CAMS Certified Anti-Money Laundering Specialist (CAMS7 the 7th edition) Questions and Answers

D: “Family members and close associates of PEPs are often used as intermediaries to launder the proceeds of corruption or conceal illicit assets.”(CAMS 6th Edition, Enhanced Due Diligence for PEPs; FATF Guidance on PEPs)

Beneficial ownership registers maintained by the country of incorporation are the most reliable external source for verifying beneficial ownership during onboarding, as they are official records mandated by law and typically subject to regulatory oversight.

The Egmont Group is an international network of Financial Intelligence Units (FIUs) established to promote cooperation and information exchange in the fight against money laundering and terrorist financing. One of its core principles is to facilitate secure, timely, and lawful information sharing between FIUs.

The Egmont Group provides a framework, standards, and secure channels—such as the Egmont Secure Web—that allow FIUs to exchange intelligence related to suspicious transactions, typologies, and emerging financial crime risks across borders. This cooperation is essential given the transnational nature of money laundering and terrorist financing.

The Egmont Group does not publish reporting standards, act as a regulator, or publicly disclose investigation outcomes. Its role is operational and intelligence-focused, supporting FIUs while respecting confidentiality and national legal frameworks.

Therefore, arranging information-sharing protocols between FIUs is a fundamental principle of the Egmont Group.

The United Nations Security Council (UNSC) is the only body with the legal authority under international law to impose binding sanctions on countries, entities, or individuals.

“The Security Council’s primary function in imposing sanctions is to maintain or restore international peace and security. These sanctions are legally binding on all UN member states.”

(CAMS 6th Edition, Chapter: International Sanctions and Proliferation Financing; United Nations Charter, Article 41)

Incorrect Options:

B: Sanctions may address AML/CFT failings, but the core mandate is international peace/security.

C: The UNSC does not primarily conduct research or impact analysis.

D: The purpose is international peace/security, not only domestic financial stability.

A Financial Intelligence Unit (FIU) functions as the central hub for receiving and analyzing suspicious activity reports and can obtain additional information from reporting entities to support law enforcement in investigating and combating financial crimes.

United Nations Security Council (UNSC) sanctions are a key international tool established under Chapter VII of the UN Charter. Their primary purpose is to maintain or restore international peace and security, not to punish states or provide economic advantage.

Sanctions may include asset freezes, travel bans, arms embargoes, or targeted measures against individuals and entities. These measures are designed to influence behavior, prevent escalation of conflict, and support diplomatic solutions.

The use of force is separate from sanctions and requires explicit authorization. Sanctions are not intended to be indefinite and are regularly reviewed and adjusted based on effectiveness and humanitarian considerations.

While sanctions may exert pressure on governments or actors, they are not intended as punitive measures but as preventive and corrective tools aligned with international law.

The first step in designing an effective controls framework using a risk-based approach is conducting a risk assessment. This identifies and evaluates inherent risks, providing the basis for determining which controls are necessary and how they should be prioritized.

A (Enhanced due diligence): EDD is a key control at onboarding for high-risk customers, involving deeper scrutiny, additional documentation, and approval layers to address increased ML/TF risk.

“High-risk customers must be subject to enhanced due diligence during onboarding to ensure a thorough understanding of potential ML/TF risks.”(CAMS 6th Edition, CDD/EDD for High-Risk Customers)

In the context ofgambling and gaming sectors, a well-known money laundering typology is the use of platforms tointroduce illicit funds and withdraw them as "winnings". When a customerdeposits large cash amounts and quickly withdraws themwithout engaging in actual gambling, it indicates"placement and layering"techniques.

This behavior is indicative of attempts todisguise the origin of illicit funds, converting them into legitimate-looking financial flows. It is considered a classic red flag in AML programs related to casinos and online gaming.

This scenario describes the risk assessment element of an anti-financial crime (AFC) compliance program. FATF standards require organizations to regularly assess and reassess their money laundering and terrorist financing risks, particularly when there are material changes to business models, geographic exposure, or regulatory environments.

The MLRO’s review of the company’s expansion into high-risk jurisdictions and identification of vulnerabilities reflects a dynamic and forward-looking risk assessment process. Updating the compliance framework to address identified risks ensures that controls remain proportionate and effective.

Risk assessments form the foundation of the risk-based approach and directly inform decisions on enhanced due diligence, monitoring, governance, and resource allocation. This process is distinct from transaction monitoring, governance arrangements, or training activities, although those elements may be updated as a result of the risk assessment.

When developing and maintaining AML policies, standards, and procedures, banks should rely on the National Risk Assessment, regulatory guidance or publications, and guidance issued by international bodies to ensure their frameworks align with both domestic and global best practices and risk considerations.

Key performance indicators (KPIs) are essential for evaluating the effectiveness and efficiency of transaction monitoring systems within an AML/CFT program. Regulators expect institutions to monitor how well their systems identify, prioritize, and resolve suspicious activity.

The number of alerts raised provides insight into system sensitivity and potential over- or under-alerting. Tracking alerts by region helps institutions identify geographic risk concentrations and emerging threats. The average time to review an alert measures operational efficiency and whether investigations are conducted promptly, as required by regulatory expectations.

Hiring timelines and transaction volumes by top customers are operational or business metrics and do not directly assess transaction monitoring effectiveness.

Tax evasion is a criminal offense and is widely recognized as a predicate offense to money laundering under FATF standards and national AML laws.

It involves the deliberate non-payment or under-reporting of taxes, often through false declarations, concealment of income, or failure to file required tax returns. The key distinction is intentional deception of tax authorities.

In contrast, tax avoidance refers to lawful strategies used to minimize tax liability within the boundaries of the law. Deductions and tax planning activities are legal and do not constitute tax evasion.

Because tax evasion generates illicit proceeds, it is directly relevant to AML/CFT frameworks, and financial institutions must be alert to indicators of tax-related financial crime.

Public-private partnerships help develop a culture of compliance across sectors and improve the quality and quantity of data through information sharing, enhancing the collective ability to detect and prevent financial crime.

The United Nations Security Council (UNSC) has evolved its sanctions framework to minimize unintended humanitarian consequences. In line with international best practice, the UNSC increasingly relies on targeted sanctions, also known as “smart sanctions,” rather than broad-based measures.

Targeted sanctions are designed to focus specifically on individuals, entities, or activities responsible for threats to international peace and security. These measures may include asset freezes, travel bans, and arms embargoes directed at specific actors. By narrowing the scope, targeted sanctions aim to reduce the negative impact on innocent civilian populations and legitimate economic activity.

In contrast, comprehensive sanctions apply to entire countries or sectors and often result in significant humanitarian and economic harm. The term “comprehensive targeted sanctions” is not a recognized sanctions category.

Therefore, targeted sanctions are the preferred UNSC tool when the objective is to minimize adverse effects on civilians while maintaining pressure on responsible parties.

OFAC sanctions are a key element of the U.S. AML/CFT framework. According to the CAMS 6th Edition and OFAC regulations:

Blocked funds must be placed into an interest-bearing account on a financial institution's books (B):“Blocked property must be held in a separate interest-bearing account on the books of the U.S. financial institution.”(CAMS 6th Edition, Sanctions Compliance; OFAC FAQs)

Sanctions can be either comprehensive or selective using the blocking of assets and trade restrictions (C):“OFAC administers both comprehensive and targeted (selective) sanctions programs to fulfill U.S. foreign policy and national security goals.”(CAMS 6th Edition, Sanctions Compliance)

Incorrect Options:

A: OFAC can sanction entities, vessels, and organizations—not just individuals or those in foreign countries.

D: There is no automatic expiration of OFAC sanctions after five years.

Application Programming Interfaces (APIs)are tools that enableinterconnectivity and data exchangebetween different software applications. In AML contexts, APIs are commonly used tointegrate third-party systems, such as screening tools, customer databases, and transaction monitoring platforms, ensuring real-time and accurate flow of information.

This technological capability supports enhancedautomation, agility, and efficiencyin AML processes.

Strong CDD, EDD, and advanced transaction monitoring can significantly reduce residual risk in high-risk areas like private banking. While no control fully eliminates risk, effective implementation and ongoing oversight can bring the residual risk down to an acceptable level from its initially high inherent risk.

Public-private partnerships (PPPs) are a key component of modern AML/CFT frameworks and are strongly encouraged by FATF and national regulators. Their primary benefit lies in enhancing timely and effective information sharing between financial institutions, regulators, law enforcement, and financial intelligence units (FIUs).

Through PPPs, authorities can share typologies, red flags, and emerging threat intelligence, while private institutions contribute operational insights derived from real transaction data. This rapid exchange of information on risks, high-risk activities, and suspicious actors significantly improves the detection and prevention of money laundering and terrorist financing.

PPPs do not exist to source staffing resources, provide salaries, or ensure basic understanding of regulatory concepts such as PEPs, which are already addressed through standard AML requirements. Their true value is the speed, quality, and relevance of shared intelligence, allowing participants to respond more effectively to evolving financial crime threats.

Effective AML programs promote aculture of compliance, which includes an environment where staff are empowered to raise concerns, challenge decisions, and continuously improve through cross-functional learning.Providing effective challengeis a supervisory expectation and best practice in institutions that value AML governance integrity.

While AML officer authority (option B) supports oversight, it is not as impactful on daily operational effectiveness as fostering a challenging and adaptive compliance culture.

BSA/AML compliance staff should report to the compliance function or another second line of defense internal control function to maintain independence from business line management, ensuring objective oversight and effective compliance controls.

Establishing a surveillance program with periodic risk assessments, access controls, and regular compliance reviews for employees, vendors, and third parties is the most effective way to mitigate insider threats and ensure ongoing adherence to AML regulations. This proactive approach continuously monitors risk rather than relying solely on initial checks or self-certifications.

Shell companies and other high-risk business structures are commonly associated with money laundering schemes designed to obscure ownership and transaction purpose. FATF guidance identifies several red flags indicative of such misuse.

A mismatch between goods or services and the company’s stated business profile suggests fictitious or manipulated transactions. Insufficient information on originators or beneficiaries of funds transfers further increases suspicion, as transparency is a core AML requirement. Additionally, payments lacking a clear purpose or meaningful description may indicate layering or attempts to conceal illicit activity.

Conversely, well-documented transactions with established partners and legitimate audit trails are indicators of lower risk. While structuring below reporting thresholds can be suspicious, it must also be inconsistent with standard business practices to qualify as a red flag.

A: Selling assets at a significant loss, especially shortly after purchase, is a classic red flag for asset laundering and value manipulation, which can be used to disguise the true nature of proceeds.

C: Transactions involving individuals from high-risk jurisdictions, as identified by the EU and FATF, warrant heightened scrutiny due to increased ML/TF risk.(CAMS 6th Edition, Red Flags for Complex Asset Transactions; EU List of High-Risk Third Countries)

B and D may contribute to complexity but are not the primary red flags in this scenario.

Effective customer due diligence relies on authoritative, reliable, and relevant external data sources, as outlined in FATF standards and national AML regulations.

Sanctions lists, such as those maintained by OFAC, the EU, and the UN, are mandatory screening sources to ensure compliance with sanctions regimes. Registers of stolen or forged documents, where available, help detect identity fraud and false documentation during onboarding.

Additionally, beneficial ownership registers and adverse media sources are essential for identifying hidden ownership structures, corruption exposure, and reputational risk.

Customer reviews and lifestyle assessments from social media are not considered reliable or appropriate primary sources for AML screening due to privacy, accuracy, and governance concerns.

An effective anti-financial crime (AFC) program relies on strong collaboration across risk management functions, including AML, fraud, sanctions, cybersecurity, and operational risk. Regulatory guidance encourages integrated approaches to managing financial crime risk.

A framework for continuous threat intelligence sharing allows different functions to exchange insights on emerging risks, typologies, and vulnerabilities, improving the organization’s ability to detect and respond to threats holistically.

Cross-functional training programs help ensure that staff across risk functions understand AFC risks, regulatory expectations, and the tools used to manage them. This fosters consistency and breaks down silos within the organization.

Developing common metrics and key performance indicators (KPIs) aligns objectives across functions and enables management to assess program effectiveness consistently.

While senior management accountability is essential for governance, it does not directly facilitate collaboration among risk functions. Reward programs are not standard or recommended measures in regulatory guidance for enhancing AFC collaboration.

Conducting a periodic enterprise-wide risk assessment (EWRA) is the most effective approach to identifying, assessing, and mitigating financial crime risks. It ensures all inherent risks across areas like AML, CFT, sanctions, fraud, ABC, and tax evasion are evaluated, existing controls are assessed, and residual risks are identified. This comprehensive view enables a cohesive and proactive risk management strategy aligned with regulatory expectations.

After identifying and rating inherent risks, the next key step in the risk assessment process is to evaluate the effectiveness of existing controls. This allows the organization to calculate the residual risk - i.e., the level of risk remaining after controls are applied.

Real estate transactions are vulnerable to ML/TF risks, particularly when there is limited transparency or unusual payment methods:

Cross-border purchases (A):“Purchases by foreign buyers, especially from high-risk jurisdictions, are a red flag for money laundering in the real estate sector.”(CAMS 6th Edition, Real Estate Money Laundering Risks; FATF, Money Laundering and Terrorist Financing through the Real Estate Sector, 2007)

Non-financed purchases (D):“Non-financed (all-cash) purchases can indicate the introduction of illicit funds into the financial system, bypassing the controls of mortgage lenders.”(CAMS 6th Edition, Real Estate ML/TF Risks)

Incorrect Options:

B: Purchasing in the name of a natural person is standard and not inherently risky.

C: Paying the true market price does not raise ML/TF risk.

The most important factor when selecting an anti-financial crime tool is its ability to integrate seamlessly with existing systems and processes. Effective integration ensures data consistency, operational efficiency, and improved detection and response to financial crime risks.

Fuzzy matching is a critical technique used in name screening systems to identify potential matches where names are not spelled identically. Regulators recognize that sanctions, PEP, and watchlist screening must account for variations in spelling, transliteration, abbreviations, and phonetic differences.

Fuzzy matching algorithms compare names based on similar spelling patterns, phonetics, or character arrangements, allowing institutions to detect matches that exact matching would miss. This is especially important for names originating from different languages or alphabets.

Exact matching alone is insufficient for effective sanctions screening, as it would fail to capture common variations. While machine learning may enhance screening systems, fuzzy matching itself does not rely on predictive modeling.

Therefore, fuzzy matching improves detection effectiveness while supporting regulatory expectations for robust screening controls.

The susceptibility of a company or jurisdiction to ML/TF abuse is significantly increased by:

Permissibility of bearer shares (B):“Bearer shares make it easy to hide ownership and control, presenting a major risk for misuse by criminals.”(CAMS 6th Edition, Beneficial Ownership and Company Transparency)

Rules governing the disclosure of beneficial ownership by the jurisdiction (C):“Weak requirements or loopholes in beneficial ownership disclosure are frequently exploited to conceal criminal involvement in corporate structures.”(CAMS 6th Edition, Chapter: Legal Persons and Arrangements)

Incorrect Options:

A: High or low fees are not a significant ML/TF risk driver.

D: Ease of travel is unrelated to ML/TF risk related to company structures.

Specialized AML training must be relevant to the specific risks the corporate banking team faces, including legal/regulatory expectations and the ML/TF typologies applicable to their products and customer base.

Applicable AML laws and regulations (B):“Staff must be aware of the applicable AML/CFT laws and regulatory requirements relevant to their business area.”(CAMS 6th Edition, Chapter: AML Training and Awareness)

Money laundering typologies applicable to corporate loans (D):“Training should include typologies and red flags that are most relevant to the risks present in the specific business line, such as corporate lending.”(CAMS 6th Edition, AML Training for High-Risk Departments)

Incorrect Options:

A: Monetary instrument reporting is more relevant to retail/branch banking.

C: Regulatory exam best practices are for compliance teams, not business-line relationship managers.

An effective name screening process is a critical component of sanctions and AML compliance. Regulators expect financial institutions to implement strong governance, risk-based design, and ongoing validation.

Clearly defining the screening scope, frequency, and alert adjudication procedures in policies ensures consistency, transparency, and accountability across the organization.

Conducting a risk assessment allows institutions to make informed, proportionate decisions on which data attributes to screen (e.g., names, aliases, addresses), how frequently to screen, and which databases to use. This aligns with the risk-based approach.

Regular testing and validation ensure that screening systems continue to perform as intended, detect true matches, and minimize false positives or missed hits.

Selecting the most popular database or assigning a single individual for control ownership does not ensure effectiveness and may introduce governance risk.

Scenario-based systems use algorithms to detect suspicious behaviors, such as transactions occurring at unusual times, those exceeding specified thresholds, or those taking place in locations inconsistent with a customer's typical activity. These anomalies help identify potential financial crime risks.

Public-Private Partnerships (PPPs)are collaborative initiatives involvinglaw enforcement, FIUs, and financial institutions. Their objective is to improve theefficiency and effectivenessof the fight against money laundering, terrorist financing, and other financial crimes bysharing both operational and strategic intelligence.

Option A – Exchange operational information between public authorities and obliged entities:

PPPs often facilitate real-time or near-real-time information sharing that supportsspecific investigations and the detection of suspicious activity, helping financial institutions respond quickly and accurately to ongoing threats.

Option B – Exchange strategic information between FIUs and obliged entities:

Strategic-level intelligence sharing helps financial institutionsunderstand typologies, risk trends, and evolving criminal methods, thereby strengthening their risk assessments and transaction monitoring frameworks.

Option Cis incorrect: Strategic information exchange between private institutions is limited and heavily regulated.

Option Dis incorrect: FATF does not collect or manage databases of suspicious activity reports; it sets standards and reviews national frameworks.

A key advantage of privacy enhancing technologies (PETs) in anti-money laundering is their ability to securely process data while it remains encrypted. This enables data analysis and collaboration without exposing sensitive information, helping to maintain privacy while still supporting financial crime detection.

A, C, D:

“Trust and asset management services can facilitate the concealment of the source of funds (A), provide a layer of anonymity to transactions (C), and obscure the true legal and beneficial owners (D). These are well-established ML/TF risks in the private wealth sector.”(CAMS 6th Edition, ML/TF Risks in Trust and Asset Management)

B and E are normal aspects of asset management and are not in themselves ML/TF risks unless combined with other suspicious behaviors.

Under FinCEN Section 314(b), financial institutions are permitted to share information with other financial institutions about suspected money laundering or terrorist financing activities. This collaboration helps identify and report suspicious transactions while complying with legal safeguards and privacy requirements.

Fingerprint is an inherent factor because it is a biometric trait - something the user is. Inherent factors rely on physical or behavioral characteristics such as fingerprints, facial recognition, or voice, which are unique to the individual.

Blockchain transactions differ fundamentally from traditional payments because they lack standardized messaging formats such as SWIFT MT or ISO 20022. As a result, conventional screening tools may struggle to consistently detect risks.

Integration with blockchain analytics providers allows institutions to enrich raw blockchain data with contextual intelligence, including wallet attribution, transaction flows, exposure to illicit services, sanctions-linked wallets, and typologies such as mixers and tumblers.

This integration enhances consistency, improves risk detection, and supports sanctions and AML obligations specific to virtual assets. Manual review is not scalable, and focusing only on known wallet addresses creates blind spots. Enhancing traditional payment screening does not address blockchain-specific challenges.

AI and machine learning in adverse media screening can reduce human error through consistent analysis, automate the detection of new versus previously reviewed information, and process multiple languages and scripts, enabling broader and more accurate coverage than human review alone.

A robust transaction monitoring system is a core component of an effective Anti-Money Laundering (AML) and Counter-Financial Crime (AFC) program. Regulatory guidance from FATF and national supervisors emphasizes that the primary purpose of transaction monitoring systems is to detect unusual or suspicious activity by analyzing customer transactions and identifying anomalies or patterns that may indicate money laundering, terrorist financing, or other financial crimes.

These systems use predefined rules, thresholds, and increasingly advanced analytics to monitor transactions in real time or retrospectively. Alerts generated by the system are reviewed by compliance professionals, who determine whether further investigation or reporting is required.

While transaction monitoring systems may support the preparation of regulatory reports, such as SARs or CTRs, the actual filing of these reports typically requires human review and approval and is not the defining capability of the monitoring system itself. Features such as automatic document translation or integration of social media profiles are not considered core or necessary functions under AML regulatory expectations.

Therefore, the essential capability of a robust transaction monitoring system is its ability to monitor transactions and detect anomalies indicative of suspicious activity.

Cross-border purchases increase complexity and risk due to differing regulations and potential anonymity.

Non-financed purchases, especially in cash, can facilitate money laundering by avoiding traditional financial scrutiny.

Money Services Businesses (MSBs)are commonly recognized by regulatory and supervisory authorities as havinghigher inherent AML/CFT risk, particularly due to certain business characteristics.

Option B – The prevalence of international wire transfers:

MSBs often facilitatecross-border transactions, which present a higher money laundering and terrorist financing risk due to challenges in verifying customer identity, the origin of funds, and the end destination—especially when dealing with higher-risk jurisdictions.

Option D – The cash-intensive nature of the services offered:

Many MSBs deal primarily incash, which increases the risk ofanonymous transactionsandfunds layering, making it harder to trace illicit activity. Cash is the most vulnerable medium for placement of illicit funds into the financial system.

Option AandOption E, while involving modern technologies,can actually reduce riskwhen implemented with proper controls (e.g., secure digital onboarding and traceable payments enhance auditability).

Option Cdoes not in itself signal high AML risk unless combined with other red flags.

Potential indicators of terrorist financing abuse in non-profit organizations include large, unaccounted cash donations from anonymous sources, which can disguise illicit funding, and operations in high-risk jurisdictions with limited oversight, where regulatory and monitoring frameworks may be weak.

The FATF’s core role is to enhance international cooperation against money laundering and terrorist financing through setting global standards (“Recommendations”) and issuing guidance.

“The FATF is an intergovernmental body whose purpose is the development and promotion of national and international policies to combat money laundering and terrorist financing.”

The FATF does not have authority to oversee FIUs, nor does it regulate financial markets directly.

Terms of Reference (ToR) are a fundamental governance document that define how a committee operates, makes decisions, and fulfills its responsibilities. Regulatory guidance and corporate governance best practices emphasize clarity and accountability in committee mandates.

The extent of power and decision-making authority must be clearly defined to ensure members understand what decisions they are authorized to make and where escalation is required. This prevents overlaps or governance gaps.

The composition and structure of the committee, including membership criteria and roles, ensures appropriate expertise and representation. This is essential for effective oversight, particularly in AML/CFT and risk committees.

Delegation of authority outlines how responsibilities may be assigned or escalated, supporting efficient decision-making while maintaining accountability.

Organization charts and company culture statements are not typically core components of a ToR, as they do not define operational authority or governance mechanics.

As part of a risk-based approach, the bank should apply tailored due diligence measures based on the assessed risk level of each customer. This ensures resources are focused where they are most needed, rather than applying uniform enhanced measures to all customers, which can be inefficient and unnecessary.

PEPs are recognized by CAMS 6th Edition and FATF as posing elevated risk due to:

A. The family members and close associates of PEPs may be involved in illicit activities:“The risks extend beyond the PEP to family members and close associates, who may be used to conceal the movement of illicit funds.”(CAMS 6th Edition, PEP Risk Factors; FATF Guidance)

C. PEPs may exploit embassy activities to conceal bribery and corruption transactions:“PEPs may use their position or diplomatic privileges, such as embassy operations, to disguise or facilitate the movement of illicit funds.”(CAMS 6th Edition, Corruption and PEP Risks)

Incorrect Options:

B: There is no such legal provision granting PEPs financial immunity or unlimited credit.

D: Banks may (and often must) exit PEP relationships not in line with their risk appetite.

Anti-Money Laundering (AML) regulations and guidance from bodies such as the Financial Action Task Force (FATF) emphasize the importance of a risk-based approach when identifying and managing money laundering and terrorist financing risks. Network analysis tools are commonly used by financial institutions to detect direct and indirect relationships between customers and known criminal entities. However, without prioritization, these tools may generate large volumes of alerts that reduce operational effectiveness.

Implementing risk-scoring algorithms for indirect connections allows the institution to rank identified relationships based on factors such as proximity to criminal entities, transaction volume, frequency, customer risk rating, and typology relevance. This enhances the tool’s effectiveness by enabling compliance teams to focus on the highest-risk relationships first, in line with regulatory expectations for efficient and proportionate controls.

Manually reviewing all flagged relationships is impractical and inconsistent with scalable AML programs. Integrating external databases or social media profiles may raise data quality, privacy, and governance concerns and is not a primary solution for prioritization. Focusing only on direct connections would weaken the AML framework, as criminals frequently use layered and indirect relationships to conceal illicit activity.

Therefore, applying risk-based scoring methodologies is the most effective and regulator-aligned way to enhance network analysis tools.

Customer segmentation is a foundational element of effective transaction monitoring and is strongly aligned with the risk-based approach promoted by FATF and national regulators.

Customers differ significantly in their transaction behavior depending on factors such as customer type, industry, geography, products used, and transaction volumes. By grouping customers into similar peer segments, institutions can more accurately establish expected behavior and identify anomalies that may indicate suspicious activity.

Comparing customers across a single large population would mask meaningful deviations and generate excessive false positives or missed risks. Segmentation improves alert quality, efficiency, and investigative focus.

Customer segmentation is not limited to sanctions compliance; it is a core AML transaction monitoring practice used to detect money laundering, terrorist financing, and other financial crimes.

Once there is reasonable suspicion of money laundering, the next critical step is to draft and file a suspicious activity report (SAR) with the relevant financial intelligence unit within the required regulatory timeframe. The SAR should contain a clear chronology of transactions, relevant customer details, and the rationale for suspicion to support potential investigation by authorities.

Open-source tools offer cost-effective access to diverse data sources, making them valuable for financial crime investigations. They also support partial automation of data collection and analysis, reducing manual effort and improving efficiency in identifying suspicious patterns or links.

The Office of Foreign Assets Control (OFAC), part of the U.S. Department of the Treasury, is responsible for theadministration and enforcement of economic and trade sanctions. These sanctions are based on U.S. foreign policy and national security objectives and target:

Foreign countries and regimes

Terrorist organizations

Narcotics traffickers

Individuals and entities engaged in activities related to the proliferation of weapons of mass destruction

OFAC acts under various authorities, including national emergency powers granted by the President and specific legislation. One of its primary tools is theSpecially Designated Nationals(SDN) List, which identifies individuals and entities whose assets are blocked and with whom U.S. persons are generally prohibited from dealing.

It is important to note that OFAC is not responsible for designating jurisdictions as primary money laundering concerns (a task handled by FinCEN under Section 311 of the USA PATRIOT Act), nor does it manage trade agreements.

Once a risk appetite and Risk Appetite Statement (RAS) are established, organizations must ensure they are understood, embedded, and actively monitored. Regulatory guidance emphasizes that a risk appetite is effective only if it influences daily decision-making.

Providing training to staff ensures employees understand risk boundaries and how their actions align with the organization’s risk tolerance. Embedding risk appetite into processes and governance, such as approvals, escalation thresholds, and performance management, ensures it is operationalized rather than theoretical.

Finally, integrating breaches or misalignment with risk appetite into internal reporting allows senior management to monitor adherence and take corrective action when necessary.

Training managers on “good” risk-taking may be useful culturally but is not a core regulatory expectation. Merely describing controls does not ensure awareness or behavioral alignment.

While regulatory compliance, cost efficiency, and operational considerations are important, the primary objective of AML/CFT measures is to reduce and manage the risks and threats of financial crime. FATF emphasizes that effectiveness should be measured by outcomes, not merely by technical compliance.

An AML/CFT framework may fully comply with laws and still be ineffective if it fails to detect, deter, or disrupt money laundering and terrorist financing. Regulators increasingly focus on whether systems and controls actually identify suspicious activity, prevent misuse of the financial system, and support law enforcement efforts.

Minimizing operational burden and controlling costs are secondary considerations and must not compromise risk mitigation. A cost-effective system that fails to detect financial crime would not meet regulatory expectations.

Therefore, the true measure of effectiveness lies in how well systems and controls mitigate financial crime risks and threats in practice.

An effective AML/CFT compliance program must include several core elements outlined in FATF recommendations and national regulations. One of these essential elements is an independent and skilled audit function.

The purpose of independent audit is to test and validate the effectiveness of AML controls, identify weaknesses, and ensure compliance with regulatory requirements. Audits must be conducted by qualified personnel who are independent from the day-to-day AML operations to maintain objectivity.

While enterprise risk management frameworks and advanced technologies such as AI can enhance AML programs, they are not mandatory foundational elements. Regulators focus on governance, oversight, and accountability rather than technology sophistication.

An independent audit function ensures continuous improvement and provides assurance to senior management and regulators that the AML program is operating effectively.

Financial institutions should have a standardized process for terminating customer relationships, including conducting risk assessments and documenting the reasons for termination. A final review of the customer’s transaction history helps address any outstanding concerns or unresolved issues. Keeping thorough records of the termination process ensures compliance and provides documentation in case of any future inquiries or disputes.

Regulatory reports—such as those published by FATF, FIUs, and supervisory authorities—provide valuable insights into emerging money laundering and terrorist financing risks.

A crucial step is systematically integrating identified risks into the institution’s internal risk assessment. This ensures that the organization’s understanding of threats remains current and aligned with regulatory expectations.

Another key action is building or enhancing transaction monitoring scenarios based on the typologies and red flags described in regulatory reports. This directly improves detection effectiveness and responsiveness to evolving threats.

While internal benchmarking and peer comparison may be useful, they are not substitutes for directly updating risk assessments and monitoring logic based on regulatory intelligence.

For high-risk customers, including PEPs, the bank should have gathered adequate information on the source of funds and wealth, assessed the money laundering risk of each customer, and ensured compliance and AML resources scaled with business growth to maintain effective systems and controls.

Classic indicators of suspicious activity often involve use of proxies, unusual cash access, or attempts to avoid scrutiny, as highlighted in FATF and FIU guidance.

Frequent access to a safe deposit vault to withdraw cash by a person closely associated with a government official raises heightened concern. Such behavior may indicate attempts to conceal illicit funds, particularly given the potential exposure to corruption risk associated with politically exposed persons (PEPs) and their close associates.

Similarly, requesting a third party to execute wire transfers on one’s behalf to a FATF grey-listed jurisdiction is a well-recognized red flag. This behavior suggests an attempt to evade transaction monitoring, sanctions screening, or enhanced due diligence requirements by distancing oneself from the transaction.

The remaining scenarios describe activities that are either legitimate or explainable with proper documentation and transparency. Merely dealing with an institution previously fined for AML violations or conducting legitimate trade with customs compliance does not, on its own, constitute suspicious activity.

Trust and company service providers (TCSPs) are recognized by FATF as higher-risk gatekeepers due to the nature of services they provide, which can be misused to facilitate money laundering.

The use of nominee directors can obscure beneficial ownership, allowing criminals to hide their involvement behind third parties. This lack of transparency is a significant AML risk.

The sale of ready-made or shelf companies, particularly through offshore intermediaries, enables rapid creation of legal entities with no operating history, which are frequently used in layering schemes.

Additionally, minimal face-to-face interaction—especially in offshore service models—reduces the ability to verify customer identity and intent, increasing impersonation and misuse risks.

TCSPs do not market themselves to criminals and are subject to AML obligations in most jurisdictions, making those options incorrect.

Criminals may target accountants because they have the capability to create and structure companies, falsify accounts, and manipulate financial statements, which can be exploited to disguise illicit funds and facilitate money laundering.

Casinos are recognized as high-risk entities under AML/CFT frameworks due to their exposure to large cash volumes and convertible instruments such as chips. Regulators and FATF guidance highlight minimal or no gaming activity combined with rapid cash-out as a major red flag.

In this scenario, the player purchases a large amount of chips using multiple funding methods, including an international wire transfer, does not engage in any gambling, and then immediately cashes out. This behavior is consistent with placement and layering techniques, where a casino is used as a pass-through to legitimize illicit funds.

The absence of gaming activity strongly suggests that the intent was not entertainment but financial manipulation. Casinos are frequently misused for this exact purpose due to their ability to convert cash into “winnings.”

The other scenarios describe activity that may be higher risk but are consistent with legitimate casino behavior when properly documented.

A proposed EU import ban on refined oil products would be of greatest concern to the bank’s trade finance services, as it directly targets a core revenue-generating sector (oil production) of the company’s country. This could lead to significant disruptions in trade flows, regulatory risk exposure, and potential sanctions violations.

The origin of the funds is a primary financial crime risk when dealing with a TCSP connected to a high-risk country. Funds originating from such jurisdictions may be linked to illicit activity, especially if source verification is weak or absent.

Public-private partnerships (PPPs) are widely recognized in AML/CFT frameworks, including FATF guidance, as an effective mechanism to combat financial crime. One key strength of PPPs is improving the speed of action in identifying and responding to emerging financial crime risks. By facilitating closer collaboration, PPPs enable faster detection of typologies, threats, and vulnerabilities across the financial system.

Another major strength is enhanced information-sharing between governments and financial institutions. PPPs allow public authorities to share strategic intelligence and red flag indicators, while private institutions contribute operational insights from real transaction data. This two-way exchange improves the overall quality of financial crime detection and prevention.

While some PPPs operate within legal information-sharing frameworks, they do not eliminate liability entirely, nor do they remove the obligation for institutions to comply with data protection laws. Importantly, PPPs do not replace an institution’s responsibility to conduct its own customer due diligence. Each participating organization remains accountable for maintaining independent AML controls.

A: “Effective training includes practical examples and use cases tailored to the business.”

B: “Firms must keep accurate records of all AML/CFT training, including completion logs.”

D: “Staff should be aware of the consequences of non-compliance with AML/CFT obligations.”(CAMS 6th Edition, AML/CFT Training and Awareness)

Incorrect:

C: Training should be tailored and role-specific.

E: Third-party trainers are not required for effective training.

Business entities in offshore financial centers often pose money laundering risks due to limited organizational disclosure and recordkeeping requirements, which can obscure beneficial ownership and make it easier to conceal illicit financial activities.

It is essential to ensure that anti-financial crime (AFC) tools are compatible and can be integrated with existing systems to avoid operational disruptions. Additionally, evaluating both implementation and ongoing maintenance costs is crucial for long-term sustainability and effective budget planning.

The second line of defense is responsible for compliance functions, including interpreting new AML regulations and updating policies, procedures, and training programs. This ensures that client-facing staff, such as relationship managers, remain informed and aligned with regulatory expectations.