Certified Anti-Money Laundering Specialist (CAMS) — Questions and Answers

Question 1: How many FATF Recommendations form the current international AML/CFT standard?

20
50
30
40 (Correct answer)

Correct answer: 40

The FATF 40 Recommendations (last revised in 2012 with subsequent updates) constitute the international standard for AML, counter-terrorist financing (CFT), and counter-proliferation financing.

Question 2: What role does the board of directors play in AML risk management?

Board members are individually liable for all AML violations regardless of their knowledge
The board reviews and approves every SAR before it is filed with FinCEN
The board's AML role is limited to approving the annual AML training budget
The board is responsible for setting risk appetite, approving the AML program, receiving regular AML risk reports, and holding senior management accountable for AML compliance (Correct answer)

Correct answer: The board is responsible for setting risk appetite, approving the AML program, receiving regular AML risk reports, and holding senior management accountable for AML compliance

The board bears ultimate accountability for the institution's AML program — they must set the risk appetite, approve the written AML policy, receive regular compliance reporting, and ensure adequate resources are allocated to the compliance function.

Question 3: The 'Black Market Peso Exchange' (BMPE) is an example of which major money laundering typology?

Real estate integration laundering
Casino chip purchase and cash-out laundering
Trade-based money laundering (Correct answer)
Cyber-enabled payment system laundering

Correct answer: Trade-based money laundering

The BMPE is a classic TBML scheme where Colombian drug traffickers use peso brokers to purchase US goods with drug dollars, which are then exported and sold in Colombia, converting illicit USD into clean pesos.

Question 4: Under US BSA requirements, how long must a financial institution retain records related to a SAR filing?

Indefinitely
7 years from the date of filing
5 years from the date of filing (Correct answer)
3 years from the date of filing

Correct answer: 5 years from the date of filing

31 CFR 1020.320 requires financial institutions to retain SARs and supporting documentation for five years from the date of filing.

Question 5: What must a financial institution do within 10 business days of identifying blocked property under OFAC regulations?

Return the funds to the originating institution
Release the funds to law enforcement
File a SAR with FinCEN
File a Blocked Property Report with OFAC (Correct answer)

Correct answer: File a Blocked Property Report with OFAC

When a financial institution blocks property pursuant to OFAC sanctions, it must file a report with OFAC within 10 business days, providing details of the blocked transaction and the sanctions program involved.

Question 6: What is the dollar threshold that triggers a mandatory SAR filing for a transaction involving a non-insider customer of a bank?

$5,000 (Correct answer)
$1,000
$10,000
$3,000

Correct answer: $5,000

Banks must file a SAR for transactions of $5,000 or more that are suspected to involve money laundering, fraud, or other financial crimes when conducted by non-insider customers.

Question 7: What is a 'high-risk country' in AML due diligence and how does it affect customer risk ratings?

Any country with a population over 100 million people
A jurisdiction identified by FATF, OFAC, or national authorities as having significant AML/CFT deficiencies or sanctions concerns, which elevates the risk rating of connected customers (Correct answer)
Any country that is not a member of the FATF
Countries with GDP below a certain threshold

Correct answer: A jurisdiction identified by FATF, OFAC, or national authorities as having significant AML/CFT deficiencies or sanctions concerns, which elevates the risk rating of connected customers

High-risk countries are those flagged by FATF on its grey/black lists, OFAC sanctions lists, or national AML authorities for deficient AML controls, corruption, or tax secrecy, which increases the risk rating of customers with connections to those jurisdictions.

Question 8: What is the Specially Designated Nationals (SDN) list maintained by OFAC?

A list of high-net-worth foreign customers eligible for private banking services
A list of approved foreign correspondents for U.S. banks
A list of designated non-financial businesses subject to AML requirements
A list of individuals, entities, and countries with whom U.S. persons and institutions are prohibited from conducting business (Correct answer)

Correct answer: A list of individuals, entities, and countries with whom U.S. persons and institutions are prohibited from conducting business

The SDN list identifies individuals, companies, and countries subject to U.S. sanctions, whose assets must be blocked and with whom U.S. persons may not conduct transactions without OFAC authorization.

Question 9: What is the primary purpose of the 'integration' stage of the money laundering process?

To introduce cash into the regulated financial system for the first time
To make illicit funds appear as legitimate wealth available for normal use (Correct answer)
To identify and assess customers who pose high money laundering risks
To create complex transaction trails that obscure the illicit source of funds

Correct answer: To make illicit funds appear as legitimate wealth available for normal use

Integration is the final stage where laundered funds re-enter the legitimate economy — through real estate, businesses, or investments — appearing as lawful income or assets.

Question 10: Which element is NOT required to be included in a written AML compliance policy?

A description of the institution's risk profile
Roles and responsibilities of AML compliance staff
Procedures for identifying and reporting suspicious activity
Names of all customers identified as high risk (Correct answer)

Correct answer: Names of all customers identified as high risk

AML policies describe frameworks and procedures but do not list individual customer names; high-risk customers are managed through systems and processes, not named in policies.

Question 11: What is a FATF 'mutual evaluation' and what does it assess?

A mutual agreement between countries to share AML intelligence
A peer review process that assesses how effectively a country implements the FATF Recommendations in both law and practice (Correct answer)
An evaluation of FATF's own effectiveness conducted by member countries
A joint investigation by multiple countries into an international money laundering network

Correct answer: A peer review process that assesses how effectively a country implements the FATF Recommendations in both law and practice

A FATF mutual evaluation is a peer review of a member country's AML/CFT system, assessing both the technical compliance of its laws and the effectiveness of implementation in achieving tangible AML outcomes.

Question 12: A transaction monitoring system generates an alert for a wire transfer that matches a known money laundering typology. What is the analyst's FIRST step?

Freeze the customer's account
File a SAR immediately
Escalate to law enforcement
Gather all available information about the customer and transaction (Correct answer)

Correct answer: Gather all available information about the customer and transaction

Before making any filing or action decision, analysts must collect and review all relevant customer and transaction data to properly assess the alert.

Question 13: Which transaction monitoring scenario is MOST effective at detecting money laundering through real estate?

Monitoring for frequent small ATM withdrawals
Monitoring for check kiting patterns
Monitoring for international wire transfers above $10,000
Monitoring for large cash payments or wire transfers associated with property purchases by shell companies (Correct answer)

Correct answer: Monitoring for large cash payments or wire transfers associated with property purchases by shell companies

Real estate money laundering commonly involves cash or wires from shell companies to purchase properties, so monitoring for this combination targets the primary typology.

Question 14: What is FATF's approach to the risk-based approach (RBA) in the context of financial institutions?

FATF's RBA applies only to banks; other financial institutions use prescriptive rules
FATF endorses the RBA as the foundation of an effective AML/CFT system, requiring institutions to identify, assess, and understand their specific risks and apply commensurate controls (Correct answer)
The RBA is optional under FATF standards and only recommended for large institutions
FATF mandates a uniform, rule-based approach for all institutions to ensure consistency

Correct answer: FATF endorses the RBA as the foundation of an effective AML/CFT system, requiring institutions to identify, assess, and understand their specific risks and apply commensurate controls

FATF's risk-based approach, articulated throughout its Recommendations, requires that AML controls be proportionate to identified risks — more resources and controls for higher risks, with simplified measures permissible for genuinely low-risk situations.

Question 15: What does OFAC's 'license' process allow?

It grants specific authorization for transactions that would otherwise be prohibited under sanctions programs (Correct answer)
It certifies AML officers to conduct sanctions screening
It licenses financial institutions to conduct business in high-risk countries
It licenses technology vendors to sell sanctions screening software

Correct answer: It grants specific authorization for transactions that would otherwise be prohibited under sanctions programs

An OFAC license is a specific authorization to engage in a transaction that would otherwise be prohibited, available either as a general license (broad authorization for certain categories) or specific license (case-by-case approval).

Question 16: What does the FATF Recommendation 16 (the 'Travel Rule') require?

Customers to disclose travel plans when conducting foreign currency transactions
Financial institutions to block funds transfers to countries that do not comply with FATF standards
Wire transfer originators and beneficiary institutions to pass along and retain specific information about the parties to a transaction (Correct answer)
Financial institutions to report all cross-border travel by customers to their FIU

Correct answer: Wire transfer originators and beneficiary institutions to pass along and retain specific information about the parties to a transaction

The Travel Rule (Recommendation 16) requires financial institutions initiating wire transfers to include originator and beneficiary information (name, account number, address) with the transfer, and requires receiving institutions to retain this information.

Question 17: The emergence of 'super-correspondent' banks in global payment networks raises AML concerns because:

They operate exclusively in jurisdictions with weak AML frameworks
Concentration of global payments through a few institutions creates systemic risk if one is compromised (Correct answer)
They charge higher fees that incentivize smaller banks to bypass compliance
Super-correspondents are exempt from FATF Recommendation 13 requirements

Correct answer: Concentration of global payments through a few institutions creates systemic risk if one is compromised

Concentration of global correspondent banking in a small number of institutions means a single compliance failure or exploitation could affect a vast network of downstream banks.

Question 18: Which of the following is a key component of AML employee training programs?

Training staff exclusively on cybersecurity procedures
Focusing training only on the legal department and senior management
Teaching employees to make investment decisions for customers
Ensuring all staff understand red flags, reporting obligations, and consequences of non-compliance (Correct answer)

Correct answer: Ensuring all staff understand red flags, reporting obligations, and consequences of non-compliance

Effective AML training must cover red flags of suspicious activity, the employee's reporting obligations, regulatory requirements, and the legal and reputational consequences of non-compliance.

Question 19: Which money laundering typology involves converting large amounts of cash into monetary instruments such as money orders, traveler's checks, or cashier's checks?

Cuckoo smurfing
Loan-back schemes
Monetary instrument purchases (Correct answer)
Currency exchange arbitrage

Correct answer: Monetary instrument purchases

Purchasing monetary instruments with cash is a classic placement technique because such instruments are easier to deposit, transport, and negotiate than bulk cash.

Question 20: Which scenario would MOST likely trigger a structuring alert in a transaction monitoring system?

A single wire transfer of $50,000 to a foreign account
A large check deposit matching a property sale contract
Multiple cash deposits of $9,800 made by the same customer over two weeks (Correct answer)
Monthly payroll deposits consistent with employment records

Correct answer: Multiple cash deposits of $9,800 made by the same customer over two weeks

Repeated deposits just below the $10,000 CTR threshold is the classic indicator of structuring, which is illegal under 31 U.S.C. § 5324.

Question 21: What is a 'rejected transaction' in OFAC compliance, and how does it differ from a 'blocked transaction'?

A rejected transaction is one declined due to insufficient funds; a blocked transaction is declined due to fraud
A rejected transaction is declined without holding funds (no U.S. nexus to block), typically involving a foreign party that is not subject to blocking; a blocked transaction involves U.S.-nexus funds that must be frozen and held (Correct answer)
Rejected and blocked transactions are identical in OFAC compliance
A rejected transaction requires SAR filing; a blocked transaction does not

Correct answer: A rejected transaction is declined without holding funds (no U.S. nexus to block), typically involving a foreign party that is not subject to blocking; a blocked transaction involves U.S.-nexus funds that must be frozen and held

Rejected transactions (also called prohibited transactions) are declined without holding the funds because there is no property interest that can be blocked (e.g., a foreign bank rejects a wire), while blocked transactions involve assets that must be frozen and held pending OFAC guidance.

Question 22: What is the significance of the U.S. National Money Laundering Risk Assessment (NMLRA) for financial institutions?

It determines the amount of capital institutions must hold in reserve against AML risks
It is a mandatory assessment that each institution must complete and submit to FinCEN annually
It sets the official risk rating for each financial institution based on regulatory findings
It is the government's assessment of money laundering risks across the U.S. financial system, which institutions use to benchmark and inform their own risk assessments (Correct answer)

Correct answer: It is the government's assessment of money laundering risks across the U.S. financial system, which institutions use to benchmark and inform their own risk assessments

The NMLRA, published by the U.S. Treasury, provides the government's assessment of money laundering risks across sectors, geographic areas, and methods — financial institutions use this to understand systemic risks and inform their own risk assessments.

Question 23: Which typology involves moving illicit funds through a series of foreign correspondent banking relationships to obscure their origin?

Real estate layering through nominee purchasers
Casino chip laundering and cash-out schemes
Structuring deposits across multiple domestic retail banks
Correspondent banking layering through nested accounts (Correct answer)

Correct answer: Correspondent banking layering through nested accounts

Correspondent banking layering exploits nested or downstream respondent relationships to move funds through multiple jurisdictions, each hop adding complexity and obscuring the original source.

Question 24: What is a 'loan-back' scheme in money laundering?

A scheme where criminals 'lend' themselves their own illicit funds and repay the loan with seemingly legitimate funds (Correct answer)
A scheme where criminals obtain bank loans using stolen identities
A method of transferring funds through international syndicated banking facilities
A government program designed to compensate money laundering victims

Correct answer: A scheme where criminals 'lend' themselves their own illicit funds and repay the loan with seemingly legitimate funds

In a loan-back scheme, the launderer deposits illicit funds offshore, then borrows against those funds, creating a paper trail that makes repayments appear to be legitimate loan obligations.

Question 25: What is 'blocking' in the context of OFAC sanctions compliance?

Preventing a currency transaction from proceeding because it exceeds reporting thresholds
Preventing a customer from accessing their account due to suspected fraud
Blocking wire transfer instructions due to incomplete information
Freezing and segregating funds or assets of a sanctioned party pending further OFAC guidance (Correct answer)

Correct answer: Freezing and segregating funds or assets of a sanctioned party pending further OFAC guidance

When a financial institution identifies a transaction or account involving a sanctioned party, it must 'block' (freeze) the funds, report to OFAC within 10 business days, and hold the funds in a segregated interest-bearing account.

Question 26: Karla is employed by the Technical Compliance Assessment department as an assessor. One of her responsibilities is to determine if a nation complies with the FATF standard. Which of the following ratings are possible?

Obedient
Not relevant
All mentioned (Correct answer)
Incompliance
Only partially adhering
Generally in compliance

Correct answer: All mentioned

The FATF employs a comprehensive rating system to assess a country's compliance with its 40 Recommendations. These ratings include 'Compliant,' 'Largely Compliant,' 'Partially Compliant,' and 'Non-Compliant,' reflecting varying degrees of adherence to the standards. Additionally, 'Not Relevant' can be used if a specific recommendation does not apply to a country's particular legal or institutional framework.

Question 27: A bank employee inadvertently discloses to a customer that a SAR has been filed on their account. What is this called and what are the consequences?

Breach of privacy — subject to civil penalties only
Whistleblowing — protected under federal law
Inadvertent disclosure — addressed through internal disciplinary procedures only
Tipping off — a federal crime that can result in criminal prosecution (Correct answer)

Correct answer: Tipping off — a federal crime that can result in criminal prosecution

Disclosing a SAR filing to its subject is called 'tipping off' and is a federal crime under 31 U.S.C. § 5318(g)(2), with criminal penalties including fines and imprisonment for the employee involved.

Question 28: What is the consequence for a financial institution that processes a prohibited OFAC transaction?

A verbal warning from OFAC for first-time violations
Only criminal penalties for senior executives but not the institution itself
Civil monetary penalties up to the greater of $250,000 per violation or twice the amount of the transaction, plus potential criminal penalties (Correct answer)
Automatic license revocation with no opportunity for remediation

Correct answer: Civil monetary penalties up to the greater of $250,000 per violation or twice the amount of the transaction, plus potential criminal penalties

OFAC can impose civil penalties up to the greater of $250,000 per violation or twice the transaction value, and willful violations can result in criminal penalties including imprisonment, though penalty amounts have increased significantly in recent years.

Question 29: A bank's transaction monitoring system is not tuned for its specific customer base and produces 95% false positives. This situation is BEST described as:

A staffing deficiency
A KYC data gap
A model risk management failure (Correct answer)
A regulatory reporting failure

Correct answer: A model risk management failure

Excessively high false positive rates indicate the monitoring model is poorly calibrated, which is a model risk management issue requiring tuning and validation.

Question 30: Which of the following PEPs' suspicious actions is causing issues for many financial institutions?

Possessing more than 30 businesses worldwide through BVI entities.
The DEA claimed that a PEP had accepted bribes from Mexican drug traffickers totaling about $20 million, which he kept in private banking accounts at Lehman Brothers. (Correct answer)
Utilizing shell corporations to launder approximately $400 million in money worldwide and to enable drug trafficking, gun smuggling, embezzlement, and money laundering. (Correct answer)
Obtaining more than three banks' combined USD 50 million in import line facilities at once to support the expansion of its business.
Utilizing shell corporations to launder approximately $400 million in money worldwide and to enable drug trafficking, gun smuggling, embezzlement, and money laundering. (Correct answer)

Correct answer: The DEA claimed that a PEP had accepted bribes from Mexican drug traffickers totaling about $20 million, which he kept in private banking accounts at Lehman Brothers.

Utilizing shell corporations for large-scale money laundering and facilitating predicate offenses like drug trafficking and gun smuggling is a classic and significant typology of suspicious activity. Politically Exposed Persons (PEPs) are inherently high-risk due to their potential for corruption, and such complex schemes involving shell corporations are a major concern for financial institutions in combating illicit finance.

Question 31: Which of the following BEST describes the purpose of establishing 'expected activity' profiles in transaction monitoring?

To set minimum transaction amounts for monitoring
To classify customers by their net worth
To limit the volume of transactions a customer can conduct
To create a baseline against which deviations can be identified as potentially suspicious (Correct answer)

Correct answer: To create a baseline against which deviations can be identified as potentially suspicious

Expected activity profiles define normal behavior for each customer so that deviations from that baseline can trigger alerts for further investigation.

Question 32: How does 'correspondent banking' create unique AML challenges?

Correspondent banks are not subject to any AML regulations
Correspondent banking only involves domestic transactions with low risk
Correspondent banks are prohibited from serving high-risk customers
The respondent bank's customers are often unknown to the correspondent bank, creating nested relationship risks and limited visibility into underlying transactions (Correct answer)

Correct answer: The respondent bank's customers are often unknown to the correspondent bank, creating nested relationship risks and limited visibility into underlying transactions

In correspondent banking, the correspondent institution provides services to a respondent bank's customers without direct KYC of those end customers, creating 'nested' risk where illicit funds can pass through with limited scrutiny.

Question 33: Which stage of the money laundering process involves introducing illicit cash into the financial system for the first time?

Layering
Structuring
Placement (Correct answer)
Integration

Correct answer: Placement

Placement is the first stage, where criminal proceeds are physically deposited or converted into financial instruments to enter the formal financial system.

Question 34: What is a 'risk-based monitoring' approach to transaction surveillance?

Monitoring all transactions with the same level of scrutiny to ensure equal treatment
Calibrating transaction monitoring alert thresholds and rules based on the customer's risk profile, applying more sensitive monitoring to high-risk customers (Correct answer)
Only monitoring transactions above a fixed dollar threshold regardless of risk profile
Delegating transaction monitoring responsibility to high-risk customers themselves

Correct answer: Calibrating transaction monitoring alert thresholds and rules based on the customer's risk profile, applying more sensitive monitoring to high-risk customers

Risk-based monitoring tailors transaction monitoring intensity to customer risk — high-risk customers may have lower alert thresholds, more scenarios applied, and shorter review cycles, while low-risk customers may trigger fewer alerts.

Question 35: What is a 'shell company' in the context of money laundering?

A startup company with limited revenue in its early stages
A legal entity with no significant assets or operations used primarily to obscure the true beneficial ownership of assets (Correct answer)
A company that manufactures oil and gas equipment
A subsidiary of a multinational corporation

Correct answer: A legal entity with no significant assets or operations used primarily to obscure the true beneficial ownership of assets

Shell companies are legal entities that typically have no real business operations or assets and are used to hold assets or conduct transactions while concealing the true owner's identity.

Question 36: Which of the following programs is NOT administered by OFAC?

USA PATRIOT Act Section 314(a) information sharing (Correct answer)
Cuba sanctions (CACR)
Iran sanctions (ITSR)
Russia sanctions (CAPTA/Ukraine-related)

Correct answer: USA PATRIOT Act Section 314(a) information sharing

FinCEN administers the Section 314(a) information sharing program between financial institutions and law enforcement; OFAC administers sanctions programs against Cuba, Iran, Russia, and other targeted jurisdictions.

Question 37: What is a 'specific license' from OFAC and when would an institution seek one?

An individual authorization granted by OFAC to a specific applicant to engage in a transaction that would otherwise be prohibited, typically for humanitarian, legal, or diplomatic purposes (Correct answer)
A certification that a specific transaction has been cleared of sanctions concerns
A license for operating a specific type of financial institution under U.S. law
A license required for each wire transfer to a high-risk country

Correct answer: An individual authorization granted by OFAC to a specific applicant to engage in a transaction that would otherwise be prohibited, typically for humanitarian, legal, or diplomatic purposes

A specific license is a case-by-case authorization from OFAC allowing a named applicant to engage in an otherwise prohibited transaction, typically sought for legitimate purposes like releasing blocked humanitarian funds or settling litigation with sanctioned parties.

Question 38: What is 'de-risking' and why has FATF raised concerns about it?

A risk reduction technique FATF recommends for all financial institutions
A FATF-endorsed process for removing countries from the grey list
The practice of banks exiting entire customer segments or correspondent relationships due to perceived AML risk, which FATF warns undermines financial inclusion and can push transactions to less regulated channels (Correct answer)
A technique for reducing AML risk by automating transaction monitoring

Correct answer: The practice of banks exiting entire customer segments or correspondent relationships due to perceived AML risk, which FATF warns undermines financial inclusion and can push transactions to less regulated channels

FATF has expressed concern that wholesale de-risking (exiting entire geographies or customer categories) is not consistent with a risk-based approach, reduces financial inclusion, and can drive transactions to less-regulated and less-monitored channels.

Question 39: Which of the following is the clearest example of the 'placement' stage of money laundering?

Creating multiple layers of nominee-owned shell companies in offshore jurisdictions
Purchasing luxury goods and art with previously laundered funds
Depositing cash proceeds from narcotics sales at multiple bank branches below CTR thresholds (Correct answer)
Investing clean money into publicly traded stock market securities

Correct answer: Depositing cash proceeds from narcotics sales at multiple bank branches below CTR thresholds

Depositing drug sales proceeds at banks constitutes placement — the first, most risky stage where cash enters the formal financial system.

Question 40: Under what circumstances should a financial institution file a SAR when law enforcement has asked it NOT to close a suspicious account?

The institution should still file the SAR as required and document law enforcement's request, as BSA obligations are not waived by law enforcement requests (Correct answer)
The institution should seek a court order before deciding whether to file
The institution should comply with law enforcement and never file a SAR if asked not to
The institution should delay SAR filing until the law enforcement investigation concludes

Correct answer: The institution should still file the SAR as required and document law enforcement's request, as BSA obligations are not waived by law enforcement requests

Law enforcement may sometimes request that an institution keep a suspicious account open for investigative purposes, but this does not waive the institution's independent BSA obligation to file a SAR — both obligations can be fulfilled simultaneously.

Question 41: Which of the following is a strict liability offense under OFAC sanctions regulations?

Processing a transaction with a sanctioned party, even if the institution did not know the party was sanctioned (Correct answer)
Failing to implement a sanctions screening program
Failing to detect a potential sanctions match in customer screening
Filing a SAR for a transaction later found to have no criminal nexus

Correct answer: Processing a transaction with a sanctioned party, even if the institution did not know the party was sanctioned

OFAC sanctions violations are largely strict liability offenses — the institution can be penalized even without knowledge or intent, making robust screening programs essential because 'I didn't know' is generally not a defense.

Question 42: What is 'look-back' analysis in the context of transaction monitoring?

Reviewing competitor institutions' alert rates
Reviewing historical transaction data to identify suspicious activity that may have been missed by current monitoring systems (Correct answer)
Auditing closed SARs for accuracy
Analyzing future transaction projections for risk

Correct answer: Reviewing historical transaction data to identify suspicious activity that may have been missed by current monitoring systems

Look-back analysis involves retroactively applying new or improved detection scenarios to historical data to identify previously undetected suspicious activity.

Question 43: Which of the following best describes the definition of money laundering included in the United Nations 2000 Convention Against Transnational Organized Crime, also known as the "Palermo Convention"?

The act of hiding or disguising the actual characteristics, origin, location, use, rights, or ownership of property while being aware that it stems from a criminal offense. (Correct answer)
The hiding of the funding source, a change in format, or relocation of the funds to a location less likely to draw notice.
The conversion or transfer of property to conceal or mask its illicit origin, knowing it is derived from a criminal violation, or to help anyone involved in the crime's commission avoid facing consequences from the law. (Correct answer)
The purchasing, holding, or using of property with knowledge at the time of receipt that it was obtained through criminal activity or involvement in criminal activity. (Correct answer)

Correct answer: The act of hiding or disguising the actual characteristics, origin, location, use, rights, or ownership of property while being aware that it stems from a criminal offense.

The United Nations 2000 Convention Against Transnational Organized Crime, known as the "Palermo Convention," provides a broad definition of money laundering. It includes not only the conversion or transfer of property to conceal its illicit origin but also the mere acquisition, possession, or use of such property, knowing it was derived from criminal activity. This expansive definition aims to criminalize various acts that facilitate the integration of illicit funds into the economy.

Question 44: How does FATF's approach to virtual assets (cryptocurrencies) differ from its approach to traditional finance?

FATF extended the Travel Rule and other key Recommendations to Virtual Asset Service Providers (VASPs), requiring them to meet the same AML/CFT standards as traditional financial institutions (Correct answer)
FATF only applies its standards to virtual assets used in cross-border transactions
FATF requires all virtual assets to be converted to fiat currency before they can be transferred
FATF has exempted virtual assets from all AML requirements as they are not legal tender

Correct answer: FATF extended the Travel Rule and other key Recommendations to Virtual Asset Service Providers (VASPs), requiring them to meet the same AML/CFT standards as traditional financial institutions

Through 2019 and 2021 revisions, FATF extended its Travel Rule, customer due diligence, and other Recommendations to VASPs (exchanges, wallet providers), requiring them to implement the same standards as banks and money services businesses.

Question 45: A U.S. bank receives a wire transfer from a foreign bank in which 51% is owned by a sanctioned entity. Under OFAC's '50 percent rule,' should this transaction be blocked?

Yes, but only if the wire transfer amount exceeds $10,000
Yes, because any entity 50% or more owned (directly or indirectly) by an SDN is itself treated as sanctioned, even if not explicitly listed (Correct answer)
No, because the sanctioned entity does not directly own the wire transfer
No, because the foreign bank itself is not on the SDN list

Correct answer: Yes, because any entity 50% or more owned (directly or indirectly) by an SDN is itself treated as sanctioned, even if not explicitly listed

OFAC's 50 Percent Rule provides that any entity owned 50% or more (directly or indirectly) by a sanctioned party is treated as sanctioned itself, even if not explicitly named on the SDN list.

Question 46: What is 'correspondent banking' sanctions risk and how should banks manage it?

The risk that correspondent banks will share confidential SAR data inappropriately
The risk that correspondent banks will charge excessive fees for international transfers
The risk that correspondent banks in high-risk countries will be de-risked by U.S. institutions
The risk that correspondent relationships will be used to process transactions on behalf of sanctioned parties who are customers of the respondent bank, managed through due diligence on the respondent bank's compliance program (Correct answer)

Correct answer: The risk that correspondent relationships will be used to process transactions on behalf of sanctioned parties who are customers of the respondent bank, managed through due diligence on the respondent bank's compliance program

In correspondent banking, U.S. banks process payments for the respondent bank's customers without direct visibility, creating risk that sanctioned parties will use the respondent as a conduit — managed by evaluating the respondent's AML/sanctions program quality.

Question 47: Tom creates a credit balance on his credit card by prepaying it with money he has already introduced into the financial system illegally. Subsequently, Tom asks for a credit return, allowing him to further conceal the source of the money. Which money laundering procedure would this be regarded as?

Making a deposit
Layering (Correct answer)
Monetary Dislocation
Combination
Cyclizing

Correct answer: Layering

This scenario describes the 'layering' stage of money laundering. Layering involves separating illicit funds from their source through a series of complex financial transactions to obscure the audit trail. By prepaying a credit card with illegal money and then requesting a refund, Tom creates a deceptive legitimate transaction that makes the funds appear to originate from the credit card company, thereby concealing their true illicit source.

Question 48: Which technology is being explored to improve AML information sharing between financial institutions while protecting customer privacy?

Open-source transaction databases
Centralized government reporting hubs
Public blockchain ledgers
Privacy-preserving computation techniques like federated learning (Correct answer)

Correct answer: Privacy-preserving computation techniques like federated learning

Federated learning and similar privacy-preserving techniques allow institutions to train shared AML models without exposing individual customer data.

Question 49: What does the term 'financial inclusion' have to do with AML risk in emerging markets?

Greater financial inclusion always increases overall AML risk proportionally
FATF requires that financial inclusion programs be exempt from AML reporting
Bringing unbanked populations into formal financial systems can reduce reliance on unmonitored informal value transfer systems (Correct answer)
Microfinance institutions are excluded from FATF AML obligations

Correct answer: Bringing unbanked populations into formal financial systems can reduce reliance on unmonitored informal value transfer systems

When unbanked populations gain access to formal financial services, transactions shift from unmonitored hawala or cash networks into regulated, traceable channels.

Question 50: What is the FATF 'black list' (formally the 'High-Risk Jurisdictions Subject to a Call for Action')?

The highest-risk category of FATF's country assessments, identifying jurisdictions with severe AML/CFT deficiencies where FATF calls on all member countries to apply counter-measures (Correct answer)
A list of countries that FATF has expelled from membership
A confidential list of countries where FATF believes money laundering is state-sponsored
A list of countries whose financial institutions are banned from U.S. correspondent banking

Correct answer: The highest-risk category of FATF's country assessments, identifying jurisdictions with severe AML/CFT deficiencies where FATF calls on all member countries to apply counter-measures

The FATF black list (High-Risk Jurisdictions Subject to a Call for Action) currently includes jurisdictions like North Korea and Iran, where FATF calls for counter-measures beyond EDD, including restrictions on financial relationships.

Question 51: Under the FATF framework, what is the difference between 'technical compliance' and 'effectiveness' in a mutual evaluation?

Technical compliance applies to bank examiners; effectiveness applies to law enforcement
Technical compliance measures legal framework quality; effectiveness measures whether that framework produces real-world AML outcomes (Correct answer)
Technical compliance is assessed every 5 years; effectiveness is assessed annually
There is no meaningful difference — they measure the same thing using different metrics

Correct answer: Technical compliance measures legal framework quality; effectiveness measures whether that framework produces real-world AML outcomes

Technical compliance assesses whether a country's laws and regulations meet FATF's requirements, while effectiveness assesses whether the system actually achieves the intended AML outcomes — a country can have good laws but poor implementation.

Question 52: What is a 'beneficial owner' in the context of AML due diligence?

The legal entity itself as a corporate customer
The natural person(s) who ultimately owns or controls a legal entity or on whose behalf a transaction is conducted (Correct answer)
Any signatory on a business account
The bank that benefits from customer account fees

Correct answer: The natural person(s) who ultimately owns or controls a legal entity or on whose behalf a transaction is conducted

A beneficial owner is the natural (human) person who ultimately owns or exercises control over a legal entity, as opposed to the nominee or front person who may appear on legal documents.

Question 53: Trade-Based Money Laundering (TBML) most commonly involves which of the following techniques?

Using real estate sales to integrate funds into the economy
Placing cash proceeds directly into casino accounts
Creating fictitious payroll accounts to launder funds
Manipulating trade invoices and shipping documents to transfer value across borders (Correct answer)

Correct answer: Manipulating trade invoices and shipping documents to transfer value across borders

TBML exploits international trade transactions by over- or under-invoicing goods and services to move value between parties while disguising its illicit origin.

Question 54: Which of the following entities may be more at risk from TPPPs that offer services to financial institutions?

online retailers (Correct answer)
Platforms for online shopping that take PayPal
telemarketing (Correct answer)
Manage RCCs (Correct answer)
Online, in casinos, etc., gambling (Correct answer)

Correct answer: online retailers

Third-Party Payment Processors (TPPPs) often facilitate transactions for various businesses, and online retailers can present significant risks. The high volume, global reach, and potential for anonymity in online retail transactions make them susceptible to being exploited for money laundering. TPPPs must implement robust AML controls to mitigate these risks when providing services to online retailers.

Question 55: Which of the following is a defining characteristic of Professional Money Laundering Networks (PMLNs)?

They operate exclusively within a single domestic jurisdiction to minimize legal exposure
They work exclusively with drug trafficking organizations and no other criminal groups
They provide specialized money laundering services to multiple criminal organizations in exchange for a fee (Correct answer)
They focus solely on cryptocurrency-based laundering methods to avoid traditional banking detection

Correct answer: They provide specialized money laundering services to multiple criminal organizations in exchange for a fee

PMLNs are sophisticated criminal enterprises that offer laundering services as a business model to various criminal clients, treating money laundering as a professional service for hire.

Question 56: The FATF Recommendations require countries to criminalize which two underlying offenses to money laundering?

Cybercrime and organized crime specifically
Corruption and drug trafficking
Tax evasion and fraud
All serious offenses generating proceeds AND terrorist financing (Correct answer)

Correct answer: All serious offenses generating proceeds AND terrorist financing

FATF Recommendation 3 requires countries to criminalize money laundering based on all serious offenses (using either an all-crimes or designated categories approach) and Recommendation 5 requires criminalizing terrorist financing.

Question 57: Which stage of the money laundering process is generally considered the most difficult for law enforcement and financial institutions to detect?

Placement
Structuring
Integration
Layering (Correct answer)

Correct answer: Layering

Layering is the hardest to detect because it involves numerous complex, often international transactions specifically designed to obscure any audit trail linking funds to their criminal source.

Question 58: What is 'correspondent banking' under FATF standards, and what specific Recommendation addresses it?

Recommendation 16, requiring Travel Rule compliance for correspondent transfers
Recommendation 13, requiring financial institutions to apply specific EDD measures for cross-border correspondent banking relationships, including assessing the respondent's AML controls (Correct answer)
Recommendation 20, requiring SARs to be filed for all correspondent transactions
Recommendation 10, requiring basic CDD for all correspondent relationships

Correct answer: Recommendation 13, requiring financial institutions to apply specific EDD measures for cross-border correspondent banking relationships, including assessing the respondent's AML controls

FATF Recommendation 13 specifically addresses correspondent banking, requiring institutions to gather information about the respondent institution's AML/CFT controls, assess its regulatory status, and obtain senior management approval before establishing high-risk correspondent relationships.

Question 59: What does the term 'de-risking' refer to in the context of AML compliance?

Reducing the risk exposure of the institution's investment portfolio
Financial institutions terminating or restricting relationships with entire customer categories perceived as high-risk (Correct answer)
Implementing lower-risk product offerings to attract compliant customers
Training staff to identify and de-escalate high-risk transactions

Correct answer: Financial institutions terminating or restricting relationships with entire customer categories perceived as high-risk

De-risking refers to the practice of banks exiting entire customer segments or geographic regions deemed too risky for AML compliance, which has drawn criticism for financial exclusion impacts.

Question 60: What is the 'safe harbor' provision in the context of SAR filings?

Legal protection that shields financial institutions and their employees from civil liability when filing SARs in good faith (Correct answer)
A provision allowing institutions to delay SAR filing during regulatory examinations
A provision exempting small institutions from SAR filing requirements
A harbor area where financial institutions can conduct transactions without reporting obligations

Correct answer: Legal protection that shields financial institutions and their employees from civil liability when filing SARs in good faith

The BSA's safe harbor provision (31 U.S.C. § 5318(g)(3)) protects institutions and employees from civil liability for disclosing suspicious activity in SARs filed in good faith, encouraging reporting without fear of customer lawsuits.

Question 61: Which of the following memos advises prosecutors to concentrate on the people who actually committed the wrongdoing while conducting criminal and civil investigations into corporate misconduct?

Penn State memorandum
UN document
Yates memo (Correct answer)
Memorandum Regime

Correct answer: Yates memo

The Yates memo, issued by then-Deputy Attorney General Sally Yates in 2015, outlined a policy shift for the U.S. Department of Justice regarding corporate misconduct. It emphasized that prosecutors should focus on holding individuals accountable for corporate wrongdoing, not just the corporations themselves. This memo aimed to deter corporate crime by ensuring that those who commit or enable illegal acts within companies face personal consequences.

Question 62: Under the BSA, what is the threshold amount that triggers mandatory Currency Transaction Report (CTR) filing?

$5,000
$15,000
$7,500
$10,000 (Correct answer)

Correct answer: $10,000

Financial institutions must file a CTR for any cash transaction exceeding $10,000 in a single business day, whether in one or multiple related transactions.

Question 63: Which of the following best describes a 'nested account' risk in correspondent banking transaction monitoring?

When a customer holds accounts at multiple financial institutions
When multiple domestic accounts are linked to a single customer
When a foreign bank's customers transact through the correspondent account without the correspondent bank knowing their identities (Correct answer)
When transactions are processed after business hours

Correct answer: When a foreign bank's customers transact through the correspondent account without the correspondent bank knowing their identities

Nested accounts occur when a foreign bank's clients use the correspondent relationship to access the US financial system, obscuring the true beneficial owners from the correspondent bank.

Question 64: What is a 'Consolidated Sanctions List' and where should compliance officers look to screen customers?

A list maintained by individual banks of their own prohibited customers
A compilation of multiple OFAC sanctions lists (SDN, SSI, FSE, etc.) plus other relevant lists like EU, UN, and UK sanctions, used for comprehensive screening (Correct answer)
A combined list of all SAR subjects reported to FinCEN
A combined list maintained jointly by FinCEN and OFAC of all financial criminals in the U.S.

Correct answer: A compilation of multiple OFAC sanctions lists (SDN, SSI, FSE, etc.) plus other relevant lists like EU, UN, and UK sanctions, used for comprehensive screening

Comprehensive sanctions screening typically requires checking multiple lists including OFAC's SDN, Sectoral Sanctions Identifications (SSI), and Foreign Sanctions Evaders lists, as well as UN, EU, and UK consolidated sanctions lists for international transactions.

Question 65: What is 'sanctions evasion' and what are common techniques used?

Deliberately circumventing sanctions through techniques like falsifying trade documents, using front companies, routing transactions through non-sanctioned intermediaries, or obscuring the identity of sanctioned parties (Correct answer)
Using compliance software that produces false negative results
Misidentifying sanctioned individuals due to name-matching errors
Filing incorrect sanctions reports with OFAC due to system errors

Correct answer: Deliberately circumventing sanctions through techniques like falsifying trade documents, using front companies, routing transactions through non-sanctioned intermediaries, or obscuring the identity of sanctioned parties

Sanctions evasion involves deliberate actions to circumvent sanctions programs, commonly using shell companies, falsified documentation, third-country routing, deceptive vessel behavior (for shipping sanctions), or professional intermediaries to obscure sanctioned parties.

Question 66: Which of the following is a key limitation of purely rules-based transaction monitoring systems?

They require machine learning expertise to operate
They generate too few alerts to be useful
They cannot adapt to new or evolving money laundering typologies without manual updates (Correct answer)
They cannot monitor wire transfers

Correct answer: They cannot adapt to new or evolving money laundering typologies without manual updates

Rules-based systems are static and can only detect patterns explicitly coded into them, making them ineffective against novel schemes until rules are manually updated.

Question 67: What is the minimum civil money penalty FinCEN can assess for a willful BSA violation per transaction?

$25,000 (Correct answer)
$5,000
$1,000
$1,000,000

Correct answer: $25,000

For willful BSA violations, FinCEN can assess civil money penalties of up to $25,000 per day per violation, and criminal penalties can be even higher.

Question 68: What is the difference between 'primary sanctions' and 'secondary sanctions'?

Primary sanctions apply to the most dangerous sanctioned parties; secondary sanctions apply to lesser threats
Primary sanctions prohibit U.S. persons from transacting with sanctioned parties; secondary sanctions target non-U.S. persons who facilitate transactions with sanctioned parties (Correct answer)
Primary sanctions apply to individuals; secondary sanctions apply to corporate entities
Primary sanctions are enforced by OFAC; secondary sanctions are enforced by the FBI

Correct answer: Primary sanctions prohibit U.S. persons from transacting with sanctioned parties; secondary sanctions target non-U.S. persons who facilitate transactions with sanctioned parties

Primary sanctions apply directly to U.S. persons and entities, while secondary sanctions extend U.S. penalties to non-U.S. persons who engage in significant transactions with sanctioned parties, effectively giving sanctions extraterritorial reach.

Question 69: In the context of AML, 'gatekeepers' refers to:

Automated IT systems that monitor and filter financial transactions for suspicious patterns
Government regulators who grant operating licenses to financial institutions
Bank security personnel who control physical access to vault areas
Professionals such as lawyers, accountants, notaries, and company formation agents who may facilitate money laundering (Correct answer)

Correct answer: Professionals such as lawyers, accountants, notaries, and company formation agents who may facilitate money laundering

Gatekeepers are professional intermediaries whose services — legal advice, company formation, trust management, accounting — can be exploited by launderers to access the financial system.

Question 70: Within how many calendar days must a financial institution file a Suspicious Activity Report (SAR) after initially detecting a suspicious transaction?

45 days
60 days
30 days (Correct answer)
15 days

Correct answer: 30 days

U.S. financial institutions must file a SAR within 30 calendar days of initially detecting facts that may constitute a basis for filing; if no suspect is identified, this extends to 60 days.

Question 71: When it comes to the electronic transfers that a bank receives from its current clientele, which kind(s) of transactions will be subject to scrutiny by a group AML officer?

Everything mentioned (Correct answer)
Computers used in Automated Clearing House
Transactions with automated teller machines
Computerized terminals
Both mobile phones and landlines

Correct answer: Everything mentioned

A group AML (Anti-Money Laundering) officer's scrutiny of electronic transfers from current clientele must encompass all forms of electronic transactions to effectively detect suspicious activity. This includes transfers made via Automated Clearing House (ACH), Automated Teller Machines (ATMs), mobile phones, landlines, and computerized terminals. A comprehensive approach is necessary because money launderers exploit all available channels to move illicit funds, requiring vigilance across the entire spectrum of electronic banking services.

Question 72: What is the Office of Foreign Assets Control (OFAC) and what is its primary function?

A Federal Reserve body that regulates bank capital requirements
A division of the FBI that investigates financial crimes
A U.S. Treasury office that administers and enforces economic and trade sanctions against targeted foreign countries, entities, and individuals (Correct answer)
An international organization that coordinates global sanctions programs

Correct answer: A U.S. Treasury office that administers and enforces economic and trade sanctions against targeted foreign countries, entities, and individuals

OFAC is a Treasury Department office that administers U.S. sanctions programs against foreign governments, entities, and individuals, prohibiting U.S. persons and institutions from engaging in transactions with sanctioned parties.

Question 73: Cuckoo smurfing is best described as:

Converting cash proceeds into stablecoins via peer-to-peer exchanges
Using multiple couriers to physically transport bulk cash across international borders
Using shell companies registered in multiple offshore jurisdictions simultaneously
Substituting criminal funds for legitimate funds expected in international transfers without the recipient's knowledge (Correct answer)

Correct answer: Substituting criminal funds for legitimate funds expected in international transfers without the recipient's knowledge

In cuckoo smurfing, a criminal's funds are deposited into an account of a person expecting a legitimate international transfer, replacing those funds — the account holder is unaware their account is being used.

Question 74: What is the Financial Action Task Force (FATF) and what is its primary role?

A private sector organization that certifies AML professionals
An international law enforcement organization that investigates money laundering cases
An intergovernmental body that sets international standards for combating money laundering, terrorist financing, and proliferation financing (Correct answer)
A U.S. government agency that enforces AML laws domestically

Correct answer: An intergovernmental body that sets international standards for combating money laundering, terrorist financing, and proliferation financing

FATF is an intergovernmental policy-making body established in 1989 that develops and promotes international standards (the FATF Recommendations) for fighting money laundering, terrorist financing, and proliferation financing.

Question 75: Which typology involves criminals using online gaming platforms to launder money by purchasing in-game currency or assets?

Layering via real estate
Virtual economy laundering (Correct answer)
Correspondent banking exploitation
Shell company structuring

Correct answer: Virtual economy laundering

Criminals convert illicit cash into in-game assets, trade or sell them within the game economy, and then cash out through legitimate channels.

Question 76: How frequently should a financial institution update its AML risk assessment?

Only when the institution experiences a money laundering incident
At least annually, and whenever there are material changes to the institution's products, services, customers, or geographies (Correct answer)
Only when required by a regulatory examination finding
Every five years as part of a strategic planning cycle

Correct answer: At least annually, and whenever there are material changes to the institution's products, services, customers, or geographies

Best practices and regulatory guidance require risk assessments to be updated at least annually and whenever there are significant changes that could materially affect the institution's risk profile, such as new products, customer growth, or geographic expansion.

Question 77: After filing a SAR, how long must a financial institution retain the SAR and supporting documentation?

1 year
5 years (Correct answer)
10 years
3 years

Correct answer: 5 years

Financial institutions must retain SARs and all supporting documentation for five years from the date of the SAR filing, making these records available to regulators and law enforcement upon request.

Question 78: What action should a financial institution take when a customer refuses to provide information required for CDD/EDD?

Proceed with the account opening and flag it for monitoring
Consider declining or exiting the relationship and filing a SAR if suspicion warrants it (Correct answer)
Escalate to law enforcement before taking any action
File a SAR immediately based on the refusal alone

Correct answer: Consider declining or exiting the relationship and filing a SAR if suspicion warrants it

When a customer refuses to provide required CDD information, the institution should consider whether to decline the relationship or exit an existing one, and file a SAR if the refusal itself raises suspicion of money laundering.

Question 79: Which of the following would NOT typically be included in the narrative of a well-written SAR?

Who is involved in the suspicious activity
When and where the suspicious activity occurred
What specific transactions or behaviors are suspicious
The institution's opinion on whether the subject is guilty of money laundering (Correct answer)

Correct answer: The institution's opinion on whether the subject is guilty of money laundering

SAR narratives should document facts (who, what, when, where, how) and explain why activity is suspicious, but should avoid legal conclusions or opinions about guilt, as that determination is for law enforcement.

Question 80: Which emerging payment method poses AML risk due to its use of 'mixers' or 'tumblers' to obscure transaction trails?

Cryptocurrency (Correct answer)
Prepaid debit cards
Mobile peer-to-peer payments
Wire transfers

Correct answer: Cryptocurrency

Cryptocurrency mixers/tumblers pool and redistribute coins to break the blockchain transaction trail, making it a key AML concern.

Question 81: Which of the following KYC program components is the Basel Committee's 2001 study emphasizing?

Monitor. (Correct answer)
Control of risks. (Correct answer)
Management of customer complaints
Identification of the clientele. (Correct answer)

Correct answer: Monitor.

The Basel Committee's 2001 study on customer due diligence (KYC) emphasizes several critical components, including customer identification, risk management, and ongoing monitoring. Monitoring is essential for financial institutions to continuously review customer activity, detect unusual or suspicious patterns, and ensure that the customer's risk profile remains accurate and up-to-date throughout the relationship.

Question 82: What is 'smurfing' in the context of emerging AML trends involving digital payments?

Structuring large transactions into many small ones below reporting thresholds (Correct answer)
Creating fake digital identities for account opening
Exploiting cryptocurrency exchange vulnerabilities
Using malware to steal banking credentials

Correct answer: Structuring large transactions into many small ones below reporting thresholds

Smurfing (structuring) involves breaking large sums into smaller deposits to evade Currency Transaction Report thresholds.

Question 83: Which of the following best describes the use of 'nominees' in money laundering schemes?

Nominees are individuals who hold assets, accounts, or company directorships on behalf of the true beneficial owner to conceal their identity (Correct answer)
Nominees are independent auditors who verify the legitimacy of financial transactions on behalf of regulators
Nominees are government-appointed financial compliance officers who oversee high-risk accounts
Nominees are AI-based transaction monitoring systems used by financial intelligence units

Correct answer: Nominees are individuals who hold assets, accounts, or company directorships on behalf of the true beneficial owner to conceal their identity

Using nominees — often paid individuals willing to appear as owners or directors — creates a layer of anonymity between the criminal and their assets, frustrating beneficial ownership identification.

Question 84: What is the FATF 'grey list' and what are the consequences of a country being placed on it?

A confidential internal FATF assessment of member country compliance
A list of countries that have refused to join the FATF mutual evaluation process
A list of countries with excellent AML regimes used as models for others
A list of jurisdictions under increased monitoring with strategic AML/CFT deficiencies who have committed to addressing them, triggering enhanced due diligence for transactions from those jurisdictions (Correct answer)

Correct answer: A list of jurisdictions under increased monitoring with strategic AML/CFT deficiencies who have committed to addressing them, triggering enhanced due diligence for transactions from those jurisdictions

The FATF grey list (formally 'Jurisdictions Under Increased Monitoring') identifies countries with strategic deficiencies who have committed to action plans — financial institutions typically apply EDD to transactions involving these countries.

Question 85: What is 'nominee ownership' and why is it an AML concern?

When a bank nominates a customer for a premium banking tier
When legal entities nominate employees as authorized signatories
When a person holds legal title to assets on behalf of the true beneficial owner, obscuring the real owner's identity (Correct answer)
When a government official nominates a financial institution for a compliance award

Correct answer: When a person holds legal title to assets on behalf of the true beneficial owner, obscuring the real owner's identity

Nominee ownership involves using a third party to hold assets or accounts in their name while the true beneficial owner remains hidden, a common technique to evade AML identification requirements.

Question 86: In trade-based money laundering, 'over-invoicing' refers to:

Creating entirely fictitious shipping documents for goods that never existed
An importer charging less than market value to transfer value to an exporter
An exporter charging more than market value to transfer excess value from the importing country to the exporting country (Correct answer)
Submitting invoices without accompanying shipping documentation

Correct answer: An exporter charging more than market value to transfer excess value from the importing country to the exporting country

Over-invoicing allows value to be transferred from the importer (who overpays) to the exporter, enabling movement of funds across borders disguised as legitimate trade payments.

Question 87: What is 'proliferation financing' and how does FATF address it?

The expansion of money laundering typologies to new sectors
The provision of funds to persons or entities involved in the development, manufacture, or acquisition of weapons of mass destruction, addressed through FATF Recommendation 7 and targeted financial sanctions (Correct answer)
The financing of rapidly growing financial institutions
The proliferation of fraudulent financial products across multiple jurisdictions

Correct answer: The provision of funds to persons or entities involved in the development, manufacture, or acquisition of weapons of mass destruction, addressed through FATF Recommendation 7 and targeted financial sanctions

Proliferation financing involves funding the development or acquisition of weapons of mass destruction (nuclear, chemical, biological, radiological) — FATF Recommendation 7 requires countries to implement targeted financial sanctions against proliferators without delay.

Question 88: When should Enhanced Due Diligence (EDD) be applied to a customer?

Only after a SAR has been filed on the customer
For all new customers at account opening regardless of risk
Only for customers whose transactions exceed $1 million per year
When a customer is identified as high-risk due to factors such as PEP status, high-risk geography, or unusual activity (Correct answer)

Correct answer: When a customer is identified as high-risk due to factors such as PEP status, high-risk geography, or unusual activity

EDD should be applied whenever a risk assessment identifies elevated AML risk, such as PEP status, high-risk country connections, complex ownership structures, or transactions inconsistent with stated purpose.

Question 89: Which of the following best describes 'willful blindness' in AML compliance?

Deliberately failing to report known criminal activity
Neglecting to update AML software for known vulnerabilities
Refusing to implement AML policies due to cost concerns
Intentionally avoiding knowledge of suspicious circumstances that a reasonable person would investigate (Correct answer)

Correct answer: Intentionally avoiding knowledge of suspicious circumstances that a reasonable person would investigate

Willful blindness (also called conscious avoidance) occurs when a person deliberately avoids learning facts that would confirm suspicious activity, and courts treat this as equivalent to actual knowledge.

Question 90: What is a key difference between AML compliance and sanctions compliance at a financial institution?

There is no meaningful difference — they are the same compliance function
AML compliance focuses on detecting and reporting suspicious transactions; sanctions compliance requires blocking or rejecting transactions with prohibited parties in real time (Correct answer)
AML applies only to domestic transactions; sanctions apply only to international transactions
AML compliance has no monetary penalties; sanctions compliance does

Correct answer: AML compliance focuses on detecting and reporting suspicious transactions; sanctions compliance requires blocking or rejecting transactions with prohibited parties in real time

AML focuses on identifying and reporting suspicious activity to law enforcement; sanctions compliance requires real-time screening and immediate action (blocking/rejecting) when prohibited parties are identified, leaving no discretion.

Question 91: Environmental crime proceeds, such as those from illegal logging or wildlife trafficking, are increasingly laundered through:

Cash-intensive legitimate businesses in source countries (Correct answer)
Correspondent banking networks in G7 countries
Offshore bond markets
Central bank digital currencies

Correct answer: Cash-intensive legitimate businesses in source countries

Proceeds from environmental crimes are often integrated through local cash-intensive businesses like restaurants or retail shops in the country where the crime occurred.

Question 92: What is 'concentration risk' in AML and why does it matter?

The risk that an institution has an unusually high concentration of high-risk customers, products, or geographic exposures that could create systemic AML vulnerabilities (Correct answer)
The legal risk concentration in the compliance department
The risk that AML staff are concentrated in one geographic location
The risk of concentrating all transaction monitoring in a single system

Correct answer: The risk that an institution has an unusually high concentration of high-risk customers, products, or geographic exposures that could create systemic AML vulnerabilities

Concentration risk occurs when too large a portion of the institution's customer base, transaction volume, or revenue is tied to high-risk categories — if something goes wrong (enforcement action, reputational harm), the impact is amplified.

Question 93: What is the role of the U.S. Financial Intelligence Unit (FIU), FinCEN, in the international FATF framework?

FinCEN serves as the U.S. FIU and FATF member, administering the BSA reporting system, exchanging intelligence through the Egmont Group, and representing U.S. AML interests in international standard-setting (Correct answer)
FinCEN is not part of any international framework and operates exclusively under domestic U.S. law
FinCEN coordinates global investigations but does not participate in FATF standard-setting
FinCEN implements FATF standards but is supervised by FATF, which can override its decisions

Correct answer: FinCEN serves as the U.S. FIU and FATF member, administering the BSA reporting system, exchanging intelligence through the Egmont Group, and representing U.S. AML interests in international standard-setting

FinCEN is both the U.S. FIU (a member of the Egmont Group) and the U.S. representative to FATF, playing a dual role in operational intelligence sharing internationally and in shaping the global AML standards framework.

Question 94: Which of the following describes possible money laundering typologies in relation to internet gambling?

A money launderer obtains a sizable sum of money from gamblers by having them deposit money in a bank under the gambler's alias.
Together with the operator of an offshore internet gambling business, a money launderer deposits money gained from illegal activity into the gambling account and takes it out as profits. While the money launderer reports the winnings to the tax authorities and uses the money for legal purposes, the website operator retains a portion of the revenues as a commission. (Correct answer)
Professional gamblers and money launderers work together to deposit funds obtained illegally on internet gaming platforms. Before giving the launderer the remaining cash, the gamblers keep a commission on any wins. (Correct answer)
Using a stolen identity, a money launderer deposits money into an online gaming account. Using the money, he or she places bets and either wins or incurs manageable loses. (Correct answer)

Correct answer: Together with the operator of an offshore internet gambling business, a money launderer deposits money gained from illegal activity into the gambling account and takes it out as profits. While the money launderer reports the winnings to the tax authorities and uses the money for legal purposes, the website operator retains a portion of the revenues as a commission.

This scenario illustrates a common money laundering typology involving internet gambling. By depositing illicit funds using a stolen identity and placing bets, the money launderer introduces the funds into the legitimate financial system. The gambling activity, whether winning or losing, helps to obscure the original source of the funds, which can then be withdrawn as seemingly legitimate winnings.

Question 95: What does the term 'negative news screening' refer to in the context of transaction monitoring investigations?

Searching media and public sources for adverse information about a customer or their counterparties (Correct answer)
Screening transactions against OFAC sanctions lists
Reviewing declined transaction records
Analyzing customer complaints against the institution

Correct answer: Searching media and public sources for adverse information about a customer or their counterparties

Negative news screening involves searching public databases, news sources, and adverse media to identify derogatory information about customers during alert investigation.

Question 96: What does the 'layering' stage of money laundering primarily aim to achieve?

To introduce illicit cash into the regulated financial system for the first time
To report suspicious transactions voluntarily to financial intelligence authorities
To obscure the audit trail and distance the funds from their criminal origin through complex transactions (Correct answer)
To integrate laundered funds back into the legitimate economy as apparent lawful income

Correct answer: To obscure the audit trail and distance the funds from their criminal origin through complex transactions

Layering uses multiple, complex transactions — wire transfers, currency conversions, shell company movements — to create confusion and distance funds from their source.

Question 97: How often should AML policies and procedures typically be reviewed and updated?

Every five years regardless of regulatory changes
Only when required by a regulator after an examination
At least annually or whenever significant regulatory changes occur (Correct answer)
Only when a new employee joins the compliance team

Correct answer: At least annually or whenever significant regulatory changes occur

Best practice and regulatory guidance require AML policies to be reviewed at least annually and updated whenever there are material changes to regulations, products, or the institution's risk profile.

Question 98: What is the primary purpose of an independent AML audit function?

To train new employees on AML procedures
To objectively assess the effectiveness of the AML compliance program (Correct answer)
To file Suspicious Activity Reports on behalf of the institution
To generate revenue for the compliance department

Correct answer: To objectively assess the effectiveness of the AML compliance program

An independent AML audit objectively evaluates whether the institution's AML program is effective, identifying gaps and weaknesses that management may have missed.

Question 99: How do 'secondary sanctions' on Iran affect non-U.S. financial institutions?

They have no effect on non-U.S. institutions operating entirely outside the United States
Non-U.S. institutions that engage in significant transactions with Iran may be denied access to the U.S. financial system and face other U.S. penalties (Correct answer)
They require non-U.S. institutions to file reports directly with OFAC
They apply only to institutions that have a U.S. correspondent banking relationship

Correct answer: Non-U.S. institutions that engage in significant transactions with Iran may be denied access to the U.S. financial system and face other U.S. penalties

U.S. secondary sanctions on Iran can cut off non-U.S. financial institutions from the U.S. financial system if they engage in significant Iran-related transactions, giving these sanctions significant extraterritorial reach and deterrence effect.

Question 100: Which risk factor would most significantly INCREASE a customer's AML risk rating?

The customer is a cash-intensive business in a high-risk industry located in an FATF grey-listed jurisdiction (Correct answer)
The customer is a long-established local business with a predictable transaction pattern
The customer is a publicly listed company with SEC filings available
The customer is a government employee with a fixed salary deposited monthly

Correct answer: The customer is a cash-intensive business in a high-risk industry located in an FATF grey-listed jurisdiction

Multiple compounding risk factors — cash-intensive business, high-risk industry, and high-risk geography (FATF grey-listed jurisdiction) — would significantly elevate a customer's AML risk rating and trigger EDD requirements.

Question 101: What is the significance of 'unhosted wallets' (self-custodied wallets) in the FATF virtual asset framework?

FATF prohibits VASPs from transacting with unhosted wallets
They are exempt from all AML requirements globally
Unhosted wallets can only hold privacy coins
Transactions involving unhosted wallets may require enhanced due diligence by VASPs (Correct answer)

Correct answer: Transactions involving unhosted wallets may require enhanced due diligence by VASPs

FATF guidance recommends that VASPs apply enhanced due diligence when their customers transact with unhosted wallets, as these lack an obligated intermediary.

Question 102: The concept of 'de-risking' by financial institutions refers to:

Implementing advanced AI to reduce AML risk
Diversifying investment portfolios to minimize market exposure
Encrypting customer data to prevent identity theft
Terminating relationships with entire customer categories deemed high risk (Correct answer)

Correct answer: Terminating relationships with entire customer categories deemed high risk

De-risking occurs when banks exit entire markets or customer segments (e.g., MSBs, correspondent banks) rather than managing individual customer risks.

Question 103: Mark intends to establish an MSB in the US; aside from the option(s) listed below, which one(s) does he need to do first?

Give instruction on health and safety. (Correct answer)
Keep an eye on transactions for any unusual behavior.
Perform impartial evaluations and audits
Possess written internal controls, policies, and procedures for AML
Name an Officer under the Bank Secrecy Act (BSA)

Correct answer: Give instruction on health and safety.

When establishing a Money Services Business (MSB) in the US, the primary initial requirements focus on Anti-Money Laundering (AML) compliance. This includes having written internal controls, policies, and procedures, designating a Bank Secrecy Act (BSA) Officer, and implementing transaction monitoring. While health and safety instruction is important for any business, it is not a specific or primary AML regulatory requirement for establishing an MSB.

Question 104: When is a financial institution NOT required to file a SAR even if it suspects illegal activity?

When the activity relates to securities violations rather than banking fraud
There are no exemptions — SARs must always be filed if there is any suspicion
When the institution has already filed a CTR for the same transaction
When the transaction is below $5,000 and involves an unknown customer (Correct answer)

Correct answer: When the transaction is below $5,000 and involves an unknown customer

For most financial institutions, SAR filing is only required when transactions meet or exceed minimum dollar thresholds ($5,000 for banks), so transactions below this threshold involving unknown suspects may not trigger a mandatory filing obligation.

Question 105: A Politically Exposed Person (PEP) is best defined as:

Any foreign national who opens an account at a U.S. bank
Any customer with assets over $1 million
An individual who holds or has held a prominent public function, posing higher corruption and bribery risks (Correct answer)
A customer who has previously been reported in a SAR

Correct answer: An individual who holds or has held a prominent public function, posing higher corruption and bribery risks

A PEP is someone entrusted with a prominent public function (e.g., heads of state, senior government officials, military officers, judicial officials) who pose an elevated risk of corruption and bribery.

Question 106: In money laundering, a 'shell company' is best defined as:

A legitimate business used exclusively for lawful tax minimization strategies
A licensed financial services company providing insurance products
A legal entity with no genuine business operations used to conceal asset ownership (Correct answer)
A company that manufactures petroleum-based chemical products

Correct answer: A legal entity with no genuine business operations used to conceal asset ownership

Shell companies lack real operations or employees and are used to add layers of anonymity, making it difficult to trace the true beneficial owner of assets.

Question 107: How has FATF addressed the AML risks associated with Designated Non-Financial Businesses and Professions (DNFBPs)?

FATF created a separate, simplified set of Recommendations exclusively for DNFBPs
FATF extended its AML Recommendations to DNFBPs including lawyers, accountants, real estate agents, and dealers in precious metals, requiring them to implement AML controls similar to financial institutions (Correct answer)
FATF excluded DNFBPs from its Recommendations, leaving their regulation entirely to domestic law
FATF recommended that banks refuse to serve DNFBPs due to their elevated risk

Correct answer: FATF extended its AML Recommendations to DNFBPs including lawyers, accountants, real estate agents, and dealers in precious metals, requiring them to implement AML controls similar to financial institutions

FATF Recommendations 22-23 extend key AML requirements (CDD, record-keeping, suspicious transaction reporting) to DNFBPs because criminals exploit these sectors to launder money outside the traditional financial system.

Question 108: What are the three classic stages of the money laundering process?

Collection, transfer, withdrawal
Placement, layering, integration (Correct answer)
Identification, reporting, prosecution
Detection, prevention, enforcement

Correct answer: Placement, layering, integration

The three universally recognized stages are placement (introducing funds), layering (obscuring the trail), and integration (returning funds as legitimate).

Question 109: What are the three levels of customer due diligence recognized in AML frameworks?

Initial, ongoing, exit
Basic, standard, comprehensive
Low, medium, high
Simplified, standard, enhanced (Correct answer)

Correct answer: Simplified, standard, enhanced

Customer due diligence is typically stratified into simplified (low-risk), standard (normal), and enhanced (high-risk) levels, with the depth of scrutiny increasing with the customer's risk rating.

Question 110: A SAR filed with FinCEN is subject to strict confidentiality requirements. Which of the following is prohibited?

Reporting the SAR to senior management
Disclosing the existence of a SAR to the subject of the report (Correct answer)
Retaining a copy of the SAR for internal records
Sharing the SAR with law enforcement upon request

Correct answer: Disclosing the existence of a SAR to the subject of the report

Federal law prohibits 'tipping off' — disclosing to the SAR subject or any unauthorized person that a SAR has been or will be filed, as this could allow them to evade law enforcement.

Question 111: How does 'pig butchering' (sha zhu pan) fraud connect to AML obligations for financial institutions?

Fraudsters exploit agricultural commodity markets to hide illicit profits
Criminals use social engineering to compromise bank employee credentials
Victims are persuaded to invest in fraudulent crypto platforms, and their deposits constitute fraud proceeds requiring reporting (Correct answer)
Criminal networks slaughter livestock purchased with illicit funds to generate cash

Correct answer: Victims are persuaded to invest in fraudulent crypto platforms, and their deposits constitute fraud proceeds requiring reporting

Pig butchering scams convince victims to deposit funds into fake investment platforms controlled by criminals, generating fraud proceeds that flow through global banking systems.

Question 112: Regultech solutions in AML compliance primarily leverage which technology to reduce false positives in transaction monitoring?

Quantum encryption
Biometric authentication
Machine learning and artificial intelligence (Correct answer)
Blockchain distributed ledgers

Correct answer: Machine learning and artificial intelligence

AI/ML-based RegTech tools analyze behavioral patterns and context to distinguish suspicious activity from legitimate transactions more accurately.

Question 113: A 'front company' in money laundering schemes is best defined as:

A publicly traded company used as a layering vehicle through stock transactions
A company that operates solely through an online digital platform
A seemingly legitimate business used to commingle illicit proceeds with genuine revenue to obscure their origin (Correct answer)
A regulated financial institution fully subject to all applicable AML compliance obligations

Correct answer: A seemingly legitimate business used to commingle illicit proceeds with genuine revenue to obscure their origin

Front companies generate some legitimate revenue that can be mixed with criminal proceeds, making the total revenue appear lawful and difficult to distinguish from clean money.

Question 114: Which of the following is an example of a 'transaction monitoring scenario' specifically designed to detect terrorist financing?

Frequent ATM withdrawals just below daily limits
Small, frequent international wire transfers to high-risk jurisdictions inconsistent with the customer's profile (Correct answer)
Payroll deposits from multiple employers
Large cash deposits followed by real estate purchases

Correct answer: Small, frequent international wire transfers to high-risk jurisdictions inconsistent with the customer's profile

Terrorist financing often involves small amounts sent to high-risk regions, unlike money laundering which typically involves large sums, making this pattern a key TF indicator.

Question 115: The Hawala system of value transfer is best described as:

A government-sanctioned foreign currency exchange system used for remittances
An international wire transfer network regulated and overseen by SWIFT messaging standards
An informal value transfer system based on trust and a network of brokers without physical movement of funds (Correct answer)
A regulated cryptocurrency exchange network operating across the Middle East and South Asia

Correct answer: An informal value transfer system based on trust and a network of brokers without physical movement of funds

Hawala operates through brokers (hawaladars) who settle debts through trust and offsetting credits rather than actual fund transfers, making it difficult to trace and regulate.

Question 116: What is a 'general license' under OFAC sanctions programs?

A license that all financial institutions must obtain to conduct international transactions
A pre-authorized permission for broad categories of transactions that would otherwise be prohibited, applicable to all eligible parties without individual application (Correct answer)
A license issued to specific companies to trade with sanctioned countries
A license for AML officers to access OFAC enforcement databases

Correct answer: A pre-authorized permission for broad categories of transactions that would otherwise be prohibited, applicable to all eligible parties without individual application

General licenses authorize certain categories of transactions for all eligible persons without requiring individual application to OFAC, such as allowing U.S. persons to receive salary payments from sanctioned governments for work performed prior to sanctions.

Question 117: What is the Egmont Group and how does it relate to FATF?

A private sector group of banks that advises FATF on compliance best practices
A subcommittee of FATF that drafts the annual updates to the 40 Recommendations
An international network of Financial Intelligence Units (FIUs) that facilitates the secure exchange of financial intelligence between member FIUs (Correct answer)
A European regional body that implements FATF standards within the EU

Correct answer: An international network of Financial Intelligence Units (FIUs) that facilitates the secure exchange of financial intelligence between member FIUs

The Egmont Group is an international network of 166 FIUs (including FinCEN for the U.S.) that provides a secure platform for FIUs to exchange financial intelligence and cooperate on international investigations, complementing FATF's standards-setting role.

Question 118: What is a FATF-Style Regional Body (FSRB)?

A regional law enforcement body that enforces FATF standards within its jurisdiction
A subgroup of FATF members focused on a specific regional money laundering threat
A regional development bank that funds AML capacity building programs
An associate member of FATF that performs similar functions (mutual evaluations, typologies) for non-FATF member jurisdictions in a particular region (Correct answer)

Correct answer: An associate member of FATF that performs similar functions (mutual evaluations, typologies) for non-FATF member jurisdictions in a particular region

FSRBs (such as MONEYVAL in Europe, CFATF in the Caribbean, APG in Asia-Pacific) are associate members of FATF that conduct mutual evaluations and develop AML standards for their regional members who are not full FATF members.

Question 119: Which metric is most commonly used to measure the effectiveness of a transaction monitoring system?

Total transaction volume processed
Number of analysts employed
False positive rate (Correct answer)
Number of alerts generated per day

Correct answer: False positive rate

The false positive rate measures how often legitimate transactions are incorrectly flagged, directly indicating system efficiency and analyst workload.

Question 120: Under FATF Recommendation 24, what must countries do to improve transparency of legal persons?

Mandate that all companies file annual reports with their national FIU
Require countries to maintain adequate, accurate, and timely information on the beneficial ownership of companies and make it accessible to competent authorities (Correct answer)
Require all companies to list their shares on a public stock exchange
Ban all shell companies and nominee shareholding arrangements

Correct answer: Require countries to maintain adequate, accurate, and timely information on the beneficial ownership of companies and make it accessible to competent authorities

FATF Recommendation 24 requires countries to ensure they have mechanisms to identify and access beneficial ownership information for legal persons, either through company registries, financial institutions, or other means, to prevent misuse for money laundering.

Certified Anti-Money Laundering Specialist (CAMS)

The CAMS certification, administered by ACAMS, validates expertise in anti-financial crime compliance including money laundering detection, regulatory frameworks, KYC/CDD programs, and financial crime investigation tools. It is the global gold standard for AML professionals.

120

Questions

210 min

Time Limit

63%

To Pass

Checking for saved progress...

Exam Rules

You can skip questions and return to them later
Flag questions for review before submitting
No feedback shown until you submit the entire exam
Unanswered questions count as wrong — answer everything
10 pretest questions are mixed in and don't affect your score
Timer auto-submits when time runs out
Your progress is auto-saved every 30 seconds