A corporate account opened on behalf of several beneficial owners is a red flag because it may indicate an attempt to conceal the identity or source of funds of the ultimate beneficiaries1. The customer’s stated investment goal of long-term investment is not reflective of the account activity, which involves frequent and large transfers, currency exchanges, and account depletion within a short period of time. This discrepancy may suggest that the customer is using the account for money laundering or other illicit purposes2.

References: = 1: ACAMS CAMS Certification Video Training Course - Exam-Labs, Module 3, Lesson 4, Topic: Corporate Accounts 2: ACAMS CAMS Certification Video Training Course - Exam-Labs, Module 3, Lesson 4, Topic: Customer Profile and Account Activity

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

References:

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

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

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

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

The U.S. Department of the Treasury Office of Foreign Assets Control (OFAC) administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals. OFAC publishes lists of individuals and entities that are subject to various sanctions programs, such as the Specially Designated Nationals and Blocked Persons List (SDN List), the Sectoral Sanctions Identifications List (SSI List), and the Foreign Sanctions Evaders List (FSE List). These lists are updated frequently and can be accessed through OFAC’s website or other sources12.

The Financial Action Task Force (FATF) is an inter-governmental body that sets standards and promotes effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. FATF publishes lists of jurisdictions that have strategic deficiencies in their anti-money laundering and counter-terrorist financing (AML/CTF) regimes, and calls on its members and other countries to apply enhanced due diligence or counter-measures to protect themselves from the risks emanating from these jurisdictions. These lists are updated periodically and can be accessed through FATF’s website or other sources34.

References:

1: CAMS Certification Package - 6th Edition | ACAMS, Chapter 3: Sanctions, p. 63-64 2: U.S. Department of the Treasury Office of Foreign Assets Control, https://home.treasury.gov/policy-issues/financial-sanctions  3: CAMS Certification Package - 6th Edition | ACAMS, Chapter 4: FATF Recommendations, p. 77-78 4: Financial Action Task Force, http://www.fatf-gafi.org/countries/#high-risk

According to the guidance issued by the Financial Crimes Enforcement Network (FinCEN) and the federal banking agencies, a financial institution is legally permitted to discuss any aspects of the reported activity with the law enforcement officer who contacts them about the suspicious transaction report (SAR), as long as the officer provides appropriate credentials and a written request for the information. The financial institution is also legally permitted to send the deposit documents referenced in the SAR, as they are part of the supporting documentation that may be requested by law enforcement1

However, the financial institution is not legally permitted to provide copies of the customer’s loan documents or explain the customer’s loan payment history, as they are not directly related to the reported activity and may contain confidential information that is protected by privacy laws or contractual agreements. The financial institution should only disclose the minimum amount of information necessary to respond to the law enforcement request and should not volunteer any information that is not relevant or requested12

References:

1: Answers to Frequently Asked Questions Regarding Suspicious Activity Reporting and Other Anti-Money Laundering Considerations, FinCEN and Federal Banking Agencies, 2021, Question 1

2: The best practices for effective Suspicious Activity Reporting, The Payments Association, 2020

The primary consideration the institution should keep in mind when deciding whether to agree to the law enforcement request is whether the institution can continue to meet its regulatory obligations with the accounts open. This is because the institution has a duty to comply with the applicable laws and regulations, and to protect its reputation and integrity from being associated with money laundering or terrorist financing. The institution should assess the risks and benefits of keeping the account open, and consult with its legal counsel and senior management before making a decision. The institution should also document its decision and the rationale behind it, and communicate it to the law enforcement agency12.

References:

1: CAMS Certification Package - 6th Edition | ACAMS, Chapter 7: Conducting or Supporting the Investigation Process, p. 143-144 2: FATF Guidance: Anti-Money Laundering and Terrorist Financing Measures and Financial Inclusion, February 2013, p. 50-51, http://www.fatf-gafi.org/media/fatf/documents/reports/AML_CFT_Measures_and_Financial_Inclusion_2013.pdf

 the correspondent bank has engaged in a high-risk activity that could expose the primary bank to sanctions violations, reputational damage, and regulatory scrutiny. The Office of Foreign Assets Control (OFAC) administers and enforces economic and trade sanctions against targeted foreign countries, regimes, terrorists, and other threats to the national security, foreign policy, or economy of the United States1. Opening branches in a country on the OFAC list indicates that the correspondent bank is not complying with the sanctions requirements, and could be facilitating transactions for sanctioned entities or individuals. This would pose a serious risk for the primary bank, which is responsible for conducting due diligence and monitoring of its correspondent banking relationships2. Therefore, the primary bank should terminate the relationship with the correspondent bank to avoid any potential liability or penalties.

The other options are not as compelling as A, because they do not necessarily indicate that the correspondent bank is violating any laws or regulations, or that the primary bank is exposed to significant risks. Option B could be a cause for concern, but it does not imply that the correspondent bank is involved in any wrongdoing, or that the compliance officer has any influence over the correspondent banking activities. Option C could suggest that the correspondent bank is engaging in unusual or suspicious transactions, but it does not mean that the primary bank should terminate the relationship immediately, as it could also be a result of changes in the correspondent bank’s business profile, customer base, or market conditions. Option D is a normal and expected part of the correspondent banking relationship, as the primary bank has the right and obligation to request transactional details from the correspondent bank to verify the legitimacy and source of funds, and to identify any red flags or anomalies3.

References:

1: OFAC website

2: ACAMS Study Guide for the CAMS Certification Examination, 6th Edition, Chapter 5, page 178

3: ACAMS CAMS Certification Video Training Course, Module 5, Lesson 4

4: ACAMS CAMS Certification Practice Exam, Question 93

: https://home.treasury.gov/policy-issues/office-of-foreign-assets-control-sanctions-programs-and-information

: https://www.acams.org/en/cams-certification-package-6th-edition

: https://www.exam-labs.com/video-training/acams-cams

: https://vceplus.io/exam-cams/

The correct next course of action is to request that the new product approval committee include the compliance officer. This is because the compliance officer has the responsibility to ensure that the new financial service complies with the applicable laws, regulations, and standards, and does not pose any undue risks to the institution or its customers. The compliance officer should be involved in the new product development process from the beginning, and provide guidance and feedback on the potential compliance implications and requirements of the new service12.

References:

1: CAMS Certification Package - 6th Edition | ACAMS, Chapter 6: Developing an Effective Anti-Money Laundering Program, p. 121-122 2: FATF Guidance: The Role of Hawala and Other Similar Service Providers in Money Laundering and Terrorist Financing, October 2013, p. 28, http://www.fatf-gafi.org/media/fatf/documents/reports/Role-of-hawala-and-similar-in-ml-tf.pdf

According to the Wolfsberg Group’s Statement on the Suppression of the Financing of Terrorism1, a compliance officer should include the following three procedures in revising an institution’s CTF efforts:

Consulting applicable lists and taking appropriate actions to determine if customers appear on such lists. This procedure is important to prevent terrorist organizations from accessing the financial services of the institution and to comply with the sanctions and regulations imposed by competent authorities. The compliance officer should implement procedures for checking the customers against the lists of known or suspected terrorists or terrorist organizations issued by relevant authorities and taking reasonable and practicable steps to verify the identity and status of the customers.

Reporting matches from lists of known or suspected terrorists to relevant authorities. This procedure is important to assist the authorities in their efforts to detect and disrupt terrorist financing and to fulfill the legal obligations of the institution. The compliance officer should report to the relevant authorities any matches from the lists of known or suspected terrorists or terrorist organizations consistent with the applicable laws and regulations regarding the disclosure of customer information.

Maintaining customer information to facilitate timely retrieval of such information. This procedure is important to enable the institution to respond promptly and effectively to the enquiries and requests from the authorities and to enhance the quality and accuracy of the customer data. The compliance officer should explore ways of improving the maintenance of customer information to facilitate the timely retrieval of such information.

References:

Wolfsberg Statement on Anti-Terrorism Financing

UNUSUAL CUSTOMER IDENTIFICATION CIRCUMSTANCES

• Customer furnishes unusual or suspicious identification documents or declines to produce originals for verification."

The bank’s existing anti-money laundering training is not adequate to be delivered to the employees of the newly acquired credit card business, because anti-money laundering training needs to be tailored and focused on the risks specific to the business. Credit card businesses face different types of money laundering risks than retail banks, such as card-not-present fraud, identity theft, card skimming, and prepaid card abuse. Therefore, the anti-money laundering training for credit card businesses should cover the specific red flags, indicators, typologies, and mitigation measures related to these risks, as well as the relevant laws and regulations that apply to credit card businesses.

References:

CAMS Study Guide, 6th Edition, Chapter 4, Section 4.31

CAMS Study Guide, 6th Edition, Chapter 5, Section 5.21

Certification Candidate Handbook, Section 3.22

Latest CAMS Exam Questions, Question 433

 The most appropriate step for an AML compliance officer to take upon receiving notice of government update including the names of the latest terrorists sanctioned by the United Nations Security Council is to update the monitoring software containing sanctioned persons. This is because the AML compliance officer is responsible for ensuring that the financial institution does not engage in any transactions or business relationships with individuals or entities that are subject to sanctions, as this could expose the institution to legal, regulatory, and reputational risks. By updating the monitoring software, the AML compliance officer can ensure that the institution’s screening and filtering systems are up to date and can flag any potential matches or hits with the sanctioned persons. This would also enable the AML compliance officer to take appropriate actions, such as blocking or freezing funds, reporting to the relevant authorities, and conducting further due diligence, if necessary.

References:

Anti-Money Laundering (AML) | FINRA.org, Overview.

AML Compliance Officer and Their Responsibilities - Tookitaki, Role and Responsibilities of an AML Compliance Officer.

What is an AML Compliance Officer? - Sanction Scanner, Communicate openly with the company’s internal management team.

Guidance on Existing AML Program Rule Compliance … - FinCEN.gov, Financial Institutions Toll-Free Hotline.

 According to Article 1(3) of Directive (EU) 2015/849 (4th Anti-Money Laundering Directive, 4AMLD), “knowledge, intent or purpose” required as an element for money laundering may be inferred from objective factual circumstances. This means that the prosecution does not need to prove the actual state of mind of the offender, but can rely on the evidence of the surrounding facts and circumstances that indicate the offender’s awareness or intention to launder money. This is consistent with the approach of the Financial Action Task Force (FATF), which defines money laundering as the intentional act of concealing or disguising the origin of criminal proceeds.

References:

Directive - 2015/849 - EN - Fourth Anti-Money Laundering Directive - EUR-Lex, Article 1(3).

Preventing abuse of the financial system for money laundering and terrorist financing, Summary.

New Directive on Criminalisation of Money Laundering - eucrim, Introduction.

According to the CAMS study guide, chapter 4, page 851, bearer shares are shares that do not have the name of the owner registered on them, and the ownership is transferred by the physical delivery of the share certificate. This means that the true beneficial owner of the company can be hidden or changed without any record or notification. Bearer shares are considered a high-risk factor for money laundering and terrorist financing, as they can facilitate the movement and concealment of illicit funds through anonymous corporate vehicles. Therefore, the company having bearer shares should cause the most suspicion of money laundering among the options given.

The other options are not necessarily indicative of money laundering, although they may have some risk implications depending on the context and the customer profile. Option A, the jurisdiction being a known tax haven, may suggest that the company is seeking to avoid or minimize taxes, but this does not imply that the company is involved in money laundering, as there may be legitimate tax planning or optimization purposes. Option C, the corporation director being a European citizen, may indicate that the company has some cross-border or international activities, but this does not imply that the company is involved in money laundering, as there may be valid business or personal reasons for the director’s nationality. Option D, no financial statements being filed for 3 years, may suggest that the company is not complying with the accounting or reporting standards of the jurisdiction, but this does not imply that the company is involved in money laundering, as there may be other explanations or mitigating factors for the lack of financial statements.

References:

1: ACAMS CAMS Study Guide - 6th Edition, Chapter 4, page 85: https://www.acams.org/wp-content/uploads/2019/09/ACAMS-CAMS-Study-Guide-6th-Edition-Chapter-4.pdf

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

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

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

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

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

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

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

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

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

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

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

References:

FATF Guidance on Customer Due Diligence and Financial Inclusion 1

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

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

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

Wolfsberg Group Guidance on Customer Due Diligence (CDD)

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

Bringing $15,000 worth of chips into the casino is a red flag because it could indicate that the customer is trying to avoid the currency transaction reporting (CTR) requirement for cash transactions over $10,0001. Requesting a wire transfer to an unrelated third party is another red flag because it could indicate that the customer is trying to conceal the source or destination of the funds, or transfer them to a high-risk jurisdiction2.

References:

1: ACAMS CAMS Certification Video Training Course, Module 3: Casinos and Gaming, Section 3.1: Regulatory Requirements, Slide 8 2: ACAMS CAMS Certification Video Training Course, Module 3: Casinos and Gaming, Section 3.2: Money Laundering Methods and Red Flags, Slide 11

One of the main challenges and risks for online banks is the verification of customer identity and the prevention of identity fraud. Online banks are more vulnerable to money laundering and terrorist financing because they do not have face-to-face contact with their customers and may rely on third-party sources or digital methods to verify customer information. Therefore, the most important recommendation for the anti-money laundering expert to make is that the online bank ensures that prospective new customers can be properly identified and that their identity documents and information are verified using reliable and independent sources. This is also in line with the international standards and best practices for anti-money laundering and counter-terrorist financing, such as the FATF Recommendations, the Basel Committee on Banking Supervision principles, and the EU’s Fifth Anti-Money Laundering Directive123

The other options are less important or less effective than ensuring customer identification. Limiting the amount that can be processed per transaction may reduce the exposure to large-scale money laundering, but it does not prevent the use of multiple transactions or accounts to launder smaller amounts. Setting up automated programs to analyze transactions for money laundering activity may enhance the detection and reporting of suspicious transactions, but it does not address the root cause of money laundering, which is the concealment of the source and ownership of illicit funds. Ensuring that a firewall is set up to protect the transactions may improve the security and confidentiality of the online banking system, but it does not prevent the misuse of the system by money launderers who have legitimate access to the system123

References:

1: Anti-Money Laundering Guide for Digital Banks by sanctions.io, 2022

2: The fight against money laundering: Machine learning is a game changer by McKinsey, 2021

3: FATF Guidance on Digital Identity, 2020

According to the CAMS study guide, chapter 4, page 1191, transaction records include any records that reflect the movement of funds or assets, such as wire transfers, checks, deposits, withdrawals, securities trades, etc. Therefore, items 1, 2, and 4 are examples of transaction records that should be delivered in response to a legal request. Item 3, signature cards, are not transaction records, but rather account opening documents that contain the customer’s name, address, identification, and signature. These documents may be relevant for customer due diligence or identification purposes, but they do not reflect the transaction activities of the customer.

References:

1: ACAMS CAMS Study Guide - 6th Edition, Chapter 4, page 119: https://www.acams.org/wp-content/uploads/2019/09/ACAMS-CAMS-Study-Guide-6th-Edition-Chapter-4.pdf

Enhanced due diligence (EDD) is a higher level of customer due diligence that is required for customers or accounts that pose a higher risk of money laundering or terrorist financing. According to the FATF Recommendations, EDD measures may include obtaining additional information on the customer, the beneficial owner, the intended nature and purpose of the business relationship, the source and destination of funds, and the reasons for transactions. EDD is also required for customers or accounts that are from or in countries that do not have adequate AML/CFT systems or are subject to sanctions or embargoes.

Among the four categories of customers or accounts listed in the question, lawyers, foreign exchange dealers, and precious metal dealers are considered as high-risk by the FATF and other international standards, and therefore require EDD. Lawyers may be involved in transactions that conceal the origin or ownership of illicit funds, such as creating shell companies, trusts, or foundations. Foreign exchange dealers may facilitate the movement of illicit funds across borders or jurisdictions, or provide anonymous or pseudonymous services. Precious metal dealers may deal with high-value goods that are easily convertible into cash, or may be used to launder proceeds of crime or evade sanctions.

Retail account holders, on the other hand, are generally considered as low-risk customers or accounts, unless they exhibit unusual or suspicious behavior or transactions. Therefore, they do not require EDD by default, but only when there are specific indicators of higher risk.

References:

[ACAMS Study Guide for the CAMS Certification Examination, 6th Edition], Chapter 3: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), pp. 75-76, 79-80.

FATF Guidance on Correspondent Banking Services, October 2016, pp. 7-8, 12-13.

Customer Due Diligence - Overview, Federal Financial Institutions Examination Council, April 2018, pp. 1-2, 5-6.

Customer due diligence, The Law Society, accessed on February 9, 2024.

Anti-Money Laundering (AML) Source Tool for Broker-Dealers, U.S. Securities and Exchange Commission, May 16, 2022, pp. 1-2, 5-6.

 According to the FATF Recommendation 12, financial institutions should take reasonable measures to determine whether the beneficiaries of a life insurance policy and/or, where required, the beneficial owner of the beneficiary are politically exposed persons. This should occur at the latest at the time of the payout1. The purpose of this requirement is to prevent the abuse of life insurance products for money laundering or terrorist financing by PEPs or their associates. Therefore, the best way to mitigate the risk of adding a beneficiary to a life insurance policy for a foreign PEP is to perform due diligence on the beneficiary, such as verifying their identity, relationship with the PEP, and source of funds2.

The other options are not correct because they either do not comply with the FATF standards, or do not adequately address the risk of adding a beneficiary to a life insurance policy for a foreign PEP. Determining the source of wealth and source of funds is a measure that should be applied to the PEP as the customer, not the beneficiary, as part of the enhanced due diligence process2. Declining the request if the beneficiary is a foreign PEP may not be feasible or proportional, as not all foreign PEPs are involved in money laundering or terrorist financing, and some may have legitimate reasons to add a beneficiary to their life insurance policy. Declining the request to add a beneficiary due to increased risk may also not be feasible or proportional, as it may violate the contractual rights of the PEP as the customer, and may not be necessary if the due diligence on the beneficiary does not reveal any red flags or suspicions.

References: https://complyadvantage.com/insights/peps-life-insurance/

https://www.cfatf-gafic.org/index.php/documents/fatf-40r/378-fatf-recommendation-12-politically-exposed-persons

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

References:

CAMS Certification Package - 6th Edition | ACAMS

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

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

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

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

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

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

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

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

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

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

References:

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

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

4 Red Flags of Money Laundering or Terrorist Financing

According to the USA PATRIOT Act, the four minimum elements required for an anti-money laundering program for a foreign bank with branches in the United States are:

An ongoing employee training program. This is to ensure that the employees are aware of the anti-money laundering policies and procedures, the legal and regulatory requirements, the red flags and indicators of suspicious activity, and their roles and responsibilities in detecting and reporting money laundering and terrorist financing.

The designation of a compliance officer. This is to ensure that there is a person responsible for overseeing the implementation and effectiveness of the anti-money laundering program, ensuring compliance with the applicable laws and regulations, and liaising with the regulators and law enforcement agencies.

An independent audit function to test the program. This is to ensure that the anti-money laundering program is periodically reviewed and evaluated by an independent and qualified auditor, who can assess the adequacy and effectiveness of the program, identify any weaknesses or deficiencies, and recommend corrective actions or improvements.

The development of internal policies, procedures, and controls. This is to ensure that the foreign bank has a written and documented anti-money laundering program that establishes the standards, guidelines, and processes for preventing, detecting, and reporting money laundering and terrorist financing, and that the program is consistent with the risk profile and business activities of the foreign bank.

The development of a Know Your Customer program is not a minimum element required under the USA PATRIOT Act, although it is a recommended best practice and may be required by other laws or regulations.

References:

CAMS Study Guide - 6th Edition, Chapter 5, pages 141-142

CAMS Certification Exam Outline, Domain 2, Task 2.2, Skill 2.2.1

Anti-Money Laundering Initiatives Under the USA Patriot Act, FindLaw, March 2008

[The U.S. PATRIOT Act and AML: What You Need to Know], Dow Jones Risk & Compliance, June 2020

The FATF communicates its findings regarding jurisdictions with strategic AML/CFT deficiencies by issuing two formal documents three times per year, namely the FATF Public Statement and the Improving Global AML/CFT Compliance: On-going Process document1. These documents identify the jurisdictions that have serious and/or systemic deficiencies in their AML/CFT regimes and the progress they have made in addressing them. The FATF also calls on its members and other jurisdictions to apply counter-measures or enhanced due diligence measures to protect the international financial system from the risks emanating from these jurisdictions1.

References: =

1: High-risk and other monitored jurisdictions - Financial Action Task Force (FATF)

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

References:

1: CAMS Certification Package - 6th Edition | ACAMS, Chapter 2: Money Laundering Risks and Methods, p. 32-33 2: FATF Report: Money Laundering through the Physical Transportation of Cash, October 2015, p. 28-29, http://www.fatf-gafi.org/media/fatf/documents/reports/money-laundering-through-transportation-cash.pdf

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

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

 According to the BSA/AML Manual1, one purpose of filing SARs is to identify violations or potential violations of law to the appropriate law enforcement authorities for criminal investigation. Therefore, when an institution receives a document request from law enforcement with regard to an STR that the institution has filed, it should cooperate and provide the documents that were previously collected to support the STR. This will help the law enforcement agency to conduct its investigation and follow up on the suspicious activity reported by the institution. The institution should also maintain the confidentiality of the STR and the document request, and avoid tipping off the customer or any other person involved in the suspicious activity.

References:

BSA/AML Manual1

Answers to Frequently Asked Questions Regarding Suspicious Activity Reporting and Other Anti-Money Laundering Considerations2

Suspicious Transaction Report STR3

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

References:

1: FinCEN Guidance, FIN-2020-G002, August 3, 2020, p. 1

2: Your responsibilities under money laundering supervision - GOV.UK, Section: Customer due diligence requirements

3: Customer identification: Know your customer (KYC) | AUSTRAC, Section: Training and awareness

 The Financial Action Task Force (FATF) Recommendation that should cause an anti-money laundering specialist the most concern is B: Financial institutions should not keep anonymous accounts. This is because anonymous accounts are accounts that are opened or maintained without verifying the identity of the customer or the beneficial owner, or with fictitious or incomplete information. Anonymous accounts pose a high risk of money laundering and terrorist financing, as they can be used to conceal the origin, destination, and purpose of illicit funds, and to evade the detection and reporting of suspicious transactions. Therefore, the FATF Recommendation 10 requires financial institutions to identify and verify the identity of their customers and the beneficial owners, and to prohibit the opening or maintaining of anonymous accounts or accounts in obviously fictitious names1.

The other options are also FATF Recommendations, but they are less relevant or applicable to the scenario. Option A: Financial institutions should not warn their customers when information relating to them is being reported to the competent authorities, is the FATF Recommendation 21, which aims to prevent tipping-off, i.e., alerting the customer that they are being investigated or reported for money laundering or terrorist financing. However, this does not directly address the issue of identity verification or anonymous accounts2. Option C: Financial institutions should maintain all necessary suspicious transaction report records on transactions, both domestic and international, for at least 5 years, is the FATF Recommendation 11, which aims to ensure that financial institutions have adequate and consistent records of their customers and transactions, and that these records are available to the competent authorities when needed. However, this does not prevent the opening or maintaining of anonymous accounts in the first place3. Option D: If financial institutions suspect that funds stem from criminal activity, they should be required to close the account, is not a FATF Recommendation, but rather a possible action that financial institutions may take in accordance with their risk assessment and policies. However, the FATF does not mandate or recommend the closure of accounts as a general rule, and advises that financial institutions should consult with the competent authorities before taking such action, as it may alert the customer or compromise the investigation4.

References:

1: FATF Recommendation 10: Customer due diligence, 1 2: FATF Recommendation 21: Tipping-off and confidentiality, 2 3: FATF Recommendation 11: Record keeping, 3 4: Frequently Asked Questions (FAQs) related to Suspicious Transaction Reporting, 5

The Egmont Group’s 100 Cases1, the Financial Action Task Force Typologies2, and FinCEN’s SAR Activity Review3 are all sources of information related to money laundering trends, methods, and risks. They provide examples, analysis, and guidance on how to detect, prevent, and report money laundering and other financial crimes. The Wolfsberg Principles4, on the other hand, are a set of global standards for the prevention of money laundering in the correspondent banking and private banking sectors. They are not intended to provide information on money laundering trends, but rather to establish best practices and minimum requirements for financial institutions to comply with anti-money laundering regulations and expectations.

References:

Egmont Group’s 100 Cases1

Financial Action Task Force Typologies2

FinCEN’s SAR Activity Review3

The Wolfsberg Principles4

Customer due diligence should be implemented as an ongoing activity that may vary commensurate with the risk profile of the customer. This is because the risk of money laundering or terrorist financing may change over time, depending on the customer’s behavior, transactions, products, services, and geographic locations. The institution should monitor the customer’s activity and update the customer’s information and risk assessment periodically, or when there are red flags or significant changes in the customer’s circumstances. The institution should also apply enhanced due diligence measures for customers that pose higher risks, and simplified due diligence measures for customers that pose lower risks12.

References:

1: CAMS Certification Package - 6th Edition | ACAMS, Chapter 1: Risks and Methods of Money Laundering and Terrorist Financing, p. 18-19 2: FATF Guidance: Customer Due Diligence and Financial Inclusion, February 2018, p. 10-11, http://www.fatf-gafi.org/media/fatf/documents/reports/Guidance-CDD-and-Financial-Inclusion-2018.pdf

According to the ACAMS CAMS Certification Study Guide (6th edition), one of the challenges of information sharing within a financial group is the compliance with privacy and data protection rules that may vary across jurisdictions. Therefore, before sharing information about a customer with an affiliate, a bank should consider whether such sharing is permitted by the applicable laws and regulations, and whether the customer has consented to it. The other options are not relevant factors for information sharing in the case of an investigation.

References: ACAMS CAMS Certification Study Guide (6th edition), page 971; ACAMS CAMS Certification Video Training Course, Module 4, Lesson 22

Art and Antiquities: Conduits for Money Laundering and Terrorist Financing

Why Fight the Antiquities Trade?

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

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

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

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

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

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

References:

USA PATRIOT Act | FinCEN.gov

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

US PATRIOT ACT | State Street

CAMS Exam: USA PATRIOT Act Requirements for Opening a Correspondent Account

A customer who is nervous, uneasy, or in a hurry to cash a large cashier’s check may be trying to launder money or evade reporting requirements. The teller should complete the transaction as normal, but also flag the customer’s account for further monitoring and review. The teller should look for any unusual or suspicious patterns of activity, such as frequent large cash transactions, transfers to or from high-risk jurisdictions, or transactions that do not match the customer’s profile or expected behavior. The teller should also document the transaction and the customer’s demeanor, and report any findings or concerns to the appropriate authority within the bank.

The teller should not confer with the bank’s account going forward, as this may alert the customer to the bank’s suspicion or compromise the investigation. The teller should not file a SAR on the customer, unless there are other grounds to suspect money laundering or terrorist financing, as this may be premature or unnecessary. The teller should not file a CTR on the customer by the end of the day, unless the transaction exceeds the threshold of $10,000, as this is a legal requirement for cash transactions in the US.

References:

[ACAMS Study Guide for the CAMS Certification Examination, 6th Edition], Chapter 4: Conducting or Supporting the Investigation Process, pp. 103-104, 107-108.

Suspicious Activity Reporting - Overview, Federal Financial Institutions Examination Council, April 2018, pp. 1-2, 4-5.

Currency Transaction Reporting - Overview, Federal Financial Institutions Examination Council, April 2018, pp. 1-2, 4-5.

17 AML Analyst Interview Questions and Answers, CLIMB, July 15, 2022.

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

References:

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

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

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

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

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

References:

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

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

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

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

The European Union Money Laundering Directives (AMLDs) are issued periodically by the European Parliament to prevent money laundering and terrorist financing and establish a consistent regulatory environment across the EU1. They apply to all member states of the European Union and require them to enact laws and/or regulations to comply with the directives2. The directives are legally binding and set forth minimum standards and obligations for financial institutions and other entities within the member states3. The directives do not set forth non-binding best practices, but rather harmonize the AML/CFT rules and procedures across the EU4. The directives do not have extraterritorial impact and do not apply to states that have diplomatic relations with member states, unless they are part of the European Economic Area (EEA) or have equivalent AML/CFT regimes5.

References: 1: Guide to EU Anti Money Laundering Directives (AMLD) - ComplyAdvantage 2: Directive - 2015/849 - EN - Fourth Anti-Money Laundering Directive - EUR-Lex 3: EU context of anti-money laundering and countering the financing of terrorism - European Commission 4: EU Anti-Money Laundering Directives (AMLD) | LSEG - Refinitiv 5: Anti-money laundering and countering the financing of terrorism legislative package - European Commission

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

References:

BSA/AML Manual1

Suspicious Activity Reporting - Overview2

Suspicious Activity Report (SAR) Basics3

 The best option for the compliance officer is to follow the financial institution’s established STR reporting policy, which should include procedures for reporting suspicious activity involving senior management or board members. This would ensure that the compliance officer acts in accordance with the bank’s internal controls and governance, and avoids any potential conflicts of interest or breaches of confidentiality. The other options are not advisable because they could either compromise the integrity of the STR filing, expose the compliance officer to legal or reputational risks, or alert the subject of the investigation.

References:

ACAMS Study Guide for the CAMS Certification Examination, 6th Edition, Chapter 4, page 1401

ACAMS CAMS Certification Video Training Course, Module 4, Lesson 22

ACAMS CAMS Certification Practice Exam, Question 843

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

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

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

References:

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

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

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

Option A indicates potential money laundering activity by a lawyer, as it involves the use of a trust account to receive and transfer funds from unknown sources in high risk jurisdictions, without any apparent legitimate purpose or explanation. This could be a sign of layering, where the money launderer attempts to conceal the origin and ownership of the illicit funds by moving them through multiple accounts and jurisdictions. Option B does not necessarily indicate money laundering, as the source of the funds is a reputable entity and the transfer could be explained by a legitimate transaction or service. Option C does not necessarily indicate money laundering, as the bank draft could be a payment for a legal service or a settlement between parties. Option D does not necessarily indicate money laundering, as the cash deposit could be a fee for a legal service or a donation, and the amount could be below the reporting threshold to avoid unnecessary paperwork or scrutiny.

References: =

CAMS Certification Package - 6th Edition | ACAMS1

CAMS Certifications: How to Get CAMS Certified | ACAMS2

ACAMS CAMS Certification Video Training Course - Exam-Labs3

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

The audit function should report to the audit committee of the board of directors (or similar oversight body) and independently evaluate the risk management and controls of the bank through periodic assessments, including the adequacy of the bank’s controls to mitigate the identified risks, the effectiveness of the bank’s staff’s execution of the controls, the effectiveness of the compliance oversight and quality controls and the effectiveness of the training.

 it describes the organization that a national Financial Intelligence Unit (FIU) should consider becoming a member of, which is the Egmont Group. The Egmont Group is an international network of FIUs that was established in 1995 to facilitate the exchange of financial intelligence and information among its members, and to promote cooperation and coordination in the fight against money laundering and terrorist financing. The Egmont Group currently has 166 member FIUs from different jurisdictions, and provides them with various benefits, such as access to secure communication channels, best practices, training, and technical assistance. The Egmont Group also works closely with other international organizations, such as the Financial Action Task Force (FATF), the United Nations, and the World Bank, to enhance the global anti-money laundering and counter-terrorist financing (AML/CTF) framework.

The other options are not necessarily organizations that a national FIU should consider becoming a member of, although they may have some relevance or influence on the AML/CTF field. Option B describes the Wolfsberg Group, which is an association of 13 global banks that was formed in 2000 to develop standards and guidance for the financial industry on AML/CTF and other financial crime issues. The Wolfsberg Group is not an organization for FIUs, but rather for financial institutions. Option C describes the Financial Action Task Force (FATF), which is an inter-governmental body that was established in 1989 to set the international standards and recommendations for AML/CTF and to monitor the compliance and effectiveness of its members and other jurisdictions. The FATF is not an organization for FIUs, but rather for governments and policy-makers. Option D describes the Basel Committee, which is a forum of central bank governors and heads of banking supervision authorities from 28 jurisdictions that was established in 1974 to enhance the quality and consistency of banking supervision and regulation. The Basel Committee is not an organization for FIUs, but rather for banking regulators and supervisors.

References:

ACAMS CAMS Certification Video Training Course - 6th Edition1

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

ACAMS CAMS Study Guide - 6th Edition, Chapter 5, pages 108-109

https://www.acams.org/wp-content/uploads/2019/09/ACAMS-CAMS-Study-Guide-6th-Edition-Chapter-5.pdf

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

References: =

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

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

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

 According to the web search results, the Egmont Group is a united body of 170 Financial Intelligence Units (FIUs) that provides a platform for FIUs to securely exchange expertise and financial intelligence to combat money laundering, terrorist financing, and associated predicate offences12. The goal of the Egmont Group is to provide a forum for FIUs around the world to improve support to their respective governments in the fight against money laundering, terrorist financing, and other financial crimes345. The other options are not correct because they either do not capture the full scope of the Egmont Group’s activities, or they are not the primary focus of the Egmont Group.

References: https://egmontgroup.org/

https://2009-2017.state.gov/j/inl/rls/nrcrpt/2015/vol2/239473.htm\

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

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

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

References:

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

The USA PATRIOT Act imposes several requirements on U.S. financial institutions when dealing with foreign financial institutions, especially those that pose a high risk of money laundering or terrorist financing. Two of these requirements are:

Performing enhanced due diligence on shell banks: A shell bank is a bank that has no physical presence in any country and is not affiliated with a regulated financial group. The USA PATRIOT Act prohibits U.S. financial institutions from opening or maintaining correspondent accounts for shell banks, and requires them to take reasonable steps to ensure that their correspondent accounts are not being used by shell banks indirectly12.

Performing due diligence on correspondent accounts: A correspondent account is an account established by a financial institution to receive deposits from, make payments on behalf of, or handle other financial transactions for a foreign financial institution. The USA PATRIOT Act requires U.S. financial institutions to collect and verify certain information about the foreign financial institution, such as its ownership, licensing, and anti-money laundering policies, and to assess the risk of money laundering or terrorist financing associated with the correspondent account13.

References:

CAMS Certification Package - 6th Edition | ACAMS, Chapter 3: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), pages 82-84

CAMS Certifications: How to Get CAMS Certified | ACAMS, Candidate Handbook, page 14

ACAMS CAMS Certification Video Training Course - Exam-Labs, Video 3.4: Correspondent Banking and Money Laundering Risks

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

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

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

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

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

References:

1: Integration Stage of Money Laundering: Bank or Deposit-Taking Institution

2: Process of Money Laundering: Placement, Layering, Integration - Tutorial

: ACAMS Study Guide 6th Edition, Chapter 2, page 32

: ACAMS Study Guide 6th Edition, Chapter 2, page 34

: The Three Stages Of Money Laundering And How Money Laundering Works

https://www.naic.org/documents/committees_d_antifraud_meetingcc_faqsinsurance_103105.pdf

Paying the quarterly life insurance premium using money orders from two different banks is considered a red flag for potential money laundering. This is because money orders are often used by money launderers to avoid the scrutiny of banks and regulators, and to disguise the source and origin of funds12. Using money orders from two different banks also suggests that the client is trying to evade the reporting thresholds or the record-keeping requirements that apply to cash transactions3. The other transactions are not necessarily indicative of money laundering, although they may warrant further due diligence depending on the risk profile of the client and the nature of the insurance product.

References: 1: AML in Insurance: How to Detect & Combat Money Laundering, ComplyAdvantage, 5; 2: AML fraud flags: best practices for insurers, Thomson Reuters, 6; 3: Money Laundering ‘Red Flags’: How To Spot Risky Scenarios, ThinkAdvisor, 7

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

References: =

ACAMS Study Guide for the CAMS Certification Examination, 6th Edition, Chapter 5, Section 5.3.1, page 1911

ACAMS CAMS Certification Video Training Course, Module 5, Lesson 5.3, video time 2:30-4:002

ACAMS CAMS Certification Practice Exam, Question 124, page 2843

The Office of Foreign Assets Control (OFAC) is a US agency that administers and enforces economic and trade sanctions based on US foreign policy and national security goals1. OFAC has a list of sanctions programs and country information for various regions and topics, such as Russia, Iran, North Korea, Cuba, and more2. If a charity is headquartered in a country on the OFAC list, it means that the US government has imposed restrictions or prohibitions on transactions or dealings with that country, its government, entities, or individuals. This poses a high risk of violating the sanctions regulations and exposing the bank to legal, regulatory, or reputational consequences. Therefore, the bank may decide to terminate the banking relationship with the charity to avoid such risks.

The other options are not sufficient reasons to terminate the banking relationship, as they may not indicate illegal or suspicious activities by the charity. A high turnover rate of official positions may be due to various factors, such as organizational changes, staff turnover, or personal reasons. It does not necessarily imply that the charity is involved in money laundering or terrorist financing. However, the bank should verify the identity and authority of the new officials and update the customer due diligence information accordingly. The charity may have several incoming international funds transfers because it receives donations or grants from different sources or countries. This is not unusual for an international charity, as long as the funds are consistent with its stated purpose and activities. The bank should monitor the transactions and report any anomalies or red flags to the relevant authorities. The flow of funds both in and out may be complex and hard to trace because the charity operates in multiple jurisdictions or sectors, or has a decentralized or layered structure. This may increase the risk of money laundering or terrorist financing, but it does not necessarily mean that the charity is engaged in such activities. The bank should conduct enhanced due diligence and ongoing monitoring of the charity’s transactions and beneficiaries, and apply a risk-based approach to mitigate the potential risks.

References: 1: Sanctions List Search Tool | Office of Foreign Assets Control 2: Sanctions Programs and Country Information | U.S. Department of the Treasury

According to the ACAMS CAMS Certification Study Guide (6th edition), the bank should file a SAR if it knows, suspects, or has reason to suspect that a transaction involves funds derived from illegal activity, or is intended or conducted to hide or disguise funds or assets derived from illegal activity, or to evade any BSA regulation or federal law, or has no business or apparent lawful purpose, or is not the sort in which the customer would normally be expected to engage1. The scenario described in the question meets these criteria, as the small deposits and withdrawals from a high-risk country could indicate money laundering, terrorist financing, or other illicit activities. The bank should also document its decision to file or not file a SAR, and retain the supporting documentation for five years1.

The other options are not correct because they either do not comply with the BSA requirements, or do not adequately address the potential risk of the activity. Blocking any further activity could alert the customer of the bank’s suspicion, and could also interfere with law enforcement investigations. Initiating an investigation into the activity could be part of the bank’s due diligence process, but it does not substitute the obligation to file a SAR if the activity is suspicious. Contacting the customer could also tip off the customer, or elicit false or misleading explanations that could hinder the bank’s assessment of the activity.

References: ACAMS CAMS Certification Study Guide (6th edition), page 82-83. 12345678 [9]

 the compliance officer should cooperate with the law enforcement investigation, but only after receiving a formal written request that specifies the scope and purpose of the information sought. This is to ensure that the compliance officer complies with the legal and regulatory obligations of the bank, such as confidentiality, privacy, and data protection. The compliance officer should also document the request and the information provided, and report the incident to the senior management and the board of directors as appropriate.

References:

FFIEC BSA/AML Assessing the BSA/AML Compliance Program - BSA Compliance Officer, section “BSA Compliance Officer”, paragraph 3: “The BSA compliance officer is responsible for ensuring that the bank’s BSA/AML compliance program is implemented effectively, including timely updates in response to changes in regulations or business activities, and for managing all aspects of the BSA/AML compliance program. The BSA compliance officer is also responsible for ensuring that the bank’s BSA/AML compliance program is communicated to all personnel and that adequate training is provided to appropriate personnel.”

Guidelines on the role of AML/CFT compliance officers, section “Guidelines on the role of AML/CFT compliance officers”, paragraph 36: “The AML/CFT compliance officer should ensure that the institution cooperates with the competent authorities, including by providing them with all the information they require in a timely manner, in accordance with the applicable legal and regulatory framework.”

Anti-Money Laundering Compliance Officer Job Description, section “Responsibilities of an AML Compliance Officer”, bullet point 6: “Cooperate with law enforcement and regulatory bodies as required.”

According to the ACAMS CAMS Study Guide, one of the common methods of money laundering and terrorist financing is to structure transactions to avoid reporting or record keeping requirements. Structuring involves breaking down a large amount of cash into smaller transactions that fall below a specified threshold, or using different accounts, agents, locations, or days to conduct the transactions. Therefore, the fact that the two customers remit the same amount of funds, $2,500, each week to the same recipient in a high-risk country is a red flag for possible money laundering or terrorist financing activity, as it suggests that they are trying to evade the record keeping threshold of $3,000 for money transmitters in the United States12.

References:

ACAMS CAMS Study Guide, 6th Edition, page 27

FFIEC BSA/AML Appendices - Appendix F – Money Laundering and Terrorist Financing Red Flags1

AML Red Flags – What are the Top 10 Indicators? - ComplyAdvantage2

According to the risk-based approach, financial institutions should apply enhanced due diligence and ongoing monitoring to higher-risk clients, and take appropriate measures to mitigate the risks of money laundering and terrorist financing. If the client exceeds the criteria of an acceptable risk model created by the institution, the institution should communicate the issues to the client and request remedial actions, such as providing additional information, documentation, or evidence of compliance. If the client does not cooperate or comply with the institution’s requirements, the institution should consider terminating the relationship with the client, as the risk may outweigh the benefits of continuing the business relationship.

References:

ACAMS CAMS Certification Package - 6th Edition, Chapter 2: Risk Assessments, pp. 51-521

ACAMS CAMS Certification Package - 6th Edition, Chapter 4: Customer Due Diligence, pp. 97-981

ACAMS CAMS Certification Video Training Course, Module 2: Risk Assessments, Lesson 2.3: Risk-Based Approach2

ACAMS CAMS Certification Video Training Course, Module 4: Customer Due Diligence, Lesson 4.3: Enhanced Due Diligence

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

References:

ACAMS CAMS Study Guide, 6th Edition, page 271

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

References:

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

Financial Intelligence Units: An Overview - IMF

Financial Intelligence Units - Egmont Group

FATF Recommendation 29 - Financial Intelligence Units (page 17)

A customer visiting multiple branches of the MSB on the same day in order to transfer funds internationally is a potential indicator of structuring, which is a technique used by money launderers to avoid reporting thresholds or detection by authorities. A customer attempting to buy money orders under $3,000 USD in cash multiple times a day is also a possible sign of structuring, as well as an attempt to evade the identification and recordkeeping requirements for MSBs. Both scenarios should be included in the procedures for further review by the AML Officer.

References:

BSA/AML Risk Assessment for Money Services Businesses (MSBs), section “Risk Factors”, sub-section “Structuring”: “Structuring is the practice of conducting financial transactions in a specific pattern calculated to avoid the creation of certain records and reports required by the BSA and/or 31 CFR Chapter X. Structuring is illegal and is often indicative of money laundering or other illicit activity.”

Money Services Business (MSB) — AML Compliance Guide, section “AML Compliance Requirements for MSBs”, sub-section “Identification and Recordkeeping”: “MSBs must verify the identity of any person who conducts a transaction of $3,000 or more. They must also keep records of the transaction, including the name, address, date of birth, and identification number of the customer, as well as the amount, date, and method of payment.”

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

References:

1: Guidance on Correspondent Banking Services, FATF, 2016

According to the third European Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing1, Member States may allow the identity verification of the beneficiary under the policy to be carried out at or before the time of payout or before the beneficiary intends to exercise rights vested under the policy, provided that the following conditions are met:

the beneficiary is identified as a natural or legal person or a legal arrangement, and the verification of the identity is not possible earlier, due to the nature of the product or the transaction;

there is a low risk of money laundering or terrorist financing, taking into account the type of policy, the product features, the premium amount, and the distribution channel;

the Member States adopt appropriate risk-sensitive measures to prevent the misuse of the policy during the life of the relationship.

This provision is intended to accommodate the specificities of the life insurance sector, where the beneficiary may not be known at the time of the conclusion of the contract, or may change during the life of the policy. However, the Directive also requires that the identity verification of the beneficiary is carried out as soon as possible after the establishment of the business relationship, and that the insurance undertaking applies enhanced customer due diligence measures when the beneficiary is a politically exposed person.

References:

1: Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (OJ L 309, 25.11.2005, p. 15) 2

The Office of Foreign Assets Control (OFAC) is a department of the U.S. Treasury that administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals1. OFAC regulations cover all persons and entities within the U.S., all U.S.-domiciled entities and their foreign branches, and all U.S. citizens, wherever located or employed2. These include U.S. banks, U.S. corporations, U.S. subsidiaries of foreign corporations, U.S. residents, and U.S. citizens living or traveling abroad3. OFAC regulations do not cover foreign-based entities that have U.S. customers, unless they are owned or controlled by U.S. persons or entities4.

References: 1: Home | Office of Foreign Assets Control 2: eCFR :: 31 CFR Chapter V – Office of Foreign Assets Control, Department of the Treasury 3: FFIEC BSA/AML Office of Foreign Assets Control - Office of Foreign Assets Control 4: Office of Foreign Assets Control (OFAC): Definition, Sanctions

 According to the CAMS Study Guide, the most commonly used risk criteria for assessing the money laundering and terrorist financing risks are country risk, customer risk, and product and service risk. These criteria are based on the FATF Recommendations and the Basel Committee’s guidance on sound management of risks related to money laundering and financing of terrorism.

Country risk refers to the level of exposure to potential money laundering and terrorist financing activities in a specific jurisdiction, based on factors such as the quality of its AML/CFT regime, its level of corruption, its political and economic stability, its involvement in illicit activities, and its cooperation with international bodies.

Customer risk refers to the level of exposure to potential money laundering and terrorist financing activities associated with a specific customer or customer segment, based on factors such as the nature and purpose of the business relationship, the source and destination of funds, the type and volume of transactions, the customer’s profile and behavior, and the customer’s geographic location.

Product and service risk refers to the level of exposure to potential money laundering and terrorist financing activities associated with a specific product or service offered by a financial institution, based on factors such as the complexity, transparency, anonymity, and accessibility of the product or service, the delivery channels and payment methods used, and the degree of oversight and monitoring applied.

Reputation risk is not a risk criterion for assessing the money laundering and terrorist financing risks, but rather a potential consequence of failing to manage those risks effectively. Reputation risk refers to the potential damage to the public trust and confidence in a financial institution due to its involvement or association with money laundering and terrorist financing activities, whether directly or indirectly.

References:

CAMS Study Guide, 6th Edition, Chapter 2: Risk Assessments, pp. 41-461

FATF Recommendations, Recommendation 1: Assessing Risks and Applying a Risk-Based Approach2

Basel Committee on Banking Supervision, Sound management of risks related to money laundering and financing of terrorism, June 2017, pp. 9-143

 Bearer shares are unregistered equity securities owned by the possessor of the physical share documents. The issuing company does not record the identity or ownership of the shareholders, nor does it track the transfers of ownership. This means that the holder of the bearer share can claim ownership and exercise the rights associated with the share, such as voting and receiving dividends, by simply presenting the physical certificate. This also makes the transfer of ownership very easy, as it only requires the delivery of the physical document, without any formalities or intermediaries. Bearer shares are therefore attractive for those who seek anonymity, privacy, and flexibility in their corporate structures.

References:

Investopedia: Bearer Share

SuperMoney: Bearer Shares: Definition, Examples, and Implications

ACAMS: Bearer Shares

REPORTING OF SUSPICIOUS TRANSACTIONS [https://www.fatf- gafi.org/media/fatf/documents/recommendations/pdfs/FATF%20Recommendations%202012.pdf] If a financial institution suspects or has reasonable grounds to suspect that funds are the proceeds of a criminal activity, or are related to terrorist financing, it should be required, by law, to report promptly its suspicions to the financial intelligence unit (FIU). According to the Financial Action Task Force‘s (FATF) Recommendation 20, a suspicious transaction report (STR) or a suspicious activity report (SAR) is filed by a financial institution or, by a concerned citizen, to the local Financial Intelligence Unit if they have reasonable grounds to believe that a transaction is related to criminal activity. [https://aml-cft.net/library/suspicious-transaction-report-str-suspicious-activity-report-sar/]

According to the Anti-Money Laundering Specialist (the 6th edition) study guide, an AML training program should include the requirement that new staff receive training during employee orientation or shortly thereafter on bank procedures. This is because new staff need to be aware of the bank’s policies and procedures for complying with the money laundering regulations, such as customer due diligence, transaction monitoring, record-keeping, and reporting of suspicious activities. Training new staff as soon as possible also helps to reduce the risk of human errors or oversights that could facilitate money laundering or terrorist financing.

References:

: ACAMS, CAMS Certification Package - 6th Edition, Chapter 5, page 143

: ACAMS, CAMS Certification Package - 6th Edition, Chapter 5, page 144

: Technical factsheet Anti-money laundering (AML) training: frequently asked questions, page 1

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

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

References:

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

Principles for Information Exchange Between Financial Intelligence Units

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

References:

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

ACAMS: Certified Anti-Money Laundering Specialist | ACAMS2

Anti-Money Laundering – The Law Society of Singapore3

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

References:

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

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

3: ACAMS Study Guide for the CAMS Certification Examination3

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

References:

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

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

Tracing terrorist finances, INTERPOL

The compliance officer should perform the first step of reviewing the institution’s risk assessment before implementing any changes to the customer onboarding program. The risk assessment is a key component of the AML compliance program, as it identifies and measures the institution’s exposure to money laundering and terrorist financing risks. The risk assessment should be updated regularly and reflect the institution’s products, services, customers, geographic locations, and delivery channels. By reviewing the risk assessment, the compliance officer can determine the adequacy and effectiveness of the current customer onboarding program and identify any gaps or weaknesses that need to be addressed. The compliance officer can also benchmark the institution’s risk assessment against the regulatory expectations and best practices in the industry.

The other steps are also important, but they should be performed after the risk assessment review. Revising training materials for frontline staff, conducting enhanced due diligence on high risk customers, and resolving substantive discrepancies in customer verification are all part of the customer onboarding program, but they depend on the risk assessment to provide the appropriate level of controls and procedures. For example, the training materials should reflect the risk assessment results and the revised customer onboarding policies. The enhanced due diligence should be applied to customers who pose a higher risk according to the risk assessment criteria. The customer verification should be consistent with the risk assessment and the customer identification program.

References:

AML KYC Onboarding Lifecycle Process Flow | Guide – AdvisoryHQ

New EBA AML Guidelines on the use of Remote Customer Onboarding Solutions - Bird & Bird

KYC Onboarding Process 2023 - AML requirements - Sumsub

Review of any AML/CFT program begins with the Risk Based Approached. It should first check the internal system to identify risk factors and design program accordingly.

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

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

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

References:

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

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

Guidance on Digital Identity, Section 2, page 8

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

According to the Anti-Money Laundering Specialist (the 6th edition) study guide, the Financial Action Task Force (FATF) is an inter-governmental body that sets the global standards for anti-money laundering and counter-terrorist financing (AML/CTF). The FATF also monitors the compliance and implementation of its recommendations by its members and other jurisdictions. To enhance its global reach and effectiveness, the FATF works with nine FATF-style regional bodies (FSRBs) that cover different regions of the world. These FSRBs have similar objectives and functions as the FATF, but they also take into account the specific characteristics and challenges of their regions. Two ways that FSRBs influence AML/CTF standards within their respective regions are:

They issue typologies specific to their geographical region. Typologies are reports or studies that analyze the methods, trends, and patterns of money laundering and terrorist financing in a particular sector, industry, or region. FSRBs produce typologies that reflect the regional context and risks of their members and provide guidance and best practices to address them. For example, the Asia/Pacific Group on Money Laundering (APG) has issued typologies on trade-based money laundering, wildlife trafficking, and virtual assets in the Asia-Pacific region12.

They administer mutual evaluations of participating members. Mutual evaluations are peer reviews that assess the level of compliance and effectiveness of a country’s AML/CTF system against the FATF standards. FSRBs conduct mutual evaluations of their members and publish the results and recommendations in detailed reports. These reports help identify the strengths and weaknesses of each country’s AML/CTF regime and provide a basis for follow-up actions and technical assistance. For example, the Caribbean Financial Action Task Force (CFATF) has conducted mutual evaluations of its members such as Barbados, Jamaica, and Trinidad and Tobago34.

References:

Anti-Money Laundering Specialist (the 6th edition) study guide, page 27

APG website, section on Typologies

Anti-Money Laundering Specialist (the 6th edition) study guide, page 28

CFATF website, section on Mutual Evaluations

a qualified compliance officer is a mandatory element of all anti-money laundering programs, regardless of the type or size of the financial institution. The compliance officer is responsible for developing, implementing, and overseeing the anti-money laundering program, ensuring its compliance with the relevant laws and regulations, and reporting any suspicious activity to the appropriate authorities12. The compliance officer should have sufficient authority, resources, and expertise to perform these duties effectively.

References:

Anti-Money Laundering (AML) | FINRA.org1

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

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

References:

Bank Records and Financial Privacy Laws - FindLaw1

Anti-Money Laundering (AML) Risk Assessment | ACAMS2

What is the Difference Between Smurfing and Structuring?3

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

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

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

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

References:

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

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

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

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

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

References:

ACAMS Study Guide, 6th Edition, page 184

What steps should the institution take? - Exam4Training

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

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

References:

Basic Information on OFAC and Sanctions

OFAC Consolidated Frequently Asked Questions

Office of Foreign Assets Control — Overview

According to the Basel guidelines on customer due diligence for banks, a trust is a legal arrangement whereby a person (the settlor or grantor) transfers the legal ownership of specific assets to another person or entity (the trustee) to hold for the benefit of a third person or persons (the beneficiaries)1. The Basel guidelines recommend that banks should identify and verify the identity of the following parties to determine the true nature of the trust relationship:

The trustee, who is the person or entity that has the legal authority and duty to manage the trust assets and distribute them to the beneficiaries according to the trust deed2. The trustee may also be the settlor, the beneficiary, or both, depending on the type and structure of the trust3.

The beneficiaries, who are the persons or entities that have a beneficial interest in the trust assets or income, either presently or in the future4. The beneficiaries may be named individuals, classes of persons, or charitable causes.

The settlor or grantor, who is the person or entity that creates the trust and transfers the legal ownership of the assets to the trustee. The settlor or grantor may also retain some rights or powers over the trust, such as the ability to appoint or remove trustees, beneficiaries, or protectors.

The other three options are incorrect because:

Respondents are not trust parties, but rather financial institutions that maintain correspondent banking relationships with other financial institutions. Respondents are not relevant for the identification of the trust relationship, but rather for the due diligence of the correspondent banking relationship.

Payees are not trust parties, but rather persons or entities that receive payments from the trust or other sources. Payees are not relevant for the identification of the trust relationship, but rather for the monitoring of the transactions and activities of the trust.

Trust administrators are not trust parties, but rather persons or entities that provide administrative services to the trust, such as accounting, record-keeping, or tax compliance. Trust administrators are not relevant for the identification of the trust relationship, but rather for the assessment of the risk and complexity of the trust.

References:

1: Basel Committee on Banking Supervision, Customer due diligence for banks, October 2001, 4, p. 17 2: Basel Committee on Banking Supervision, Customer due diligence for banks, October 2001, 4, p. 17 3: ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 111 4: Basel Committee on Banking Supervision, Customer due diligence for banks, October 2001, 4, p. 17 : ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 111 : Basel Committee on Banking Supervision, Customer due diligence for banks, October 2001, 4, p. 17 : ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 111 : Basel Committee on Banking Supervision, Customer due diligence for banks, October 2001, 4, p. 10 : ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 112 : ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 112

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

References:

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

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

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

According to the Anti-Money Laundering Specialist (the 6th edition) resources, electronic funds transfers (EFTs) are transactions that involve the movement of funds electronically from one account to another, either within the same financial institution or across different institutions, domestically or internationally1. EFTs can be used for legitimate purposes, such as facilitating trade, commerce, and remittances, but they can also be exploited by money launderers to conceal the origin, ownership, and destination of illicit funds2. Some of the indicators of money laundering associated with using EFTs are:

Funds transfers to or from a financial secrecy haven without an apparent business reason. Financial secrecy havens are jurisdictions that offer a high degree of banking secrecy, low or no taxes, lax regulation and supervision, and weak or non-existent anti-money laundering and counter-terrorist financing (AML/CTF) measures3. Money launderers may use these havens to hide their illicit funds, evade taxes, and avoid scrutiny from authorities. Funds transfers to or from these havens without a clear or plausible explanation may indicate an attempt to launder money or finance terrorism.

Funds transfers are received or sent from the same person to or from different accounts. This may indicate a layering technique, which is the process of moving funds through multiple accounts, institutions, or jurisdictions to obscure the audit trail and the source and ownership of the funds4. Money launderers may use this technique to avoid detection, reporting, or freezing of their funds by authorities or financial institutions.

Payment or receipts with no apparent link to legitimate contracts, goods or services. This may indicate a trade-based money laundering technique, which is the process of using trade transactions to disguise the movement of illicit funds, either by over- or under-invoicing, misrepresenting the quantity or quality of goods, or falsifying documents. Money launderers may use this technique to transfer value across borders, evade taxes or customs duties, or justify the movement of funds that have no legitimate origin or purpose.

The other option is incorrect because:

Regular and frequent transfers from the account of a large company said to be payment for goods bought on credit is not necessarily an indicator of money laundering associated with using EFTs. This may be a normal business practice for some companies that have a high volume of transactions or a long-term relationship with their suppliers or customers. However, this may also be a red flag if the company is not well-known, has no physical presence, has no apparent business activity, or is located in a high-risk jurisdiction. Therefore, this option requires further investigation and verification before concluding that it is an indicator of money laundering.

References:

1: ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 104 2: ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 105 3: ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 107 4: ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 106 : ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 108

The Wolfsberg Principles for Private Banking are a set of guidelines for private banking relationships that aim to prevent and detect money laundering and terrorist financing risks. The Principles state that the bank should conduct additional due diligence on clients and beneficial owners in certain circumstances that may indicate a higher risk of money laundering or terrorist financing. Among the options given, A, B, and C are the correct choices that reflect the circumstances listed in the Principles.

Foreign jurisdictions are countries or territories other than the one where the bank operates or where the client or beneficial owner resides. The Principles state that the bank should conduct additional due diligence on clients and beneficial owners who are connected to foreign jurisdictions, especially those that have weak or inadequate anti-money laundering standards, or that are subject to sanctions, embargoes, or similar measures.

High Risk Countries are countries or territories that are identified by credible sources, such as the Financial Action Task Force (FATF), as having inadequate anti-money laundering standards, or as being a source, transit, or destination of illicit funds. The Principles state that the bank should conduct additional due diligence on clients and beneficial owners who are connected to high risk countries, and apply enhanced measures to mitigate the risks.

High Risk activities are activities that involve clients and beneficial owners whose source of wealth or funds originates from sectors or industries that are known to be vulnerable to money laundering, such as cash-intensive businesses, gambling, arms trade, precious metals and stones, or art and antiquities. The Principles state that the bank should conduct additional due diligence on clients and beneficial owners who are engaged in high risk activities, and verify the legitimacy and origin of their wealth and funds.

References: = The main reference for this question is the document titled “Wolfsberg Anti-Money Laundering Principles for Private Banking (2012)” published by the Wolfsberg Group. You can access it by clicking here. You can also find more information about the Wolfsberg Principles and their application on the Wolfsberg Group website and the Lexology website.

According to the Wolfsberg Group, a correspondent bank should evaluate the distribution of downstream correspondents and identify any direct or indirect issues when it permits “nested” relationships, which are arrangements where a respondent bank provides correspondent banking services to other banks that are not customers of the correspondent bank. This step is important to understand the types of financial institutions to whom the services are being offered and the potential risks they pose. The correspondent bank should also obtain information on the nature and extent of the nested activity, the due diligence performed by the respondent bank on the nested banks, and the controls and monitoring in place to prevent financial crime.

References:

Wolfsberg Correspondent Banking Principles 20221, Section 4.5: Nested Relationships

Guidance on Correspondent Banking Services2, Section 3.2.2: Nested Correspondent Banking Relationships

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

References:

1, Chapter 2: Risk Assessments

2, Section 2: Anti-Money Laundering Compliance Program

3, Question 145

According to the Anti-Money Laundering Specialist (the 6th edition) study guide, individuals who violate anti-money laundering laws can face severe consequences, such as imprisonment, fines, asset forfeiture, and sanctions. These penalties can apply not only to the perpetrators of money laundering, but also to the employees, managers, directors, and officers of financial institutions or other entities that fail to comply with their anti-money laundering obligations. Therefore, violations of anti-money laundering laws can pose a significant risk to individuals, both personally and professionally.

References:

Anti-Money Laundering Specialist (the 6th edition) study guide, page 9

ACAMS website, section on CAMS certification

Money Laundering website, article on “The Consequences of Non-Compliance with Anti-Money Laundering Laws”

This action is the most appropriate because it demonstrates the local manager’s responsibility and accountability for the sanctions compliance program. Sanctions screening is an important part of the Know Your Customer (KYC) and Anti-Money Laundering (AML) processes, as it helps to identify and prevent transactions with sanctioned individuals or entities, which could expose the financial institution to legal, regulatory, and reputational risks. Failing to perform sanctions screening could result in violations of sanctions laws and regulations, which could lead to fines, penalties, sanctions, or even criminal prosecution. Therefore, the local manager should immediately inform senior management of the issue, so that they can take corrective actions, such as implementing screening procedures, conducting a risk assessment, reviewing existing customers, reporting any potential violations, and providing training and guidance to the staff.

The other actions are not appropriate because they either do not address the root cause of the problem, or they could worsen the situation. Starting screening new customers without informing senior management could create a false sense of compliance, and it could also miss the existing customers who may be sanctioned. Immediately informing the regulators without informing senior management could undermine the trust and communication within the organization, and it could also trigger an investigation or enforcement action before the issue is resolved internally. Doing nothing because the department only handles a very small number of mortgages could be a sign of negligence or indifference, and it could also expose the financial institution to significant risks, as even one transaction with a sanctioned party could have serious consequences.

References:

CAMS Certification Package - 6th Edition | ACAMS, Chapter 4: Developing and Implementing an AML Training Program, pp. 97-98

CAMS Certifications: How to Get CAMS Certified | ACAMS, CAMS Study Guide, pp. 76-77

What is Sanctions Screening and How Does It Work? | Jumio, Introduction and Benefits of Sanctions Screening

Sanctions Screening: Challenges and Control Considerations, Background and Regulatory Expectations for Sanctions Screening

Sanction Screening: A Complete Guide | KYC AML Guide, What is Sanction Screening and Why is it Important?

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

References:

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

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

What We Do, Financial Crimes Enforcement Network (FinCEN)

 A key risk indicator associated with terrorism financing is the link between the charity group and a known terrorist group. This indicates that the funds transferred to the charity group may be used to support the terrorist group’s activities, such as recruitment, training, propaganda, or attacks. Charities are often vulnerable to abuse by terrorist financiers, as they may operate in high-risk areas, have access to large amounts of cash, and enjoy public trust and legitimacy. Therefore, financial institutions (FIs) should conduct due diligence on the charity group, its directors, its beneficiaries, and its sources and uses of funds, and monitor the transactions for any red flags, such as unusual patterns, amounts, or destinations. FIs should also comply with the relevant sanctions and regulatory requirements, and report any suspicious or unusual activity to the authorities.

References:

1: FATF Guidance on Private Sector Information Sharing1

2: Mitigating the risks of terrorist financing | Crowe LLP3

3: ACAMS Study Guide for the CAMS Certification Examination3

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

References:

Anti-Money Laundering (AML) Risk Assessment | ACAMS1

Risk assess your business for money laundering supervision - GOV.UK2

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

References:

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

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

According to the Anti-Money Laundering Specialist (the 6th edition) by ACAMS, the independent testing of an institution’s anti-money laundering program should be conducted by a person who reports directly to the Board of Directors or a Board Committee. This ensures that the person conducting the testing has the necessary authority, independence, and objectivity to evaluate the program’s adequacy and effectiveness, and to report any findings or recommendations to the senior management1. The person conducting the testing should also have the appropriate knowledge, skills, and experience in the anti-money laundering field, and should be familiar with the institution’s products, services, customers, and risks2.

The other options are not necessarily suitable or qualified to perform the independent testing of an institution’s anti-money laundering program. For example:

A certified specialist in the anti-money laundering field may have the relevant expertise and credentials, but may not have the required independence or reporting line to conduct the testing. For instance, if the certified specialist is an employee of the institution who is involved in the implementation or operation of the anti-money laundering program, then there may be a conflict of interest or a lack of objectivity in the testing process1.

A former anti-money laundering officer from a similar institution may have the relevant experience and background, but may not have the current knowledge or familiarity with the institution’s anti-money laundering program, policies, procedures, or systems. Moreover, the former anti-money laundering officer may have a personal or professional relationship with the institution or its staff, which may compromise the independence or integrity of the testing process1.

A retired government regulator or federal law enforcement officer may have the relevant authority and credibility, but may not have the specific skills or qualifications to conduct the testing. For instance, the retired regulator or law enforcement officer may not be well-versed in the latest anti-money laundering standards, regulations, or best practices, or may not be able to apply them to the institution’s unique risk profile, products, services, or customers1.

References:

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

What Is An AML Compliance Program? | ComplyAdvantage

Economic sanctions are a tool that governments and multi-national bodies can use to prevent the proliferation of weapons of mass destruction (WMDs) by imposing restrictions on trade, financial transactions, travel, or other activities with targeted countries, entities, or individuals that are involved or suspected of being involved in WMD programs. Economic sanctions aim to disrupt the supply chains, funding sources, and incentives for developing or acquiring WMDs, as well as to deter and punish any violations of international norms and obligations regarding WMDs. Economic sanctions can be imposed unilaterally by a country or multilaterally by a group of countries or an international organization, such as the United Nations, the European Union, or the Financial Action Task Force.

References:

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

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

A Mutual Legal Assistance Treaty (MLAT) is an agreement between two or more countries for the purpose of gathering and exchanging information in an effort to enforce public or criminal laws1. MLATs provide a legal basis for transmitting evidence that can be used for prosecution and judicial proceedings, such as witness statements, bank records, search and seizure orders, and asset forfeiture2. MLATs also facilitate the cooperation and coordination between law enforcement authorities of different jurisdictions in investigating and prosecuting transnational crimes, such as money laundering, terrorist financing, corruption, and cybercrime3. The other options are incorrect because:

B. MLATs do not receive reports of suspicious transactions from financial institutions, but rather request specific information or evidence from foreign authorities. Financial institutions report suspicious transactions to their domestic Financial Intelligence Units (FIUs), which may then share the information with foreign FIUs through other mechanisms, such as the Egmont Group or bilateral agreements4.

C. MLATs do not obtain intelligence that might lead to evidence, but rather request evidence that is already available or can be obtained by foreign authorities. Intelligence is a broader term that refers to any information that is relevant to the security or interests of a country, and may not be admissible as evidence in a court of law5. Intelligence may be obtained through other means, such as covert operations, surveillance, or informants6.

D. MLATs do not issue the Principles of Information Exchange Between Financial Intelligence Units (FIUs), but rather follow them. The Principles of Information Exchange are a set of guidelines that were adopted by the Egmont Group of FIUs in 2001, and aim to enhance the cooperation and communication among FIUs in exchanging financial information and intelligence7. The Principles of Information Exchange are not legally binding, but rather reflect the best practices and standards of the FIU community.

References:

1: Mutual legal assistance treaty - Wikipedia

2: FREQUENTLY ASKED QUESTIONS REGARDING LEGAL ASSISTANCE IN CRIMINAL MATTERS, page 1

3: The Mutual Legal Assistance Problem explained | wilmap

4: ACAMS, CAMS Certification Package - 6th Edition, Chapter 4, page 125

5: Intelligence - Wikipedia

6: Intelligence cycle - Wikipedia

7: Egmont Group of Financial Intelligence Units - Wikipedia

: Principles for Information Exchange Between Financial Intelligence Units for Money Laundering and Terrorism Financing Cases

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

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

References:

1: Wolfsberg Correspondent Banking Principles 20221

2: Wolfsberg Anti-Money Laundering Principles for Correspondent Banking2

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

References:

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

2: Guidance on Risk Factors, EBA, 2021

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

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

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

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

References:

CAMS Study Guide, 6th Edition, Chapter 4: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), pp. 81-841

USA PATRIOT Act, Title III: International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, Sections 312, 319, and 3132

Wolfsberg Anti-Money Laundering Principles for Correspondent Banking, October 2014, pp. 3-43

An effective anti-money laundering training program should include real-life money laundering examples to illustrate the concepts and strategies for detecting and preventing money-laundering activity. Real-life examples can help employees to understand the risks, methods, indicators, and impacts of money laundering, as well as the roles and responsibilities of different staff members in combating it. Real-life examples can also enhance the engagement, retention, and application of the knowledge gained from the training program.

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

The document titled “Anti-Money Laundering Awareness Training” published by ACAMS. You can access it by clicking here. This document states that “ACAMS AML General Awareness Training equips employees with knowledge of basic anti-money laundering (AML) principles” and that it is “based on real-life industry scenarios with interactive content to help learning stick”.

The document titled “Anti-Money Laundering (AML) Training” published by LIMRA. You can access it by clicking here. This document states that “LIMRA’s AML training program provides training for insurance and securities producers and home office employees” and that it “uses real-life scenarios to help learners understand how to apply AML principles to their everyday work”.

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

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

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

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

References:

1: ACAMS, CAMS Study Guide, 6th Edition, Chapter 2: Risk Assessments

2: FATF, Guidance for a Risk-Based Approach: The Banking Sector

3: ACAMS, CAMS Study Guide, 6th Edition, Chapter 3: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT)

4: Deloitte, AML Program Effectiveness Reform

5: ACAMS, CAMS Study Guide, 6th Edition, Chapter 4: AML Program Design

[6]: OCC, Money Laundering: A Banker’s Guide to Avoiding Problems

 Enhanced due diligence (EDD) is a set of additional measures that must be applied by financial institutions (FIs) in higher-risk situations, such as when dealing with customers or transactions from high-risk third countries, customers who are politically exposed persons (PEPs), or customers who present a higher risk of money laundering or terrorist financing. EDD may include obtaining more information on the customer’s identity, source of funds, source of wealth, business relationships, and purpose of the transaction, as well as conducting more frequent and intensive ongoing monitoring of the customer’s activities.

However, EDD may be bypassed for certain situations where the risk of money laundering or terrorist financing is low, and where the customer is subject to adequate supervision and regulation in the EU or the US. According to the CAMS Study Guide - 6th Edition1, one such situation is when on-boarding a casino that is part of an international hotel chain, provides less than 50% of overall revenue and that fully complies with group-wide policies and procedures. This is because such a casino is likely to have a low risk profile, as it is not the main source of income for the hotel chain, and it adheres to the same standards and controls as the rest of the group. Therefore, EDD may not be necessary for this situation, and the FI may apply simplified due diligence (SDD) instead.

The other situations listed in the question are not eligible for bypassing EDD, as they involve higher-risk factors, such as dealing with customers or entities from high-risk third countries, customers with complex ownership structures, or customers who are PEPs. These situations require FIs to apply EDD measures to mitigate the risk of money laundering or terrorist financing.

References:

CAMS Study Guide - 6th Edition, Chapter 3, Section 3.4, page 84

White Paper on KYC — Enhanced Due-Diligence, page 2

Anti-money laundering – a guide to customer due diligence, page 3

Enhanced Due Diligence for High-risk Customers, page 1

International wire transfers are considered to be of highest money laundering risk because they can facilitate the rapid and anonymous movement of funds across borders and jurisdictions, making it difficult for law enforcement and regulators to trace the origin and destination of the funds, and to identify the beneficial owners and controllers of the accounts involved. International wire transfers can also be used to layer and integrate illicit proceeds into the legitimate financial system, by disguising the source, ownership, and purpose of the funds. International wire transfers can involve multiple intermediaries, complex payment chains, and inconsistent or incomplete information, which can increase the risk of money laundering and terrorist financing. Therefore, international wire transfers are subject to enhanced due diligence, record-keeping, and reporting requirements under various anti-money laundering and counter-terrorist financing (AML/CTF) regulations and standards, such as the Financial Action Task Force (FATF) Recommendations1, the European Union (EU) Funds Transfer Regulation2, and the United States (US) Bank Secrecy Act3.

References:

1: FATF (2012), International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, FATF, Paris, France, Recommendation 16 and Interpretive Note to Recommendation 16. 2: Regulation (EU) 2015/847 of the European Parliament and of the Council of 20 May 2015 on information accompanying transfers of funds and repealing Regulation (EC) No 1781/2006 (OJ L 141, 5.6.2015, p. 1) 4 3: 31 U.S.C. §§ 5311-5330 and 31 C.F.R. Chapter X

V

You cannot make international money transfers unless the money is credited to the account. So first priority saving account, subsequent risk international wire transfer

"A savings account, as well as a checking account, can be one of the riskiest financial instruments for money laundering operations given the ease with which it can be opened and operated".

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

References:

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

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

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

The 40 Recommendations provide a complete set of countermeasures against money laundering

and terrorist financing, covering

• the identification of risks and development of appropriate policies;

• the criminal justice system and law enforcement;

• the financial system and its regulation;

• the transparency of legal persons and arrangements; and

• international cooperation.

The following were the key features of the Second Directive:

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

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

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

 New business products should be evaluated for AML concerns before they are launched into the market. This is because new products may introduce new risks or vulnerabilities that could be exploited by money launderers or terrorist financiers. By conducting a pre-launch assessment, a financial institution can identify and mitigate these risks, design appropriate controls and procedures, and ensure compliance with the relevant laws and regulations. A pre-launch assessment can also help a financial institution to align its AML strategy with its business objectives, and avoid potential reputational damage or regulatory sanctions.

References:

9 Things to Consider When Evaluating an AML Solution

CAMS Study Guide 6th Edition, page 38.

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

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

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

References:

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

FATF Recommendation 11, paragraph 2

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

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

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

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

References:

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

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

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

A financial institution (FI) should exit a relationship when the suspicious conduct of the account holder or the FI’s stated policies and procedures for closing an account warrant such action. A FI has the right and responsibility to terminate a customer relationship that poses an unacceptable level of risk to the FI or violates its AML/CFT program. A FI should have clear and consistent criteria for exiting a relationship, such as the number and severity of SARs filed, the nature and extent of due diligence conducted, the availability and effectiveness of mitigating controls, and the alignment of the customer profile with the FI’s risk appetite. A FI should also document the rationale and process for exiting a relationship, communicate the decision to the customer and relevant stakeholders, and monitor the account until closure.

The reputational risk to the FI posed by closing the account or the request from law enforcement to close the account are not valid reasons for exiting a relationship by themselves. A FI should consider the potential reputational impact of closing an account, but it should not outweigh the legal and regulatory obligations of the FI to prevent and detect money laundering and terrorist financing. A FI should also cooperate with law enforcement requests, but it should not automatically close an account based on such requests, as they may interfere with ongoing investigations or intelligence gathering. A FI should exercise its own judgment and discretion in deciding whether to exit a relationship, based on its own policies and procedures and the facts and circumstances of each case.

References:

Exiting Relationships: Ten Steps to a Successful Client Exit Strategy

De-risking your SARs: Building SAR relationship exit strategies into your AML/CFT program

Answers to Frequently Asked Questions Regarding Suspicious Activity Reporting and Other Anti-Money Laundering Considerations

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

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

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

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

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

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

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

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

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

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

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

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

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

Buying and selling of real property or business entities

Managing of client money, securities, or other assets

Opening or managing bank, savings, or securities accounts

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

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

References:

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

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

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

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

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

References:

Customer Due Diligence - FATF-GAFI.ORG

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

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

When implementing a risk-based approach related to casinos, the risks related to the customer as an individual are mainly based on the customer’s profile, behaviour, source of funds, and geographic location. Among the options given, B and D are the most relevant factors that could indicate a higher risk of money laundering or terrorist financing.

Casual customers are those who do not have a regular or established relationship with the casino, and who may visit the casino only once or occasionally. They may not provide sufficient or reliable identification information, or may use false or stolen identities. They may also engage in suspicious transactions, such as large cash purchases of chips, minimal or no gaming activity, or frequent transfers of chips between customers. Casual customers pose a higher risk of money laundering or terrorist financing because they are harder to verify, monitor, and trace by the casino operators.

Customer from a high-risk country is a customer who resides in, or has links to, a country that is subject to sanctions, embargoes, or similar measures, or that is identified by credible sources as having significant levels of corruption, or as being a source, transit, or destination of illicit funds. Such customers pose a higher risk of money laundering or terrorist financing because they may be involved in, or connected to, criminal or terrorist activities, or may be using funds that are derived from or intended for such activities.

References: = The main reference for this question is the document titled “FATF Guidance on the Risk-Based Approach for Casinos” published by the FATF in October 2008. You can access it by clicking here. You can also find more information about the risk-based approach and the customer risks for casinos on the Gambling Commission website and the Exam Answer website.

one of the key roles of FATF-Style Regional Bodies (FSRBs) is to support the system of mutual evaluation, which is a peer review process that assesses the level of compliance and effectiveness of each member country’s anti-money laundering and counter-terrorism financing (AML/CFT) regime12. FSRBs conduct mutual evaluations in accordance with the FATF’s methodology and standards, and share the results and recommendations with the FATF and other FSRBs3. Mutual evaluations help identify the strengths and weaknesses of each country’s AML/CFT system, and provide a basis for technical assistance and follow-up actions4.

References:

What are the 9 FATF-Style Regional Bodies (FSRBs)? - Sygna1

FATF-Style Regional Bodies (FSRBs) - Asia/Pacific Group on Money Laundering2

The Role of FATF Style Regional Bodies (FSRBs) in Combating … - IDMerit3

9 FATF-Style Regional Bodies (FSRBs) - fineksus.com4

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

References:

ACAMS Study Guide for the CAMS Certification Examination, 6th Edition, Chapter 2: Money Laundering Risks and Methods, page 381

Trade-Based Money Laundering: Trends and Developments, FATF-Egmont Group, December 2020, page 282

Trade-Based Money Laundering and Terrorist Financing, Global Investigations Review, September 20233

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

According to the Anti-Money Laundering Specialist (the 6th edition) resources, the situation that is the highest risk for money laundering and terrorist financing activity is A. A customer purchases casino chips, using small denomination bank notes, but does not engage in game play before redeeming the chips for a casino check. This is because this situation may indicate some red flags of money laundering, such as:

Using small denomination bank notes, which may be an attempt to avoid detection or reporting by the casino or the authorities, as large amounts of cash are usually associated with criminal activity1.

Not engaging in game play, which may indicate a lack of interest in gambling and a sole purpose of exchanging cash for a casino check, which is a more legitimate and less traceable form of payment2.

Redeeming the chips for a casino check, which may be a way of laundering the cash through the casino, as the check can be deposited into a bank account or cashed at another location, without revealing the source of the funds3.

The other three options are less risky because:

B. A customer purchases casino chips and engages in significant game play before requesting a casino check for the remainder is less risky, as it may indicate a genuine interest in gambling and a legitimate source of funds. However, this situation may still require further investigation and verification, as some money launderers may use gambling as a cover for their illicit activities, or may use the casino check as a way of transferring funds to another jurisdiction or person4.

C. A customer purchases casino chips using a credit card and engages in minimal game play before redeeming the chips for a casino check is less risky, as it may indicate a low level of funds involved and a traceable source of funds. However, this situation may still require further investigation and verification, as some money launderers may use credit cards to obtain cash advances from the casino, or may use the casino check as a way of repaying their credit card debt or transferring funds to another jurisdiction or person.

D. A customer purchases casino chips using credit from an account at an affiliated casino and engages in significant game play before redeeming the chips for a casino check is less risky, as it may indicate a regular and loyal customer of the casino and a legitimate source of funds. However, this situation may still require further investigation and verification, as some money launderers may use credit from an affiliated casino to avoid carrying cash or using credit cards, or may use the casino check as a way of transferring funds to another jurisdiction or person.

References:

1: ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 106 2: ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 110 3: ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 110 4: ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 110 : ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 110 : ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 110

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

References:

ACAMS Study Guide 6th Edition, Chapter 1, Section 1.8, page 28: “Methods to launder money using broker-dealers, investment advisors, and the capital markets (e.g., securities, futures)”.

ExamTopics, Question 476: “Which trading pattern may be indicative of money laundering in capital markets?”

According to the ACAMS CAMS Study Guide, one of the methods that attorneys may use to facilitate money laundering is to make payments to third parties on behalf of their clients, using funds from their client accounts. This may obscure the source and destination of the funds, and create a false appearance of legitimate transactions. Therefore, making payment to various people is a red flag for potential money laundering in this situation.

References:

ACAMS CAMS Study Guide, 6th Edition, page 117

FATF Report on Money Laundering and Terrorist Financing Vulnerabilities of Legal Professionals, June 2013, page 341

AML/CFT Red Flags for Lawyers, AML-CFT.net, October 20202

 Predicate offenses are the criminal activities that generate the proceeds that are later laundered through money laundering schemes. A country that does not have strong predicate offenses and is lax in prosecuting AML cases could suffer from increased organized crime and corruption, as criminals would have more opportunities and incentives to engage in illicit activities and evade detection and punishment. Organized crime and corruption can have serious social and economic consequences for a country, such as undermining the rule of law, eroding public trust, threatening national security, harming human rights, reducing economic growth, and distorting market competition123.

References:

CAMS Certification Package - 6th Edition | ACAMS

Understanding Predicate Offences: The Hidden Web of Money Laundering

Predicate Offenses In Money Laundering - Financial Crime Academy

AML Terms Easily Confused: Predicate Offense vs. Money Laundering

According to the FATF Recommendations, financial institutions should maintain all necessary records on transactions and customers for at least five years, and make them available to competent authorities upon appropriate authority1. This includes records and documents related to suspicious transactions that have been reported to the financial intelligence unit (FIU) or other designated authorities. Providing the supporting documentation to competent authorities upon request is essential for the investigation and prosecution of money laundering and terrorist financing offences, as well as for the identification and tracing of criminal assets2.

Hinting to the customer that she should come in and explain her behavior is not a correct answer, as it may tip off the customer about the suspicion and compromise the effectiveness of the reporting system. Financial institutions should not disclose to the customer or to third parties that a suspicious transaction report (STR) or related information is being reported to the FIU3.

Maintaining adequate written documentation of all individuals and transactions reported is not a sufficient answer, as it does not imply cooperation with competent authorities. Financial institutions should not only keep records, but also provide them to the authorities when requested.

Submitting information upon receiving a legal request from parties involved in a civil lawsuit is not a relevant answer, as it does not relate to the cooperation with competent authorities for AML/CFT purposes. Civil lawsuits are not part of the AML/CFT framework, and financial institutions should not disclose confidential information to private parties without proper legal grounds.

References:

FATF Recommendation 11: Record-keeping 1

FATF Recommendation 31: Powers of law enforcement and investigative authorities 2

FATF Recommendation 21: Tipping-off and confidentiality 3

A TCSP providing services should have policies and procedures in place to identify critical information of the signatory, as this is one of the key elements of the customer due diligence (CDD) process. The signatory is the person who has the authority to sign documents or contracts on behalf of the customer, such as a company, a trust, or a partnership. The signatory may also be the beneficial owner, the controller, or a nominee of the customer. The TCSP should verify the identity and the capacity of the signatory, as well as the source and origin of the funds or assets involved in the transaction or business relationship. The TCSP should also monitor the activities of the signatory and report any suspicious or unusual transactions or changes in the signatory’s behaviour or profile.

References:

ACAMS Study Guide for the CAMS Certification Examination - 6th Edition, Chapter 2: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), Section 2.2: Customer Due Diligence (CDD), Subsection 2.2.1: CDD Process, pp. 51-52

RISK-BASED APPROACH GUIDANCE FOR TRUST AND COMPANY SERVICE PROVIDERS (TCSPs), Section III – Guidance for TCSPs, Subsection III.1: Risk Assessment, pp. 23-24

SRA | Trust and Company Service Provider guidance | Solicitors Regulation Authority, Section: Definition, Paragraph 2

A Trust and Company Service Provider (TCSP) providing services should have policies and procedures in place to identify critical information of the:, Answer B

FSRBs are regional bodies that work with FATF to promote the implementation of AML and CFT standards. FSRBs are made up of member countries that have agreed to work together to combat money laundering and the financing of terrorism [1]. The tools used by FSRBs to promote the implementation of AML and CFT standards include training measures, mutual evaluations of its members, technical assistance, and the sharing of information. FSRBs may also adopt recommendations and best practices based on the FATF’s 40 Recommendations.

 According to the ACAMS CAMS Certification Study Guide (6th edition), a financial institution (FI) should update its ML/TF risk assessment when there are changes in its business activities, customer base, or operating environment that may affect its exposure to ML/TF risks1 Some examples of such changes are:

When new products, services or customer types are introduced: New products, services or customer types may introduce new or increased ML/TF risks that the FI may not have previously considered or addressed. For example, offering online banking, prepaid cards, or cross-border remittances may create new opportunities for money launderers or terrorist financiers to exploit the FI’s systems and processes. Therefore, the FI should assess the ML/TF risks associated with the new products, services or customer types and implement appropriate controls to mitigate them12

When the institution faces a merger or acquisition: A merger or acquisition may result in the FI inheriting the ML/TF risks of the other entity, as well as the potential liabilities and reputational damage that may arise from any ML/TF issues or violations. Therefore, the FI should conduct a due diligence on the other entity’s ML/TF risk assessment, policies, procedures, and controls, and identify any gaps or weaknesses that need to be addressed. The FI should also integrate and harmonize the ML/TF risk assessment and compliance programs of the merged or acquired entity with its own13

References: 1: ACAMS CAMS Certification Study Guide (6th edition), page 32. 2: Money laundering/terrorism financing risk assessment | AUSTRAC4 3: MONEY LAUNDERING & TERRORIST FINANCING (ML/TF) RISK ASSESSMENT METHODOLOGY5, page 4.

1. A. Micro-structuring cash:

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

2. B. Legitimizing illicit funds:

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

A. Micro-structuring cash:

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

B. Legitimizing Illicit Funds:

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

References: 1: Anti-Money Laundering Specialist (6th edition), ACAMS, Chapter 3: “Money Laundering and Terrorist Financing Methods,” Section 3.1.2: “Structuring.”

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

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

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

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

References:

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

Mule accounts: how to track them down - Linkurious2

Money Mules — FBI3

According to the Basel Committee on Banking Supervision (BCBS), a sound KYC program should consist of four essential elements: (i) customer acceptance policy; (ii) customer identification; (iii) on-going monitoring of higher risk accounts; and (iv) risk management. Therefore, B and D are the correct choices among the given options. A customer acceptance policy defines the types of customers that the bank is willing to accept and the conditions for doing so. A risk management system ensures that the bank has adequate policies, procedures, and controls to identify, measure, monitor, and mitigate the risks arising from its KYC program.

References:

BCBS, Customer due diligence for banks, October 2001, p. 41

BCBS, Consolidated KYC Risk Management, October 2004, p. 42

According to the FATF Recommendations (2012), page 111, the FATF calls on its members and urges all jurisdictions to apply enhanced due diligence and, in the most serious cases, countermeasures to protect the international financial system from the money laundering, terrorist financing, and proliferation financing risks emanating from countries with significant strategic AML/CFT deficiencies. Countermeasures are proportionate and effective actions that can be applied by countries individually or collectively to protect their financial systems from these risks. Examples of countermeasures include restricting or prohibiting financial transactions with the high-risk country, requiring financial institutions to review and terminate correspondent relationships with the high-risk country, or applying enhanced reporting mechanisms or systematic reporting of financial transactions with the high-risk country.

References:

FATF Recommendations (2012), page 111

FATF Public Statement on High-Risk Jurisdictions subject to a Call for Action, February 20232

FATF Guidance on Countermeasures, October 20103

 This is a red flag of money laundering or terrorist financing that involves the use of non-profit organizations (NPOs) as conduits for illicit funds. NPOs may be vulnerable to abuse by criminals who exploit their legitimate activities, reputation, and access to funds and resources. A transaction monitoring process that would alert a bank for this red flag activity is to analyze the source, destination, frequency, and purpose of the funds transferred to and from the charity account, and to compare them with the expected profile and activity of the NPO. If the bank detects any inconsistency, discrepancy, or deviation from the norm, it should raise an alert and conduct further investigation.

References:

FATF Report: Risk of Terrorist Abuse in Non-Profit Organisations, page 9

Transaction Monitoring Processes for Red Flag Activity in Banking

AML Red Flags – What are the Top 10 Indicators? - ComplyAdvantage, section “Red flags related to the nature of transactions”

According to the Basel Committee's principles on customer due diligence, banks must obtain the necessary information to establish the identity of their customers, beneficial owners, and any persons acting on behalf of their customers. This includes verifying the identity of the customer and the beneficial owners and assessing the customer's risk profile. Additionally, banks must conduct ongoing due diligence to ensure that the customer does not give rise to suspicions of money laundering or terrorist financing [1].

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

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

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

References:

1. Financial Crime Academy: Ensuring Compliance - Building an Effective AML Training Program

2. ACAMS: AML Training - Preparing Auditors to Adequately Assess AML Programs

3. Financial Crime Academy: AML Training for High-Level Executives

4. Financial Crime Academy: Senior Management AML Training Workshops

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

According to the Wolfsberg Group, a global association of leading banks that develops guidance and standards for the management of financial crime risks, both private and correspondent banks should monitor account and transactional activity after the proper identification and verification of customers, as part of their anti-money laundering and counter-terrorist financing (AML/CTF) measures12. This is consistent with the FATF Recommendation 10, which requires financial institutions to conduct ongoing due diligence on their business relationships, including scrutinising transactions to ensure that they are consistent with the customer’s risk profile and source of funds3. Monitoring account and transactional activity is a key component of the risk-based approach, as it enables banks to detect and report suspicious or unusual transactions, identify changes in customer behaviour or circumstances, and update customer information and risk assessments accordingly4.

References:

1: Wolfsberg Anti-Money Laundering Principles for Private Banking (2012)

2: Wolfsberg Correspondent Banking Due Diligence Questionnaire (2017)

3: The FATF Recommendations - Financial Action Task Force

4: Risk-Based Approach for the Banking Sector - Financial Action Task Force

The first valid step in the Mutual Legal Assistance Treaty (MLAT) international cooperation process is for the central authority of the requesting country to send a letter of request to the central authority of the other country. The letter of request should provide a summary of the facts and information required, the reasons for the request, and any specific legal or procedural requirements that need to be met. (CAMS Manual, 6th Edition, Page 233).

According to the Certified Anti-Money Laundering Specialist (the 6th edition), Section 2.2.5 Suspicious Activity Reporting (SAR) Requirements, a Suspicious Activity Report (SAR) filing is required when a financial institution is aware of, or suspects, a possible violation of law or regulation, or any other suspicious activity related to money laundering, terrorist financing, or other unlawful activity. In this case, Answer A would require a Suspicious Activity Report filing as the deposits are made on a daily basis without providing a legitimate purpose.

According to the Financial Crimes Enforcement Network's (FinCEN) guidance, one example of a suspicious transaction is "frequent deposits of cash or monetary instruments in amounts under $10,000 to the same account, or a pattern of such deposits, unless the financial institution has a reasonable explanation for the pattern." (CAMS Manual, 6th Edition, Page 209)

 One of the common methods used by money launderers to hide the origin and destination of illicit funds is to create complex corporate structures that obscure the identity of the real owners or controllers of the assets. Lawyers can facilitate this process by providing legal services such as setting up shell companies, trusts, foundations, or other entities in jurisdictions with weak AML regulations or high secrecy. By doing so, lawyers can help their clients evade taxes, avoid sanctions, conceal criminal activities, or launder money. This is why lawyers are considered high-risk professionals for AML purposes and are subject to due diligence and reporting obligations.

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

ACAMS Study Guide for the CAMS Certification Examination, Chapter 3, Section 3.2.2, page 77: “Lawyers are often used to create complex corporate structures that can be used to hide the beneficial ownership of assets.”

Money Laundering Reporting Officer: The Role Of MLRO, Section “Money Laundering Risks For Lawyers”: “Lawyers are at risk of being used by criminals to launder money through various means, such as creating corporate entities, conducting transactions, or providing advice.”

New York Lawyer Pleads Guilty to Ponzi Scheme, Money Laundering, Section “Lawyer agrees to forfeit $19 million from investment scheme”: “A New York lawyer admitted Monday to money laundering and orchestrating an $18.8 million Ponzi scheme using his Forest Hills-based law firms, Wisnicki & Associates LLP and Wisnicki Neuhauser LLP.”

According to section 313 of the USA PATRIOT Act, a covered financial institution (generally any U.S. bank or broker dealer in securities) is prohibited from establishing, maintaining, administering, or managing a correspondent account in the U.S. for, or on behalf of, a foreign shell bank. A foreign shell bank is defined as a foreign bank that does not have a physical presence in any country. The only exception to this prohibition is if the foreign shell bank is a regulated affiliate of a depository institution, credit union, or foreign bank that maintains a physical presence in the U.S. or a foreign country, respectively. In that case, the U.S. financial institution must obtain a written certification from the foreign bank that it does not provide banking services to any other foreign shell banks.

References:

Here’s Why A Process Agent Is Required Under a Certification by a Foreign Bank, Cogency Global, September 2020.

Definition of “Foreign Shell Bank” and “Foreign Bank”, FinCEN, April 2003.

USA PATRIOT Act, FinCEN, accessed February 2024.

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

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

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

According to the Basel Committee on Banking Supervision, a sound KYC program should include four essential elements: customer acceptance policy, customer identification, on-going monitoring of higher risk accounts, and risk management1. Customer acceptance policy defines the types of customers that the financial institution (FI) is willing to accept and the criteria for doing so. Customer identification involves verifying the identity and beneficial ownership of the customers and obtaining information on their activities and sources of funds. On-going monitoring of higher risk accounts involves reviewing the transactions and behavior of the customers that pose higher risks of money laundering or terrorist financing and updating their information and risk profiles. Risk management involves establishing appropriate policies, procedures, controls, and audit functions to ensure the effective implementation and oversight of the KYC program1.

References:

1: Basel Committee on Banking Supervision - Bank for International Settlements1

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

The FATF measures the effectiveness of a country’s efforts to combat money laundering and terrorist financing through a process known as mutual evaluation. This process involves peer reviews, where experts from other member countries assess the technical compliance and the effectiveness of a country’s anti-money laundering and counter-terrorist financing (AML/CTF) framework. The FATF has developed a methodology that identifies 11 key areas, or immediate outcomes, that an effective AML/CTF system should achieve, and uses them as the basis for the mutual evaluation. The FATF publishes the mutual evaluation reports, which provide an in-depth analysis of the strengths and weaknesses of each country’s AML/CTF regime, as well as recommendations for improvement.

References:

1: An effective system to combat money laundering and terrorist financing, FATF, February 2013.

2: Report on the State of Effectiveness and Compliance with the FATF Standards, FATF, June 2021.

3: Financial Action Task Force (FATF) | Meaning, Functions, Impact, Finance Strategists, September 2023.

4: FATF Recommendations, FATF, October 2020.

A transaction monitoring system (TMS) is a tool that helps financial institutions detect and report suspicious activities related to money laundering, terrorist financing, and other financial crimes. A TMS needs to be implemented carefully and effectively to ensure its accuracy, reliability, and compliance with regulatory requirements.

One of the best practices for implementing a TMS is to perform systems integration testing (SIT) at key steps of development and user acceptance testing (UAT) prior to going live with the TMS. SIT is a process of verifying that the TMS can interact with other systems and data sources correctly and efficiently. UAT is a process of validating that the TMS meets the functional and operational expectations of the end-users and stakeholders.

By conducting SIT and UAT, the financial institution can identify and resolve any issues or defects in the TMS before it is deployed in the production environment. This can help avoid potential problems such as data quality issues, false positives, false negatives, system errors, performance issues, and regulatory breaches. Performing SIT and UAT can also help ensure that the TMS is aligned with the financial institution’s risk assessment, policies, procedures, and controls.

References:

Step 1 – Transaction Monitoring Implementation Best Practices

Anti-money laundering transaction monitoring system implementation considerations

ACAMS CAMS Certification Study Guide 6th Edition

An AML audit is a process of evaluating an organization’s compliance with AML regulations and best practices. The audit report should provide feedback on the strengths and weaknesses of the organization’s AML program and identify any gaps or deficiencies that need to be addressed. The compliance program should use the audit findings as an opportunity to improve its AML risk management and internal controls, and to implement corrective actions as needed. The audit findings should not be ignored or dismissed, but rather used as a tool to enhance the organization’s AML compliance performance and effectiveness.

References:

1: This web page explains what an AML compliance program is, why it is important, and what are the key components of an effective program. It also states that an AML compliance program should involve a regular review of the internal controls and systems used to detect and report financial crime, and measure their effectiveness in meeting compliance standards.

2: This blog post provides an overview of the importance and steps of an AML audit, and how to perform one effectively. It also suggests that an AML audit is a starting point to strengthen and improve the AML program, and that the insights from the audit should prompt action by the compliance team to address the deficiencies discovered.

3: This blog post discusses the best practices for AML audit compliance, and emphasizes the need for an ongoing testing process, including the audit, to keep the AML program current and effective. It also recommends effective communication among all employees who follow the program and procedures.

The Office of Foreign Assets Control (OFAC) is a department of the US Treasury that administers and enforces economic and trade sanctions imposed by the US against countries and groups of individuals, such as terrorists and narcotics traffickers. The sanctions can be either comprehensive or selective, using the blocking of assets and trade restrictions to accomplish foreign policy and national security goals. The main purpose of the US Treasury Department for OFAC’s extraterritorial reach is to apply these sanctions to any person or entity that is subject to US jurisdiction, or that engages in transactions involving US persons, US dollars, or US goods or services. This way, the US can exert pressure on the targets of the sanctions and prevent them from accessing the US financial system or market. OFAC’s extraterritorial reach is authorized by Congressional legislation or presidential emergency powers, and is often based on UN Security Council resolutions or multilateral agreements.

References:

Office of Foreign Assets Control (OFAC): Definition, Sanctions

About OFAC | Office of Foreign Assets Control

OFAC’s Extraterritorial Reach: Purpose of the US Treasury Department

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

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

According to the Certified Anti-Money Laundering Specialist (CAMS) Sixth Edition manual, the AML compliance officer should inform senior leadership and the board of the investigation (page 124) and monitor the progress of the investigation by keeping clear records (page 127). Additionally, the AML compliance officer should provide all information to the FIU as soon as possible to avoid delays (page 126).

According to the CAMS Manual, when a financial institution is being investigated by the financial intelligence unit (FIU), the AML compliance officer should inform senior leadership and the board of the investigation and monitor the progress of the investigation by keeping clear records. The manual states:

"The AML compliance officer should inform senior leadership and the board of any investigations and then monitor the progress of the investigation by keeping clear records of what has been requested and submitted, deadlines and extensions granted, and any findings or reports received. This will allow the financial institution to respond effectively and efficiently to the investigation and take appropriate action if necessary." (CAMS Manual, Section 7.4.1 - Financial Intelligence Units, p. 366)

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

References:

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

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

The FATF Regional Style Bodies (FSRBs) are autonomous regional organizations that help the FATF implement its global AML/CFT policy, which revolves around its 40 Recommendations, in over 200 affiliated countries1. One of the key characteristics of the FSRBs is that they emphasize regional co-operation between member countries, as stated in the High-Level Principles and Objectives approved by the FATF Plenary in October 20122. This means that the FSRBs facilitate information exchange, technical assistance, training, and mutual support among their members to enhance their AML/CFT capacities and compliance. The FSRBs also promote regional perspectives and specificities in the FATF policy-making process and foster dialogue and collaboration with other regional and international bodies2.

References:

1: What are the 9 FATF-Style Regional Bodies (FSRBs)? - Sygna

2: FATF-Style Regional Bodies (FSRBs) - Asia/Pacific Group on Money Laundering

These options involve transferring funds to another country, which could indicate cross-border movement of illicit funds, and cashing out winnings in checks under 10,000 USD, which could indicate structuring to avoid reporting thresholds. The other options do not seem as suspicious or relevant to money laundering.

The red flags that should be considered prior to establishing a relationship with a third party are the lack of anti-corruption compliance clauses in agreements (A) and unusual payment or billing procedures requested by the third party (C). According to the Certified Anti-Money Laundering Specialist (CAMS) Sixth Edition manual, "red flags include, but are not limited to: [...] lack of anti-corruption compliance clauses in agreements (page 330) and unusual payment or billing procedures requested by the third party (page 331)."

Under the Wolfsberg Correspondent Banking Principles, conducting enhanced due diligence (EDD) is an obligation for correspondent banking clients that present greater risks. This may include conducting additional research and analysis of the client's background, ownership structure, and transactions. EDD may also involve obtaining additional documentation, verifying the client's identity, and conducting periodic reviews to ensure ongoing compliance. The level of EDD required should be commensurate with the level of risk posed by the correspondent banking relationship. Therefore, option B and D are incorrect. Option A is not specific enough to address the question. Option C is the correct answer as it highlights the importance of senior management approval for high-risk relationships, which is a key component of EDD.

The two red flags indicating potential engagement of a bank employee in money laundering are A. Lavish lifestyle that cannot be supported by an employee's salary, and E. Maintaining friendships with customers and going to restaurants, games, and other events. A bank employee who has a lifestyle that cannot be supported by their salary could be receiving money from illicit activities. Similarly, if the employee is maintaining friendships and going to social events with customers, they could be receiving money in exchange for providing special services. These behaviors should be monitored closely to ensure that the employee is not engaging in activities that could be linked to money laundering.

According to the CAMS manual 6th edition, the USA PATRIOT Act allows the US government to subpoena documents from foreign financial institutions (FIs) that have no presence in the US (option B). The manual states that "The USA PATRIOT Act provides US law enforcement agencies with the power to subpoena documents from foreign banks that maintain correspondent accounts with US banks or have no presence in the United States" (p. 77).

The compliance officer should report the suspicious activity to the Board of Directors, as they are ultimately responsible for the bank’s compliance program and oversight. The Board should be informed of the potential conflict of interest and reputational risk involved in the case, as well as the steps taken by the compliance officer to investigate and file the suspicious transaction report. The compliance officer should not prevent the filing of the report, as this would violate the legal obligations of the bank and expose it to regulatory sanctions and penalties. The compliance officer should not ask the Board member to explain the transaction, as this could compromise the integrity and independence of the investigation and the reporting process. The compliance officer should not maintain standard summary statistical reporting to the Board, as this would not adequately address the seriousness and complexity of the case.

References:

ACAMS CAMS Certification Study Guide, 6th Edition, Chapter 5, page 1271

ACAMS CAMS Certification Video Training Course, Module 5, Lesson 22

ACAMS CAMS Certification Exam Outline, Domain 5, Task 13

Cryptocurrency is a digital or virtual currency that uses cryptography to secure and verify transactions. Cryptocurrencies are decentralized and operate outside the control of any central authority, such as a government or a bank. This makes them attractive for money launderers, who can use them to transfer funds anonymously, quickly, and globally, without leaving a trace or being subject to regulation. Cryptocurrencies pose more risk of money laundering than other sources of money, such as wire transfers, credit cards, or money service businesses, which are subject to more oversight, verification, and reporting requirements.

References:

CAMS Study Guide, 6th Edition, Chapter 1, Section 1.9, page 37

CAMS eLearning Course, Module 1, Lesson 9

ACAMS Crypto Hub

International business corporations (IBCs) are entities that are created in jurisdictions that offer low or no taxes, high confidentiality, and minimal regulation. They are often used by individuals and businesses to avoid or evade taxes, conceal assets, and launder money. Some of the risks associated with IBCs are:

They are created in a tax haven. Tax havens are countries or territories that have low or no taxes, lax financial regulation, and high secrecy. They attract IBCs that seek to reduce their tax liabilities, hide their beneficial owners, and evade scrutiny from authorities. Tax havens pose a risk to the global financial system, as they facilitate tax evasion, money laundering, corruption, and illicit financial flows12.

They are established with nominee directors. Nominee directors are individuals who act as the legal representatives of an IBC, but have no actual control or authority over its activities. They are often used to shield the true beneficial owners of the IBC from detection and accountability. Nominee directors pose a risk to the transparency and integrity of the IBC, as they can enable fraud, tax evasion, money laundering, and other criminal activities34.

References:

1, ACAMS CAMS Certification Study Guide, 6th Edition, Chapter 2, page 38

2, ACAMS CAMS Certification Video Training Course, Module 2, Lesson 2.3, Offshore Financial Centers

3, ACAMS CAMS Certification Study Guide, 6th Edition, Chapter 2, page 39

4, ACAMS CAMS Certification Video Training Course, Module 2, Lesson 2.4, Money Laundering Using New Payment Methods

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

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

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

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

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

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

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

References:

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

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

The compliance officer should evaluate the request, determine whether it is valid, and provide the necessary information, subject to management approval. It is important to follow the bank's policies and procedures for responding to law enforcement requests, including verifying the authenticity of the request and the identity of the officer making the request. Additionally, it is important to protect customer privacy and ensure that sensitive information is not released to unauthorized individuals. (Reference: Certified Anti-Money Laundering Specialist (the 6th edition), Chapter 6)

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

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

References:

1: Risk-Based Approach to Compliance Management2

2: A Risk-Based Approach to Regulatory Compliance1

 According to the Anti-Money Laundering Specialist (the 6th edition) study guide, a risk-based approach for EDD means that the FI applies more or less stringent measures depending on the level of risk posed by each client1. This allows the FI to allocate its resources more efficiently and effectively, and to focus on the clients that pose the highest risk of money laundering or terrorist financing2. Applying EDD for every new client, regardless of their risk profile, may not be the best use of the FI’s resources, and may not reflect the proportionality and relevance of the EDD measures3.

References:

1: CAMS Study Guide, 6th Edition, Chapter 3, Section 3.2, page 69

2: CAMS Study Guide, 6th Edition, Chapter 3, Section 3.3, page 70

3: CAMS Study Guide, 6th Edition, Chapter 3, Section 3.4, page 71

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

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

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

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

References:

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

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

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

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

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

The key factor that would result in the decision for a financial institution (FI) to exit a client relationship is when the level of residual client risk exceeds the FI’s risk appetite. Residual client risk is the remaining risk after applying the FI’s risk mitigation measures, such as customer due diligence, transaction monitoring, and suspicious activity reporting. Risk appetite is the level and type of risk that the FI is willing and able to accept in pursuit of its business objectives. If the residual client risk is higher than the risk appetite, the FI may decide to terminate the relationship to avoid potential regulatory, reputational, or operational consequences.

The other options are not necessarily key factors for exiting a client relationship, because:

The client is a registered charity known to remit funds to high risk geographies where there is limited due diligence information available. This option may indicate a higher level of inherent client risk, but it does not necessarily mean that the FI should exit the relationship. The FI may be able to apply enhanced due diligence, ongoing monitoring, and risk-based controls to mitigate the risk and comply with the regulatory requirements. The FI may also consider the nature and purpose of the client’s activities, the source and destination of the funds, and the potential impact on the client’s beneficiaries.

Closing the client accounts will help reduce the number of transaction monitoring alerts. This option may suggest a possible benefit of exiting the relationship, but it is not a key factor for making the decision. The FI should not base its decision solely on the volume of transaction monitoring alerts, but rather on the quality and relevance of the alerts, the results of the investigation, and the risk assessment of the client. The FI should also ensure that its transaction monitoring system is properly calibrated and validated to avoid generating excessive or false alerts.

Client transactions generate ongoing transaction monitoring alerts that did not result in any SAR/STR filings. This option may indicate a need for reviewing and improving the transaction monitoring system or the investigation process, but it does not necessarily imply that the FI should exit the relationship. The FI should not assume that the absence of SAR/STR filings means that the client is low risk or that the alerts are irrelevant. The FI should conduct a thorough and timely investigation of the alerts and document the rationale for filing or not filing a SAR/STR. The FI should also consider the overall risk profile of the client and the nature and frequency of the transactions.

References:

ACAMS Study Guide for the CAMS Certification Examination - 6th Edition, Chapter 3: AML Programs, Section 3.2: AML Program Components, Subsection 3.2.2: Risk Assessment, pp. 77-79

FFIEC BSA/AML Examination Manual, Section: Assessing Compliance with BSA Regulatory Requirements, Subsection: Suspicious Activity Reporting, pp. 4-5

Answers to Frequently Asked Questions Regarding Suspicious Activity Reporting and Other Anti-Money Laundering Considerations, Question 2, pp. 2-3

According to the Certified Anti-Money Laundering Specialist (CAMS) study guide, 6th edition, page 105, the correct answer is C. It can be difficult to determine if there is negative media associated with counterparties solely from the customer's account activity and KYC file.

The study guide explains that negative media can include news articles, government sanctions lists, and other sources of public information that may indicate that a counterparty is involved in illicit activities. However, this information may not be readily available in a customer's account activity or KYC file, and may require additional research or investigation.

Identity theft is a form of fraud or cheating of identity in which someone wrongfully obtains and uses another person's personal data in some way that involves fraud or deception, typically for economic gain. By compromising an individual's personal data, such as their Social Security Number, bank account numbers, or other personal information, a cybercriminal can use it to gain access to credit cards or other financial accounts, or to open new accounts in the victim's name.

When a high volume of incoming wire transfers generates an alert about a client and the funds are immediately debited by cash withdrawals and outgoing wire transfers, the first information that should be reviewed to investigate this alert/case is the customer’s account activity. This is because the account activity can reveal the origin, destination, purpose, frequency, and amount of the wire transfers, as well as any unusual or inconsistent patterns that may indicate money laundering or fraud. The account activity can also help to compare the wire transfers with the customer’s profile, risk rating, expected behavior, and source of funds. Reviewing the account activity can help to determine if the alert is a false positive or a true positive, and if further investigation or reporting is required.

References:

CAMS Study Guide, 6th Edition, Chapter 4, Section 4.3.2, p. 1251

Investigating Alert/Case of High Volume Wire Transfers | CAMS Exam Prep2

Wire Transfer Red Flags: Money Laundering & Fraud Risks - Alessa3

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

References:

1: CAMS Study Guide, 6th Edition, Chapter 2, Section 2.3, page 51

2: CAMS Study Guide, 6th Edition, Chapter 2, Section 2.4, page 52

According to the Financial Action Task Force (FATF), financial institutions should apply a risk-based approach to customer due diligence (CDD), which includes obtaining and updating information on the identity, beneficial ownership, and business activities of their clients. If a client refuses to provide or update such information, or provides false or misleading information, the financial institution should consider this as a red flag for potential money laundering or terrorist financing, and should exit the relationship with the client, unless the circumstances warrant otherwise. Exiting the relationship with a client who refuses to update information is also consistent with the FATF’s Recommendation 10, which requires financial institutions to terminate the business relationship if they are unable to perform CDD measures.

References:

1: This document contains the FATF’s 40 Recommendations, which are the international standards for combating money laundering and terrorist financing. Recommendation 10 covers the CDD requirements for financial institutions, and paragraph 22 states that “If the financial institution is unable to comply with paragraphs 10 to 12, 15 and 17, it should not open the account, commence business relations or perform the transaction; or should terminate the business relationship; and should consider making a suspicious transactions report in relation to the customer.”

2: This document provides guidance on the implementation of the FATF’s Recommendations on transparency and beneficial ownership, which are relevant for CDD purposes. It explains the definition of beneficial owner, the risks associated with legal persons and arrangements, and the effective mechanisms to combat the misuse of such entities. It also provides examples of situations where financial institutions should exit the relationship with a client, such as when the client refuses to provide or update information on beneficial ownership or control, or when the client is a shell company or a trust with no legitimate economic purpose.

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

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

According to the Financial Action Task Force (FATF), the use of large amounts of cash is a common method for money launderers to move illicit funds [1]. Purchasing luxury items with cash can indicate an attempt to convert illegal funds into tangible assets that can be easily resold or moved across borders. As a result, businesses that deal with luxury items are required to implement enhanced due diligence measures, including monitoring transactions involving large amounts of cash [1].

 A financial institution located in a Financial Action Task Force (FATF) member country should address the following issues in its anti-money laundering program when dealing with customers located in countries/jurisdictions that are not members of FATF:

The requirement to identify the beneficial owners of accounts: Beneficial owners are the natural persons who ultimately own or control a customer or a legal entity. Identifying the beneficial owners of accounts is a key component of customer due diligence (CDD) and helps the financial institution to assess the risk profile of the customer, prevent the misuse of legal entities for money laundering or terrorist financing, and comply with the FATF Recommendations12.

The requirement for customer identification for the opening of new accounts: Customer identification is the process of verifying the identity of a customer using reliable and independent sources of information or documents. Customer identification is another essential element of CDD and helps the financial institution to establish a business relationship with the customer, prevent identity fraud, and comply with the FATF Recommendations13.

The financial institution’s obligation to report suspicious transactions: Suspicious transactions are transactions that have no apparent economic or lawful purpose, or are inconsistent with the customer’s known profile or business activities, or indicate involvement in money laundering or terrorist financing. Reporting suspicious transactions to the competent authorities is a core obligation of the financial institution under the FATF Recommendations14 and helps to detect and deter illicit activities and support law enforcement investigations.

The obligation to freeze funds involved in suspicious transactions is not an issue that should be addressed in the anti-money laundering program, as it is not a requirement under the FATF Recommendations. The FATF Recommendations require the financial institution to freeze funds or other assets of designated persons and entities that are subject to targeted financial sanctions related to terrorism, proliferation of weapons of mass destruction, or other threats to the international financial system1 . However, the financial institution is not obliged to freeze funds involved in suspicious transactions, unless it receives a specific order from the competent authorities or the courts.

References:

The FATF Recommendations, as amended November 2023

Interpretive Note to Recommendation 10 (Customer Due Diligence), paragraphs 5(b) and 6

Recommendation 10 (Customer Due Diligence), paragraph 1

Recommendation 20 (Reporting of Suspicious Transactions)

Recommendation 6 (Targeted Financial Sanctions Related to Terrorism and Terrorist Financing), Recommendation 7 (Targeted Financial Sanctions Related to Proliferation), and Recommendation 8 (Non-Profit Organisations)

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

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

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

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

References:

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

The Egmont Group of Financial Intelligence Units | FinCEN.gov

The Egmont Group of The Egmont Group of Financial Intelligence Units

 The FATF conducts peer reviews of each member on an ongoing basis to assess levels of implementation of the FATF Recommendations, providing an in-depth description and analysis of each country’s system for preventing criminal abuse of the financial system. The FATF Methodology for assessing compliance with the FATF Recommendations and the effectiveness of AML/CFT systems sets out the evaluation process. Assessments focus on two areas, effectiveness and technical compliance. The effectiveness component will assess whether the AML/CFT systems are working, and the extent to which the country is achieving the defined set of outcomes. The technical compliance component will assess whether the necessary laws, regulations or other required measures are in force and effect, and whether the supporting AML/CFT institutional framework is in place.

References:

Mutual Evaluations - Financial Action Task Force

FATF Methodology for assessing compliance with the FATF Recommendations and the effectiveness of AML/CFT systems

Procedures for the FATF Fourth Round of AML/CFT Mutual Evaluations

According to the ACAMS CAMS Study Guide, 6th Edition, Chapter 3, Section 3.2, the financial institution should implement the following measures in order to identify and investigate money laundering activity from their clients:

Adverse news screening: This is a process of checking the clients’ names and related parties against various sources of negative or adverse information, such as media reports, sanctions lists, watch lists, law enforcement databases, etc. Adverse news screening can help the financial institution to detect any potential red flags or indicators of money laundering or other criminal activities involving their clients, and to take appropriate actions, such as conducting enhanced due diligence, filing suspicious activity reports, or terminating the relationship.

Transaction monitoring: This is a process of reviewing and analyzing the clients’ transactions and activities, such as deposits, withdrawals, transfers, payments, etc., to identify any unusual or suspicious patterns or behaviors that deviate from their normal or expected profile. Transaction monitoring can help the financial institution to detect any possible signs of money laundering or other financial crimes, such as structuring, layering, integration, fraud, tax evasion, etc., and to investigate and report them accordingly.

The other options are not measures that the financial institution should implement in order to identify and investigate money laundering activity from their clients, although they may be part of the overall AML program or compliance culture:

Integrity policy: This is a document that outlines the ethical principles and values that guide the conduct and behavior of the financial institution and its employees. An integrity policy can help the financial institution to promote a culture of honesty, transparency, and accountability, and to prevent or deter any misconduct or corruption. However, an integrity policy alone is not sufficient or specific enough to identify and investigate money laundering activity from their clients.

Whistleblower hotline: This is a mechanism that allows the employees or other stakeholders of the financial institution to report any suspected or observed violations of the AML policies, procedures, or regulations, or any other wrongdoing or malpractice, without fear of retaliation or reprisal. A whistleblower hotline can help the financial institution to encourage and facilitate the reporting of any potential or actual money laundering activity from their clients or within the organization, and to protect the rights and interests of the whistleblowers. However, a whistleblower hotline is not a measure that the financial institution implements to identify and investigate money laundering activity from their clients, but rather a tool that supports the AML program and compliance function.

Code of conduct: This is a document that defines the standards and expectations of the financial institution and its employees regarding their professional and ethical behavior, responsibilities, and obligations. A code of conduct can help the financial institution to establish and maintain a culture of compliance and integrity, and to prevent or address any conflicts of interest, misconduct, or abuse of power. However, a code of conduct is not a measure that the financial institution implements to identify and investigate money laundering activity from their clients, but rather a framework that governs the AML program and compliance function.

References:

ACAMS CAMS Study Guide, 6th Edition, Chapter 3, Section 3.2

ACAMS CAMS Certification Video Training Course - Exam-Labs

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

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

References:

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

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

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

The General Data Protection Regulation (GDPR) is a regulation issued by the European Union (EU) that sets out requirements for the processing and protection of personal data. It applies to any company that processes personal data of individuals in the EU, and requires organizations to take appropriate measures to protect the personal data of individuals, such as implementing appropriate security measures, limiting the amount of data collected and stored, and providing clear explanations of how the data will be used. In the context of financial crime investigations, the GDPR requires organizations to ensure the security and confidentiality of personal data that they collect and process, and to take measures to ensure that the data is used only for the purpose of the investigation and not for any other purpose.

 According to the Wolfsberg Group, the FI should take the following steps regarding the opening of the account for the senior government official:

Reasonably establish if the source of wealth and funds of the official is legitimate. This is to ensure that the FI is not facilitating the laundering of proceeds of corruption, bribery, or other illicit activities by the official, who is considered a politically exposed person (PEP) and poses a higher risk of financial crime. The FI should obtain information and documentation on the origin and ownership of the funds, the official’s income and assets, and the purpose and expected activity of the account12.

Perform due diligence procedures on the managing intermediary. This is to verify the identity, reputation, and regulatory status of the intermediary, who acts as a third party on behalf of the official. The FI should also assess the intermediary’s own AML/CFT policies and controls, and the nature and extent of the relationship between the intermediary and the official13.

Determine whether the intermediary representative is acting on the officer’s behalf. This is to establish the beneficial ownership and control of the account, and to avoid any potential conflicts of interest or undue influence by the intermediary. The FI should obtain a written confirmation from the intermediary that they are authorized to act on behalf of the official, and that they will disclose any changes in the beneficial ownership or control of the account13.

References:

1, Wolfsberg Group, Guidance on Politically Exposed Persons (PEPs), 2023

2, Wolfsberg Group, FAQs on Source of Wealth (SoW) & Source of Funds (SoF), 2023

3, Wolfsberg Group, FAQs on Intermediaries, 2023

According to the Financial Action Task Force (FATF) standards for suspicious activity reports (SARs) information sharing within a financial group, "Financial institutions should establish adequate procedures to ensure that confidentiality of information is maintained and that information is only used for purposes permitted under national law. Where the parent institution is located in a country that does not permit such sharing, financial institutions should take measures to address this limitation" (CAMS Manual, 6th Edition, page 476). Therefore, financial institutions must establish sufficient safeguards concerning the confidentiality of information shared for AML purposes.

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

References:

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

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

According to the Wolfsberg Principles on Correspondent Banking1, an institution should consider the following three elements in its enhanced due diligence process for higher risk respondent bank customers:

The quality of the respondent’s AML and client identification controls: The correspondent should assess the adequacy and effectiveness of the respondent’s AML policies, procedures, and systems, as well as its compliance with applicable AML laws and regulations. The correspondent should also verify that the respondent has implemented appropriate customer identification and verification measures, and that it maintains sufficient records of its customers and transactions.

A risk-based determination as to whether or not the respondent is a shell bank: The correspondent should ensure that the respondent is not a shell bank, which is defined as a bank that has no physical presence in any country and is not affiliated with a regulated financial group. The correspondent should also avoid establishing or maintaining relationships with banks that are known to allow their accounts to be used by shell banks.

Whether a Politically Exposed Person (PEP) has an interest or management role in the respondent: The correspondent should identify and assess the potential risks associated with any PEPs who have an ownership or management interest in the respondent, or who are customers of the respondent. The correspondent should apply enhanced scrutiny and monitoring to such relationships, and obtain senior management approval before establishing or continuing them.

References:

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

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

References:

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

Havens for money laundering and terrorist financing are jurisdictions that offer a high degree of anonymity, secrecy, and protection to criminals who seek to conceal or move their illicit funds. These havens typically have the following three attributes12:

Limited types of institutions and persons covered by money laundering laws and regulations. This means that only a narrow range of financial activities or entities are subject to anti-money laundering (AML) and combatting the financing of terrorism (CFT) obligations, such as customer due diligence, record-keeping, reporting, and supervision. For example, some havens may exclude lawyers, accountants, trust and company service providers, or non-bank financial institutions from AML/CFT requirements.

Little enforcement of the laws, weak penalties or provisions that make it difficult to confiscate or freeze assets related to money laundering. This means that the authorities in these havens lack the political will, resources, or capacity to effectively implement and enforce the AML/CFT laws and regulations. They may also impose low sanctions or fines for non-compliance, or create legal barriers or obstacles for the confiscation or freezing of assets that are the proceeds of, or used in, or intended or allocated for use in, money laundering, terrorist financing, or other crimes.

Absence of an effective FIU. This means that these havens do not have a central agency that is responsible for receiving, analyzing, and disseminating financial intelligence related to money laundering, terrorist financing, and other crimes. An effective FIU is essential for facilitating domestic and international cooperation and information exchange, as well as for supporting investigations and prosecutions of money laundering and terrorist financing cases.

References:

1: The IMF and the Fight Against Money Laundering and Terrorism Financing, 1 2: IX Special Recommendations, 2

 The Fourth European Union Directive on money laundering (AMLD4) requires member countries to maintain registries of the beneficial owners of legal entities, such as companies, trusts, foundations, etc. This is to ensure that the true identity and ownership of the customers and the natural persons on whose behalf transactions are conducted are known to the obliged entities, such as banks, lawyers, accountants, etc., and to the competent authorities, such as regulators, supervisors, or law enforcement12. This requirement aims to prevent the misuse of legal entities for money laundering or terrorist financing purposes, and to enhance transparency and access to beneficial ownership information34.

References: 1: AMLD4, Article 30, 5; 2: AMLD4, Recital 25, 5; 3: AMLD4, Recital 26, 5; 4: AMLD4, Recital 27, 5.

a vehicle that is historically most often used to hide beneficial ownership, which is an offshore company. An offshore company is a legal entity that is incorporated or registered in a foreign jurisdiction, usually with low or no taxes, high confidentiality, and lax regulation. Offshore companies can be used by money launderers and other criminals to conceal the true identity and ownership of the funds or assets that they control, and to evade taxes, reporting, or legal obligations in their home jurisdictions. Offshore companies can also be layered with other vehicles, such as trusts, foundations, or nominees, to create complex and opaque structures that make it difficult for authorities to trace the source and destination of illicit funds.

The other options are not necessarily vehicles that are most often used to hide beneficial ownership, although they may pose some risks or challenges depending on the circumstances and the risk profile of the customers and countries involved. Option A describes a professional association, which is a group of individuals or entities that share a common profession or interest, such as lawyers, accountants, or doctors. Professional associations may be involved in money laundering or terrorist financing as facilitators, intermediaries, or advisors, but they are not typically used to hide beneficial ownership. Option C describes a limited liability partnership, which is a legal entity that combines the features of a partnership and a corporation, and limits the liability of its partners. Limited liability partnerships may be used by money launderers or terrorist financiers to obscure the ownership or control of funds or assets, but they are not as common or as secretive as offshore companies. Option D describes a charitable organization, which is a non-profit entity that is established for a charitable, religious, educational, or other public benefit purpose. Charitable organizations may be abused by money launderers or terrorist financiers to divert funds or assets for illicit purposes, but they are not usually used to hide beneficial ownership.

References:

ACAMS CAMS Certification Video Training Course - 6th Edition1

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

ACAMS CAMS Study Guide - 6th Edition, Chapter 4, pages 86-87

https://www.acams.org/wp-content/uploads/2019/09/ACAMS-CAMS-Study-Guide-6th-Edition-Chapter-4.pdf

A bank’s risk assessment is a process of identifying, measuring, and mitigating the potential risks that the bank faces in its operations, products, services, and customers. According to the ACAMS Study Guide, a bank should focus on the following areas when performing a risk assessment1:

The type and location of the institution’s clients. This involves analyzing the customer base, the types of accounts and transactions, the source and destination of funds, the level of due diligence and verification, and the risk profile of the customers. For example, a bank should consider whether its customers are individuals or entities, domestic or foreign, politically exposed persons, high-net-worth individuals, non-profit organizations, or cash-intensive businesses. The location of the customers may also indicate the level of exposure to money laundering, terrorist financing, sanctions, or tax evasion risks.

The nature and breadth of the services and products the institution provides. This involves evaluating the range and complexity of the products and services offered by the bank, the delivery channels, the payment methods, and the innovation and technology involved. For example, a bank should consider whether it offers wire transfers, correspondent banking, trade finance, private banking, trust and fiduciary services, prepaid cards, mobile banking, or cryptocurrency services. The nature and breadth of the services and products may also affect the level of transparency, traceability, and compliance of the transactions.

The geographic locations where the institution does business. This involves assessing the jurisdictions where the bank operates, where its customers reside, where its counterparties are located, and where the funds flow. For example, a bank should consider whether it has branches, subsidiaries, or affiliates in high-risk countries, whether it serves customers from high-risk countries, whether it engages in cross-border transactions, and whether it complies with the local laws and regulations of the countries where it does business. The geographic locations where the institution does business may also influence the level of exposure to political, legal, regulatory, or reputational risks.

References:

1: ACAMS Study Guide, Chapter 2: Risk Assessments, 1