ACAMS CAMS Certified Anti-Money Laundering Specialist (the 6th edition)   Exam  Dumps and Practice Test Questions Set 9 Q 161- 180

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Question 161

A client opens a corporate account and immediately begins transferring large sums to multiple new accounts in high-risk jurisdictions with no clear business purpose. What is the most appropriate initial action for the bank?

A) Accept the transfers since the client claims they are for legitimate business purposes
B) Conduct enhanced due diligence and document the rationale for each transfer
C) Ignore the transfers because the client is a new account holder
D) Close the corporate account immediately without investigation

Answer: B

Explanation

A) Accepting the transfers solely based on the client’s assertion of legitimate business purposes is inappropriate. While corporations do engage in cross-border transactions for legitimate reasons, sudden large transfers to multiple new accounts in high-risk jurisdictions without documentation represent a classic red flag for money laundering. Criminals often use newly opened corporate accounts to layer illicit funds, move proceeds of crime, or obscure the true beneficial ownership. Simply accepting verbal explanations is insufficient under risk-based anti-money laundering frameworks, which require that financial institutions verify the legitimacy of all high-risk transactions. Relying solely on client assertions exposes the bank to regulatory sanctions, reputational damage, and potential facilitation of illicit activity.

B) Conducting enhanced due diligence and documenting the rationale for each transfer is the correct response. Enhanced due diligence includes verifying the identities of all beneficiaries, requesting supporting documentation such as contracts, invoices, or board authorizations, and assessing whether the transactions are consistent with the client’s business model and historical transaction patterns. The bank should also evaluate the risk profile of the destination jurisdictions, consider whether they are known for lax AML controls, and assess the potential for sanctions exposure. Any inconsistencies or failure to provide adequate documentation should trigger escalation to compliance and potential suspicious activity reporting. Documenting the rationale ensures that the bank has a clear audit trail demonstrating that it has taken steps to understand and mitigate risk.

C) Ignoring the transfers because the client is new is highly risky. In fact, new accounts are often considered higher risk because they have no transaction history and may be exploited to launder funds. Ignoring such red flags undermines the principles of risk-based AML monitoring and exposes the institution to regulatory and legal consequences.

D) Closing the account immediately without investigation is an extreme and premature measure. Best practices recommend first investigating the suspicious activity, conducting due diligence, and escalating to compliance if the risk remains unmitigated. Immediate closure without documentation or investigation could disrupt legitimate business activity and may create legal liability for the bank.

Enhanced due diligence, documentation, and risk assessment are the most balanced, regulatory-compliant response, making B the correct choice.

Question 162

Which of the following activities is most indicative of potential structuring?

A) A client deposits multiple cash amounts just below the regulatory reporting threshold over several days
B) A client writes a single large check to a known supplier
C) A business pays monthly rent and utilities
D) A customer transfers funds between two domestic accounts with consistent patterns

Answer: A

Explanation

A) Depositing multiple cash amounts just below the reporting threshold is a classic indicator of structuring. Structuring, also known as “smurfing,” is the deliberate division of large sums of money into smaller transactions to avoid triggering regulatory reporting requirements. This activity is often associated with money laundering, as it is designed to evade detection while still placing illicit funds into the financial system. Enhanced due diligence involves identifying the source of the cash, examining transaction patterns over time, verifying whether deposits are consistent with known income sources, and assessing whether the client has a history of similar behavior. Banks may also monitor subsequent movements of the deposited funds to determine if they are used to layer or integrate illicit proceeds. If suspicion persists, escalation to compliance and filing a suspicious activity report is warranted.

B) Writing a single large check to a known supplier is generally considered routine business activity. While the bank may verify the legitimacy of the transaction, a single payment does not constitute structuring unless there are additional factors such as repeated attempts to disguise the transaction or involvement of high-risk jurisdictions.

C) Paying monthly rent and utilities is standard consumer or business financial behavior. It does not suggest attempts to evade reporting or hide illicit funds and is not indicative of structuring.

D) Transferring funds between two domestic accounts with consistent patterns reflects normal account management. While banks monitor for unusual behavior, consistent, predictable transfers between accounts do not meet the criteria for structuring.

The activity most clearly associated with structuring involves deliberate attempts to evade reporting thresholds by splitting cash deposits, making A the correct answer.

Question 163

A high-net-worth client establishes a complex network of offshore companies but provides minimal information about beneficial ownership or source of funds. What is the most appropriate action for the bank?

A) Accept the client’s arrangement as typical for estate planning
B) Conduct enhanced due diligence on the offshore companies, beneficial owners, and source of funds
C) Ignore the structure since the client is wealthy and long-standing
D) Automatically reject all offshore arrangements

Answer: B

Explanation

A) Accepting the client’s offshore arrangement solely because it is common for estate planning is insufficient. Offshore companies can be legitimate tools for tax planning, inheritance, and asset protection, but they are also frequently used to conceal illicit funds, obscure beneficial ownership, and facilitate money laundering. Without thorough verification, the bank cannot be confident that the structure is legitimate. Accepting complex arrangements without supporting evidence exposes the bank to regulatory penalties, reputational risk, and potential involvement in illicit activity.

B) Conducting enhanced due diligence is the correct course of action. Enhanced due diligence includes verifying the identities of all beneficial owners, obtaining detailed documentation regarding the source of funds, reviewing corporate governance documents, assessing the regulatory environment of the offshore jurisdiction, and evaluating whether the client’s financial activity is consistent with disclosed income and assets. The bank may also review relationships between entities, cross-check names against PEP and sanctions lists, and analyze potential tax or regulatory exposure. If the client cannot provide sufficient information or if discrepancies exist, the bank should escalate to compliance and consider filing a suspicious activity report. This comprehensive approach mitigates risk, ensures regulatory compliance, and protects the institution from being inadvertently used for illicit activity.

C) Ignoring the structure because the client is wealthy or long-standing is inappropriate. Even established clients may engage in arrangements that introduce significant risk. Longevity does not eliminate the requirement to understand and verify complex offshore structures.

D) Automatically rejecting offshore arrangements is overly rigid. Many clients use legitimate offshore structures. Rejection should only occur if risk cannot be mitigated or if the client refuses to provide necessary documentation. Investigation and verification are the first steps.

Enhanced due diligence with thorough verification of beneficial ownership and source of funds is the correct and prudent action, making B correct.

Question 164

Which red flag is most consistent with trade-based money laundering?

A) An importer consistently over-invoices goods to move excess funds abroad
B) A client pays routine utility bills on time
C) A customer deposits a personal paycheck into a savings account
D) A small business purchases office supplies locally

Answer: A

Explanation

A) Over-invoicing in trade transactions is a primary method of trade-based money laundering. Criminals use trade transactions to disguise illicit funds by inflating invoices, allowing them to move excess money across borders under the guise of legitimate commercial activity. Similarly, under-invoicing can enable accumulation of funds in the importing country without taxation. These activities complicate the paper trail and conceal ownership of illicit funds. Banks are expected to detect inconsistencies between commercial invoices, shipping documentation, and financial flows. Enhanced due diligence may involve reviewing contracts, customs documents, invoices, and shipping records to verify consistency with declared values. Discrepancies may trigger further investigation, escalation to compliance, and reporting to authorities. Trade-based laundering often involves multiple jurisdictions, shell companies, and complex transactions designed to obscure the origin and destination of funds.

B) Paying routine utility bills is normal personal or business activity. It does not involve cross-border trade, manipulation of invoices, or attempts to obscure the origin of funds and therefore is not indicative of trade-based money laundering.

C) Depositing a personal paycheck into a savings account is standard and low risk. Routine payroll deposits do not present characteristics associated with trade-based laundering.

D) Purchasing office supplies locally is routine business activity. It lacks the international and misrepresentation elements central to trade-based money laundering schemes.

The activity most consistent with trade-based laundering involves intentional manipulation of trade invoices to move funds across borders, making A the correct answer.

Question 165

A client frequently sends funds to a newly established charity in a region associated with terrorist activity but provides no supporting documentation. What is the most appropriate action?

A) Accept the donations as normal charitable activity
B) Conduct enhanced due diligence on the charity and potential recipients
C) Ignore the activity because the donation amounts are small
D) Close the account immediately without investigation

Answer: B

Explanation

A) Accepting the donations as normal charitable activity is inappropriate. While charitable contributions are common, sending funds to a newly established charity in a region associated with terrorist activity without documentation raises red flags for potential terrorist financing. Verbal explanations alone are insufficient, and accepting them could expose the bank to regulatory violations and legal liability.

B) Conducting enhanced due diligence is correct. Enhanced due diligence involves verifying the legitimacy of the charity, identifying all recipients and their affiliations, reviewing registration and governance documents, checking sanctions lists, and monitoring transaction patterns. The bank should also assess the risk of repeated or structured donations that may be intended to bypass detection. If the client cannot provide sufficient information or if the charity is linked to high-risk activities, the bank should escalate the case to compliance and consider filing a suspicious activity report. Enhanced due diligence ensures that the bank fulfills its obligations under anti-terrorist financing regulations and mitigates potential exposure to illicit activity.

C) Ignoring the activity because the donations are small is unsafe. Terrorist financing often involves small, frequent transfers designed to evade detection. Even modest contributions to high-risk recipients without documentation warrant investigation.

D) Closing the account immediately without investigation is extreme. Investigation and documentation must precede account closure to ensure compliance and avoid disrupting legitimate activity unnecessarily.

Enhanced due diligence, verification, and escalation as needed represent the correct and regulatory-compliant response, making B correct.

Question 166

A client deposits a series of checks over several days, each just below the reporting threshold, then wires the combined total to multiple foreign accounts in high-risk jurisdictions. What is the most appropriate action for the bank?

A) Accept the activity since each deposit is below the reporting threshold
B) Conduct enhanced due diligence and consider filing a suspicious activity report
C) Ignore the transactions as routine banking activity
D) Close the client’s account immediately without investigation

Answer: B

Explanation

A) Accepting the activity solely because each deposit falls below the reporting threshold is inappropriate. Structuring deposits to avoid reporting requirements is a classic technique used in money laundering. Criminals often deliberately keep transactions under thresholds to evade detection, while the cumulative total may represent a significant sum of illicit funds. Financial institutions are required to monitor both individual transactions and patterns over time. Accepting deposits without investigation exposes the bank to regulatory penalties, reputational risk, and potential involvement in facilitating criminal activity.

B) Conducting enhanced due diligence and considering filing a suspicious activity report is the correct approach. Enhanced due diligence involves analyzing transaction patterns, verifying the source of funds, and reviewing whether transfers to foreign accounts are consistent with the client’s known financial profile and business operations. The bank should also assess the risk associated with the recipient jurisdictions, considering factors such as AML controls, sanctions, and political risk. Requests for supporting documentation, such as invoices or contracts, are necessary to substantiate the purpose of transfers. If the documentation is insufficient or raises further concern, escalation to compliance and filing a suspicious activity report may be required. This ensures that the bank fulfills its obligations under anti-money laundering laws while protecting itself from exposure to illicit activity.

C) Ignoring the transactions as routine is unsafe. Even small deposits can be suspicious when viewed in aggregate, especially if they are directed to high-risk jurisdictions. Ignoring such activity undermines a risk-based monitoring program and increases regulatory exposure.

D) Closing the account immediately without investigation is excessive. The appropriate response requires investigation, documentation, and escalation before taking any extreme measures. Immediate closure may disrupt legitimate financial activity and could create legal complications.

Enhanced due diligence, pattern analysis, and escalation where necessary provide a compliant, balanced, and prudent approach, making B correct.

Question 167

Which behavior is most indicative of a politically exposed person (PEP) attempting to launder illicit funds?

A) The PEP uses multiple accounts and transfers large sums between family members and offshore entities without clear business rationale
B) The PEP deposits salary into a domestic checking account and pays personal bills on time
C) The PEP invests in local government bonds with documented source of funds
D) The PEP maintains a single checking account for day-to-day expenses

Answer: A

Explanation

A) The PEP transferring large sums between family members and offshore entities without a clear business rationale is a classic red flag for potential money laundering. PEPs and their associates often have access to significant public resources or influence and may seek to conceal illicit proceeds through complex ownership structures, offshore accounts, and layered transfers. Enhanced due diligence includes verifying the source of wealth, analyzing the relationships and transactions of family members and related parties, and reviewing the legitimacy of any offshore entities involved. This may also involve screening against sanctions and PEP databases, monitoring for unusual transaction patterns, and requesting supporting documentation to substantiate business or personal rationale. Escalation to compliance and potential suspicious activity reporting is required if the risk cannot be mitigated.

B) Depositing salary into a domestic checking account and paying personal bills is routine and does not indicate money laundering. These transactions are predictable, transparent, and consistent with normal PEP behavior when documented.

C) Investing in local government bonds with a documented source of funds is legitimate and low risk. As long as the source of funds is verified and consistent with the PEP’s profile, this activity does not indicate attempts to conceal illicit proceeds.

D) Maintaining a single checking account for day-to-day expenses is routine banking behavior and does not represent a laundering risk. Single accounts with predictable activity do not provide the complexity required to obscure illicit funds.

The most indicative behavior of laundering involves complex transfers designed to conceal origin, particularly involving offshore entities and family members, making A correct.

Question 168

A client suddenly starts wiring large sums to multiple newly opened accounts in high-risk jurisdictions shortly after opening a corporate account. The client refuses to provide supporting documentation. What should the bank do first?

A) Accept the client’s explanation if the funds are for legitimate business purposes
B) Conduct enhanced due diligence and escalate to compliance if documentation is not provided
C) Ignore the transactions because the client is new and unknown
D) Immediately close the corporate account without investigation

Answer: B

Explanation

A) Accepting the explanation solely based on the client’s assertion of legitimacy is inappropriate. New accounts with immediate large international transfers to high-risk jurisdictions without documentation are classic red flags for money laundering. Trusting verbal explanations without evidence violates risk-based AML principles and exposes the bank to potential regulatory penalties.

B) Conducting enhanced due diligence and escalating to compliance if documentation is not provided is correct. Enhanced due diligence includes verifying the source of funds, identifying recipients, requesting supporting contracts or board resolutions, analyzing transaction patterns, and assessing whether transfers are consistent with the client’s stated business model. If the client fails to provide credible documentation, the bank should escalate to the compliance department and consider filing a suspicious activity report. This process ensures that the bank meets regulatory obligations, reduces exposure to illicit activity, and protects the institution from potential financial crime liability.

C) Ignoring the transactions because the client is new is highly risky. New clients are often considered higher risk due to the absence of transaction history, and failure to monitor these early transactions could allow illicit funds to enter the system undetected.

D) Closing the corporate account immediately without investigation is an extreme action. Regulatory guidance emphasizes investigation, due diligence, and escalation before taking restrictive measures. Immediate closure could disrupt legitimate business operations and create legal complications.

Enhanced due diligence and escalation represent the proper balance of risk mitigation and regulatory compliance, making B correct.

Question 169

Which factor most increases the money laundering risk of a high-value real estate transaction?

A) The client’s source of funds cannot be verified
B) The property is located in a well-regulated domestic jurisdiction
C) The client is paying with a standard bank transfer
D) The client has purchased multiple similar properties in the past

Answer: A

Explanation

A) The inability to verify the client’s source of funds is the most critical factor increasing money laundering risk in high-value real estate transactions. Real estate is often used to integrate illicit funds into the legitimate economy because it involves high-value assets and long-term investment. When the source of funds cannot be substantiated through bank statements, corporate documentation, or other verifiable evidence, it raises immediate concerns about potential money laundering, tax evasion, or corruption. Banks and financial institutions must request detailed proof of funds, verify the client’s financial capacity, review transactional history, and ensure compliance with AML regulations. High-value transactions without a verified source of funds often require enhanced due diligence, escalation to compliance, and potential filing of suspicious activity reports.

B) The property being located in a well-regulated jurisdiction reduces risk but does not eliminate it. While regulatory oversight may deter some illicit activity, unverified funds or complex client structures can still pose significant risk.

C) Paying with a standard bank transfer is common and does not inherently indicate money laundering. Risk arises from the source and legitimacy of funds, not the method of payment.

D) Purchasing multiple similar properties may indicate wealth accumulation but is not necessarily suspicious if the source of funds is verifiable. It only becomes a concern if paired with unverified funds or opaque ownership structures.

The inability to verify the source of funds is the central factor in assessing money laundering risk in high-value real estate, making A correct.

Question 170

A client makes multiple small donations to newly established charities in regions with high terrorist financing risk, providing no documentation. Which regulatory concern is most relevant?

A) Potential terrorist financing
B) Routine charitable activity
C) Domestic tax compliance
D) Standard consumer banking behavior

Answer: A

Explanation

A) Multiple small donations to newly established charities in high-risk regions without documentation are strongly indicative of potential terrorist financing. Terrorist organizations often exploit charitable networks to funnel funds without detection, frequently using informal or newly established entities. Regulatory frameworks require banks to identify, verify, and monitor donations that pose elevated risks. Enhanced due diligence involves verifying the legitimacy of the charity, its governance structure, beneficiaries, and location, as well as screening against sanctions lists, PEP databases, and negative media. Repeated or structured donations without documentation should be escalated to compliance and may require a suspicious activity report. The goal is to prevent misuse of the financial system for financing terrorism while protecting the institution from regulatory and reputational risk.

B) Routine charitable activity is a normal banking operation but does not encompass high-risk factors such as new charities in high-risk regions and lack of documentation. Without verification, these activities cannot be assumed to be routine.

C) Domestic tax compliance is unrelated to the primary concern. While donations may have tax implications, the immediate regulatory concern is the potential misuse of funds for terrorist purposes, not tax compliance.

D) Standard consumer banking behavior is irrelevant. Normal transactions do not involve newly established entities in high-risk regions and do not include unexplained cross-border donations.

The central regulatory concern in this scenario is the risk of terrorist financing, making A correct.

Question 171

A client opens a new corporate account and immediately begins sending multiple large wire transfers to accounts in jurisdictions known for weak AML controls. The client provides minimal documentation for the transfers. What is the most appropriate action for the bank?

A) Accept the transfers since the client claims they are for legitimate business purposes
B) Conduct enhanced due diligence and escalate to compliance if documentation is insufficient
C) Ignore the transfers because the client is newly onboarded
D) Immediately close the corporate account without investigation

Answer: B

Explanation

A) Accepting the transfers solely based on the client’s assertion of legitimate business purposes is highly risky. While corporations do engage in international transfers, sudden, large transactions to high-risk jurisdictions with minimal documentation is a classic red flag for money laundering. Criminals frequently exploit new accounts to layer illicit funds and move them to jurisdictions with weak AML oversight. Relying solely on client claims violates risk-based monitoring principles, exposes the bank to regulatory sanctions, and could facilitate illicit activity.

B) Conducting enhanced due diligence and escalating to compliance if documentation is insufficient is the correct response. Enhanced due diligence includes verifying the legitimacy of the corporate entity, the source of the funds, the purpose of the transfers, and the identities of all recipient accounts. The bank should assess whether the transactions align with the client’s declared business model and review the risk profile of the destination jurisdictions. Documentation such as invoices, contracts, or board resolutions should be requested. If the client cannot provide credible evidence or if inconsistencies arise, escalation to compliance and potential filing of a suspicious activity report is required. This approach ensures regulatory compliance, mitigates exposure to financial crime, and maintains an audit trail for regulatory review.

C) Ignoring the transfers because the client is newly onboarded is unsafe. New accounts are often high-risk due to the absence of transaction history. Failing to monitor early transactions could allow illicit funds to enter the financial system undetected.

D) Closing the account immediately without investigation is excessive. Regulatory guidance emphasizes first conducting due diligence, documenting findings, and escalating as appropriate. Immediate closure could disrupt legitimate business operations and create legal complications.

Enhanced due diligence, documentation, and escalation ensure a prudent, compliant approach, making B correct.

Question 172

A client frequently transfers small amounts to multiple accounts in high-risk countries. The client provides inconsistent explanations for each transaction. What is the most appropriate response?

A) Accept the client’s explanations at face value
B) Conduct enhanced due diligence and monitor transaction patterns closely
C) Ignore the transfers because each amount is small
D) Immediately block the client’s accounts without investigation

Answer: B

Explanation

A) Accepting the client’s explanations at face value is inappropriate. Inconsistent explanations for repeated cross-border transfers are a classic red flag for money laundering or terrorist financing. Criminals may attempt to justify multiple transfers with weak or inconsistent rationales to evade detection. Accepting explanations without verification exposes the bank to regulatory penalties and reputational risk. Financial institutions are required to investigate unusual patterns, regardless of transaction size.

B) Conducting enhanced due diligence and monitoring transaction patterns is correct. Enhanced due diligence involves requesting supporting documentation for each transfer, verifying the legitimacy of recipient accounts, evaluating the consistency of transactions with the client’s financial profile, and assessing the risk of high-risk jurisdictions. Transaction patterns should be analyzed to determine if they indicate structuring, layering, or other money laundering typologies. Escalation to compliance and potential filing of suspicious activity reports may be required if risk remains unmitigated. This approach ensures that the bank fulfills its obligations under anti-money laundering regulations while minimizing exposure to illicit activity.

C) Ignoring the transfers because each amount is small is unsafe. Small, repeated transfers are often used to avoid detection and structure funds. Regulatory guidance focuses on patterns over time, not just individual transaction amounts.

D) Immediately blocking the accounts without investigation is an extreme response. Banks must first investigate, request documentation, and escalate before restricting client access. Premature action could interfere with legitimate financial activity and create liability.

Enhanced due diligence, verification, and careful monitoring provide a balanced approach, making B correct.

Question 173

A client uses multiple corporate accounts to transfer funds to offshore entities without providing invoices or contracts. Which red flag is most relevant?

A) Potential layering and concealment of illicit funds
B) Routine corporate cash management
C) Standard payroll and supplier payments
D) Domestic bill payments

Answer: A

Explanation

A) Using multiple corporate accounts to transfer funds offshore without documentation is a clear red flag for layering and concealment of illicit funds. Layering is the process of moving illicit proceeds through complex transactions to obscure their origin, often involving multiple accounts, jurisdictions, or corporate entities. Financial institutions should request supporting documentation such as contracts, invoices, or board authorizations to verify the legitimacy of the transfers. The source and destination of funds must be traced, and transaction patterns analyzed for unusual activity. Escalation to compliance and filing suspicious activity reports may be necessary if the transfers remain unexplained. Identifying layering patterns protects the institution from regulatory penalties, reputational damage, and inadvertent facilitation of financial crime.

B) Routine corporate cash management does not typically involve multiple offshore transfers without documentation. While legitimate businesses move funds between accounts, the lack of supporting evidence makes this activity high-risk.

C) Standard payroll and supplier payments are expected corporate transactions, generally domestic, and involve verifiable recipients. They do not involve complex offshore structures or lack documentation.

D) Domestic bill payments are ordinary business operations and do not involve cross-border complexity, structuring, or layering. They are not indicative of money laundering.

The primary concern in this scenario is layering to conceal illicit funds, making A correct.

Question 174

Which factor most increases the money laundering risk of a real estate transaction?

A) The client cannot verify the source of funds for a high-value property
B) The property is located in a well-regulated domestic market
C) The client pays using a domestic bank transfer
D) The client has purchased similar properties previously with verified funds

Answer: A

Explanation

A) The inability to verify the source of funds for a high-value property is the most critical risk factor in real estate transactions. Real estate is frequently used to integrate illicit funds into the legitimate economy because of its high value and long-term investment potential. When the source of funds cannot be documented through bank statements, business records, or other verifiable means, it raises immediate concerns about potential money laundering, corruption, or other criminal activity. Banks and financial institutions must request detailed proof of funds, analyze transaction patterns, and assess the client’s financial profile. If the source of funds cannot be substantiated, enhanced due diligence, escalation to compliance, and potential reporting to authorities are required.

B) The property being located in a well-regulated market reduces some risk but does not eliminate it. Even regulated markets can be exploited if funds are opaque or ownership structures are complex.

C) Paying with a domestic bank transfer is common and does not indicate illicit activity. Risk arises primarily from the source and legitimacy of funds, not the method of payment.

D) Previous property purchases with verified funds reduce concern for money laundering risk. The issue arises when new transactions involve unverifiable funds.

Verification of the source of funds is central to assessing real estate money laundering risk, making A correct.

Question 175

A client donates small amounts regularly to a newly established charity in a high-risk country but provides no documentation. What is the most appropriate regulatory concern?

A) Potential terrorist financing
B) Routine charitable contributions
C) Tax compliance
D) Standard consumer banking behavior

Answer: A

Explanation

A) Regular donations to a newly established charity in a high-risk country without documentation is a strong red flag for potential terrorist financing. Terrorist groups often exploit charitable organizations to funnel funds, especially new or informal entities, to avoid detection. Regulatory frameworks require financial institutions to verify the legitimacy of such charities, understand the beneficiaries, and monitor transactional patterns. Enhanced due diligence involves reviewing governance, registration documents, affiliations, and checking sanctions and PEP lists. Repeated donations without documentation may require escalation to compliance and filing a suspicious activity report. Addressing potential terrorist financing is critical for regulatory compliance and to mitigate the risk of being used as a conduit for illicit activity.

B) Routine charitable contributions do not raise regulatory concern unless they involve high-risk regions, unexplained recipients, or lack of documentation.

C) Tax compliance is not the primary concern in this scenario. While donations may affect tax obligations, the main regulatory risk is misuse of funds for illicit purposes.

D) Standard consumer banking behavior does not cover frequent, undocumented donations to high-risk charities. Such activity is exceptional and warrants investigation.

The primary regulatory concern in this scenario is potential terrorist financing, making A correct.

Question 176

A client frequently deposits cash in multiple accounts under the reporting threshold, then wires the combined amounts to offshore accounts. Which activity is most indicative of money laundering?

A) Structuring deposits to avoid reporting requirements
B) Routine domestic payroll deposits
C) Monthly utility bill payments
D) Standard savings deposits

Answer: A

Explanation

A) Structuring deposits to avoid reporting requirements is a classic indicator of money laundering. This method, also known as “smurfing,” involves breaking down large sums of money into smaller amounts to stay below regulatory reporting thresholds. While individual transactions may appear legitimate, their cumulative effect is suspicious. Financial institutions are required to identify patterns that suggest attempts to evade reporting. In this scenario, frequent deposits under the threshold followed by international wire transfers indicate layering, which is the stage in money laundering where funds are moved through multiple accounts and jurisdictions to obscure their origin. Enhanced due diligence includes analyzing historical account activity, verifying the source of funds, reviewing recipient accounts, and assessing whether the transfers align with the client’s financial profile. If documentation or satisfactory explanations cannot be obtained, escalation to compliance and potential filing of a suspicious activity report is necessary. Accepting these deposits without scrutiny exposes the bank to regulatory sanctions and reputational risk.

B) Routine domestic payroll deposits are low-risk activities that are expected in a business’s day-to-day operations. While they should be monitored, they do not typically involve multiple accounts or cross-border transfers designed to conceal illicit activity. Payroll deposits are generally traceable and predictable, making them an unlikely method for money laundering.

C) Monthly utility bill payments are routine consumer transactions and do not involve complex patterns, layering, or concealment of funds. They are low-risk, predictable, and verifiable, and do not indicate money laundering. Ignoring these for the purpose of comparison highlights the stark difference with structured deposits for illicit purposes.

D) Standard savings deposits are also low-risk. They usually reflect personal income or small, verifiable savings accumulation. While banks must monitor for unusual spikes in deposits, ordinary savings deposits lack the characteristics associated with structured layering or cross-border concealment.

The activity most indicative of money laundering is deliberate structuring of deposits to evade reporting requirements, making A correct.

Question 177

A high-net-worth client creates multiple offshore entities with complex ownership structures but provides minimal information regarding beneficial ownership or source of funds. What is the appropriate action for the bank?

A) Accept the client’s arrangement as normal for asset management
B) Conduct enhanced due diligence on all offshore entities, beneficial owners, and sources of funds
C) Ignore the structure because the client has a long-standing relationship with the bank
D) Automatically reject all offshore structures

Answer: B

Explanation

A) Accepting the offshore arrangements as normal for asset management is risky. While wealthy clients often use offshore structures for legitimate tax planning, inheritance, or investment purposes, the lack of transparency about ownership or source of funds increases the risk of money laundering. Criminals often exploit complex structures to conceal illicit proceeds, making verification essential. Accepting these structures without investigation could expose the bank to regulatory penalties, reputational harm, and potential facilitation of criminal activity.

B) Conducting enhanced due diligence is the correct course of action. This involves identifying all beneficial owners, reviewing governance documents, verifying source of funds, assessing the regulatory environment of the offshore jurisdictions, and understanding the purpose and legitimacy of each entity. Enhanced due diligence may include obtaining legal documents, auditing financial statements, and screening for PEPs or sanctioned individuals. The bank must also assess whether the client’s activity is consistent with their known financial profile. Failure to provide sufficient documentation or identify inconsistencies should result in escalation to compliance and potential filing of a suspicious activity report. Enhanced due diligence balances regulatory compliance with legitimate client activity while mitigating the risk of money laundering.

C) Ignoring the structure due to a long-standing relationship is inappropriate. Even experienced clients may engage in high-risk activities. Longevity does not mitigate the obligation to verify complex, opaque structures.

D) Automatically rejecting offshore structures is overly rigid. Many offshore structures are legitimate, and outright rejection could disrupt client relationships unnecessarily. Investigation and verification should precede any denial of services.

Enhanced due diligence with verification of beneficial ownership and source of funds is the correct and prudent approach, making B correct.

Question 178

A client regularly sends small donations to newly established charities in regions known for terrorist activity without documentation. What is the primary regulatory concern?

A) Potential terrorist financing
B) Routine charitable contributions
C) Domestic tax compliance
D) Standard banking behavior

Answer: A

Explanation

A) The primary concern is potential terrorist financing. Terrorist organizations often exploit charitable donations to funnel funds for illicit purposes, especially through newly established or informal entities. Even small donations can be structured to avoid detection, making them an important indicator of high-risk activity. Banks are required to conduct enhanced due diligence, including verifying the legitimacy of the charity, understanding its beneficiaries, reviewing governance and registration documents, and checking for links to sanctioned or high-risk individuals. Regular monitoring of transaction patterns and escalation to compliance for suspicious activity reporting is essential. Failure to identify and investigate these donations could expose the institution to regulatory penalties and reputational damage.

B) Routine charitable contributions are low-risk and do not raise regulatory concerns unless they involve high-risk regions, undocumented beneficiaries, or suspicious transactional patterns.

C) Domestic tax compliance, while relevant for reporting purposes, is secondary to the immediate concern of potential misuse of funds for terrorist purposes. Tax compliance alone does not mitigate the risk of terrorist financing.

D) Standard banking behavior is unrelated. Typical transactions like payroll, bill payments, or ordinary savings do not involve unexplained donations to high-risk regions.

Enhanced due diligence and monitoring for potential terrorist financing represent the correct regulatory response, making A correct.

Question 179

A client deposits cash below the reporting threshold and immediately wires the combined total to multiple foreign accounts in high-risk jurisdictions. What is the correct action for the bank?

A) Accept the activity as routine banking
B) Conduct enhanced due diligence and assess the pattern for structuring or layering
C) Ignore the activity because individual deposits are small
D) Close the client’s account immediately without investigation

Answer: B

Explanation

A) Accepting the activity as routine banking is inappropriate. Structuring cash deposits to avoid reporting thresholds, followed by international transfers, is a classic layering technique. Criminals use this method to obscure the origin of illicit funds. Failing to investigate exposes the bank to regulatory penalties and reputational harm.

B) Conducting enhanced due diligence and assessing the pattern for structuring or layering is correct. The bank should trace the source of funds, verify recipient accounts, request supporting documentation, and evaluate the client’s financial profile. Pattern analysis is crucial to identify potential structuring of deposits to evade reporting requirements. Escalation to compliance and consideration of a suspicious activity report may be required if risks remain unmitigated. This approach ensures compliance with AML regulations, protects the bank, and helps prevent illicit funds from entering the financial system.

C) Ignoring the activity because individual deposits are small is unsafe. Even small transactions can be significant when aggregated, particularly with cross-border transfers to high-risk jurisdictions. Regulators emphasize pattern recognition and risk-based monitoring.

D) Closing the account immediately without investigation is extreme. Proper due diligence and escalation should precede any restrictive actions to avoid disrupting legitimate activity and creating legal complications.

Enhanced due diligence, documentation verification, and escalation provide a compliant and prudent approach, making B correct.

Question 180

Which scenario most strongly suggests trade-based money laundering?

A) An importer consistently over-invoices goods to move excess funds abroad
B) A client pays utility bills regularly
C) A customer deposits personal paychecks into a savings account
D) A small business purchases office supplies locally

Answer: A

Explanation

A) Over-invoicing in trade transactions is a primary indicator of trade-based money laundering. Criminals manipulate invoices to move illicit funds across borders under the guise of legitimate trade. By inflating invoices, excess funds are sent abroad, obscuring the origin and purpose of money. Trade-based laundering often involves multiple jurisdictions, shell companies, and complex documentation. Banks are expected to analyze trade invoices, shipping documents, and customs declarations to identify discrepancies between declared and actual values. Any irregularities should trigger enhanced due diligence, escalation to compliance, and potential suspicious activity reporting. This approach mitigates the risk of being used to launder illicit funds through trade transactions.

B) Paying utility bills regularly is routine consumer behavior and does not involve international trade or attempts to obscure the origin of funds. It is low-risk and does not indicate laundering.

C) Depositing personal paychecks is standard and does not involve the complexity or cross-border movement associated with trade-based money laundering. While such deposits should be monitored for unusual patterns, they are generally low-risk.

D) Purchasing office supplies locally is routine business activity and does not involve cross-border flows, invoice manipulation, or concealment of funds. It is unrelated to trade-based laundering.

Manipulation of trade invoices to move funds across borders is the defining characteristic of trade-based money laundering, making A correct.