CAMS Emerging Trends 4 — Questions and Answers
Question 1: What is 'chain-hopping' in the context of cryptocurrency-based money laundering?
- Rapidly switching between different cryptocurrency exchanges
- Converting funds between different blockchain networks to obscure their trail (Correct answer)
- Mining cryptocurrency using compromised computer networks
- Using blockchain forks to duplicate and hide assets
Correct answer: Converting funds between different blockchain networks to obscure their trail
Chain-hopping involves converting assets from one cryptocurrency to another across different blockchains, complicating tracing efforts.
Question 2: Synthetic identity fraud most directly impacts AML programs because it:
- Creates accounts that pass initial KYC checks using fabricated but plausible identities (Correct answer)
- Exploits weak encryption in banking systems to access real accounts
- Involves theft of existing customer identities for account takeover
- Uses stolen business registration documents to open corporate accounts
Correct answer: Creates accounts that pass initial KYC checks using fabricated but plausible identities
Synthetic identities combine real and fictitious information to create credible personas that evade standard ID verification, allowing illicit accounts to pass KYC.
Question 3: Which technology is being explored to improve AML information sharing between financial institutions while protecting customer privacy?
- Public blockchain ledgers
- Privacy-preserving computation techniques like federated learning (Correct answer)
- Open-source transaction databases
- Centralized government reporting hubs
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 4: Environmental crime proceeds, such as those from illegal logging or wildlife trafficking, are increasingly laundered through:
- Offshore bond markets
- Cash-intensive legitimate businesses in source countries (Correct answer)
- Central bank digital currencies
- Correspondent banking networks in G7 countries
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 5: How are darknet markets relevant to AML compliance programs?
- They exclusively use fiat currency, creating traditional banking risks
- They facilitate the sale of illicit goods for cryptocurrency, generating proceeds requiring laundering (Correct answer)
- They are monitored directly by FATF member states
- They primarily enable sanctions evasion rather than money laundering
Correct answer: They facilitate the sale of illicit goods for cryptocurrency, generating proceeds requiring laundering
Darknet markets generate cryptocurrency proceeds from drug sales, fraud tools, and other illegal items that must subsequently be laundered into the financial system.
Question 6: What is the significance of 'unhosted wallets' (self-custodied wallets) in the FATF virtual asset framework?
- They are exempt from all AML requirements globally
- Transactions involving unhosted wallets may require enhanced due diligence by VASPs (Correct answer)
- Unhosted wallets can only hold privacy coins
- FATF prohibits VASPs from transacting with unhosted wallets
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 7: Which typology involves using professional third parties such as lawyers or accountants to launder money by exploiting attorney-client privilege?
- Professional money laundering networks (PMLNs)
- Gatekeeping abuse (Correct answer)
- Beneficial ownership concealment
- Corporate layering
Correct answer: Gatekeeping abuse
Gatekeeping abuse occurs when legal and accounting professionals are used—knowingly or unknowingly—to provide a veneer of legitimacy to illicit transactions.
CAMS Emerging Trends 4
What is 'chain-hopping' in the context of cryptocurrency-based money laundering?