity, it does not detect politically exposed persons, who may acquire PEP status after account opening. Additionally, PEPs can use intermediaries or complex ownership structures to conceal their status. Relying solely on initial verification leaves the institution exposed to compliance risks and regulatory penalties.

B) Using automated screening against global PEP databases and ongoing monitoring is correct. PEPs are individuals who hold or have held prominent public positions, along with their family members and close associates. Due to their potential influence and access to public funds, PEPs are considered high-risk for bribery, corruption, and money laundering. Automated screening tools allow institutions to continuously monitor for PEP status using updated global databases, covering domestic and foreign political figures. Ongoing monitoring ensures that changes in PEP status, international sanctions, or other risk factors are identified promptly. This approach aligns with FATF guidance and regulatory requirements for enhanced due diligence, including understanding the source of funds, monitoring account activity, and documenting transactions for high-risk clients. By combining automation with risk-based reviews, institutions can maintain compliance, detect potential illicit activity, and mitigate reputational risk.

C) Relying solely on customer self-disclosure forms is inadequate. PEPs may intentionally conceal their status or may not fully disclose relationships with politically exposed individuals. Self-declaration is unreliable for identifying high-risk clients and does not fulfill regulatory expectations for due diligence and monitoring. Effective AML programs require independent verification beyond customer-provided information.

D) Assuming high-value clients are not PEPs if they have no criminal record is flawed. A client’s criminal history does not determine PEP status, which is based on political influence and exposure to corruption risk. Wealthy clients may hold or have held public office, have family connections to politicians, or maintain business relationships with government officials. Ignoring this dimension of risk exposes the institution to potential AML compliance violations and reputational harm.

The reasoning for selecting automated screening and ongoing monitoring emphasizes the dynamic nature of PEP risk. PEP status can change over time, and high-risk exposure may emerge due to family relationships, business connections, or international political activity. Automated solutions provide efficiency, accuracy, and real-time detection, while human oversight ensures contextual evaluation of risk factors. Effective identification of PEPs enables institutions to apply enhanced due diligence, monitor transactions for unusual patterns, and comply with regulatory expectations. Risk-based assessment, continuous monitoring, and proper documentation are critical to mitigating AML risks associated with politically exposed clients.

Question 27

Which of the following BEST describes layering in the money laundering process?

A) Introduction of illicit funds into the banking system

B) Conducting multiple complex transactions to obscure the origin of funds

C) Reintegrating laundered funds into the legitimate economy

D) Structuring cash deposits to avoid reporting thresholds

Answer: B) Conducting multiple complex transactions to obscure the origin of funds

Explanation

A) Introduction of illicit funds into the banking system corresponds to the placement stage of money laundering. Placement is the initial step, where criminal proceeds enter financial institutions, often using cash deposits, money orders, or other methods. Placement does not involve complex transactions aimed at concealment; it is simply the process of introducing funds into the financial system.

B) Conducting multiple complex transactions to obscure the origin of funds is correct. Layering is the second stage of the money laundering cycle, where the objective is to distance illicit funds from their criminal source through complex financial maneuvers. Layering techniques include transferring funds through multiple accounts, shell companies, jurisdictions, currency conversions, investments, and trade-based mechanisms. The purpose is to make tracing difficult and hinder law enforcement from linking funds to criminal activity. Effective AML programs focus heavily on detecting layering, as it is critical to identifying suspicious activity before funds are integrated into the legitimate economy. Financial institutions use automated transaction monitoring, pattern recognition, and human analysis to identify potential layering schemes. Red flags may include multiple transfers to unrelated accounts, unusually complex transaction chains, or transactions inconsistent with customer profiles. Regulatory guidance emphasizes monitoring for layering patterns and implementing escalation procedures, including SAR filings, to mitigate risk.

C) Reintegrating laundered funds into the legitimate economy represents the integration stage, not layering. Integration occurs after placement and layering, where illicit funds are converted into seemingly lawful assets, such as real estate, investments, or luxury goods. Integration is the stage where criminals enjoy the proceeds of their activity without drawing attention.

D) Structuring cash deposits to avoid reporting thresholds occurs during the placement stage. Structuring is designed to evade detection when funds are initially introduced into the financial system. While it may be combined with layering techniques later, structuring is distinct from the layering stage because its primary purpose is placement, not obscuring ownership through complex financial maneuvers.

The reasoning for selecting multiple complex transactions to obscure the origin of funds lies in the core objective of layering: separating illicit funds from their source to avoid detection. Layering is inherently sophisticated and may involve multiple financial products, cross-border transfers, shell companies, and trade-based transactions. Detection requires analyzing patterns that deviate from normal behavior, monitoring high-risk jurisdictions, and conducting due diligence on counterparties. Automated transaction monitoring systems, combined with human analysis, are essential to identifying layering schemes. Understanding the stages of money laundering—placement, layering, integration—enables institutions to design risk-based monitoring strategies, identify suspicious activity, and file regulatory reports proactively. Effective detection of layering reduces the risk of integration, preventing criminals from benefiting from illicit proceeds while protecting the institution from regulatory penalties.

Question 28

Which of the following BEST demonstrates trade-based money laundering (TBML)?

A) Making small deposits to avoid currency reporting thresholds

B) Over-invoicing or under-invoicing goods in international trade transactions

C) Depositing salary checks into a personal account

D) Paying utilities and rent with legitimate funds

Answer: B) Over-invoicing or under-invoicing goods in international trade transactions

Explanation

A) Making small deposits to avoid currency reporting thresholds is a structuring technique associated with placement, not TBML. While structuring is a common laundering method, TBML specifically involves manipulating trade transactions to move illicit funds across borders.

B) Over-invoicing or under-invoicing goods in international trade transactions is correct. TBML involves using trade transactions to disguise the movement of illicit funds. Over-invoicing occurs when the declared value of goods is higher than their actual market value, allowing excess funds to leave a jurisdiction under the guise of legitimate payments. Under-invoicing allows funds to enter a jurisdiction with less scrutiny, facilitating the integration of illicit proceeds. TBML often involves unrelated counterparties, complex shipping routes, shell companies, and manipulated documentation. Detection requires analysis of trade patterns, comparison of declared values with market norms, verification of goods’ existence, and evaluation of the business rationale for the transactions. Financial institutions must monitor trade finance transactions, scrutinize letters of credit and invoices, and apply risk-based reviews to identify suspicious patterns. TBML is considered high-risk by FATF and global regulators due to its ability to transfer large sums with minimal detection. Compliance programs must combine automated systems, human review, and independent verification to mitigate TBML risk.

C) Depositing salary checks into a personal account is normal financial activity and does not indicate TBML. These deposits are predictable, transparent, and aligned with legitimate income patterns. Routine personal account activity is low-risk and unlikely to represent laundering.

D) Paying utilities and rent with legitimate funds is also low-risk and unrelated to TBML. Routine operational or household payments are expected and do not provide concealment for illicit proceeds.

The reasoning for selecting over-invoicing or under-invoicing as the hallmark of TBML emphasizes the method’s effectiveness in disguising fund movement through legitimate trade transactions. TBML allows criminals to layer and integrate illicit proceeds across international borders while avoiding detection by standard banking controls. Financial institutions must employ specialized monitoring, risk assessment, and due diligence to identify TBML patterns, including verification of counterparties, trade documents, and transaction purpose. Detecting TBML protects the institution, ensures compliance with regulatory requirements, and supports law enforcement efforts against international money laundering schemes.

Question 29

Which of the following is MOST indicative of high-risk customer behavior for AML purposes?

A) A customer who makes routine utility payments from their account

B) A customer who frequently wires funds to high-risk jurisdictions without a clear business rationale

C) A customer who deposits their monthly salary into a single account

D) A customer who maintains a low-balance savings account for personal use

Answer: B) A customer who frequently wires funds to high-risk jurisdictions without a clear business rationale

Explanation

A) Routine utility payments from a customer’s account are low-risk. These transactions are predictable, consistent with normal behavior, and aligned with the customer’s expected financial profile. They are not indicative of suspicious or high-risk behavior requiring enhanced due diligence.

B) Frequent wires to high-risk jurisdictions without a clear business rationale are correct. High-risk jurisdictions are defined by weak AML controls, high levels of corruption, or limited regulatory oversight. Sending frequent funds to such regions without legitimate justification raises red flags for money laundering, terrorist financing, or other financial crimes. This behavior requires enhanced monitoring, risk assessment, and potentially filing a suspicious activity report (SAR). Financial institutions must consider the frequency, volume, and purpose of transactions relative to the customer’s profile. Lack of transparency or clear business rationale indicates potential misuse of the financial system for illicit purposes. Regulators and FATF guidance emphasize monitoring cross-border activity to detect unusual patterns indicative of criminal activity. Automated transaction monitoring systems, combined with human review, ensure that such high-risk behavior is detected and mitigated proactively.

C) Depositing monthly salary into a single account is low-risk. This activity is consistent with legitimate, predictable personal financial behavior. These deposits are traceable and transparent, aligning with standard income patterns.

D) Maintaining a low-balance personal savings account is also low-risk. The account exhibits predictable patterns, low transaction volume, and transparent funds. Such accounts do not represent high-risk behavior requiring enhanced due diligence.

The reasoning for selecting frequent international transfers to high-risk jurisdictions lies in the principle that criminals exploit weak regulatory environments to move illicit funds, layer transactions, and integrate proceeds into legitimate economies. Monitoring these patterns helps detect potential money laundering or terrorist financing activity. Risk-based AML programs focus on customer profiling, transaction analysis, and jurisdictional risk assessment to ensure compliance and prevent illicit fund flow. Proactive identification and reporting reduce regulatory, financial, and reputational exposure while supporting broader efforts to combat financial crime.

Question 30

Which of the following is the MOST important component of an AML compliance program?

A) Risk-based policies, procedures, and employee training

B) Filing SARs only when requested by regulators

C) Applying the same procedures to all customers regardless of risk

D) Monitoring only high-value accounts

Answer: A) Risk-based policies, procedures, and employee training

Explanation

A) Risk-based policies, procedures, and employee training is correct. An effective AML compliance program requires a structured, risk-based approach to identify, mitigate, and report money laundering and terrorist financing activities. Policies and procedures establish the framework for employee responsibilities, escalation protocols, transaction monitoring, and due diligence requirements. Risk-based policies ensure resources are allocated according to the level of risk presented by customers, products, services, and jurisdictions. Employee training ensures staff are aware of AML requirements, red flags, and reporting procedures, enabling them to detect and respond to suspicious activity proactively. Regulatory guidance, including FATF Recommendations, emphasizes the necessity of a risk-based compliance program as a cornerstone of AML effectiveness. Proper implementation combines policies, risk assessment, training, transaction monitoring, and independent testing to create a comprehensive program.

B) Filing SARs only when requested by regulators is inadequate. AML obligations require institutions to proactively identify and report suspicious activity, regardless of regulator prompting. Reactive filing does not meet regulatory expectations and exposes the institution to compliance risk.

C) Applying the same procedures to all customers regardless of risk is inefficient and inconsistent with a risk-based approach. Not all customers carry the same level of exposure. Tailoring due diligence and monitoring to the level of risk ensures resources are allocated effectively, regulatory expectations are met, and high-risk activity is identified.

D) Monitoring only high-value accounts is insufficient. Money laundering and terrorist financing can occur at all levels of transaction value. Comprehensive AML programs incorporate risk-based monitoring across all accounts, focusing on patterns, behavior, and customer profiles, not solely transaction size.

The reasoning for selecting risk-based policies, procedures, and training emphasizes a proactive, structured, and defensible approach to AML compliance. Institutions must understand their risk exposure, implement controls proportional to risk, and ensure employees can identify and escalate suspicious activity. A comprehensive, risk-based program reduces exposure to financial crime, regulatory penalties, and reputational damage. Integration of policies, procedures, training, monitoring, and reporting forms the foundation of an effective AML compliance framework.

Question 31

Which of the following is the MOST effective method for detecting suspicious activity in high-risk customer accounts?

A) Reviewing account activity only during annual audits

B) Continuous transaction monitoring with automated alerts and manual review

C) Relying solely on customer self-reports of unusual transactions

D) Focusing only on deposits above a certain threshold

Answer: B) Continuous transaction monitoring with automated alerts and manual review

Explanation

A) Reviewing account activity only during annual audits is insufficient for detecting suspicious activity in high-risk accounts. Annual audits provide a historical snapshot but fail to detect ongoing suspicious transactions in real-time. High-risk accounts, including those held by politically exposed persons (PEPs) or involving international transfers, require ongoing scrutiny because illicit activity can occur at any time. Delayed detection allows criminals to move funds, layer transactions, and integrate illicit proceeds into legitimate assets, increasing the difficulty of tracing and recovering the money.

B) Continuous transaction monitoring with automated alerts and manual review is correct. High-risk accounts must be monitored in real-time or near-real-time to identify unusual or suspicious patterns of behavior. Automated monitoring systems can flag transactions based on pre-defined rules, thresholds, or behavioral anomalies, such as transfers to high-risk jurisdictions, rapid movement of large sums, or inconsistent activity relative to customer profiles. Manual review complements automation by providing context, evaluating patterns over time, and applying human judgment to interpret unusual activity. Continuous monitoring allows institutions to proactively detect potential money laundering or terrorist financing, escalate cases for compliance review, and file suspicious activity reports (SARs) when necessary. Regulators emphasize the importance of robust monitoring systems as part of a risk-based AML framework, ensuring high-risk accounts are scrutinized effectively.

C) Relying solely on customer self-reports of unusual transactions is inadequate. Customers may not recognize suspicious activity, intentionally conceal transactions, or provide inaccurate information. AML compliance relies on independent monitoring, analysis, and verification rather than customer disclosure alone. While customer input can provide context, it cannot replace automated systems and ongoing monitoring for detecting high-risk activity.

D) Focusing only on deposits above a certain threshold is insufficient. Suspicious activity may occur with smaller transactions, particularly in structuring schemes or trade-based money laundering. Limiting monitoring to high-value deposits ignores low-value, high-frequency transactions that could indicate layering, structuring, or other laundering techniques. A risk-based approach evaluates transactions relative to customer behavior, not solely transaction size.

The reasoning for selecting continuous monitoring with automated alerts and manual review emphasizes the necessity of proactive detection. High-risk accounts pose increased exposure to financial crime due to factors such as PEP involvement, international transactions, complex ownership structures, or unusual activity patterns. Combining technology and human oversight enables institutions to detect deviations from normal behavior, identify red flags, and escalate suspicious activity for investigation. Automated monitoring systems analyze vast volumes of transactions efficiently, flagging anomalies based on rules, thresholds, or machine learning models. Manual review then contextualizes alerts, considers the customer’s profile, and evaluates the legitimacy of transactions. This integrated approach aligns with FATF guidance, regulatory requirements, and best practices, allowing financial institutions to mitigate AML risk, prevent criminal exploitation of the financial system, and maintain compliance.

Question 32

Which of the following BEST demonstrates the integration stage of money laundering?

A) Depositing cash into multiple accounts to avoid reporting thresholds

B) Conducting complex international transfers to obscure funds’ origin

C) Purchasing luxury vehicles and real estate using previously laundered funds

D) Opening new accounts to move illicit funds

Answer: C) Purchasing luxury vehicles and real estate using previously laundered funds

Explanation

A) Depositing cash into multiple accounts to avoid reporting thresholds corresponds to the placement stage of money laundering. Placement introduces illicit funds into the financial system and may involve structuring, cash deposits, or conversion into monetary instruments. The purpose is to move criminal proceeds into banking channels without detection.

B) Conducting complex international transfers to obscure funds’ origin is characteristic of the layering stage. Layering aims to distance illicit funds from their source through a series of complicated financial maneuvers, including multiple accounts, shell companies, and cross-border transfers. Layering focuses on concealment rather than converting funds into usable, legitimate assets.

C) Purchasing luxury vehicles and real estate using previously laundered funds is correct. Integration is the final stage of money laundering, in which illicit funds are reintroduced into the legitimate economy and made to appear lawful. Criminals invest in assets, businesses, or other high-value items to enjoy proceeds without raising suspicion. Real estate, luxury goods, investments, and high-value collectibles are typical integration tools. Effective AML monitoring identifies high-risk transactions, verifies source of funds, and ensures that large purchases align with customer profiles. Integration is challenging to detect because funds at this stage often appear legitimate, having passed through placement and layering. Financial institutions mitigate integration risk through enhanced due diligence, monitoring, and reporting of unusual transactions, ensuring compliance with regulatory requirements.

D) Opening new accounts to move illicit funds occurs during placement and layering. New accounts facilitate the initial introduction of illicit funds or the layering process to obscure their origin. While account opening may be a component of the laundering process, it does not constitute integration, as the funds have not yet been converted into legitimate wealth.

The reasoning for selecting purchases of luxury vehicles and real estate as the integration stage emphasizes the purpose of making illicit funds usable and legitimate. Integration enables criminals to enjoy criminal proceeds while minimizing detection risk. Effective AML programs must detect suspicious activity during placement, layering, and integration to prevent financial crime. Monitoring high-value transactions, verifying source of funds, and assessing transaction consistency with customer profiles are essential components of mitigating integration risk. Regulatory frameworks emphasize a risk-based approach, targeting suspicious transactions at each stage of laundering to maintain financial system integrity.

Question 33

Which of the following practices is MOST critical for mitigating trade-based money laundering (TBML)?

A) Accepting all trade documents without verification

B) Conducting thorough due diligence on counterparties and verifying trade documentation

C) Ignoring minor discrepancies in invoices

D) Focusing only on domestic trade transactions

Answer: B) Conducting thorough due diligence on counterparties and verifying trade documentation

Explanation

A) Accepting all trade documents without verification is highly risky. TBML schemes rely on manipulated trade documents to disguise illicit funds. Accepting documentation without verification exposes institutions to significant laundering risk, regulatory penalties, and reputational damage. Proper due diligence and verification are essential to identify fraudulent trade transactions.

B) Conducting thorough due diligence on counterparties and verifying trade documentation is correct. TBML involves over-invoicing, under-invoicing, multiple intermediaries, and complex international trade structures to move illicit funds. Effective mitigation requires assessing the legitimacy of counterparties, confirming goods exist and match invoiced values, and ensuring transactions align with the stated business purpose. Verification involves letters of credit, bills of lading, invoices, and shipping records. Financial institutions should integrate automated monitoring, risk-based assessment, and human review to detect unusual patterns. Regulators emphasize diligence in trade finance as a critical component of AML programs, as TBML is a sophisticated method to launder large sums of money across borders. By verifying trade documentation and conducting due diligence, institutions can prevent the use of trade finance for laundering and comply with international AML standards.

C) Ignoring minor discrepancies in invoices is inappropriate. Even small inconsistencies may indicate intentional manipulation for laundering purposes, particularly in cumulative schemes. AML programs require investigating discrepancies, verifying documentation, and escalating suspicious transactions for review.

D) Focusing only on domestic trade transactions is insufficient. TBML primarily exploits international trade channels to transfer illicit funds across borders. Ignoring international activity exposes institutions to high-risk jurisdictions, shell companies, and complex laundering structures. Comprehensive due diligence must encompass both domestic and international trade to mitigate risk effectively.

The reasoning for selecting thorough due diligence and document verification highlights the critical role of transparency and verification in detecting TBML. TBML schemes exploit complexity, international borders, and corporate structures to disguise illicit funds. Verification and counterparty assessment allow financial institutions to detect anomalies, assess legitimacy, and prevent laundering. Risk-based monitoring, automation, and human review ensure suspicious transactions are escalated and investigated. Detecting TBML protects institutions, ensures regulatory compliance, and supports global AML efforts.

Question 34

Which of the following BEST demonstrates a high-risk customer profile in private banking?

A) A low-income customer with routine payroll deposits

B) A politically exposed person (PEP) with complex offshore accounts

C) A small business owner with predictable local transactions

D) A retiree with a single low-balance savings account

Answer: B) A politically exposed person (PEP) with complex offshore accounts

Explanation

A) A low-income customer with routine payroll deposits is low-risk. Predictable deposits, small balances, and domestic transactions present minimal exposure to money laundering or terrorist financing. These accounts are monitored but do not typically require enhanced due diligence.

B) A politically exposed person (PEP) with complex offshore accounts is correct. PEPs are individuals holding or having held prominent public positions, along with their family members and close associates. They are high-risk because of potential exposure to corruption, bribery, and misuse of public funds. Complex offshore accounts, trusts, shell companies, and international financial structures can obscure beneficial ownership and fund origins, increasing AML risk. Private banking clients often have high net worth and global transactions, necessitating enhanced due diligence. Monitoring includes verifying source of wealth, transaction analysis, screening against sanctions and PEP lists, and continuous oversight. Regulators require private banking institutions to apply risk-based policies to PEPs, documenting due diligence and escalations to mitigate exposure. Effective management of high-risk profiles reduces vulnerability to financial crime, regulatory penalties, and reputational damage.

C) A small business owner with predictable local transactions is low to medium risk. While monitoring is necessary, transactions are generally transparent, consistent with business activity, and do not present significant AML exposure.

D) A retiree with a single low-balance savings account is low-risk. Low transaction volume, predictable activity, and limited complexity do not trigger high-risk AML concerns.

The reasoning for selecting a PEP with complex offshore accounts emphasizes the intersection of political influence, high net worth, and complex structures that increase exposure to money laundering. Risk-based AML programs focus on PEP identification, source-of-funds verification, enhanced monitoring, and ongoing review. Continuous monitoring, proper documentation, and regulatory compliance are essential to managing the inherent risks of private banking clients with high-risk profiles.

Question 35

Which of the following is MOST indicative of suspicious activity in cash-intensive businesses?

A) Deposits well above reporting thresholds occasionally

B) Frequent small cash deposits just below reporting thresholds

C) Occasional withdrawals for routine expenses

D) Regular payment of utilities and payroll

Answer: B) Frequent small cash deposits just below reporting thresholds

Explanation

A) Deposits well above reporting thresholds occasionally may trigger regulatory reporting but are not necessarily indicative of suspicious activity. Occasional large deposits may align with legitimate business cash flow and do not demonstrate intent to evade reporting.

B) Frequent small cash deposits just below reporting thresholds is correct. Structuring, also known as smurfing, is a common tactic in cash-intensive businesses to introduce illicit funds without triggering regulatory reports. Criminals deliberately split large sums into smaller deposits to avoid currency transaction reporting requirements. Detection involves transaction monitoring, pattern recognition, and comparison to expected business activity. Repetitive deposits inconsistent with historical activity indicate potential laundering. Cash-intensive businesses such as restaurants, retail outlets, and casinos are particularly susceptible to this technique. Employees are trained to recognize red flags, escalate suspicious patterns, and file SARs where necessary. Regulatory guidance emphasizes structured deposits as high-risk behavior requiring proactive detection. Automated monitoring systems combined with human review ensure timely identification of suspicious activity and support compliance.

C) Occasional withdrawals for routine expenses are normal operational activity and do not indicate suspicious behavior. Monitoring ensures compliance but does not suggest structuring or laundering.

D) Regular payment of utilities and payroll is standard business activity and not indicative of suspicious behavior. These transactions are predictable, transparent, and low-risk in the context of AML monitoring.

The reasoning for selecting frequent small deposits just below reporting thresholds highlights the importance of detecting placement-stage activity in cash-intensive businesses. Structuring is designed to evade regulatory detection and is a classic money laundering red flag. Risk-based AML programs monitor patterns relative to expected activity, escalate suspicious transactions, and report potential laundering to regulators. Proper detection safeguards financial institutions, ensures regulatory compliance, and prevents exploitation of the financial system for illicit purposes.

Question 36

Which of the following is MOST effective in detecting suspicious activity in correspondent banking relationships?

A) Monitoring only domestic transactions

B) Implementing enhanced due diligence and ongoing monitoring for foreign correspondent accounts

C) Accepting all incoming and outgoing wires without verification

D) Conducting review of accounts only when regulators request

Answer: B) Implementing enhanced due diligence and ongoing monitoring for foreign correspondent accounts

Explanation

A) Monitoring only domestic transactions is insufficient. Correspondent banking relationships involve cross-border activity, making them particularly vulnerable to money laundering and terrorist financing. Limiting monitoring to domestic transactions ignores the majority of high-risk activity, which often involves international transfers and foreign jurisdictions with weaker AML controls.

B) Implementing enhanced due diligence and ongoing monitoring for foreign correspondent accounts is correct. Correspondent banking involves providing banking services to other financial institutions, often across multiple jurisdictions. These relationships carry inherent risk due to potential exposure to unknown customers, foreign regulatory environments, and high-volume transaction flows. Enhanced due diligence involves understanding the respondent institution’s AML policies, monitoring the nature of transactions, verifying the source of funds, and reviewing transaction patterns for unusual or high-risk activity. Ongoing monitoring ensures that changes in transaction behavior, counterparties, or regulatory status are detected promptly. Regulatory guidance emphasizes risk-based AML controls in correspondent banking, including assessment of country risk, institution risk, and transactional behavior. Effective monitoring reduces the risk of the bank being used for illicit purposes, prevents regulatory violations, and mitigates reputational harm.

C) Accepting all incoming and outgoing wires without verification is highly risky. It exposes the bank to potential money laundering, terrorist financing, sanctions violations, and legal liability. Correspondent banking requires verification of both respondent institutions and underlying customers to ensure compliance with AML regulations.

D) Conducting review of accounts only when regulators request is reactive and insufficient. AML compliance requires proactive identification of suspicious activity, independent of regulator prompting. Waiting for regulatory review increases exposure to risk and does not satisfy due diligence obligations.

The reasoning for selecting enhanced due diligence and ongoing monitoring highlights the unique risks inherent in correspondent banking. Banks provide services for foreign institutions without direct knowledge of the end customers, creating a “blind spot” that criminals may exploit. Risk-based monitoring, combined with detailed assessment of respondent institutions, transactional activity, and jurisdictional risk, allows banks to detect unusual patterns, mitigate exposure, and comply with regulatory expectations.

Question 37

Which of the following BEST describes the purpose of a Suspicious Activity Report (SAR)?

A) To notify regulators about any transaction above a specified dollar threshold

B) To provide law enforcement with information about transactions suspected to involve illicit activity

C) To confirm a customer’s identity during onboarding

D) To report routine account activity for auditing purposes

Answer: B) To provide law enforcement with information about transactions suspected to involve illicit activity

Explanation

A) Notifying regulators about any transaction above a specified dollar threshold is incorrect. Large transactions above reporting thresholds are reported via Currency Transaction Reports (CTRs), not SARs. SARs are distinct in that they focus on suspicion, not transaction amount.

B) Providing law enforcement with information about transactions suspected to involve illicit activity is correct. A SAR is a confidential report filed by financial institutions to alert regulators and law enforcement of potential money laundering, terrorist financing, or other illicit activity. The report details the suspicious transaction, the parties involved, and the reasons for suspicion. SARs enable authorities to investigate potential criminal activity, track patterns, and take enforcement actions. Filing a SAR is a regulatory requirement under AML laws, and failure to do so exposes institutions to significant penalties. Financial institutions use internal processes to identify suspicious activity, conduct due diligence, and escalate cases for SAR filing. Suspicion may arise from unusual account activity, inconsistent customer behavior, structuring, high-risk transactions, or activity involving high-risk jurisdictions.

C) Confirming a customer’s identity during onboarding is part of the Know Your Customer (KYC) process, not the purpose of a SAR. While KYC supports AML compliance by identifying and assessing risk, it does not serve as a mechanism to report suspicious activity to authorities.

D) Reporting routine account activity for auditing purposes is incorrect. SARs are specific to transactions or patterns of activity that raise suspicion of illicit activity. Routine audits provide internal controls and historical review but do not serve the regulatory function of alerting authorities to potential financial crime.

The reasoning for selecting the SAR as a tool for law enforcement notification emphasizes its role in AML compliance and crime prevention. SARs allow financial institutions to communicate suspicions confidentially, protect themselves legally, and contribute to broader law enforcement efforts. Regulatory frameworks, including FATF Recommendations and national laws, require timely and accurate SAR filing to support investigation and prosecution of financial crime. Effective SAR processes combine detection, investigation, documentation, and secure reporting to regulators, ensuring that suspicious activity is appropriately addressed while maintaining confidentiality.

Question 38

Which of the following is MOST indicative of structuring in cash-intensive businesses?

A) Occasional withdrawals for routine expenses

B) Frequent small cash deposits just below the reporting threshold

C) Regular payment of utilities and payroll

D) Deposits well above reporting thresholds made occasionally

Answer: B) Frequent small cash deposits just below the reporting threshold

Explanation

A) Occasional withdrawals for routine expenses are normal business operations and do not indicate suspicious activity. Monitoring ensures transparency, but these transactions are predictable, consistent, and low-risk in the context of AML.

B) Frequent small cash deposits just below the reporting threshold is correct. Structuring, or smurfing, is a placement-stage money laundering tactic where illicit funds are deliberately broken into smaller amounts to evade currency transaction reporting thresholds. Cash-intensive businesses such as restaurants, retail stores, casinos, or service providers are particularly vulnerable to this method. Financial institutions monitor deposit patterns relative to expected business behavior, considering frequency, amounts, timing, and consistency with historical activity. Automated transaction monitoring tools identify unusual deposit patterns, while human analysts evaluate context and escalate suspicious activity. Regulatory guidance highlights structuring as a classic money laundering red flag requiring escalation and SAR filing. Proper detection prevents criminal exploitation, ensures regulatory compliance, and maintains financial system integrity.

C) Regular payment of utilities and payroll represents legitimate operational activity and is low-risk. These transactions are predictable, routine, and aligned with business needs.

D) Deposits well above reporting thresholds made occasionally may trigger reporting requirements but do not necessarily indicate structuring. Large deposits may be legitimate, consistent with business operations, and transparent in nature.

The reasoning for selecting frequent small deposits below thresholds emphasizes detection of placement-stage laundering in cash-intensive businesses. Structuring is deliberately designed to evade regulatory reporting, and risk-based monitoring ensures suspicious patterns are identified. Combining automated systems with human review allows institutions to detect anomalies, investigate appropriately, and escalate suspicious activity. Effective AML programs safeguard against criminal use of financial systems and regulatory violations.

Question 39

Which of the following is the BEST method for managing AML risk associated with high-risk jurisdictions?

A) Ignoring transactions if the customer is trusted

B) Applying enhanced due diligence, monitoring, and ongoing review for customers in high-risk jurisdictions

C) Treating all international transactions equally without differentiation

D) Only reporting suspicious transactions when specifically requested by regulators

Answer: B) Applying enhanced due diligence, monitoring, and ongoing review for customers in high-risk jurisdictions

Explanation

A) Ignoring transactions because a customer is trusted is extremely risky. Trust does not mitigate the inherent AML risk associated with high-risk jurisdictions, which may have weak regulatory frameworks, high corruption levels, or sanctions exposure. Failure to apply proper controls exposes institutions to regulatory penalties, financial loss, and reputational harm.

B) Applying enhanced due diligence, monitoring, and ongoing review for customers in high-risk jurisdictions is correct. High-risk jurisdictions require additional scrutiny, including verifying beneficial ownership, source of funds, transaction monitoring, and evaluating the legitimacy of business activities. Enhanced due diligence may involve background checks, geopolitical risk assessment, and transaction pattern analysis. Ongoing monitoring ensures that changes in behavior, account activity, or jurisdictional risk are identified promptly. Regulators expect risk-based approaches to high-risk jurisdictions as part of comprehensive AML compliance programs. Properly implemented controls protect institutions from regulatory violations, reduce exposure to illicit funds, and ensure compliance with global standards.

C) Treating all international transactions equally without differentiation is ineffective. Not all international transactions carry the same risk; high-risk jurisdictions, sanctioned countries, and politically exposed entities require specific attention. Ignoring differentiation fails to comply with regulatory expectations for a risk-based AML program.

D) Reporting suspicious transactions only when requested by regulators is reactive and insufficient. AML obligations require proactive identification and reporting of suspicious activity regardless of regulator prompting. Waiting for requests increases exposure to risk and does not meet due diligence requirements.

The reasoning for selecting enhanced due diligence, monitoring, and ongoing review emphasizes the importance of a risk-based approach to high-risk jurisdictions. Criminals exploit weak controls, corruption, and complex cross-border flows to launder illicit funds. Financial institutions must implement structured policies, transaction monitoring, and escalation protocols to mitigate risk. A combination of automation, human review, and regulatory compliance ensures that suspicious activity is detected, investigated, and reported appropriately, protecting the institution and the financial system.

Question 40

Which of the following is MOST associated with layering in the money laundering process?

A) Depositing large amounts of cash into bank accounts

B) Using multiple shell companies and international transfers to obscure the origin of funds

C) Purchasing luxury goods with laundered funds

D) Opening a bank account to deposit illicit proceeds

Answer: B) Using multiple shell companies and international transfers to obscure the origin of funds

Explanation

A) Depositing large amounts of cash into bank accounts is part of the placement stage. Placement introduces illicit funds into the financial system, often using cash deposits, monetary instruments, or smurfing. It does not involve the complex maneuvering aimed at concealing the origin of funds.

B) Using multiple shell companies and international transfers to obscure the origin of funds is correct. Layering is the second stage of money laundering, focusing on creating distance between illicit proceeds and their criminal source. Layering techniques include transferring funds across multiple accounts, corporate structures, and jurisdictions to make tracing difficult. Shell companies, offshore accounts, complex ownership structures, and cross-border transfers are common methods. AML monitoring involves detecting unusual transaction patterns, inconsistent account activity, or complex financial structures. Human review combined with automated systems ensures layered transactions are identified and escalated for investigation. Effective detection of layering prevents criminals from integrating illicit funds into the legitimate economy and supports regulatory compliance.

C) Purchasing luxury goods with laundered funds represents integration. Integration converts previously laundered and layered funds into legitimate assets for personal use or investment. While important in the laundering cycle, it does not constitute layering.

D) Opening a bank account to deposit illicit proceeds occurs during placement, not layering. Accounts facilitate initial entry into the financial system but are not inherently complex or designed to conceal origin.

The reasoning for selecting shell companies and international transfers emphasizes the objective of layering: obscuring the origin of illicit funds through complexity and distance. Detection involves monitoring, pattern recognition, and due diligence on counterparties. Layering is critical to money laundering because it separates funds from criminal activity, complicating law enforcement investigations. Financial institutions mitigate this risk by implementing robust AML programs, risk-based monitoring, and reporting suspicious activity, ensuring compliance and protecting the integrity of the financial system.