CAMS Terrorist Financing and Proliferation Financing — Questions and Answers
Question 1: Which feature most clearly separates terrorist financing from traditional money laundering?
- Terrorist financing always involves very large transactions
- Terrorist financing only happens through informal value transfer systems
- Terrorist financing funds can come from legitimate sources, and the focus is on where the money goes rather than where it came from (Correct answer)
- Terrorist financing is not a crime under FATF standards
Correct answer: Terrorist financing funds can come from legitimate sources, and the focus is on where the money goes rather than where it came from
Money laundering hides the criminal origin of funds. Terrorist financing can use clean money, such as salaries, donations or business income, to support a criminal purpose. This is why it is sometimes called 'reverse money laundering.' TF transactions are often small.
Question 2: Which FATF Recommendation specifically addresses the risk of non-profit organizations being misused for terrorist financing?
- Recommendation 8 (Correct answer)
- Recommendation 10
- Recommendation 16
- Recommendation 20
Correct answer: Recommendation 8
FATF Recommendation 8 requires countries to apply focused, risk-based measures to NPOs at risk of terrorist financing abuse without disrupting legitimate charitable activity. R10 covers CDD, R16 covers wire transfers and R20 covers suspicious transaction reporting.
Question 3: Which FATF Recommendation requires countries to implement targeted financial sanctions related to the proliferation of weapons of mass destruction?
- Recommendation 5
- Recommendation 6
- Recommendation 7 (Correct answer)
- Recommendation 12
Correct answer: Recommendation 7
Recommendation 7 covers targeted financial sanctions for proliferation financing under UN Security Council resolutions. R5 criminalizes terrorist financing, R6 covers terrorism-related targeted financial sanctions and R12 covers PEPs.
Question 4: Why is terrorist financing often harder to detect with traditional transaction monitoring than large-scale money laundering?
- Terrorist groups only use cryptocurrency
- Terrorist financing transactions are often small and can look like ordinary personal or charitable activity (Correct answer)
- Terrorist financing is exempt from SAR reporting
- Banks are prohibited from screening for terrorist financing
Correct answer: Terrorist financing transactions are often small and can look like ordinary personal or charitable activity
Attacks can be cheap, and funds are often moved in small amounts through ordinary-looking transfers, donations or personal accounts. These rarely trip value-based thresholds, so detection depends on behavioral red flags, geography and intelligence.
Question 5: Which description best fits hawala as a value transfer method that can be abused for terrorist financing?
- A regulated securities clearing system run by central banks
- A trade finance product that requires letters of credit
- A type of prepaid card issued by commercial banks
- An informal, trust-based network where value moves between brokers, often without money physically crossing borders (Correct answer)
Correct answer: An informal, trust-based network where value moves between brokers, often without money physically crossing borders
Hawala is an informal value transfer system. A broker in one country tells a counterpart elsewhere to pay the beneficiary, and the brokers settle balances later, often through trade or other offsetting transactions. Its limited records make it attractive for illicit transfers.
Question 6: Which of the following is a common red flag for proliferation financing in trade transactions?
- A customer pays for domestic consumer goods with a corporate credit card
- Shipment of dual-use goods to an end user whose business doesn't match them, routed through transshipment hubs (Correct answer)
- A retailer making routine payroll deposits
- A long-standing manufacturer exporting standard products to established distributors
Correct answer: Shipment of dual-use goods to an end user whose business doesn't match them, routed through transshipment hubs
Proliferation financing often involves dual-use goods (items with both civilian and military/WMD uses), end users whose business doesn't fit the goods, unusual shipping routes through transshipment points, and front companies used to avoid sanctions.
