157 free ACAMS CAMS practice questions from the CertStash pack of 637, each with the correct answer and a full explanation. The rule is the same for every exam: ten free on the product page, 157 free here, all 637 in the pack, and each step includes the one before it.
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Question 1
A bank account is established for a new business customer. The business was established five years ago with an address in another state. The business website contains few details other than stating it is a real estate business. One principal has an international telephone number and appears to be living in another country. The other principal works out of a recreational vehicle. What warrants enhanced due diligence in this scenario?
Show answer and explanation
Correct answer: A. Shell company
A shell company presents multiple risk indicators in this scenario: the business was established five years ago but has minimal web presence beyond claiming to be real estate, one principal operates internationally from abroad, the other works from a recreational vehicle (no fixed business address), and the vague business description combined with unstable principals are classic shell company characteristics. These factors collectively suggest the entity may lack legitimate operational substance and exist primarily to facilitate financial transactions, warranting enhanced due diligence for potential money laundering or other illicit activities.
Why the other options are wrong
- B. Human trafficking indicators would involve movement of people and exploitation rather than the business structure and operational concerns presented.
- C. A politically exposed person designation requires a government official role, which is not indicated for either principal in this scenario.
- D. While real estate can be used for money laundering, the specific red flags here, shell company characteristics, minimal business details, and unstable principals, point more directly to shell company status rather than established real estate laundering activity.
Question 2
A branch manager for a small community bank has a new customer who deposits four EUR 50,000 checks into one account. Shortly thereafter, the customer goes to another branch and asks to transfer all but EUR 1,500 to three accounts in different foreign jurisdictions. Which suspicious activity should be the focus of the suspicious transaction report?
Show answer and explanation
Correct answer: D. The customer asks to transfer funds to accounts in three different foreign jurisdictions
The transfer of funds to multiple accounts across three different foreign jurisdictions is the primary suspicious activity warranting focus in a suspicious transaction report. This pattern indicates potential structuring to avoid detection and suggests the customer may be deliberately moving illicit funds across borders through multiple routes, which is a classic money laundering technique. The geographic dispersion across jurisdictions significantly increases the likelihood of illicit intent compared to other factors.
Why the other options are wrong
- A. Large checks as account opening deposits are common in legitimate business and do not inherently constitute suspicious activity without additional context.
- B. Using different branches is a normal customer practice and does not itself indicate suspicious activity.
- C. Transferring most funds from an account is a common transaction pattern and is not suspicious without the international jurisdiction component that suggests intentional dispersal.
Question 3
A government has instituted new anti-money laundering laws which require all financial institutions to obtain certain information from its customers. Which step should an institution located in this jurisdiction take to ensure compliance?
Show answer and explanation
Correct answer: B. Change procedures and systems as necessary and provide employee training
Ensuring compliance with new anti-money laundering laws requires a comprehensive approach that includes changing procedures to collect required information, updating systems to accommodate new requirements, and training employees on the new procedures. This three-pronged implementation ensures the institution can operationally meet the new legal requirements, staff understand their roles, and systems are capable of supporting compliance. Procedures and training alone are insufficient without system changes, and system changes alone fail without staff understanding.
Why the other options are wrong
- A. Changing procedures alone does not address the need for system updates and employee training required for full compliance.
- C. Asking existing customers to voluntarily provide information is passive and unreliable; institutions must actively obtain required information through updated procedures and systems.
- D. Automatic information collection from all customers is impractical and does not account for the need to establish procedures and ensure staff training on how to implement and maintain compliance.
Question 4
An anti-money laundering audit identifies a significant weakness in how transaction monitoring alerts are cleared. Audit sampling identified potentially suspicious activity that was cleared as not suspicious. Management accepts the audit finding and develops a remediation plan. What is the role of the auditor during the correction phase?
Show answer and explanation
Correct answer: D. Validating the successful remediation of the issue once management indicates the issue is resolved
The auditor's role during the correction phase is to validate that management has successfully remediated the identified deficiency. The auditor maintains independence by overseeing and verifying the remediation rather than directing it or developing corrective procedures. Validation occurs after management has indicated resolution and involves testing to confirm the deficiency has been effectively corrected and controls are functioning as intended.
Why the other options are wrong
- A. Directing remediation violates audit independence; management is responsible for correcting deficiencies identified in audits.
- B. Developing procedures is a management responsibility, not an auditor function; auditors assess existing procedures but do not create them.
- C. Providing training to operational departments is a management function; auditors may provide feedback on findings but should not be directing training programs.
Question 5
Which method to launder money through deposit-taking institutions is closely associated with international trade?
Show answer and explanation
Correct answer: B. Using Black Market Peso Exchange
The Black Market Peso Exchange is closely associated with international trade-based money laundering, particularly in cross-border commerce between countries with currency restrictions. This method involves the use of international trade transactions, such as over- or under-invoicing of goods and services, to move value across borders while creating a veneer of legitimacy through trade documentation. It is specifically designed to exploit international trade flows and currency markets.
Why the other options are wrong
- A. Shell companies are general-purpose laundering vehicles not specifically tied to international trade mechanisms.
- C. Structuring cash deposits is a domestic banking technique unrelated to international trade infrastructure.
- D. Investing in legitimate businesses is a general placement technique not specifically associated with international trade.
Question 6
A customer opens a corporate account with a broker-dealer on behalf of several beneficial owners, with a stated long-term investment goal. The customer deposits $25.5 million into the account and three days later transfers $5 million to an overseas bank. Shortly thereafter, the customer begins making numerous purchases of pesos. The compliance officer receives a query regarding the movement of funds. Within a month of account opening, the customer depletes the account. Which two red flags should prompt the firm's compliance officer to take action? (Choose two.)
Show answer and explanation
Correct answer: A, D. The new account deposit is $25.5 million; The customer's stated investment goal is not reflective of account activity
The customer described a long-term investment goal, yet the account was emptied within a month through an overseas transfer and repeated purchases of pesos. Activity that contradicts the stated purpose of the account is a classic red flag, and so is a very large opening deposit that is moved out again almost immediately, since a genuine long-term investor does not place $25.5 million and then drain it within weeks. Together these two facts should prompt the compliance officer to investigate and consider a suspicious activity report.
Why the other options are wrong
- B. A corporate account held for several beneficial owners is a normal structure; it becomes a concern only when the activity in it is unusual.
- C. A query about the movement of funds is what alerts the compliance officer; it is a trigger for review, not a red flag in the customer's own behaviour.
Question 7
What should countries do to help prevent non-profit organizations from being abused for the financing of terrorism according to the Financial Action Task Force 40 Recommendations?
Show answer and explanation
Correct answer: C. Ensure non-profit organizations cannot be used to conceal or obscure the diversion of funds intended for legitimate purposes to terrorists' organizations
The Financial Action Task Force 40 Recommendations focus on ensuring that non-profit organizations have adequate transparency, governance, and controls to prevent funds intended for legitimate charitable purposes from being diverted to terrorist organizations. Countries should implement oversight mechanisms that enable detection and prevention of fund diversion while preserving legitimate non-profit operations. This approach balances national security with the preservation of civil society organizations.
Why the other options are wrong
- A. Blanket asset freezing of all non-profits is overly broad and would impair legitimate charitable work without specifically addressing terrorist financing risks.
- B. Registration requirements alone do not prevent abuse; oversight and controls are more important than mere registration.
- D. Forbidding cross-border transactions would eliminate legitimate international humanitarian work and is more restrictive than necessary; the focus should be on transparency and monitoring rather than blanket prohibitions.
Question 8
An employee hears a colleague on the telephone with a customer giving advice on how to ensure that a suspicious transaction report will not be filed as a result of a future transaction. What action should the employee take?
Show answer and explanation
Correct answer: B. Report the conversation to the compliance officer
The employee should report this conversation to the compliance officer because the colleague's conduct appears to constitute potential tipping off or advising a customer on how to avoid regulatory reporting obligations, which violates anti-money laundering laws and institutional policy. The compliance officer is the appropriate internal authority responsible for investigating and addressing potential AML violations by employees. This is an internal compliance matter that must be escalated through proper channels.
Why the other options are wrong
- A. Local police are not the appropriate channel for internal compliance violations; law enforcement involvement would be determined by the compliance officer and institution after investigation.
- C. Simply telling the colleague it violates policy does not address the potential violation or ensure it is properly investigated and documented.
- D. Ignoring the situation permits potential regulatory violations to continue and breaches the employee's own compliance responsibilities.
Question 9
The USA PATRIOT Act requires United States (U.S.) financial institutions to collect certain information from non-U.S. banks that hold a correspondent account. Which two pieces of information must a non-U.S. bank provide to its U.S. correspondent to enable them to comply with this requirement? (Choose two.)
Show answer and explanation
Correct answer: B, D. The name and address of all beneficial owners who own 25% or more of the bank; The name and address of a U.S. person who is authorized to receive service of legal process for the bank
The USA PATRIOT Act Section 312 requires U.S. financial institutions to obtain and verify information from foreign banks opening correspondent accounts. Specifically, banks must identify beneficial owners holding 25% or more of the foreign bank (option B) and obtain the name and address of a U.S. person authorized to receive legal process on behalf of the foreign bank (option D). These two requirements enable U.S. institutions to maintain adequate records and establish accountability for the foreign institution.
Why the other options are wrong
- A. Shell bank information is not a required component of the PATRIOT Act correspondent banking due diligence process.
- C. Prompt notice of suspicious activity on customer accounts is not a required element of initial correspondent account establishment under Section 312.
Question 10
What are two legal risks of having inadequate privacy policies and procedures? (Choose two.)
Show answer and explanation
Correct answer: B, C. Industry of regulatory sanctions; Charges of deceptive business practices
Inadequate privacy policies and procedures expose financial institutions to two primary legal risks. Regulatory sanctions (option B) occur when institutions fail to comply with privacy laws and regulations enforced by agencies like the FTC and banking regulators. Charges of deceptive business practices (option C) arise when institutions mishandle customer data contrary to stated privacy commitments or legal requirements, potentially violating consumer protection statutes. These represent direct legal consequences rather than indirect business impacts.
Why the other options are wrong
- A. Diminished reputation is a business or market consequence, not a legal risk per se.
- D. Higher marketing and public relations costs are business expenses, not legal risks.
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Question 11
A bank compliance officer has implemented enhanced monitoring rules that have identified some unusual activity that may be indicative of human trafficking. Which red flag should prompt additional transactional review?
Show answer and explanation
Correct answer: D. Cash deposits that occur in cities where the customer does not reside or conduct business followed by same-day withdrawals
Cash deposits in cities where the customer does not reside or conduct business, followed by same-day withdrawals, exhibit the classic pattern of structuring and layering associated with human trafficking. This rapid movement of funds without legitimate business purpose is a hallmark indicator of illicit activity. The geographic inconsistency combined with the timing pattern creates the strongest red flag for suspicious transactional review.
Why the other options are wrong
- A. Wire transfers from migrant-heavy countries alone are not necessarily indicative of trafficking without additional suspicious patterns.
- B. Cash deposits in cities where the customer resides and conducts legitimate business represent normal commercial activity.
- C. While deposits in unusual locations warrant attention, the absence of immediate withdrawal is less suspicious than the deposit-withdrawal pattern.
Question 12
Upon a routine account review a money laundering investigator identified a number of large round dollar wire transfer deposits into a business account owned by a local auto repair shop. The wire transfers all originated from a country that is a known financial secrecy haven with poor anti-money laundering controls. The investigator concludes there appears to be no legitimate business purpose for the wire transfers and files a suspicious transaction report. The owner of the auto repair shop is popular in the community and is a well-known philanthropist. To whom should the investigator escalate these concerns?
Show answer and explanation
Correct answer: D. The bank anti-money laundering officer
When an investigator identifies suspicious transaction activity and files a suspicious activity report, the appropriate escalation is to the bank's anti-money laundering officer, who has institutional responsibility for monitoring, investigating, and reporting suspicious activities to regulatory authorities. The bank's AML officer ensures proper documentation, coordination with compliance functions, and appropriate regulatory notification. While the owner's reputation as a philanthropist may seem reassuring, it does not eliminate the suspicious indicators. The audit committee, chairman, and the account owner are not appropriate recipients for active investigation escalation.
Why the other options are wrong
- A. The audit committee provides oversight but is not the operational recipient for active suspicious transaction investigations.
- B. The chairman of the board is not the appropriate operational contact for day-to-day suspicious activity reporting.
- C. Alerting the account owner about a suspicious activity investigation would compromise the investigation and is never appropriate.
Question 13
An organization uses an automated surveillance system that generates a very large volume of anti-money laundering alerts. The monthly volume of alerts has increased over the last year causing the compliance staff to fall significantly behind reviewing the alerts. As a result, the system settings are under review to determine if they are appropriate. Which action should be included in the evaluation of system settings?
Show answer and explanation
Correct answer: C. Review parameter settings based on the latest risk assessment
When evaluating surveillance system settings that are generating excessive alerts, the compliance team should review parameter settings based on the latest risk assessment conducted by the organization. This ensures that alert thresholds and filters are appropriately calibrated to the organization's actual risk profile, business activities, and regulatory obligations rather than being based on arbitrary staffing constraints or peer comparisons.
Why the other options are wrong
- A. Comparing to peer organizations may not reflect this specific organization's unique risk profile and business model.
- B. While filters with no alerts may warrant review, the primary evaluation should be driven by risk assessment rather than alert history alone.
- D. Calibrating parameters based on staffing availability rather than risk is inappropriate and could lead to inadequate compliance controls.
Question 14
A compliance officer for a casino may suspect money laundering if an individual:
Show answer and explanation
Correct answer: C. purchases a low volume of chips with cash and turns them in for a casino check.
Structuring cash purchases of chips in low volumes followed by redemption for a casino check is a classic money laundering indicator. This pattern represents an attempt to convert small amounts of physical currency into traceable instruments while avoiding reporting thresholds and creating apparent legitimacy through casino involvement. This technique is known as structuring or smurfing and converts potentially illicit cash into seemingly legitimate gambling winnings. Invoking reporting requirements through lump sum payments would indicate compliance awareness, using first names is normal social behavior, and requesting third-party transfers could have legitimate business purposes and does not inherently indicate money laundering.
Why the other options are wrong
- A. Invoking reporting requirements suggests the individual is aware of and potentially willing to comply with AML obligations.
- B. Referring to associates by first name is ordinary social conduct with no AML significance.
- D. Requesting transfers to third-party accounts may reflect legitimate business arrangements or personal circumstances without indicating money laundering.
Question 15
What is an example of the integration stage of money laundering involving a bank or another deposit-taking institution?
Show answer and explanation
Correct answer: D. Using illicit funds that had previously been deposited to purchase a luxury vehicle
The integration stage of money laundering is the final phase where illicit funds are reintegrated into the legitimate economy through acquisition of real assets or investments. Option D correctly describes this stage, using previously deposited illicit funds to purchase a luxury vehicle represents the placement of dirty money into the mainstream financial system by converting it into tangible assets. Options A, B, and C describe placement or layering activities that occur earlier in the laundering cycle, not the final integration phase.
Why the other options are wrong
- A. Depositing illicit funds into a front company account represents the placement stage, the first phase of money laundering.
- B. Directing third parties to exchange cash for negotiable instruments is a layering technique used to obscure the source of funds, not integration.
- C. Wiring funds between bank accounts is a layering activity designed to distance illicit money from its source, not the integration phase.
Question 16
A client is a wholesale auto business that operates as a used car lot. The client regularly ships vehicles internationally. In a four-month period, the client received wires totaling $1,250,000 from a dealer in Benin in West Africa. All wires originated from Benin and were in increments of $50,000. Account debits made to the account were payable to various transport companies. All incoming checks reference various vehicles purchased. Dock shipping receipts produced by the client to support account activity identify the vehicles but cannot easily be tied to the wires received. What is the suspicious behavior?
Show answer and explanation
Correct answer: C. Wires received are in large, even dollar amounts
The suspicious behavior is that wires are received in large, even dollar amounts ($50,000 increments totaling $1,250,000). This structured pattern of regular, round-number increments is characteristic of money laundering techniques designed to create the appearance of legitimate commerce. Legitimate vehicle purchases typically involve varying amounts based on actual vehicle costs, not consistent $50,000 blocks. The fact that documentation cannot easily be tied to specific wire amounts further indicates potential structuring and trade-based money laundering.
Why the other options are wrong
- A. The dock shipping receipts identifying vehicles is consistent with legitimate business operations.
- B. International shipping of vehicles is normal for a wholesale auto business and does not inherently indicate suspicious activity.
- D. Payments to transport companies are expected business expenses for a vehicle shipping operation.
Question 17
An EU Trust and Company Service Provider (TCSP) analyst notices some unusual activity while looking through a customer's financial statements and detailed general ledger. The customer is in the business of importing and exporting machineries. Which transaction indicator warrants further escalation to the compliance officer?
Show answer and explanation
Correct answer: C. The payment of consultancy fees to unrelated companies and service providers established in a foreign jurisdiction.
Payments of consultancy fees to unrelated companies in foreign jurisdictions warrant escalation as this represents a classic money laundering typology, moving funds through service providers in ways that obscure the ultimate beneficial purpose. This is particularly concerning for a machinery import-export business where such payments lack clear operational necessity. Inter-company financing is legitimate corporate practice, virtual office services are common business expenses, and company secretarial fees to tax-efficient jurisdictions are standard corporate structure optimization.
Why the other options are wrong
- A. Inter-company loans between holding and subsidiary companies are normal corporate financing mechanisms.
- B. Virtual office services overseas are routine and legitimate business support expenses.
- D. Company secretarial retainer fees in tax-efficient jurisdictions reflect legitimate corporate tax planning strategies.
Question 18
What is the main role of the Egmont Group in combating money laundering and terrorist financing?
Show answer and explanation
Correct answer: B. To find ways that FIUs can better cooperate amongst themselves and exchange information
The Egmont Group is an international organization of Financial Intelligence Units (FIUs) whose primary mission is to facilitate cooperation and information exchange between FIUs globally. The group serves as an informal network that enables FIUs to share financial intelligence and best practices to combat money laundering and terrorist financing through enhanced collaboration and communication channels.
Why the other options are wrong
- A. The Egmont Group does not establish regulatory requirements; individual countries and organizations like FATF handle regulatory standard-setting.
- C. The Egmont Group does not require global participation or mandate a centralized information repository; it operates on a voluntary, cooperative basis.
- D. Creating standards for national legislation is the role of organizations like FATF, not the Egmont Group.
Question 19
A bank's anti-money laundering section receives an anonymous tip that a customer might be engaging in possible money laundering. Which two facts should be considered during the course of an investigation into this matter? (Choose two.)
Show answer and explanation
Correct answer: C, D. The customer is issuing a number of wires to several relatively high-risk jurisdictions; The customer's account has had a large volume of activity, but the month-end balance is usually low
During a money laundering investigation, an investigator should consider wire activity to high-risk jurisdictions, which indicates potential cross-border financial crime, and account activity patterns showing large volumes with low ending balances, which suggests funds are flowing through rather than being stored, a classic money laundering indicator. These behavioral and transactional patterns are directly relevant to assessing suspicious activity. Account longevity and exemption status are not investigative factors; they may even be red herrings in an investigation.
Why the other options are wrong
- A. A long-standing account history does not reduce suspicion; launderers may maintain accounts for years before or during illegal activity.
- B. Currency transaction reporting exemptions are unrelated to money laundering investigations and do not factor into assessing suspicious wire activity.
Question 20
Which are social/economic consequences of money laundering? (Choose two.)
Show answer and explanation
Correct answer: B, C. Weakening financial institutions; Increase in corruption and organized crime
Money laundering weakens financial institutions by increasing operational risk, regulatory exposure, and loss of confidence in the financial system (option B). It simultaneously increases corruption and organized crime by providing proceeds that fund criminal enterprises and corrupt officials who enable laundering (option C). Civil war is a geopolitical consequence not directly attributed to money laundering; tax revenue increases cannot result from illicit money laundering; and infrastructure is weakened indirectly through corruption rather than as a direct consequence.
Why the other options are wrong
- A. Civil war is a political consequence not directly caused by money laundering.
- D. Money laundering reduces tax revenue by moving illicit proceeds outside the legitimate economy.
- E. Infrastructure weakening is an indirect consequence through corruption, not a direct social/economic consequence of money laundering itself.
Question 21
What type of information is received by government Financial Intelligence Units (FIUs)?
Show answer and explanation
Correct answer: A. STRs
Financial Intelligence Units (FIUs) receive Suspicious Transaction Reports (STRs) from financial institutions and obliged entities. STRs are filed when institutions detect activity that may indicate money laundering, terrorist financing, or other financial crimes. This is the primary mechanism through which FIUs obtain information to conduct financial intelligence analysis and share findings with law enforcement.
Why the other options are wrong
- B. Client name screening results are internal compliance outputs, not formal reports submitted to FIUs.
- C. Compliance frameworks are internal policy documents, not information received by FIUs.
- D. PEP registrations are reference materials maintained by institutions, not reports submitted to FIUs.
Question 22
What is a major economic consequence of money laundering through the use of front companies?
Show answer and explanation
Correct answer: B. Weakening of the legitimate private sector
A major economic consequence of money laundering through front companies is the weakening of the legitimate private sector. When illegitimate funds are injected into the economy through shell companies engaging in unfair pricing and competition, legitimate businesses cannot compete effectively. This distorts market pricing, reduces incentives for lawful commerce, and undermines economic stability.
Why the other options are wrong
- A. Money laundering through front companies does not emphasize manufacturing.
- C. Front company laundering creates artificial pricing that harms competition rather than improving it.
- D. There is no alignment of management principles between criminal enterprises and legitimate businesses.
Question 23
An auction house dealing in fine art and antiques sells a well-known painting at a price of $12 million to an agent bidding for a group of local investors. The same painting sold ten years prior at auction for $5 million. The auction house receives payment for the painting via wire transfer from an account maintained in an offshore jurisdiction by the investor group. No beneficial ownership information is available for the account. What are the two money laundering red flags? (Choose two.)
Show answer and explanation
Correct answer: D, E. Payment is received from an account in an offshore jurisdiction; Lack of beneficial ownership details for the originating account.
Option D indicates payment from an offshore account with unknown beneficial ownership, which raises concerns about the ultimate source of funds and creates difficulty in conducting proper due diligence on the payment originator. Option E identifies the lack of beneficial ownership information for the originating account, making it impossible to verify the legitimacy of the transaction's source and to confirm the account holder's identity and legal status. Together, these flags suggest potential opacity and evasion of transparency requirements typical of money laundering. Option A (wire transfer) is a standard payment method. Option B (agent bidding) is normal auction practice. Option C (price appreciation) is legitimate; art appreciation over a decade is not suspicious.
Why the other options are wrong
- A. Wire transfers are standard business payment methods and not inherently suspicious.
- B. Using an agent or group investor is standard auction practice and not a money laundering indicator.
- C. Art appreciating significantly over ten years is normal market behavior and does not indicate money laundering.
Question 24
What is true regarding disclosure to a law enforcement agency by a financial institution of the supporting documentation for a suspicious transaction report?
Show answer and explanation
Correct answer: C. Confirm that the request originated from a representative of the law enforcement agency
When a financial institution receives a request from law enforcement for suspicious transaction report documentation, it must confirm that the request originated from an actual authorized representative of the law enforcement agency. This verification step protects the institution from fraudulent requests and ensures information is released only to legitimate authorities.
Why the other options are wrong
- A. Email is not an appropriate transmission method for sensitive STR documentation; secure channels must be used.
- B. The institution cannot notify the account holder when responding to law enforcement requests for STR-related documentation.
- D. The account holder's attorney does not receive copies of documentation provided to law enforcement in response to official requests.
Question 25
What action should a bank CEO's assistant take when the bank CEO expenses large sums of money to a charitable organization run by the bank CEO's direct family member?
Show answer and explanation
Correct answer: D. Submit the concern anonymously to the bank's internal Compliance Hotline.
When a bank CEO expenses large sums to a charitable organization run by a direct family member, this presents a clear conflict of interest and potential compliance violation. The appropriate action is to report this concern through the bank's internal Compliance Hotline anonymously, which protects the reporter from retaliation while ensuring the matter reaches the proper compliance function for investigation and escalation if warranted. Anonymous reporting through established channels is the standard procedure for whistleblower protection in financial institutions.
Why the other options are wrong
- A. Going directly to the Executive Board bypasses the established compliance process and may create unnecessary escalation without proper investigation.
- B. Meeting with the CEO to ask about the donations could be seen as confrontational and does not follow proper compliance procedures for handling potential violations.
- C. Investigating the charitable organization independently is outside the assistant's role and could interfere with proper compliance procedures.
Question 26
The branch manager notices that a number of customers come in weekly and always use the same teller to process their deposits. The manager notices that the customers and the teller, who are from the same ethnic group, are speaking in a foreign language and every once in a while the customers from local ethnic restaurants will bring the teller lunch. The commercial customers that visit the teller generally deposit the same amount of cash each time they come in. How should the branch manager respond to this activity?
Show answer and explanation
Correct answer: B. Conduct further investigation before taking any other action
The branch manager should conduct further investigation before taking action. While the activity exhibits several potential suspicious indicators, consistent same-teller visits, same deposit amounts, ethnic group connections, informal gift-giving, and foreign language communication, these factors alone do not conclusively prove collusion or money laundering. The observations could have legitimate explanations: customers may prefer a familiar teller, recurring deposits may reflect regular legitimate business cycles, and ethnic community networking is not inherently suspicious. Before taking personnel actions or operational changes, the manager must investigate more thoroughly to determine whether actual suspicious activity exists. Transferring the teller prematurely could be unjust, encouraging ethnic business development ignores the concern, and redirecting customers assumes guilt before investigation.
Why the other options are wrong
- A. Transferring the teller without investigation would be an unjust personnel action based on circumstantial indicators.
- C. Encouraging more ethnic community business assumes the activity is legitimate and ignores the need for investigation.
- D. Redirecting customers to other tellers assumes collusion before any investigation and punishes both parties based on suspicion.
Question 27
When should a financial institution (FI) exit a relationship? (Choose two.)
Show answer and explanation
Correct answer: D, E. The suspicious conduct of the account holder; The FI's stated policies and procedures for closing an account
An FI should exit a relationship when the account holder engages in suspicious conduct that suggests money laundering, terrorist financing, or other illicit activity. Additionally, FI policies and procedures for closing accounts provide the formal framework and legal basis for terminating relationships. Both factors, suspicious conduct triggers and established procedures, guide legitimate account closures.
Why the other options are wrong
- A. Reputational risk to the FI is not a valid reason to close an account; the focus must be on compliance and suspicious activity.
- B. While law enforcement may request closure, the FI's own obligations based on suspicious activity are the primary grounds.
- C. Requirements for opening an account are unrelated to the decision to exit an existing relationship.
Question 28
An anti-money laundering analyst is reviewing a new customer list to confirm potentially high risk customers have been identified and subject to enhanced due diligence. Which new customer warrants enhanced due diligence?
Show answer and explanation
Correct answer: B. A fundraising organization
Fundraising organizations present elevated money laundering risk because they handle cash, have fluid customer bases, receive donations from diverse and sometimes anonymous sources, and may lack established banking relationships. These characteristics create opportunities for illicit funds to enter the financial system under the guise of legitimate charitable contributions, making fundraising organizations a higher-risk customer type requiring enhanced due diligence.
Why the other options are wrong
- A. Non-profit hospitals typically have well-documented revenue sources through patient billing and established financial controls.
- C. Employee benefit plan trusts have defined memberships, regular contribution schedules, and transparent fund management structures.
- D. Medical practice partnerships have documented patient bases, regular earned income, and established professional credentials reducing money laundering risk.
Question 29
The bank's Compliance Officer is tasked with designing standards based on Basel's KYC principles. Which essential elements should be included in the program? (Choose two.)
Show answer and explanation
Correct answer: C, D. Documenting a customer acceptance policy; Establishing on-going monitoring of high-risk accounts
Basel's Know Your Customer (KYC) principles require institutions to document a customer acceptance policy that establishes criteria for onboarding and maintaining relationships, and to establish ongoing monitoring procedures, particularly for accounts carrying higher risk profiles. These two elements form the foundation of effective customer due diligence and continuous oversight.
Why the other options are wrong
- A. While audit functions are important for compliance oversight, appointing an independent audit function is not a specific Basel KYC essential element.
- B. A money laundering risk assessment is part of broader compliance frameworks but is not expressly listed as a core Basel KYC essential element.
- E. Reporting suspicious activity is a regulatory obligation but is distinct from the core KYC program design principles outlined by Basel.
Question 30
Which statement about a multinational institution's ability to fully investigate unusual activity in all its foreign operations is correct?
Show answer and explanation
Correct answer: A. Local privacy and data protection laws may prevent an affiliate from sharing information.
Local privacy and data protection laws in foreign jurisdictions may legally prevent an affiliate or subsidiary from sharing customer information with the parent institution or other affiliates, creating a genuine constraint on the institution's ability to conduct fully integrated investigations. Regulations such as GDPR and other national privacy laws impose legal restrictions that cannot be overridden by the headquarters' enterprise-wide policies, creating a real limitation that compliance professionals must navigate.
Why the other options are wrong
- B. Documents in local languages can be translated; language barriers are surmountable operational challenges, not absolute legal prohibitions.
- C. Under know-your-customer and beneficial ownership rules, institutions have a legal right to investigate suspicious activity without requiring customer permission.
- D. Headquarters compliance rules cannot override local legal requirements; local law takes precedence over parent company policies in each jurisdiction.
Question 31
Which is a similarity between Office of Foreign Assets Control (OFAC) and UN imposed sanctions?
Show answer and explanation
Correct answer: C. Detering financing of terrorism
Both OFAC sanctions and UN-imposed sanctions share the common objective of deterring and disrupting terrorist financing activities. Both regimes restrict transactions and asset movements to prevent funding flows to designated terrorist organizations and individuals, making counterterrorism financing a key convergence point between these two sanctions frameworks.
Why the other options are wrong
- A. While both support foreign policy, OFAC is explicitly U.S.-centric, whereas UN sanctions represent multilateral decision-making.
- B. Neither OFAC nor UN sanctions encourage sharing of funds; both restrict and prohibit financial flows.
- D. Restoring sovereign lands is not a primary objective of either OFAC or UN sanctions regimes.
Question 32
Which are the two most common controls a financial institution (FI) uses to identify suspicious money-laundering activity? (Choose two.)
Show answer and explanation
Correct answer: A, E. Sanctions screening; Transaction monitoring rules
Sanctions screening and transaction monitoring rules are the two most common controls financial institutions use to identify suspicious money-laundering activity. Sanctions screening filters customers and transactions against known lists of sanctioned parties, while transaction monitoring rules flag patterns and behaviors indicative of money laundering based on predefined thresholds and criteria.
Why the other options are wrong
- B. Adverse media monitoring is used for enhanced due diligence and risk assessment, not as a primary control for identifying suspicious money-laundering activity.
- C. Governmental subpoenas are enforcement tools used by authorities, not controls maintained by FIs to identify suspicious activity.
- D. Search warrants are law enforcement instruments, not FI controls for identifying money-laundering activity.
Question 33
Which action does the FATF call on member countries to take in the most serious cases when countries have significant strategic AML deficiencies?
Show answer and explanation
Correct answer: A. Apply countermeasures
The FATF calls on member countries to apply countermeasures in the most serious cases when countries have significant strategic AML/CFT deficiencies. Countermeasures are protective actions taken by other jurisdictions to safeguard the international financial system from the risks posed by non-compliant jurisdictions.
Why the other options are wrong
- B. Eliminating all financial dealings is an extreme measure not formally called for by FATF as a standard response.
- C. Reporting high-risk transactions is an internal compliance measure, not an action taken against deficient countries.
- D. Contributing to mutual evaluations is an assessment mechanism, not a corrective action for deficiencies.
Question 34
In which two ways do Financial Action Task Force-style regional bodies influence anti-money laundering and terrorist financing standards within their respective regions? (Choose two.)
Show answer and explanation
Correct answer: A, B. They issue typologies specific to their geographical region; They administer mutual evaluations of participating members.
Financial Action Task Force-style regional bodies influence AML/CFT standards through two primary mechanisms. First, they issue typologies specific to their geographical region, which help member countries understand local money laundering and terrorist financing risks and patterns. Second, they administer mutual evaluations of participating members to assess compliance with international standards and provide peer review accountability. These bodies do not enforce member country laws, that remains the responsibility of individual governments, nor do they formally require adoption, though peer pressure and international standing create strong incentives for compliance.
Why the other options are wrong
- C. FATF regional bodies lack enforcement authority over member countries' internal legal systems.
- D. While recommendations carry weight, FATF bodies recommend rather than formally require adoption of specific laws.
Question 35
What correspondent banking risk factor increases the risk for a Correspondent Bank?
Show answer and explanation
Correct answer: C. Major service provider to money service businesses
A correspondent bank that serves as a major service provider to money service businesses (MSBs) significantly increases risk because MSBs are frequently used in money laundering schemes. This relationship creates a pipeline for potentially illicit funds and multiplies the correspondent bank's exposure to high-risk customers and transactions it may not directly monitor.
Why the other options are wrong
- A. Multi-national institutions with global operations typically have robust compliance frameworks and lower overall risk profiles.
- B. Offering international funds transfer is a standard correspondent banking service that does not inherently increase risk.
- D. Limiting product offerings to high-risk jurisdictions actually reduces exposure compared to broad service provision.
Question 36
What reputational risk consequence could a financial entity face for violating AML laws?
Show answer and explanation
Correct answer: D. Loss of high-profile customers
A reputational risk consequence from violating AML laws is the loss of high-profile customers. When a financial institution is identified as failing to comply with AML requirements, its reputation suffers and major clients seek to avoid association with a non-compliant institution. High-profile customers are particularly sensitive to regulatory compliance issues and will migrate to institutions with stronger AML records, causing loss of significant business relationships.
Why the other options are wrong
- A. Seizure of assets is a legal consequence of AML violations, not a reputational risk consequence.
- B. Monetary penalties are direct legal and financial consequences imposed by regulators, not reputational risk consequences.
- C. Increased audit costs are an operational and financial consequence, not a reputational risk consequence.
Question 37
Which steps should a financial institution (FI) take after receiving a request from law enforcement to keep an account open due to a criminal investigation? (Choose three.)
Show answer and explanation
Correct answer: B, D, E. Ask for written documentation of the request; Maintain documentation of such requests for at least five years after the request has expired; Ensure that the request indicates the duration for the request.
When law enforcement requests that an account remain open for investigation, the FI should obtain written documentation of the request (B) to create a formal record; ensure the request specifies its duration (E) so the institution knows when the hold expires; and maintain documentation for at least five years after expiration (D) for regulatory audit and legal compliance purposes. The institution must not inform the customer (A), as this would compromise the investigation. Freezing the account (C) contradicts the law enforcement request to keep it open. Filing a SAR/STR (F) is inappropriate when acting under law enforcement direction.
Why the other options are wrong
- A. Informing the customer would compromise the law enforcement investigation.
- C. Freezing the account contradicts the law enforcement request to maintain its operability.
- F. Filing a SAR/STR is inappropriate when the institution is cooperating with law enforcement under their direction.
Question 38
Which key aspect of the Office of Foreign Assets Control's extraterritorial reach specifically relates to prohibited transactions?
Show answer and explanation
Correct answer: A. Prohibit or reject unlicensed trade and financial transactions with specified countries, entities, and individuals
OFAC's extraterritorial reach specifically prohibits or rejects unlicensed trade and financial transactions involving specified countries, entities, and individuals. This applies to transactions by U.S. persons and entities located in the U.S., regardless of where the transaction occurs, and applies to certain transactions by foreign entities in U.S. currency or involving U.S. financial systems.
Why the other options are wrong
- B. OFAC prohibitions focus on unlicensed transactions, not licensed ones, and apply to all persons subject to U.S. jurisdiction.
- C. OFAC's reach extends to U.S. persons and entities, not exclusively to non-U.S. individuals.
- D. The distinction in this option between foreign trade and other trade is not the key aspect of OFAC's extraterritorial framework.
Question 39
A director of a financial institution was convicted of laundering money as part of a Ponzi scheme and terminated. As a result of an internal investigation evidence proved that an employee assisted in the illegal activity. Which action should the institution take?
Show answer and explanation
Correct answer: B. Discipline the employee and inform local authorities
When an institution discovers that an employee has assisted in illegal activity such as money laundering, the institution has both a legal and ethical obligation to report this to local authorities while also taking appropriate disciplinary action against the employee. Failure to report criminal activity to authorities would itself constitute a compliance violation. Disciplinary action alone (option A) is insufficient, relying on the fact that the employee wasn't charged (option C) ignores the institution's reporting obligations, and training alone (option D) does not address the specific misconduct that has already occurred.
Why the other options are wrong
- A. Discipline without reporting to authorities fails to meet legal reporting obligations for criminal activity.
- C. The absence of criminal charges does not eliminate the institution's duty to report evidence of illegal activity discovered during its investigation.
- D. While additional training may be warranted, it does not address the specific employee who assisted in illegal activity or the institution's reporting obligations.
Question 40
A financial institution (FI) is being investigated for possible money laundering. When cooperating with law enforcement agencies, which additional steps should the FI ensure are taken? (Choose two.)
Show answer and explanation
Correct answer: A, C. Centralized control is maintained over all requests and responses to ensure completeness and timely responses; Subpoenas and other information requests should be reviewed by senior management and an investigations group or counsel.
When cooperating with law enforcement, FIs must maintain centralized control over all requests and responses to ensure proper handling, completeness, and timeliness. Additionally, subpoenas and information requests should be reviewed by senior management and appropriate counsel or investigations groups to ensure proper legal compliance and to coordinate responses. These measures protect the institution while ensuring lawful cooperation.
Why the other options are wrong
- B. Making employees unavailable and refusing documents violates cooperation obligations and constitutes obstruction of justice.
- D. Destroying relevant documents during an investigation constitutes spoliation and is illegal obstruction.
- E. While media management is important, it is not a step specifically required when cooperating with law enforcement agencies.
Question 41
A customer has held an account at a bank and has lived locally for over 25 years. Historically he has come into the bank monthly to deposit a $1,500 retirement check from the company where he worked. He is well known at the bank and often brings the staff cookies. Over the past four months, he has come into the bank every Monday, Wednesday, and Thursday to make $3,000 cash deposits into his account. A review of his account shows that an $8,500 check made out to cash clears his account each week. The bank has decided to file a suspicious transaction report (STR). What is the important fact to include in the STR?
Show answer and explanation
Correct answer: A. The recent change in the timing of deposits and withdrawals in the account
A suspicious transaction report must document the change in the customer's normal pattern of behavior. The customer's historical pattern was monthly $1,500 deposits from his retirement check, but he has dramatically changed to frequent $3,000 deposits multiple times per week with corresponding large cash withdrawals. This significant deviation from established baseline activity is the critical red flag that triggers the STR filing and must be prominently documented.
Why the other options are wrong
- B. The customer's work history and retirement check amounts are background context, but they do not explain the suspicious change in current behavior.
- C. Being well-known to staff is irrelevant to the suspicious activity and does not address the pattern change.
- D. Long-term residency and banking history are positive factors that make the recent behavioral change even more noteworthy, but they are not the important fact to include in the STR itself.
Question 42
The bank's internal financial intelligence unit (FIU) has reviewed activity related to a politically exposed person (PEP); the activity in the account contains a large, round number, one time wire to an obscure organization. Which would not be a sufficient reason to file a SAR/STR?
Show answer and explanation
Correct answer: B. Maintain the bank's reputation
While maintaining the bank's reputation is important, it is not a legally sufficient reason to file a SAR/STR. The filing obligation is based on identifying suspicious activity that may indicate money laundering or terrorist financing. Legitimate reasons to file include the beneficiary being unknown, the transaction amount being unusually large, and customer activity being unreasonable or inconsistent with expected behavior, all of which apply to this PEP scenario.
Why the other options are wrong
- A. An unknown beneficiary on a large wire from a PEP is a substantial red flag warranting SAR/STR filing.
- C. A large wire amount is a material factor supporting the decision to file a SAR/STR.
- D. Unreasonable customer activity inconsistent with the account profile is a primary indicator requiring SAR/STR filing.
Question 43
When a financial institution (FI) receives a court production order from law enforcement, it should:
Show answer and explanation
Correct answer: B. be responsive, provide customer information and be able to provide information from branches and subsidiaries if necessary.
When receiving a court production order from law enforcement, a financial institution must be responsive and provide the requested customer information along with data from branches and subsidiaries as necessary. A court production order creates a legal obligation that supersedes privacy concerns, so pseudonymization is inappropriate when a court demands actual customer data. There is no requirement to consult the Data Protection Officer (option C) or the Board (option D) before complying with a valid court order, as the legal authority of the court itself provides the necessary basis for disclosure.
Why the other options are wrong
- A. Pseudonymizing information defeats the purpose of a court production order, which requires actual customer information.
- C. A court production order provides direct legal authority; Data Protection Officer approval is not required.
- D. A valid court order provides legal basis without requiring Board approval or involvement.
Question 44
An institution is about to release a new peer to peer (P2P) funds transfer product to provide much needed remittance services to an under-banked population segment in the country. The service allows customers to transfer funds through a mobile banking application to individuals worldwide entering only a name and mobile number. The new service charges less than comparable market solutions and offers real time transfer of funds. The customer onboarding process is conducted at branch locations with identity verification. Which three present the highest anti-money laundering or sanctions risk and will require controls prior to launch? (Choose three.)
Show answer and explanation
Correct answer: B, C, E. Cross-border functionality; Real time transfer of funds; Limited access to counterparty information
The three highest AML and sanctions risks are: cross-border functionality (exposing the institution to sanctions violations and international money laundering), real-time transfer of funds (limiting time for transaction monitoring and suspicious activity detection), and limited access to counterparty information (making it impossible to perform adequate due diligence on recipients). While customer onboarding at branches with identity verification provides some control, and serving the under-banked is not inherently a risk, these three factors represent the most significant compliance exposures.
Why the other options are wrong
- A. Customer onboarding conducted at branch locations with identity verification provides baseline controls and is not a primary risk.
- D. Servicing the under-banked population is not itself an AML or sanctions risk.
Question 45
Which private banking situation requires due diligence actions to be implemented according to the AML principles of the Wolfsberg group?
Show answer and explanation
Correct answer: C. A wealthy individual from a high-risk country wants to open an account with a private bank.
The Wolfsberg Group's AML principles require enhanced due diligence for private banking customers who present higher risk profiles. A wealthy individual from a high-risk country opening an account with a private bank represents a scenario requiring heightened due diligence actions due to the combined factors of private banking services and geographic risk.
Why the other options are wrong
- A. A local wealthy individual at a local retail bank does not inherently trigger Wolfsberg private banking due diligence requirements.
- B. While beneficial ownership verification is important, a beneficial owner of an exchange house does not specifically trigger the private banking due diligence protocols described by Wolfsberg.
- D. A customer establishing an exchange house involves institutional considerations rather than the private banking client-specific due diligence principles of Wolfsberg.
Question 46
A compliance officer identifies a potentially significant risk in a popular financial product. Further investigation reveals there is no mitigating control. Which course of action should the compliance officer take?
Show answer and explanation
Correct answer: D. Implement a temporary mitigation plan that enables effective management of the risk until a permanent plan can be developed
When a significant risk is identified with no existing mitigating control, the compliance officer should implement a temporary mitigation plan that enables effective management of the risk until a permanent solution can be developed. This balanced approach immediately addresses the risk exposure while avoiding the operational disruption of ceasing the product entirely and allowing time to develop a comprehensive, permanent control solution. Long-term projects and scheduled reviews are insufficient when significant unmitigated risk exists.
Why the other options are wrong
- A. A long-term project leaves significant risk unmanaged during the interim period, which is unacceptable for substantial risks.
- B. Delaying risk mitigation to the next policy review cycle leaves material risk exposure unaddressed for too long.
- C. Immediately ceasing a popular product is overly disruptive when temporary mitigation can manage the risk effectively.
Question 47
FATF recommends the incorporation of some measures in customer due diligence (CDD) programs including:
Show answer and explanation
Correct answer: B. conducting ongoing due diligence on the business relationship and monitoring of transactions.
The FATF explicitly recommends that Customer Due Diligence programs include conducting ongoing due diligence on business relationships and monitoring transactions as a core measure. This ongoing monitoring element is essential to detect suspicious activity and maintain current understanding of customer risk profiles throughout the relationship lifecycle. Option A addresses product risk assessment rather than CDD measures. Option C relates to product-customer suitability, which is distinct from CDD requirements. Option D directly contradicts FATF guidance by suggesting beneficial owners need not have their true identities verified.
Why the other options are wrong
- A. Product and service risk assessment is a separate risk management function, not a core element of customer due diligence.
- C. Identifying product-service suitability is a customer service function, not a required component of CDD programs.
- D. FATF explicitly requires verification of beneficial owners' true identities, not merely identifying their number without verification.
Question 48
A customer living in a high-risk jurisdiction makes frequent, large cash deposits at a bank. The same customer sends small wire transfers to unrelated parties in other high-risk jurisdictions. What are two red flags that may indicate money laundering? (Choose two.)
Show answer and explanation
Correct answer: C, D. Wire transfers are to high-risk jurisdiction; Large cash deposits are from a high-risk jurisdiction
Wire transfers to high-risk jurisdictions represent a clear red flag because they indicate movement of funds to locations with weak financial oversight or known for illicit activity. Large cash deposits from a high-risk jurisdiction are suspicious because cash is difficult to trace and high-risk jurisdictions suggest potential links to corruption, conflict, or organized crime. In contrast, the bank simply allowing cash deposits is a normal banking function, and a customer's residence in a high-risk jurisdiction alone is not inherently suspicious without other indicators.
Why the other options are wrong
- A. Banks routinely accept cash deposits as a normal business function; this is not a red flag by itself.
- B. Simply residing in a high-risk jurisdiction does not constitute a red flag without other suspicious indicators.
Question 49
Why do organized crime groups often use front companies? (Choose two).
Show answer and explanation
Correct answer: B, E. Because using multiple front companies can make it easier to control an entire sector of the economy; Because they can use the company's bank accounts to comingle deposits with those of legal businesses.
Organized crime groups use front companies to control entire economic sectors, creating networks that facilitate illicit activity, market manipulation, and money laundering at scale across multiple entities. Front companies allow criminals to commingle illicit deposits with legitimate business revenues, obscuring the origin of criminal proceeds and integrating them into the financial system, making detection and asset tracing significantly more difficult.
Why the other options are wrong
- A. Front companies are registered and subject to tax obligations; being unregistered would attract regulatory attention rather than avoiding it.
- C. Front companies are subject to the same due diligence requirements as other entities; lighter scrutiny is not guaranteed.
- D. Front companies do not inherently charge higher prices; they often undercut legitimate competitors to gain market share and appear legitimate.
Question 50
Enhanced due diligence (EDD) may be bypassed for which situation?
Show answer and explanation
Correct answer: A. On-boarding a branch or majority-owned subsidiary of an EU or US FI located in a high-risk third country that fully complies with group-wide policies and procedures.
Enhanced due diligence may be bypassed for branches or majority-owned subsidiaries of EU or US financial institutions located in high-risk third countries when they fully comply with group-wide AML policies and procedures. This exemption is justified because the parent institution's established compliance framework provides sufficient control, and the subsidiary operates under the parent's regulatory oversight and standardized procedures.
Why the other options are wrong
- B. Complex ownership structures of subsidiaries in high-risk countries do not qualify for EDD bypass; complexity increases risk and requires enhanced measures.
- C. Casinos are high-risk entities requiring consistent enhanced due diligence; revenue percentage and chain affiliation do not provide exemptions.
- D. Politically Exposed Persons require enhanced due diligence regardless of reputation or wealth management status; PEP status itself triggers mandatory EDD.
Question 51
Which is a key reason why a financial institution (FI) conducts an enterprise-wide AML risk assessment?
Show answer and explanation
Correct answer: A. The need to assess money laundering and terrorist financing risks and ensure there are adequate controls to mitigate those risks.
The primary purpose of an enterprise-wide AML risk assessment is to identify and evaluate money laundering and terrorist financing risks across the institution and ensure that appropriate controls are in place to mitigate those risks. This foundational assessment drives all subsequent AML program design and implementation.
Why the other options are wrong
- B. While risk assessments do identify categories, the framing here is imprecise and not the key reason for conducting assessments.
- C. Budget planning is a secondary administrative function, not a key reason for AML risk assessments.
- D. While board oversight is required, the requirement stems from the underlying need to assess and control risks, making option A the more fundamental answer.
Question 52
A law enforcement agent is conducting an investigation into a possible money laundering event. During the investigation, the officer will use:
Show answer and explanation
Correct answer: A. the follow the money approach.
During a money laundering investigation, law enforcement uses the "follow the money" approach, which traces the movement of funds through the financial system to identify the origin, destination, and purpose of illicit proceeds. This investigative technique is fundamental to detecting and prosecuting money laundering because it follows the actual flow of criminal proceeds.
Why the other options are wrong
- B. Confirmed evidence from FIUs is a component of an investigation but not the primary investigative methodology itself.
- C. Identifying suspicious activity is a detection mechanism used by financial institutions, not the investigative approach used by law enforcement during an active investigation.
- D. Risk-based alert systems are compliance tools used by financial institutions, not investigative approaches employed by law enforcement.
Question 53
What can a compliance officer do in the absence of automated software to conduct U.S. Department of the Treasury Office of Foreign Assets Control (OFAC) sanction screens?
Show answer and explanation
Correct answer: C. Use the consolidated Sanctions List Search screen on the OFAC website
In the absence of automated OFAC screening software, a compliance officer can use the consolidated Sanctions List Search screen available on the official OFAC website, which provides access to all current OFAC sanctions lists including the Specially Designated Nationals list and other relevant designations. This is the official, authoritative source for manual screening. Credit reports do not contain OFAC sanction information. General keyword internet searches are unreliable and not an official compliance method. Obtaining physical copies of the SDN list is outdated when the electronic search tool is available.
Why the other options are wrong
- A. Credit reports do not include OFAC sanction screening data and are not an appropriate compliance tool.
- B. Keyword internet searches are unreliable and do not constitute a proper OFAC compliance screening method.
- D. While the SDN list is part of OFAC data, using the official web-based search tool is more efficient and comprehensive than physical copies.
Question 54
What are two purposes of the USA PATRIOT Act? (Choose two.)
Show answer and explanation
Correct answer: A, B. To strengthen United States' measures to prevent, detect, and prosecute international money laundering and financing of terrorism; To subject to special scrutiny foreign jurisdictions, foreign financial institutions, and classes of international transactions or types of accounts that are susceptible to criminal abuse
The USA PATRIOT Act has two primary purposes among the options listed: (A) it strengthens U.S. measures to prevent, detect, and prosecute international money laundering and the financing of terrorism, which are its core objectives, and (B) it subjects suspicious foreign jurisdictions, financial institutions, and transaction types to special scrutiny to combat criminal abuse. Option C describes the purpose of OFAC economic sanctions authority, which predates and operates separately from the PATRIOT Act. Option D describes the goals of international standards like the FATF Recommendations rather than the specific purpose of the USA PATRIOT Act.
Why the other options are wrong
- C. The administration and enforcement of economic sanctions is the function of OFAC and related authorities, not a primary purpose of the USA PATRIOT Act.
- D. Setting international standards for combating money laundering is the function of organizations like the Financial Action Task Force, not a specific purpose of the USA PATRIOT Act.
Question 55
When implementing a risk-based approach related to casinos, which risks are related to the customer as an individual? (Choose two.)
Show answer and explanation
Correct answer: B, D. Casual customers; Customer from a high-risk country
Risk-based approaches in casinos must identify customer-level risks. Casual customers present lower risk profiles and require different KYC procedures than regular high-value customers, making them a relevant customer classification risk. Customers from high-risk countries pose inherent risk based on geographical and political factors that directly affect the individual customer's compliance profile. These are customer-specific risks rather than transaction or structural risks.
Why the other options are wrong
- A. Transfer between customers is a transaction-level risk, not a customer-as-individual risk.
- C. Improper use of third parties is a structural or process risk, not a risk attribute of the customer themselves.
- E. Use of casino deposit accounts is a service-level risk related to product usage, not an individual customer characteristic.
Question 56
Which Trust parties should be identified to determine the true nature of the Trust relationship according to Basel guidelines? (Choose three.)
Show answer and explanation
Correct answer: D, E, F. Trustees; Beneficiaries; Settlors/grantors
Basel guidelines require identification of Trustees (who control and manage trust assets), Beneficiaries (who receive income or principal benefits), and Settlors/Grantors (who create and fund the trust) to understand the true nature and control structure of trust relationships for AML/CFT purposes. These three parties define the beneficial ownership, control, and economic interest in the trust, which are essential for determining compliance risk.
Why the other options are wrong
- A. Respondents are not trust parties; this term refers to entities responding to inquiries.
- B. Payees are recipients of payments but are not defined parties in the trust structure itself.
- C. Trust Administrators manage administrative functions but are not among the core parties whose identification determines beneficial ownership.
Question 57
One of the red flags of microstructuring is:
Show answer and explanation
Correct answer: D. frequent visits to make cash deposits of nominal amounts.
Frequent visits to make cash deposits of nominal amounts is a classic indicator of structuring (also called smurfing), where a person deliberately breaks up deposits into smaller amounts to avoid detection thresholds and regulatory reporting requirements. This behavior pattern is specifically designed to evade AML controls and is a primary red flag for microstructuring activity.
Why the other options are wrong
- A. Sequentially numbered checks represent normal banking activity and do not indicate structuring.
- B. Check deposits followed by ATM withdrawals is ordinary account activity without the deliberate pattern of avoidance.
- C. A single activity following account opening may indicate legitimate business startup, not the repeated pattern characteristic of structuring.
Question 58
Which is a key aspect in the FATF Recommendations that best describes the essential foundation for allocating resources in AML/CFT regimes for countries and financial institutions (FIs)?
Show answer and explanation
Correct answer: D. Applying a risk-based approach
The risk-based approach is the essential foundation of the FATF Recommendations, enabling countries and financial institutions to allocate AML/CFT resources proportionately to identified risks. This principle allows institutions to focus compliance efforts on higher-risk scenarios rather than applying uniform controls universally, maximizing effectiveness. Targeted financial sanctions are an implementation tool, peer evaluations are assessment mechanisms, and mutual legal assistance is a cooperation framework, all important but derivative of the foundational risk-based approach.
Why the other options are wrong
- A. Targeted financial sanctions are a specific implementation mechanism, not the foundational allocation principle.
- B. Peer-to-peer evaluations assess compliance but do not provide the framework for resource allocation.
- C. Mutual legal assistance is a cooperation mechanism, not the foundation for resource allocation decisions.
Question 59
Which three definitions of money laundering are included in the expanded definition of the European Union Fourth Directive? (Choose three.)
Show answer and explanation
Correct answer: B, C, E. The conversion or transfer of property with knowledge that it is derived from criminal activity; The acquisition or use of property knowing, when it was received, that it was derived from criminal activity; Concealing or disguising the nature, source, location, disposition, movement, rights with respect to, or ownership of property, knowing that the property is derived from criminal activity
The EU Fourth Directive's expanded definition of money laundering comprises three key components: the conversion or transfer of property derived from criminal activity (Option B); the acquisition or use of such property (Option C); and the concealment or disguising of property characteristics and ownership related to criminal proceeds (Option E). These three elements capture the process of converting illicit funds into seemingly legitimate assets, acquiring criminal proceeds, and hiding their true nature and origin. Option A regarding shell companies is a method used in money laundering but is not part of the directive's formal definition. Option D prescribes an arbitrary euro threshold unrelated to the directive's actual definition of money laundering itself.
Why the other options are wrong
- A. Shell companies are a technique for money laundering but are not included as a formal definition element in the EU Fourth Directive.
- D. The directive does not define money laundering based on arbitrary cash transfer thresholds; the amount and form of transfer are irrelevant to the definition itself.
Question 60
Which entities require due diligence when the correspondent banking client is not controlled by its parent? (Choose two.)
Show answer and explanation
Correct answer: A, E. The parent of the correspondent banking client; The correspondent banking client itself
When a correspondent banking client is not controlled by its parent, due diligence must be conducted on both the parent of the correspondent banking client and the correspondent banking client itself. These two entities require enhanced attention because the lack of parent control creates a gap in oversight and accountability that necessitates independent verification and understanding of both the parent's interests and the client's actual operations.
Why the other options are wrong
- B. Clients of the correspondent banking client are not specifically required for due diligence when the parent-client relationship lacks control.
- C. Entities exhibiting higher risk characteristics would undergo due diligence based on risk profile, not specifically because of parent-client control issues.
- D. Third-parties providing services are not the primary focus when addressing control gaps between parent and correspondent banking client.
Question 61
What are two risks to institutions for violating anti-money laundering laws as demonstrated by the 2012 HSBC settlement with United States authorities? (Choose two.)
Show answer and explanation
Correct answer: A, B. Forfeiture of assets; Civil money penalties
The 2012 HSBC settlement with U.S. authorities demonstrated two major risks for AML law violations: forfeiture of assets (Option A), where the bank had to forfeit billions in proceeds, and civil money penalties (Option B), which resulted in multi-billion dollar fines. Loss of bank charter or license (Option C) is a potential but less commonly enforced remedy in settlement contexts, and imprisonment of employees (Option D) is criminal rather than institutional liability and was not part of the HSBC settlement structure.
Why the other options are wrong
- C. The HSBC settlement did not result in loss of charter or license; the bank continued operations.
- D. The HSBC settlement focused on institutional liability through forfeitures and penalties, not criminal imprisonment of individual employees.
Question 62
According to recommendations from the FATF, what role does a country's Financial Intelligence Unit (FIU) play in safeguarding against money laundering?
Show answer and explanation
Correct answer: D. Analyzes data on STRs
According to FATF recommendations, a country's Financial Intelligence Unit analyzes data on Suspicious Transaction Reports/Suspicious Activity Reports (STRs/SARs). The FIU receives STRs from financial institutions and analyzes them to detect money laundering and terrorist financing patterns for dissemination to law enforcement.
Why the other options are wrong
- A. Monitoring monthly public economic statistics is not an FIU function; this is central bank work.
- B. Generating currency transaction reports to send to the central bank is not the FIU's primary role; CTRs go to the FIU itself.
- C. While the FIU assists in pursuing criminal activity, this is through analysis and dissemination, not through producing SARs, FIs produce SARs.
Question 63
What national agency is responsible for analyzing and assessing the information it receives to substantiate possible existence of money laundering or terrorist financing activities?
Show answer and explanation
Correct answer: A. The Financial Intelligence Unit (FIU)
The Financial Intelligence Unit (FIU) is the national agency responsible for receiving, analyzing, and assessing information to identify and substantiate possible money laundering and terrorist financing activities. FIUs serve as central repositories for suspicious activity reports and intelligence within their respective jurisdictions.
Why the other options are wrong
- B. FATF is an international standard-setting organization, not a national agency responsible for analyzing domestic financial intelligence.
- C. The Basel Committee addresses banking supervision and capital standards, not financial intelligence analysis.
- D. The Wolfsberg Group is an association of private banks focused on AML principles, not a national analytical agency.
Question 64
A customer brings $15,000 worth of chips into a casino and plays various games. The customer redeems all the remaining chips and requests a wire transfer of the proceeds to an unrelated third party. What are two red flags that indicate money laundering? (Choose two.)
Show answer and explanation
Correct answer: C, D. Bringing $15,000 worth of chips into the casino; Requesting a wire transfer to an unrelated third party
Requesting a wire transfer to an unrelated third party is a red flag because it breaks the connection between the player and the proceeds, obscuring the beneficial owner and destination of funds. Bringing large amounts of chips into the casino ($15,000) without apparent legitimate gaming investment is suspicious, particularly when combined with rapid conversion back to wire transfers. These patterns suggest the customer is using casino operations as a conduit to legitimize illicit funds rather than engaging in genuine gaming.
Why the other options are wrong
- A. Redeeming all chips is normal casino behavior and not inherently suspicious.
- B. Playing various games is expected customer behavior in a casino and not a money laundering indicator.
Question 65
A local law enforcement officer notifies the bank compliance officer that he is working on an insurance fraud scheme that appears to be running transactions using the account of a bank employee. The law enforcement officer refers to a kiting suspicious transaction report filed by the compliance officer and requests further information. What action should the compliance officer take?
Show answer and explanation
Correct answer: D. Provide the information to the law enforcement in response to a formal written request
When law enforcement requests information regarding a previously filed suspicious activity report, the compliance officer must provide the information in response to a formal written request. This ensures proper legal procedures are followed, documentation of the information disclosure is maintained, and the bank's compliance with law enforcement authority is properly recorded. A formal written request establishes the official nature of the inquiry and creates an appropriate audit trail. While banks cooperate with law enforcement, doing so through formal channels protects both the institution and the integrity of any potential investigation.
Why the other options are wrong
- A. Informing the board of directors is not the compliance officer's first response; the immediate action is to respond to the law enforcement request.
- B. Calling the employee and demanding an explanation would compromise any potential investigation and could constitute witness tampering if fraud is occurring.
- C. Allowing access to bank documents immediately without a formal written request fails to establish proper legal procedures and documentation for information disclosure.
Question 66
One key aspect of the Office of Foreign Assets Control's extraterritorial reach includes the blocking of certain non-United States initiated transactions for or through the United States (U.S.) for benefit of a restricted person or entity. Under which three circumstances are U.S. banks required to block transactions? (Choose three.)
Show answer and explanation
Correct answer: A, B, D. The transactions are to, or go through, a blocked entity; Those that are by, or on behalf of, a blocked individual or entity; Those that are in connection with a transaction in which a blocked individual or entity has an interest
U.S. banks must block transactions under three specific circumstances defined by OFAC regulations: transactions to or through blocked entities (Option A), transactions by or on behalf of blocked individuals or entities (Option B), and transactions in which a blocked person or entity has an interest (Option D). These three categories capture the breadth of OFAC's extraterritorial blocking authority. Option C incorrectly adds a restriction about licensed entities that isn't part of OFAC's blocking criteria, and Option E contradicts the fundamental principle by excluding transactions where there is no blocked party interest.
Why the other options are wrong
- C. OFAC blocking requirements do not create a special exception for licensed entities; blocking applies uniformly.
- E. Transactions where blocked entities have no interest are not subject to blocking requirements.
Question 67
Financial Intelligence Units (FIUs) are responsible for:
Show answer and explanation
Correct answer: A. the timely dissemination of cases to law enforcement agencies.
Financial Intelligence Units are responsible for the timely dissemination of cases and findings to law enforcement agencies. This is their core function, to receive, analyze, and appropriately share financial intelligence to support law enforcement investigations and national security objectives.
Why the other options are wrong
- B. While FIUs do respond to inquiries, their primary responsibility is the proactive dissemination of cases, not reactive response only.
- C. FIUs operate under strict information-sharing protocols with other FIUs and are not responsible for independently sharing evidence; this occurs through formal channels.
- D. FIUs receive reports of suspected activity from regulated institutions, not confirmed reports of committed crimes, as FIUs do not investigate or determine guilt.
Question 68
A recent anti-money laundering audit revealed several regulatory reporting violations and lapses with the organization's anti-money laundering policy. As a result, the compliance officer has created a follow-up matrix to document progress in correcting the identified deficiencies. To whom should the compliance officer provide regular updates of corrective action to help ensure the appropriate oversight?
Show answer and explanation
Correct answer: D. Designated board committee
When regulatory violations and deficiencies are identified through an audit, corrective action updates must be reported to the designated board committee. The board committee provides appropriate governance oversight and accountability for compliance matters, ensuring that remediation efforts are tracked at the highest organizational level and that regulatory requirements are met.
Why the other options are wrong
- A. Audit management may review the audit findings but does not provide the governance oversight needed for regulatory compliance matters.
- B. Human Resources is not responsible for monitoring corrective actions on regulatory compliance deficiencies.
- C. Business line managers may be involved in implementing corrections but should not be the primary recipients of compliance officer updates for audit findings.
Question 69
A bank receives a wire transfer that references the sale of equipment to a sanctioned company. The bank's operations team removes the sanctioned company reference and allows the wire transfer to process. This is a description of what type of activity?
Show answer and explanation
Correct answer: D. Wire stripping
Wire stripping describes the deliberate removal of identifying information from wire transfer payment instructions, particularly references to sanctioned parties, illicit activities, or parties involved in money laundering. In this scenario, the operations team removed the sanctioned company reference from the wire transfer documentation to allow processing that would otherwise be blocked by sanctions compliance controls. This is a direct example of wire stripping. U-turn payments involve routing through intermediaries, cover payment misuse refers to fraudulent invoice descriptions, and layering is a general money laundering stage involving transfers through multiple entities to obscure origins.
Why the other options are wrong
- A. U-turn payments involve circular routing of funds through intermediaries, not removal of identifying information.
- B. Cover payment misuse involves false invoice descriptions or fake trade documentation, not removal of sanctioned party references.
- C. Layering is a general phase of money laundering involving multiple transfers to obscure origin, not specifically the removal of identifying information from wire instructions.
Question 70
A bank is preparing for its anti-money laundering independent review, which is performed every two years under the direction of the compliance officer. The bank's corporate audit department will conduct the review. The compliance officer will review the final report before it is released to the Board of Directors. What is the issue with this situation?
Show answer and explanation
Correct answer: D. There is a conflict of interest with the management of the review process
An independent review requires freedom from bias and conflicts of interest. When the compliance officer, who is responsible for managing the AML program, reviews the final audit report before it goes to the Board, this creates a conflict of interest. The compliance officer is essentially reviewing a report on their own program's effectiveness, which compromises the independence and objectivity of the review process. The frequency and internal versus external status are correctly established in this scenario.
Why the other options are wrong
- A. Under regulatory guidance, independent reviews are required every two years, not annually.
- B. Independent reviews can be performed by internal audit departments as long as they operate independently from the compliance function.
- C. The compliance officer's involvement in presenting findings to the Board is standard practice; the issue is their review of the report before Board presentation.
Question 71
A foreign bank maintains a correspondent account in the US. According to an investigation carried out by US authorities, the specific correspondent account seems to have facilitated a transaction involving tainted funds. Which allows the US authorities to seize the funds of the foreign bank held with the US bank?
Show answer and explanation
Correct answer: D. The USA PATRIOT Act
The USA PATRIOT Act provides US authorities with the statutory authority to seize funds held in correspondent accounts in the United States that are connected to illegal activity, including those involved in facilitating transactions with tainted funds. This authority is a cornerstone of post-9/11 enforcement powers.
Why the other options are wrong
- A. The FinCEN CDD Final Rule addresses customer due diligence requirements but does not provide seizure authority.
- B. The 6th EU AML Directive applies to European Union jurisdiction, not US seizure authority.
- C. OFAC regulations implement sanctions programs but do not provide the primary statutory authority for seizing correspondent account funds in these circumstances.
Question 72
How can violations of anti-money laundering laws be a risk to individuals?
Show answer and explanation
Correct answer: A. Violations can result in civil and criminal fines and penalties against the individuals.
Violations of anti-money laundering laws expose individuals to both civil and criminal liability, including substantial fines and penalties. Individuals, whether executives, compliance officers, or other staff, can face personal prosecution, imprisonment, and financial penalties for knowingly facilitating or failing to prevent AML violations. These direct legal consequences represent a tangible risk to individuals themselves, not merely to their employers. Options B and D describe regulatory inconveniences rather than personal legal risks. Option C addresses employer reputational damage, which is an indirect consequence rather than a direct personal risk to the individual.
Why the other options are wrong
- B. Additional legislation is a general regulatory consequence, not a personal risk to individuals.
- C. Employer reputation damage is an institutional consequence, not a direct personal legal risk to the individual.
- D. Training requirements are a compliance burden, not a legal penalty or personal legal risk.
Question 73
One example of an external factor that will affect an organization's AML risk includes:
Show answer and explanation
Correct answer: C. political system changes in a specific jurisdiction.
Political system changes in a specific jurisdiction represent an external factor affecting organizational AML risk. External factors originate outside the organization's control and include regulatory environment shifts, geopolitical developments, and changes to the legal or political landscape where the organization operates. Such changes impact compliance requirements and the risk profile of jurisdictions where the firm conducts business.
Why the other options are wrong
- A. Accepting new customer types is an internal operational decision made by the organization, not an external factor.
- B. Introduction of mobile banking is an internal product development decision controlled by the organization itself.
- D. Introduction of new products offered to clients is an internal strategic business decision, not an external factor affecting the organization.
Question 74
Who has the ultimate responsibility within a bank for ensuring that the bank has a comprehensive and effective Bank Secrecy Act / anti-money laundering (BSA/ AML) program and oversight framework that is reasonably designed to ensure compliance with applicable regulations?
Show answer and explanation
Correct answer: B. Board of directors
The Board of Directors has ultimate responsibility for ensuring the bank's comprehensive and effective BSA/AML program and oversight framework. This is a foundational principle of the Bank Secrecy Act and regulatory guidance, the Board provides governance and accountability for all major compliance programs. While senior management executes the program and the compliance officer manages day-to-day operations, the Board bears ultimate accountability to regulators and shareholders.
Why the other options are wrong
- A. Senior management implements and oversees the program but does not bear ultimate responsibility; that belongs to the Board.
- C. Business line managers implement AML controls within their areas but lack enterprise-wide responsibility.
- D. The BSA/AML compliance officer manages the program operationally but does not hold ultimate responsibility; they report to senior management and the Board.
Question 75
A benefit of using bearer shares in corporate formations is that bearer shares are:
Show answer and explanation
Correct answer: D. easily transferred so the holder claims ownership.
Bearer shares are ownership instruments where the holder of the physical certificate is presumed to be the owner, without registration requirements. This characteristic makes them easily transferable between parties, as ownership simply passes with possession of the document, which is their defining benefit in corporate formations.
Why the other options are wrong
- A. Bearer shares are actually associated with opacity and have fallen out of favor due to anti-money laundering concerns.
- B. Bearer shares explicitly avoid registration, making them difficult to trace and identify owners.
- C. There is no cost advantage specific to bearer shares compared to other share types.
Question 76
In reviewing recent activity, a compliance officer for a money transmitter that several customers are each remitting the same amount of money but much more frequently. How should the institution respond?
Show answer and explanation
Correct answer: C. Conduct further investigation to determine whether this is truly suspicious activity
When compliance officers observe a change in customer behavior, such as customers sending the same amounts more frequently than their normal patterns, this warrants further investigation to determine whether the activity indicates structuring, a change in legitimate business circumstances, or other suspicious conduct. Investigation is necessary before taking action because the activity may have legitimate explanations (seasonal business cycles, new contracts, legitimate remittance needs). Suspicion alone is not sufficient to file a report or restrict customer services.
Why the other options are wrong
- A. Filing a suspicious transaction report without investigation is premature and may be unfounded.
- B. Instructing tellers to refuse service without investigation violates customer rights and may constitute unlawful discrimination.
- D. Contacting customers directly about suspicious activity may alert them to detection and is not standard procedure; the institution should investigate independently first.
Question 77
The vice president of the foreign correspondent banking department at a large United States bank has been notified that a foreign bank with an offshore license wants to open a correspondent account. Which two things must the vice president acquire under the USA PATRIOT Act? (Choose two.)
Show answer and explanation
Correct answer: C, D. Information relating to the foreign bank's anti-money laundering program; The identity of 10% owners of the correspondent bank, unless it is publicly traded
When a foreign bank with an offshore license seeks to open a correspondent account, the USA PATRIOT Act requires U.S. banks to acquire specific due diligence information. Financial institutions must obtain information about the foreign bank's anti-money laundering program (option C) to assess their compliance controls and risk profile. Additionally, they must identify the beneficial owners holding 10% or more of the bank unless it is publicly traded (option D), which enables the U.S. institution to understand the true ownership structure and assess associated risks.
Why the other options are wrong
- A. A complete list of all correspondent bank customers is neither required nor practical under PATRIOT Act provisions.
- B. The types of businesses served by the correspondent bank is not a mandated due diligence requirement under Section 312.
Question 78
A money service business (MSB) has implemented an automated transaction monitoring system. Upon reviewing an alert, an analyst suspects the activity may be indicative of terrorism financing. Which additional information would indicate the alert should be escalated for further investigation?
Show answer and explanation
Correct answer: D. A customer donates to an organization that is a sanctioned entity.
An alert should be escalated for further investigation when a customer donates to an organization that is a sanctioned entity (D). Transactions involving sanctioned entities are direct indicators of potential terrorism financing or sanctions violations and require immediate escalation and investigation. Options A, B, and C all describe legitimate, transparent, and consistent activities that would not raise terrorism financing concerns and would actually suggest the activities are lawful and properly conducted.
Why the other options are wrong
- A. Funds used by a non-profit consistent with its established purpose is a positive indicator that activities are legitimate and do not require escalation.
- B. Donations raised through official, registered channels in a transparent manner indicates lawful activity and does not warrant escalation.
- C. Transactions in the name of entities linked to legitimate trust funds is a standard financial arrangement that does not indicate terrorism financing concerns.
Question 79
Findings from a regulatory examination report states that the job descriptions of personnel outside of the compliance department do not include references to anti-money laundering responsibilities. Which action should the firm take?
Show answer and explanation
Correct answer: A. Update all job descriptions to include anti-money laundering responsibilities
Job descriptions across all departments should include anti-money laundering responsibilities because AML compliance is an enterprise-wide obligation, not solely a compliance department function. Every employee has a role in detecting and reporting suspicious activity, and job descriptions must reflect these expectations to ensure accountability and clarity of roles.
Why the other options are wrong
- B. All personnel have AML responsibilities, not just compliance staff; claiming only compliance has these duties is incorrect.
- C. An email directive is insufficient; job descriptions must formally document AML responsibilities to establish clear expectations.
- D. Annual training alone does not substitute for documented job responsibilities; both are needed for organizational clarity.
Question 80
What might limit a compliance officer's ability to respond to a foreign law enforcement official's request to provide information with regard to an anti-money laundering investigation?
Show answer and explanation
Correct answer: A. Privacy and data protection laws in the compliance officer's country
A compliance officer's ability to respond to a foreign law enforcement request may be limited by privacy and data protection laws in the compliance officer's own jurisdiction. Many countries have strict data protection and privacy regulations that restrict the sharing of customer information with foreign authorities without specific legal mechanisms (such as mutual legal assistance treaties or court orders). These domestic privacy laws can create legal barriers to disclosure, even when the foreign request appears legitimate. While Option B (MLAT) is relevant to the process, it describes facilitation rather than limitation. Option C regarding embassy processing is not a controlling legal limitation. Option D mischaracterizes how STRs are typically handled in foreign jurisdictions.
Why the other options are wrong
- B. While MLATs facilitate information sharing, their absence does not necessarily limit the compliance officer's ability to respond; it may simply make the process more difficult.
- C. Embassy processing is a procedural formality unrelated to the legal authority or limitations on providing information.
- D. Confidentiality requirements in the foreign jurisdiction do not limit the compliance officer's own country's compliance obligations; domestic privacy laws are the limiting factor.
Question 81
What are two reasons physical certificates present a money laundering risk to broker-dealers? (Choose two.)
Show answer and explanation
Correct answer: C, D. There is little information readily available to the broker confirming the source of the funds; Physical certificates may be provided to nominees for deposit or settled in off-market transactions
Physical certificates present money laundering risks because there is limited information readily available to confirm the source of funds, and they can be provided to nominees for deposit or settled in off-market transactions, enabling obfuscation of beneficial ownership and fund origins. These characteristics allow launderers to distance themselves from the actual transaction and obscure the legitimate source of capital.
Why the other options are wrong
- A. While certificates could theoretically be altered, this is not a primary money laundering risk factor.
- B. The perpetual nature of physical certificates does not inherently create a money laundering risk.
Question 82
A local law enforcement officer, who is conducting a criminal investigation, requests information about a customer. Which two actions should the bank take? (Choose two.)
Show answer and explanation
Correct answer: C, D. Monitor the account for suspicious activity; Review the money laundering risk posed by the account
When law enforcement requests customer information during a criminal investigation, banks should take measured compliance steps. The appropriate actions are to review the money laundering risk posed by the account and to monitor the account for suspicious activity going forward, which supports the investigative process and strengthens the institution's own AML controls. Closing the account immediately would be an overreaction and could interfere with the investigation, and filing a suspicious transaction report in response to a law enforcement request is not the appropriate standard protocol, the report should be filed based on the bank's own AML suspicions, independent of law enforcement activity.
Why the other options are wrong
- A. Immediately closing an account in response to a law enforcement inquiry would be premature and could obstruct the investigation.
- B. Suspicious transaction reports should be filed based on the institution's own detection of suspicious activity, not merely in response to law enforcement requests.
Question 83
Which two statements are true regarding the European Union Money Laundering Directives? (Choose two.)
Show answer and explanation
Correct answer: A, B. They apply to member states of the European Union; They require member states to enact laws and/or regulations to comply with the directives
The European Union Money Laundering Directives apply specifically to member states of the European Union and legally require those member states to enact national laws and regulations to implement and comply with the directives' provisions. The directives are binding legal instruments that create obligations for member states to harmonize their AML frameworks.
Why the other options are wrong
- C. The directives are binding, not advisory; they are mandatory legal requirements, not non-binding best practices.
- D. The directives do not have extraterritorial application to non-member states based on diplomatic relations; their scope is limited to EU member states.
Question 84
Which product is considered to be of highest money laundering risk?
Show answer and explanation
Correct answer: D. International wire transfers
International wire transfers represent the highest money laundering risk among these products because they move funds across borders quickly, create distance between the money's origin and final destination, and can exploit variations in anti-money laundering enforcement across jurisdictions. Wire transfers are the primary mechanism used in the placement and layering stages of money laundering, allowing criminals to move large sums rapidly with minimal traceability.
Why the other options are wrong
- A. Credit cards create documented transaction records and require credit underwriting, limiting their utility for large-scale money laundering.
- B. Savings accounts are relatively static products that show clear transaction histories and are subject to routine compliance monitoring.
- C. Time deposit accounts involve fixed terms and transparent activity patterns that make illicit activity easier to detect.
Question 85
Which statement best describes a key aspect of the AML Directive of the EU regarding business relationships and transactions with high-risk third countries?
Show answer and explanation
Correct answer: C. Obliged entities should implement additional mitigating measures complementary to the enhanced customer due diligence procedures, in accordance with a risk based approach.
The EU AML Directive requires obliged entities to implement additional mitigating measures that complement enhanced customer due diligence procedures when dealing with high-risk third countries, and these measures must be applied according to a risk-based approach. This allows flexibility in determining the level of additional scrutiny appropriate to the specific risk profile rather than applying one-size-fits-all requirements.
Why the other options are wrong
- A. Additional external audit requirements are not voluntary considerations but mandatory obligations where applicable, not limited to external audits.
- B. While member states do have roles in implementation, the directive itself mandates enhanced due diligence procedures, not purely voluntary national-level determination.
- D. Specific circumstances must be taken into account when performing enhanced due diligence; risk-based approaches require consideration of individual circumstances.
Question 86
In reviewing recent transaction activity, a compliance officer for a money transmitter notices that several customers are each remitting the same amount of money but much more frequently. How should the institution respond?
Show answer and explanation
Correct answer: C. Conduct further investigation to determine whether this is truly suspicious activity
When a compliance officer observes a pattern of increased transaction frequency with consistent amounts, the appropriate first response is to conduct further investigation to determine whether the activity is genuinely suspicious or has a legitimate explanation. The customer may have legitimate reasons for more frequent remittances, such as changed employment circumstances, family needs, or business requirements. Filing a Suspicious Activity Report (SAR) should only occur after investigation establishes that the activity lacks a reasonable business purpose and meets the definition of suspicious activity. Investigation precedes reporting, and direct customer contact or unilateral service denial would be premature.
Why the other options are wrong
- A. Filing a SAR without investigation would be premature; compliance officers must first determine whether the activity is actually suspicious.
- B. Instructing tellers to refuse service based on increased frequency alone would violate customer service obligations and discrimination principles before any investigation is complete.
- D. Immediately contacting customers to demand explanations could tip off potentially bad actors and is not the standard compliance procedure for initial investigation.
Question 87
After a FATF mutual evaluation process, which are resulting actions for jurisdictions that are determined to have strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing? (Choose two.)
Show answer and explanation
Correct answer: C, E. Demonstrate a high-level commitment to swiftly resolve the identified deficiencies in the FATF mutual evaluation report; Report to FATF on the implementation of their progress under the enhanced follow-up mechanism.
Jurisdictions with strategic deficiencies must demonstrate high-level commitment to resolve identified deficiencies and report on implementation progress through the enhanced follow-up mechanism. These actions represent the accountability and transparency requirements imposed by FATF on jurisdictions needing to address weaknesses in their AML/CFT regimes.
Why the other options are wrong
- A. Private statements are not a formal resulting action; FATF issues public assessments and identifications of strategic deficiencies.
- B. Jurisdictions cannot appeal for re-rating based on their own experts' criteria; the FATF mutual evaluation process follows established international standards.
- D. FATF does not grant deadline extensions as a standard action; jurisdictions must work within established timelines to remediate deficiencies.
Question 88
A company service provider in Country A sets up a corporate structure for a client from Country B, which is known for corruption. The corporate structure includes a holding company in Country A with a bank account in one of the international banks located there. During on-boarding, the client's wealth was estimated at $7.52 million. Shortly thereafter, the client's father became president of Country B. During a routine client review two years later, it was identified that client's wealth had grown to $510 million. What are two red flags that indicate money laundering or financial terrorism? (Choose two.)
Show answer and explanation
Correct answer: C, D. The client is a family member of a PEP from a country known for corruption; The substantial growth in wealth during a short period of time.
Two critical red flags emerge: the client is a family member of a Politically Exposed Person from a country known for corruption (C), creating elevated risk that wealth may derive from corrupt activities; and there is substantial wealth growth from $7.52 million to $510 million in two years (D), which cannot be explained by legitimate investment returns and suggests illicit fund flows. While the country's corruption reputation (B) is relevant context, it alone is not a specific red flag about this client. The account review gap (A) is a compliance process failure, not a money laundering indicator. The corporate structure location (E) is a legitimate business arrangement and not inherently suspicious.
Why the other options are wrong
- A. Failure to review for two years is a compliance process weakness, not a money laundering red flag.
- B. Country corruption is background context but not a specific red flag about this individual client.
- E. Holding structures in established financial centers are standard practice and not inherently suspicious.
Question 89
Which two channels can be utilized during a cross-border money laundering investigation to assist in gathering information according to Financial Action Task Force? (Choose two.)
Show answer and explanation
Correct answer: A, B. Contacting existing liaison officers in the foreign jurisdiction; Exchanging information between national law enforcement agencies
According to the Financial Action Task Force, cross-border money laundering investigations can utilize liaison officers established in foreign jurisdictions (option A) to facilitate information gathering, and can involve the exchange of information between national law enforcement agencies (option B) to coordinate investigative efforts across borders.
Why the other options are wrong
- C. Contacting suspects or their family members directly during an investigation compromises investigative integrity and is inappropriate protocol.
- D. While financial intelligence units are important, formal requests are not the only channel; liaison officers and law enforcement cooperation are also valid approaches.
Question 90
The compliance officer at a crowdfunding website is in charge of monitoring new crowdfunding projects. Recently, the number of crowdfunding projects has significantly increased. Which red flag indicates the highest anti-money laundering risk?
Show answer and explanation
Correct answer: D. Projects that start and close and are fully funded within a very short period
In crowdfunding platforms, projects that start, close, and become fully funded within a very short timeframe present the highest anti-money laundering risk because this pattern is characteristic of money laundering schemes. Rapid funding from multiple small donors makes it difficult to trace illicit sources and creates the appearance of legitimate crowdfunding activity while actually integrating criminal proceeds. This compressed timeline is suspicious and inconsistent with typical crowdfunding dynamics, indicating potential use of the platform for layering illicit funds.
Why the other options are wrong
- A. A large number of donors does not necessarily indicate money laundering risk; high donor volume is common in legitimate successful campaigns.
- B. Quick funding after project launch can occur with legitimate viral campaigns and popular causes.
- C. The monetary success threshold alone has no correlation with anti-money laundering risk.
Question 91
A bank provides trade financing for a company whose primary export is steel. Which action by the company indicates possible money laundering?
Show answer and explanation
Correct answer: B. The company regularly understates the value of goods exported.
Regularly understating the value of exported goods is a classic money laundering technique called over-invoicing or under-invoicing in trade-based money laundering. By declaring that steel exports are worth less than they actually are, the company creates a discrepancy that allows illicit funds to flow into the account without corresponding documented export value, effectively placing dirty money into legitimate business channels. This deliberate misrepresentation of cargo value is a primary indicator of trade finance abuse for money laundering.
Why the other options are wrong
- A. Dealing with foreign currency exchanges is a normal part of international trade finance and does not inherently indicate money laundering.
- C. Price variations above or below competitors' rates can reflect legitimate market competition, volume discounts, or quality differences.
- D. Transferring funds between multiple accounts in different jurisdictions is common for multinational businesses managing liquidity across regions.
Question 92
Which two methods can be used to structure casino-related transactions? (Choose two.)
Show answer and explanation
Correct answer: B, C. Purchase of chips at multiple gaming tables; Use of third parties to conduct transactions
Structuring casino transactions involves breaking down activities to avoid reporting thresholds. Purchasing chips at multiple gaming tables is a direct structuring method that avoids single-transaction reporting requirements. Use of third parties to conduct transactions obscures the source and beneficial ownership of funds, allowing launderers to distance themselves from the transactions. Playing at the same game and single deposits at gaming machines are not structuring methods, structuring requires deliberately splitting or layering transactions across multiple points.
Why the other options are wrong
- A. Playing at the same game does not constitute a structuring method and does not help avoid reporting thresholds.
- D. A one-time deposit at a single gaming machine does not involve the splitting or layering characteristic of structuring methods.
Question 93
When should the anti-money laundering risk assessment be updated?
Show answer and explanation
Correct answer: B. After a merger or acquisition
Anti-money laundering risk assessments should be updated after a merger or acquisition because such events materially change the bank's business lines, customer base, products, and geographic footprint. These structural changes introduce new compliance risks and may reveal gaps in the combined entity's AML controls. While periodic updates occur, material business events like M&A require prompt reassessment to maintain effective risk management.
Why the other options are wrong
- A. Two-year cycles are too rigid; events-based triggers are the primary driver for updates.
- C. Changes in board composition alone do not materially alter AML risk unless accompanied by strategic business changes.
- D. The FATF does not issue operational directives to individual banks requiring specific assessment updates.
Question 94
Which three methods are commonly used by an accountant to launder money? (Choose three.)
Show answer and explanation
Correct answer: C, D, E. Overstating income to hide excess cash; Acting as a conduit for transferring cash between accounts; Acting as a designee for someone who wishes to hide their identity
Accountants facilitate money laundering through overstating income to hide excess cash received from illicit sources, making it appear legitimate; acting as conduits transferring cash between accounts to obscure the source and destination; and serving as designees for clients seeking to hide their identity behind professional services. These methods exploit the professional status and access that accountants possess. Representing clients in court is a standard legal service and does not inherently involve money laundering, and it falls outside an accountant's typical role.
Why the other options are wrong
- A. Representing clients in court is a legal professional service performed by attorneys, not accountants, and does not constitute a money laundering method.
- B. Understating income to take a tax loss is tax evasion rather than a money laundering method, as it reduces rather than conceals the source of illicit funds.
Question 95
An individual opens an e-account in an off-shore gambling website using non-documentary verification and creates an e-wallet on a mobile device. In order to add funds to the account, the individual uses a credit card, wire transfers, cryptocurrency, and a money service business. Which source of money represents more risk of money laundering?
Show answer and explanation
Correct answer: B. Cryptocurrency
Cryptocurrency represents the highest money laundering risk among the options presented. It offers pseudo-anonymity, operates across borders with minimal regulatory oversight, provides rapid transaction settlement, and is difficult to trace. Combined with the other risk factors already present (non-documentary verification, offshore gambling, e-wallet use), cryptocurrency significantly amplifies the likelihood of money laundering.
Why the other options are wrong
- A. Wire transfers are regulated, traceable, and leave clear audit trails, making them lower risk than cryptocurrency.
- C. Money service businesses are subject to regulatory oversight and compliance requirements that create visibility into transactions.
- D. Credit cards are issued instruments tied to identifiable accounts with transaction records and fraud protections.
Question 96
Which is a FATF characteristic used to assess a country's effectiveness of its AML regime?
Show answer and explanation
Correct answer: A. Funds supporting and proceeding from crime or terrorism are prevented from entering the financial sector.
The FATF uses characteristics that assess whether a country's AML regime effectively prevents illicit funds from entering the financial system at the source. This foundational characteristic addresses the prevention of crime and terrorism proceeds from accessing financial channels, which is central to evaluating AML regime effectiveness. Options B through D describe supporting measures, but the characteristic that directly measures regime effectiveness is prevention of illicit funds from entering the sector.
Why the other options are wrong
- B. This describes a specific preventive measure for legal persons but is not the main FATF characteristic for assessing overall regime effectiveness.
- C. This addresses supervisory practice, which is one component but not the primary FATF characteristic for measuring AML regime effectiveness.
- D. This describes a preventive measure requirement for FIs but does not capture the overarching assessment characteristic.
Question 97
An existing customer at a bank has recently expanded its services to provide check cashing for its customers. Which factor indicates the bank should terminate this relationship?
Show answer and explanation
Correct answer: D. The business is now a Money Service Business and has not registered with FinCEN.
When a customer expands services to include check cashing, they become a Money Service Business and are required to register with FinCEN. If the business has not registered despite this regulatory requirement, the bank should terminate the relationship to avoid facilitating unlicensed money transmission activities and to maintain its own compliance posture.
Why the other options are wrong
- A. While updating the monitoring system is important, failure to do so is an internal control issue rather than a reason to terminate the customer.
- B. Lack of previous experience with a service is not itself a regulatory red flag or termination trigger.
- C. While updated activity information is desirable, failure to provide it is a KYC concern rather than an automatic termination reason.
Question 98
Which red flag should a compliance officer prioritize first for investigation?
Show answer and explanation
Correct answer: B. Several cross-border transfers are received and immediately wired to another beneficiary.
Rapid cross-border transfers received and immediately re-wired to other beneficiaries represent a classic layering technique in money laundering, where funds are moved quickly through multiple jurisdictions to obscure their origin and ownership. This pattern indicates potential structuring and value transfer schemes and poses the highest immediate compliance and regulatory risk.
Why the other options are wrong
- A. Legitimate loan payoff using proceeds from asset sales is a normal financial transaction without inherent suspicion.
- C. Multiple small repetitive transactions below reporting thresholds, while potentially indicative of structuring, are less immediately concerning than active cross-border movement schemes.
- D. Government check cashing services by convenience stores for amounts under $1,000 daily represent normal retail financial services with minimal red flag characteristics.
Question 99
What is the appropriate compliance control for identifying politically exposed persons (PEPs) according to the Basel Committee's paper on Customer Due Diligence for Banks?
Show answer and explanation
Correct answer: C. Reviewing relationships at account opening and on a periodic basis
According to the Basel Committee's Customer Due Diligence for Banks guidelines, the appropriate compliance control for identifying politically exposed persons is to review relationships at account opening and on a periodic basis (option C). This ongoing review approach ensures that institutions can identify PEPs both when relationships are established and detect when existing customers subsequently assume PEP positions. Periodic review is essential because an individual's PEP status can change over time, requiring continuous monitoring rather than one-time verification.
Why the other options are wrong
- A. Limiting PEP identification to local figures is insufficient; the Basel framework addresses all PEPs regardless of geographic scope.
- B. Reviewing only at relationship establishment misses individuals who later become PEPs or whose status changes during the customer relationship.
- D. Relying solely on customer self-disclosure is inadequate; institutions must conduct independent verification and ongoing screening for PEP status.
Question 100
Which action by a prospective customer during the account opening process requires further investigation?
Show answer and explanation
Correct answer: B. Questioning reporting requirements
A prospective customer questioning reporting requirements during account opening is a red flag requiring further investigation. Such questions may indicate an intent to avoid detection, hide beneficial ownership, or structure transactions to circumvent reporting thresholds. This behavior suggests the customer is aware of reporting obligations and seeking ways to evade them.
Why the other options are wrong
- A. Listing a long-distance phone number is ordinary contact information and does not indicate suspicious activity.
- C. Expressing knowledge of the financial industry is normal for experienced customers and does not inherently raise AML concerns.
- D. Providing a driver's license is a standard identification requirement and expected during account opening.
Question 101
Which method do terrorist financiers use to move funds without leaving an audit trail?
Show answer and explanation
Correct answer: B. Cash couriers
Cash couriers physically transport funds across borders without creating formal financial records or audit trails that would be captured by banking systems. This method allows terrorist financiers to move money without detection by regulatory systems. Extortion is a financing source rather than a movement method; casa de cambio (informal currency exchange) creates some documentation; virtual currency, while difficult to track, does leave blockchain or exchange records that sophisticated analysts can follow.
Why the other options are wrong
- A. Extortion is a method of obtaining funds, not a method of moving funds without an audit trail.
- C. Casa de cambio transactions may involve informal record-keeping but typically leave some documentation trail.
- D. Virtual currency transactions leave blockchain records or exchange documentation that can be analyzed and traced by regulators.
Question 102
A new compliance officer is reviewing the bank's anti-money laundering program and notices that the risk assessment was completed six months ago. Since that time, the bank acquired another financial institution, re-named the internal records group, and streamlined cash handling procedures. Which factor causes the compliance officer to update the bank's risk assessment?
Show answer and explanation
Correct answer: A. The bank acquired another institution
An acquisition of another financial institution materially changes the bank's risk profile, customer base, products, geographic exposure, and operational structure, requiring an updated risk assessment to reflect these significant changes and ensure the AML program remains appropriate and effective.
Why the other options are wrong
- B. Internal organizational name changes do not alter the bank's actual risk profile or require assessment updates.
- C. Streamlining cash handling procedures is an operational improvement that does not by itself require a risk assessment update.
- D. Time passage alone is not a triggering factor; risk assessments must be updated based on material changes in the institution's circumstances.
Question 103
A compliance officer was recently reviewing transactional data for an international charity and found transactions that present a higher risk. Which reason is cause for terminating the banking relationship?
Show answer and explanation
Correct answer: D. The charity is headquartered in a country on the Office of Foreign Assets Control list
A financial institution must terminate a banking relationship when a customer organization is headquartered in or operating from a jurisdiction on the Office of Foreign Assets Control (OFAC) list. This is a hard regulatory requirement that prohibits continued financial services to entities in sanctioned jurisdictions, regardless of other factors.
Why the other options are wrong
- A. High staff turnover, while potentially a risk factor requiring enhanced monitoring, does not by itself mandate relationship termination.
- B. International fund transfers are normal and expected for legitimate charities; their mere presence does not justify termination.
- C. Complex fund flows require enhanced due diligence and monitoring, but complexity alone does not mandate termination unless it masks illicit activity.
Question 104
According to recommendations from the FATF, what role does a country's Financial Intelligence Unit (FIU) play in safeguarding against money laundering?
Show answer and explanation
Correct answer: A. Analyzes data on STRs
According to FATF recommendations, a country's Financial Intelligence Unit serves as the central analytical hub that receives, analyzes, and disseminates information from Suspicious Transaction Reports (STRs) and other financial intelligence. This analysis is critical to identifying money laundering patterns and informing law enforcement and regulatory actions.
Why the other options are wrong
- B. FIUs analyze and report on suspicious activity; they do not directly pursue criminal activity themselves.
- C. Currency transaction reports are typically submitted to regulatory authorities, not generated as an FIU function.
- D. FIUs focus on financial intelligence analysis related to money laundering and terrorism financing, not general economic statistics.
Question 105
Historically, a tour guide has made monthly cash deposits averaging $10,000. Over the past three months, the monthly deposits have averaged $100,000. When the financial institution questions the increased deposits, the tour guide explains that there have been numerous conventions in town so business has increased substantially. Which further action(s) should the financial institution take?
Show answer and explanation
Correct answer: C. Perform further investigation, if appropriate report the activity to the authorities and consider terminating the relationship
When a customer's deposit pattern increases tenfold without clear explanation, the financial institution must perform further investigation to verify the legitimacy of the explanation. If the investigation cannot confirm the stated reason for the increase, the activity should be reported to authorities as potentially suspicious. Terminating the relationship may follow, but only after proper investigation and reporting procedures are completed. Immediate termination (Option A) bypasses due process, periodic review alone (Option B) is insufficient for such a dramatic increase, and limiting future transactions (Option D) without investigation and reporting doesn't follow the proper AML compliance framework.
Why the other options are wrong
- A. Immediate termination without investigation violates proper due diligence requirements.
- B. Periodic review is insufficient when a tenfold increase in deposits occurs; immediate investigation is required.
- D. Transaction limits should not be imposed before investigation and reporting to authorities are completed.
Question 106
A bank located in Arizona is considering a loan application for a new client. The collateral for the loan is a property in Florida. The loan will be in the name of a limited liability company (LLC) whose ownership is not disclosed to the bank. The LLC was established by a New York-based attorney. The loan will be repaid by the LLC in monthly wire transfers of $9,000 which is more than the required monthly payment. Which aspect indicates the potential for money laundering?
Show answer and explanation
Correct answer: A. The LLC's ownership is not disclosed to the bank
Undisclosed ownership of an LLC is a significant red flag for money laundering because it obscures the beneficial owner of funds and assets, preventing the bank from conducting proper customer due diligence and understanding the true source of funds. This opacity is fundamentally inconsistent with know-your-customer requirements and creates substantial compliance risk.
Why the other options are wrong
- B. Collateral location in a different state is not inherently suspicious and does not indicate money laundering.
- C. Monthly overpayment of a loan is not structuring; structuring specifically involves deliberately breaking up transactions to avoid reporting thresholds, not paying more than required.
- D. An attorney being based outside the bank's lending area is irrelevant to money laundering indicators.
Question 107
Which information must a United States financial institution retain for having foreign correspondent accounts as part of the USA PATRIOT Act record keeping requirements?
Show answer and explanation
Correct answer: A. Records identifying the owners of each foreign bank
Under the USA PATRIOT Act record keeping requirements for foreign correspondent accounts, U.S. financial institutions must retain records identifying the owners of each foreign bank with which they maintain correspondent relationships. This requirement enables authorities to trace the beneficial ownership and control of foreign financial institutions and supports anti-money laundering compliance by establishing clear ownership accountability. Section 314(b) information sharing, monetary instrument purchases, and suspicious activity reports are distinct compliance activities with their own separate requirements, but they are not the specific record keeping obligation mandated for foreign correspondent accounts.
Why the other options are wrong
- B. Section 314(b) information sharing results are tracked separately and are not the primary foreign correspondent record keeping requirement.
- C. Monetary instrument purchases of $3,000 or more have their own reporting requirements unrelated to foreign correspondent account record keeping.
- D. Suspicious activity reports and supporting documentation are maintained under separate filing requirements, not as the primary foreign correspondent records.
Question 108
Which scenario should be escalated as potentially suspicious activity?
Show answer and explanation
Correct answer: B. A domestic business account receives a wire transfer from an international business with no history of such activity or business needs.
A domestic business account receiving an unsolicited wire transfer from an international business with no established history of such activity or legitimate business justification is the clearest indicator of suspicious activity. This scenario lacks reasonable business rationale and represents an anomalous pattern that warrants investigation for potential money laundering or fraud.
Why the other options are wrong
- A. Consolidating funds from multiple operating accounts into one account is a normal business cash management practice.
- C. Daily cash deposits and withdrawals at a convenience store are consistent with normal retail operations and expected business activity.
- D. Large checks and wire transfers on a frequent basis from existing customers represent normal business transaction patterns.
Question 109
A new AML Officer for a US-based money service business (MSB) is drafting procedures around types of activity that require further review. Which should be included? (Choose two.)
Show answer and explanation
Correct answer: A, E. A customer visiting multiple branches of the MSB on the same day in order to transfer funds internationally; A customer attempting to buy money orders under $3,000 USD in cash multiple times a day.
An AML Officer should flag multi-branch visits on the same day for international transfers (structuring across locations) and repeated sub-threshold money order purchases throughout the day (temporal structuring). Both patterns indicate potential structuring designed to avoid reporting thresholds. Option A shows geographic distribution of activity to evade detection, while option E demonstrates time-based structuring using multiple transactions under reporting limits.
Why the other options are wrong
- B. A single large purchase over $10,000 with proper identification is a reportable transaction but not inherently suspicious; it meets transparency requirements.
- C. Legitimate fund transfers to family members in high-risk jurisdictions require OFAC and sanctions screening but are not automatically suspicious based solely on destination.
- D. Multiple $250 money orders totaling $2,000 in a single transaction is below reporting thresholds and does not demonstrate the pattern of repeated activity seen in option E.
Question 110
What do the Financial Action Task Force (FATF) mutual evaluations of each member assess?
Show answer and explanation
Correct answer: A. The levels of implementation of the FATF Recommendations
The Financial Action Task Force (FATF) mutual evaluation process assesses each member country's levels of implementation of the FATF Recommendations, the international standards for combating money laundering and terrorist financing. These evaluations examine how effectively member countries have adopted and implemented the 40 FATF Recommendations through their domestic legislation, regulations, and institutional practices. The mutual evaluation reports provide peer review assessments of compliance and effectiveness against these global standards.
Why the other options are wrong
- B. The ability to send representatives to plenary sessions is a procedural matter for participation, not an assessment criterion.
- C. Economic size is not an assessment criterion; member evaluation is based on implementation of standards regardless of economy size.
- D. Suggesting updates to FATF Recommendations is not part of the mutual evaluation process; evaluations assess implementation of existing recommendations.
Question 111
How can gatekeepers like lawyers, notaries, and company service providers play a key role in the fight against money laundering?
Show answer and explanation
Correct answer: A. Identifying challenges in keeping current and accurate beneficial ownership information depending upon the nature and activities of their client
Gatekeepers such as lawyers, notaries, and company service providers play a key role in anti-money laundering efforts by identifying and addressing challenges in maintaining current and accurate beneficial ownership information. Their position in corporate formation and structure processes allows them to identify vulnerabilities and encourage transparency regarding true ownership, which is critical to preventing misuse of legal structures for money laundering.
Why the other options are wrong
- B. Gatekeepers should actively prevent tax optimization schemes and offshore abuse, not facilitate them.
- C. While gatekeepers serve as trusted third parties, their anti-money laundering role extends beyond general fiduciary functions.
- D. While AML programs are important, the specific key role of gatekeepers emphasizes beneficial ownership transparency rather than transaction monitoring.
Question 112
When performing a risk assessment, which factors should be considered when identifying and measuring risk? (Choose two.)
Show answer and explanation
Correct answer: A, C. Customer composition; Product offerings
When identifying and measuring risk in AML risk assessments, financial institutions must consider customer composition (the types and profiles of customers served) and product offerings (the services and products provided that may present varying levels of risk). These factors directly influence a firm's exposure to money laundering and terrorist financing threats.
Why the other options are wrong
- B. Financial performance, while important for business analysis, is not a primary factor in identifying AML risk.
- D. The regulatory environment is an external consideration rather than a factor for measuring organizational risk.
- E. Company culture is not a standard factor considered when measuring AML risk.
Question 113
The new compliance officer has reviewed the bank's anti-money laundering training program. The program consists of online training for all new employees within 30 days of hire date and annual refresher training to all employees. In addition, there is specialized training for areas that deal with higher risk products and customers. Over the last year, there have been no regulatory changes and no new products or services have been introduced. The compliance officer wants to propose to the board of directors that the annual refresher training is still current and can be delivered unchanged to all employees. Which two critical pieces of information could be missed by taking this approach? (Choose two.)
Show answer and explanation
Correct answer: A, C. Any new trends, developments, or risks; Changes to internal policies, procedures, and processes
While there may have been no regulatory changes or new products in the past year, an effective AML training program must remain current and relevant. Two critical pieces of information could be missed: (A) new trends, developments, or risks in money laundering methods and typologies continue to emerge constantly in the financial industry even without regulatory changes, and (C) internal policies, procedures, and processes may evolve based on operational adjustments, audit findings, or lessons learned. The previous year's risk assessment results (B) would be incorporated into the current program design rather than representing missing information, and enforcement actions (D), while useful, are less critical than the other two factors.
Why the other options are wrong
- B. Results of the previous year's risk assessment would already be reflected in the current program framework rather than being newly missing information.
- D. While enforcement actions at other institutions provide valuable context, they are secondary to understanding current trends and internal procedural changes.
Question 114
Which information should be gathered as part of enhanced due diligence (EDD) for a high-risk customer?
Show answer and explanation
Correct answer: B. Details on individuals with control over the account
Details on individuals with control over the account are essential EDD information to identify beneficial owners and understand the true decision-makers and beneficiaries of the account, which is critical for assessing risk and detecting potential money laundering or terrorist financing through corporate structures or complex ownership arrangements.
Why the other options are wrong
- A. Changes in marital status are personal matters with limited relevance to financial risk assessment in EDD.
- C. Business travel plans are operational details not typically gathered in EDD procedures.
- D. Personal references are not a standard component of EDD requirements for high-risk customers.
Question 115
Which two statements in the Wolfsberg Group's `Suppression of the Financing of Terrorism` define the role financial institutions should play in the fight against terrorism? (Choose two.)
Show answer and explanation
Correct answer: A, D. Financial institutions need to assist competent authorities in fighting terrorist financing through prevention, detection and information sharing; Financial institutions should apply extra due diligence whenever they see suspicious or irregular activities, especially when customers are engaged in sectors or activities that have been identified by competent authorities as being used for the financing of terrorism.
The Wolfsberg Group's "Suppression of the Financing of Terrorism" document establishes that financial institutions should assist competent authorities through prevention, detection, and information sharing (option A), defining their proactive role in combating terrorist financing. Additionally, institutions should apply enhanced due diligence when suspicious or irregular activities are identified, particularly in sectors flagged by authorities as terrorism-financing vehicles (option D). These two statements establish the core responsibilities financial institutions must undertake in the fight against terrorism financing.
Why the other options are wrong
- B. While institutions analyze terrorist financing activity, the Wolfsberg principles do not require development of long-term models to drive down terrorism as an institutional role.
- C. Institutions are not required to establish dedicated financial intelligence units; this is typically a government function, though institutions cooperate with such units.
Question 116
Which two mechanisms should be implemented to assist with cross-border money laundering investigations? (Choose two.)
Show answer and explanation
Correct answer: B, C. Countries should ensure that information received is protected from unauthorized disclosure; Countries should establish mechanisms allowing financial investigators to obtain and share information in respect of specific investigations.
Effective cross-border money laundering investigations require two key mechanisms: first, countries must establish formal mechanisms enabling financial investigators to obtain and share information for specific investigations (option C), and second, countries must implement protections ensuring that shared information is safeguarded from unauthorized disclosure (option B). These mechanisms facilitate cooperation while maintaining confidentiality and legal compliance.
Why the other options are wrong
- A. Interpol is a law enforcement support organization but is not the primary mechanism for cross-border financial investigation information exchange.
- D. Conducting separate investigations to prevent disclosure is inefficient and undermines the cooperation needed for cross-border investigations.
Question 117
Which should be provided to the board of directors or designated specialized committee when reporting SARs/STRs?
Show answer and explanation
Correct answer: B. Statistical data regarding SARs/STRs filed during the reported period.
When reporting Suspicious Activity Reports (SARs) or Suspicious Transaction Reports (STRs) to the board of directors or designated specialized committee, institutions should provide statistical data regarding the reports filed during the reporting period. This allows the board to understand the scope and trends of suspicious activity without exposing specific customer details or creating disclosure risks. Statistical reporting provides governance oversight while maintaining confidentiality of individual customer investigations.
Why the other options are wrong
- A. Providing all possible details about specific SARs/STRs would expose confidential customer information and violate privacy protections.
- C. Providing names of all customers subject to SARs/STRs would violate customer confidentiality and is not necessary for board oversight.
- D. Providing copies of all SARs/STRs to the board would expose confidential investigative information and violates the need-to-know principle for governance reporting.
Question 118
Which trading pattern may be indicative of money laundering in capital markets?
Show answer and explanation
Correct answer: A. Free of payment asset transfer
Free of payment (FOP) asset transfers in capital markets are a recognized money laundering indicator because they involve the movement of securities without corresponding cash payment. This technique allows illicit funds to be integrated into the financial system through the capital markets while obscuring the audit trail and creating apparent legitimacy for criminal proceeds.
Why the other options are wrong
- B. Round dollar amounts in transactions are not specifically indicative of money laundering in capital markets contexts.
- C. Trading on an account is normal market activity and does not inherently suggest money laundering.
- D. Transacting with multiple counterparties is standard market practice and not an indicator of illicit activity on its own.
Question 119
A high volume of incoming wire transfers generates an alert about a client. The funds are immediately debited by cash withdrawals and outgoing wire transfers. Which information should be reviewed first to investigate this alert/case?
Show answer and explanation
Correct answer: C. Customer profile
When investigating a wire transfer alert involving rapid inflows and outflows, the customer profile should be reviewed first. This establishes the baseline of legitimate customer behavior, risk profile, and expected transaction patterns, allowing the investigator to determine whether the flagged activity deviates from normal behavior. Understanding the customer context is essential before examining account activity details.
Why the other options are wrong
- A. Open source information is helpful but secondary; internal customer knowledge is more directly relevant to determining if activity is anomalous.
- B. Adverse media search provides external reputation checks but does not directly address whether this specific transaction pattern aligns with the customer's baseline behavior.
- D. Account activity is what generated the alert; the customer profile must be reviewed first to contextualize whether that activity is unusual for this particular customer.
Question 120
Which is an emerging risk associated with cyber-enabled fraud?
Show answer and explanation
Correct answer: C. mismatch between account names and government-issued documentation
Mismatch between account names and government-issued documentation is an emerging risk in cyber-enabled fraud because it indicates potential identity theft, account takeover, or synthetic identity fraud. This discrepancy is a red flag for fraudulent activity and is specifically monitored in AML/CFT frameworks.
Why the other options are wrong
- A. Multiple people colluding to place funds in financial markets is market manipulation, not cyber-enabled fraud.
- B. Receipt of joint account wire transfers is a normal banking operation, not inherently fraudulent.
- D. Frequent transactions in round dollars is a transaction pattern observation, not specific to cyber-enabled fraud emergence.
Question 121
Which action should financial institutions with cross border correspondent banking activity be required to perform according to the Financial Action Task Force 40 Recommendations?
Show answer and explanation
Correct answer: C. Obtain senior management approval before establishing the relationship
The Financial Action Task Force 40 Recommendations explicitly require that financial institutions with cross-border correspondent banking relationships obtain senior management approval before establishing such relationships. This governance requirement ensures that senior decision-makers are aware of and actively authorize the risks associated with correspondent banking, particularly given the inherent money laundering and terrorist financing risks in such relationships. Obtaining independent third-party reviews of AML programs is not mandated by FATF, gathering politically exposed person lists relates to customer due diligence rather than correspondent approval, and identifying beneficial owners relates to transparency standards rather than the pre-establishment approval process.
Why the other options are wrong
- A. Gathering politically exposed customer lists is a customer due diligence measure, not a correspondent banking establishment requirement.
- B. Identifying beneficial owners relates to transparency in ownership structures, not specifically to correspondent banking relationship approval.
- D. Third-party independent reviews of AML programs are not mandated by FATF 40 Recommendations as a correspondent banking requirement.
Question 122
An automotive parts company in South America sends multiple $500,000 wire transfers per week to ABC Holdings Ltd. in Asia referencing payment for silk flower shipments. Research reveals Sunrise Holdings, Ltd is registered in the British Virgin Islands with no available ownership information. What are two red flags that indicate how trade-based money laundering could be occurring in this instance? (Choose two.)
Show answer and explanation
Correct answer: A, D. The transaction involves the use of front (or shell) companies; The type of commodity being shipped appears inconsistent with the exporter or importer's regular business activities
The scenario exhibits two classic trade-based money laundering indicators: the use of a front company (Sunrise Holdings Ltd. registered in the British Virgin Islands with no available ownership information) and a commodity that appears inconsistent with normal business activities (an automotive parts company shipping silk flowers). These mismatches between company type and goods, combined with shell company involvement, strongly suggest trade-based money laundering.
Why the other options are wrong
- B. Packaging inconsistency with commodity or shipping method is not evident in this scenario.
- C. While discrepancies between bill of lading and invoice can indicate TBML, no such discrepancy is described here.
Question 123
How does the Financial Action Task Force (FATF) communicate its findings regarding jurisdictions with strategic anti-money laundering / Counter Financing of Terrorism deficiencies?
Show answer and explanation
Correct answer: B. By issuing two formal documents three times per year
The Financial Action Task Force communicates findings regarding jurisdictions with strategic AML/CFT deficiencies by issuing two formal documents (grey list and black list designations) three times per year, typically in plenary sessions. This structured schedule provides regular updates to the international community regarding compliance status.
Why the other options are wrong
- A. FATF communicates primarily to member jurisdictions and the international financial system, not the private sector as the primary audience.
- C. FATF uses formal, published documents rather than informal communication for strategic findings and jurisdictional designations.
- D. FATF issues two formal documents three times per year, not four documents, regarding deficient jurisdictions.
Question 124
Which method is used to launder money via wire remittances sent through a bureau de change or money services business?
Show answer and explanation
Correct answer: B. A customer in country A makes frequent wire transfers to a single customer in country B that are slightly under the legal reporting threshold.
Structuring transactions below reporting thresholds, making frequent wire transfers slightly under legal limits to avoid triggering mandatory reporting, is a classic money laundering method through money services businesses. Option B describes this pattern explicitly. Option A is legitimate regular business, Option C involves broad dispersed transfers that would be harder to control and hide, and Option D describes receiving multiple transfers below threshold, which is less typical of the structured layering technique used by organized launderers.
Why the other options are wrong
- A. Regular weekly transfers of consistent amounts are transparent and easily traceable patterns.
- C. Broad dispersals to many recipients lack the control and targeting needed for effective money laundering.
- D. Receiving multiple transfers from different sources is passive distribution rather than active structuring for concealment.
Question 125
At a small community bank, the compliance officer identifies unusual activity on a customer, who with his personal and company accounts, is the bank's largest depositor. The customer's companies have significant balances on their outstanding loans. The compliance officer notices that there is a lot of unusual movements of money between the customer's individual and business accounts. After filing a suspicious transaction report (STR), the compliance officer gets a call from law enforcement indicating that they want the bank to keep the account open while they conduct an investigation into the customer. How should the compliance officer escalate this information to the board of directors?
Show answer and explanation
Correct answer: C. By providing a high level summary of the activity and the interactions with law enforcement
The compliance officer should provide a high-level summary of the unusual activity and the interactions with law enforcement to the board. This approach protects sensitive law enforcement investigations while ensuring the board understands the situation, the regulatory interaction, and any operational impacts on the bank's largest depositor. Full disclosure of the STR or the law enforcement letter could compromise the investigation or violate confidentiality protocols.
Why the other options are wrong
- A. Providing a copy of the STR itself to the board may compromise the confidential law enforcement investigation.
- B. The regulator should not be relied upon to brief the board; the compliance officer has direct responsibility to inform board leadership.
- D. Providing the actual law enforcement letter could compromise ongoing investigations and violates standard protocols for handling law enforcement communications.
Question 126
Financial institutions (FIs) perform AML risk assessments to ensure:
Show answer and explanation
Correct answer: D. proper controls surrounding higher-risk products, services, customers, and geographic locations.
Financial institutions conduct AML risk assessments to ensure proper controls are implemented around higher-risk products, services, customers, and geographic locations. This targeted approach allows institutions to allocate compliance resources effectively based on identified risk exposure.
Why the other options are wrong
- A. Creating a regulatory record alone is not the substantive purpose of AML risk assessments.
- B. Internal audit assurance of board approval relates to governance but is not the primary function of risk assessment.
- C. While risk appetite consideration is relevant, the core purpose is ensuring appropriate controls implementation, not merely satisfying board appetite.
Question 127
Which situations would require a financial institution (FI) to update its ML/TF risk assessment? (Choose two.)
Show answer and explanation
Correct answer: A, D. When new products, services or customer types are introduced; When the institution faces a merger or acquisition
Financial institutions must update their ML/TF risk assessments when new products, services, or customer types are introduced, as these create new risk exposures requiring evaluation. Similarly, mergers and acquisitions fundamentally change the institution's risk profile, customer base, and operational structure, necessitating comprehensive reassessment.
Why the other options are wrong
- B. New board member elections do not directly impact the institution's ML/TF risk profile or assessment requirements.
- C. Hiring new AML compliance team employees is an internal staffing matter that does not trigger risk assessment updates.
- E. Opening a sales point in the same city presents no material change in geographic risk or customer profile warranting a full risk assessment update.
Question 128
A precious metals dealer opens a new account with a bank. Which requires a referral to AML Investigations for further review?
Show answer and explanation
Correct answer: B. Payments received on the account reference unknown companies in the instructions.
Payments received with references to unknown companies in the instructions represent a significant AML red flag because the lack of identifiable beneficiary information and unclear transaction purposes suggest potential money laundering or sanctions evasion. This requires referral to AML Investigations. Options A and C describe legitimate business activities consistent with the precious metals dealer's normal operations and established relationships. Option D, while potentially concerning, describes routine retail transactions that are more appropriately monitored through standard transaction monitoring systems rather than immediately escalated.
Why the other options are wrong
- A. International wires to known diamond dealers as part of established supply chains are normal business operations for a precious metals dealer.
- C. Incoming payments from foreign companies with established relationships are legitimate business transactions and do not themselves trigger AML referral.
- D. Multiple daily point-of-sale transactions from individuals are typical retail activity, not an inherent AML risk factor.
Question 129
The findings of an internal audit discover that a large group of employees do not know how to handle Politically Exposed Persons (PEPs). Which is the next course of action that should be taken?
Show answer and explanation
Correct answer: A. Create a company-wide training program.
When an internal audit discovers that a large group of employees lacks knowledge of how to handle Politically Exposed Persons, the immediate and appropriate remedial action is to create a company-wide training program to address this knowledge gap. This ensures consistent understanding and compliance across the organization before deploying other measures. Training is the foundational corrective action for systemic knowledge deficiencies.
Why the other options are wrong
- B. Revamping the compliance program addresses identification processes but does not resolve the existing knowledge gap in the workforce.
- C. Focusing only on new hires ignores the existing large group of employees who currently lack this knowledge.
- D. De-risking all PEPs is an extreme measure that is disproportionate and unnecessary when the issue is merely a training deficiency.
Question 130
Which are common types of economic sanctions? (Choose three.)
Show answer and explanation
Correct answer: A, D, F. Targeted sanctions; Sectoral sanctions; Comprehensive sanction
The three common types of economic sanctions are targeted sanctions (selective restrictions against specific entities or individuals), sectoral sanctions (restrictions on specific industries or sectors), and comprehensive sanctions (broad restrictions affecting an entire country or economy). These represent the primary categorization methods used by international bodies and governments.
Why the other options are wrong
- B. Technological sanctions is not a standard classification of economic sanctions.
- C. SWIFT network sanctions refers to a specific enforcement mechanism, not a type of sanction classification.
- E. Supervisory sanctions relates to regulatory enforcement, not to economic sanctions frameworks.
Question 131
Financial Action Task Force (FATF)-style regional bodies are created and obliged to understand the inherent money laundering and terrorist financing risks in the region of the world they serve. What is one of the methods they use to understand these risks?
Show answer and explanation
Correct answer: D. They conduct regional-level research and analysis of the money laundering and terrorist financing methods and trends using standards and templates used for FATF typologies reports
FATF-style regional bodies conduct regional-level research and analysis using FATF's established methodologies and templates to identify money laundering and terrorist financing methods and trends specific to their geographic areas. This approach mirrors FATF's global typologies reports but tailors the analysis to regional contexts and risks. This systematic regional analysis helps member countries understand their specific vulnerabilities and develop appropriate countermeasures.
Why the other options are wrong
- A. Requiring member countries to develop statistical metrics is not a method FATF-style bodies use; rather, they analyze existing information and trends.
- B. FATF-style bodies do not receive suspicious transaction reports directly from financial institutions; they conduct macro-level analysis of trends and methods.
- C. While FATF itself conducts global research, FATF-style regional bodies focus on regional analysis using FATF templates, not conducting their own separate global research.
Question 132
A bank has opened a new account for a well-known attorney to manage client funds. During the first six months, bank staff observe the account receives multiple deposits via wire transfer. They also observe that the attorney withdraws cash, makes payments to various people, and transfers funds to the law firm's account online. What is considered a red flag for potential money laundering in this situation?
Show answer and explanation
Correct answer: A. Withdrawing cash
Withdrawing cash from an account that receives wire transfers is a notable red flag for potential money laundering. This pattern suggests the possible layering or placement phase of money laundering, where funds received via wire transfer are quickly converted to cash, which is more difficult to trace and can be used in structuring schemes or to obscure the audit trail of illicit funds.
Why the other options are wrong
- B. Making payments to various people is a normal business activity for an attorney managing client funds.
- C. Receiving multiple deposits via wire transfer is ordinary for an attorney managing client funds and does not itself indicate money laundering.
- D. Transferring funds to the law firm's account is consistent with the legitimate purpose of managing client funds.
Question 133
What are two sources for maintaining up-to-date sanctions information? (Choose two.)
Show answer and explanation
Correct answer: B, D. U.S. Department of the Treasury Office of Foreign Assets Control; Financial Action Task Force's list of High Risk and Non-Cooperative Jurisdictions
The U.S. Department of the Treasury Office of Foreign Assets Control (OFAC) maintains the primary comprehensive list of sanctioned individuals, entities, and countries. The Financial Action Task Force (FATF) publishes the list of High Risk and Non-Cooperative Jurisdictions, which identifies countries with deficient anti-money laundering and counter-terrorist financing frameworks. Both sources are essential for compliance professionals to maintain current sanctions information.
Why the other options are wrong
- A. NSLs are investigative tools for law enforcement, not sources for sanctions list maintenance.
- C. Section 311 is a mechanism for imposing special measures on jurisdictions, not a primary source for sanctions information itself.
Question 134
Which is the main objective when a financial institution (FI) conducts an investigation?
Show answer and explanation
Correct answer: D. Track the movement of the money
The primary objective of a financial institution's AML investigation is to track the movement of money through accounts and transactions to identify suspicious patterns, detect money laundering activity, and understand the flow of funds in relation to potential criminal or terrorist financing. While documentation and policy updates support this objective, the core investigative purpose is monetary tracking and pattern identification.
Why the other options are wrong
- A. Updating policies is a compliance management function, not the main investigative objective.
- B. Documentation is a supporting requirement, not the primary objective of an investigation.
- C. Knowing the customer is a preventive measure (KYC), distinct from the investigative objective of tracking funds.
Question 135
A private banker of a major international bank is onboarding a new private investment company. The banker has verified the identity of the two directors, a husband and wife, who are equal shareholders. The funds in the account will be provided solely by the wife. The banker was later informed by the company that an additional director and shareholder will be added to the company although the new shareholder will not provide funds. What is the next step for due diligence in respect to the additional director and shareholder according to the Wolfsberg Anti-Money Laundering Principles for Private Banking?
Show answer and explanation
Correct answer: D. Seek to further understand the relationship between the shareholders and verify the identity of the individual which may include due diligence in respect to her background and reputation
According to the Wolfsberg Anti-Money Laundering Principles for Private Banking, when a new beneficial owner or director is added to an account relationship, the institution must understand the relationship dynamics among shareholders and conduct appropriate due diligence on the new individual. This includes verifying identity and conducting background and reputation checks, though it may not necessarily require full source of funds verification for a non-funding shareholder in all circumstances. Option B incorrectly extends the source of funds inquiry to all shareholders unnecessarily. Option C overstates the requirements by mandating full source of funds and wealth verification for someone not providing funds. Option A inappropriately refuses the arrangement based on a misconception about what constitutes normal private company structure.
Why the other options are wrong
- A. It is not unusual or necessarily improper for a shareholder to be a director without personally providing funds, particularly in family or partnership structures.
- B. Conducting full source of funds and wealth due diligence on all shareholders, including one who is not providing funds, exceeds Wolfsberg standards for this situation.
- C. Requiring full source of funds and wealth verification for a director and shareholder who is not providing funds goes beyond the proportionate due diligence required by Wolfsberg principles.
Question 136
A banker in the credit department wants to assess the risk of all customers, and contacts the compliance officer to request a list of customers with suspicious transaction report filings. What should be done to protect suspicious transaction report information?
Show answer and explanation
Correct answer: B. Decline to provide the suspicious transaction report information to the credit department
Suspicious transaction report information is confidential and must be protected from unauthorized disclosure. The compliance officer must decline to provide STR information to the credit department or other business units, as STRs are filed with law enforcement and must remain segregated from normal business operations. Sharing STR data with credit risk personnel would violate the legal protections surrounding these reports.
Why the other options are wrong
- A. Providing STR information to credit departments violates the confidential nature of STR filings and their intended segregation from ordinary business activities.
- C. Board approval does not override the requirement to maintain STR confidentiality; approval cannot be granted to disclose protected information.
- D. Seeking to determine how STR information 'can be provided' assumes a false premise that disclosure is permissible with proper coordination, when in fact it should be declined.
Question 137
What are two requirements for monitoring and reporting suspicious activity for correspondent banking according to the Wolfsberg Principles? (Choose two.)
Show answer and explanation
Correct answer: A, B. Incorporate suspicious activity monitoring into periodic reviews; Incorporate due diligence results such as customer risk ratings
The Wolfsberg Principles for Correspondent Banking require that suspicious activity monitoring be incorporated into periodic reviews of correspondent relationships, and that due diligence results, including customer risk ratings, inform the monitoring process. These requirements ensure ongoing vigilance rather than one-time assessment. Monitoring should directly assess the correspondent bank's own activities and those of its direct customers, with consistent standards applied across the correspondent network.
Why the other options are wrong
- C. Downstream correspondents are not responsible for investigating and reporting on behalf of the originating bank; this violates proper correspondent oversight.
- D. Suspicious activity reporting applies broadly to all account activities and correspondent flows, not limited solely to the correspondent bank's direct clients.
Question 138
Which two factors should increase the risk of a correspondent bank customer and require additional due diligence according to the Wolfsberg Anti-Money Laundering Principles for Correspondent Banking? (Choose two.)
Show answer and explanation
Correct answer: C, D. The customer is located in a Financial Action Task Force member country and provides services to other correspondent banks in neighboring countries; The customer is located in a non-Financial Action Task Force member country and services mostly commercial customers who engage in international trade.
Non-FATF member countries present higher risk due to potentially weaker AML/CFT standards and oversight, requiring enhanced due diligence. Customers that provide services to other correspondent banks in neighboring countries create additional risk through layered relationships and potential exposure to higher-risk jurisdictions. FATF membership generally indicates stronger regulatory frameworks, while serving local individual customers or being in FATF countries with strong oversight does not elevate risk.
Why the other options are wrong
- A. FATF membership indicates stronger standards; a customer in a FATF country serving local individuals presents lower, not higher, risk.
- B. The information security officer's status as a PEP relates to different compliance obligations but is not a correspondent banking customer risk factor.
Question 139
A comprehensive set of risk-based guidelines for maintaining business relationships is being developed. Which situation indicates that the institution should terminate the relationship with a client?
Show answer and explanation
Correct answer: D. The client exceeds the criteria of an acceptable risk model created by the institution and does not perform acceptable remedial actions.
An institution should terminate a client relationship when the client exceeds the criteria of its own acceptable risk model and fails to take acceptable remedial actions. This ensures the institution maintains control over its risk exposure and operates within its risk appetite. The risk model is specifically designed based on the institution's size, complexity, and risk tolerance.
Why the other options are wrong
- A. Conducting business in countries with terrorist organizations is not automatically grounds for termination; risk-based assessment and enhanced due diligence may be sufficient.
- B. Large international transaction volumes exceeding $500 million do not inherently indicate unacceptable risk requiring termination.
- C. Another institution's risk model is not applicable; each institution develops criteria based on its own profile and risk appetite.
Question 140
An AML training program should include which requirement?
Show answer and explanation
Correct answer: C. New staff should receive training during employee orientation or shortly thereafter on bank procedures.
AML training requirements mandate that new staff receive training on bank procedures during employee orientation or shortly thereafter. This ensures all employees understand AML compliance obligations from the beginning of their employment. Early training is critical because it establishes the compliance culture and awareness needed across the entire organization from day one.
Why the other options are wrong
- A. Training should occur during or shortly after orientation, not delayed until after the first year of employment.
- B. Training on currency transaction reporting should not be limited only to new lending staff; it applies to relevant personnel based on their roles.
- D. Training on CTR exemptions is too narrow and specific; comprehensive bank procedures training is the requirement.
Question 141
A compliance officer is tasked with implementing an enterprise-wide anti-money laundering program for a bank, which operates in multiple countries. Not all the bank products and services are available in all countries. Which three factors should be considered as part of the approach? (Choose three.)
Show answer and explanation
Correct answer: A, C, D. The types of customers serviced by the bank; The extent of anti-money laundering regulations in the various countries; The anti-money laundering risk posed by the products and services offered by the bank
An effective enterprise-wide anti-money laundering program must consider the types of customers serviced (Option A), since different customer profiles present different AML risks; the extent of AML regulations in various countries (Option C), since compliance obligations vary by jurisdiction; and the AML risk posed by specific products and services offered (Option D), since different products have inherent risk levels. These three factors collectively define the scope and intensity of the AML program needed across the organization's multi-country operations. The customer onboarding platform (Option B) is an implementation tool rather than a factor in determining program approach, and while resources are important for execution, the five primary risk factors listed do not include resource planning as a conceptual consideration.
Why the other options are wrong
- B. The customer onboarding platform is an operational tool for implementation rather than a foundational factor for determining the program's approach and risk-based design.
- E. While resource allocation is necessary for implementation, it is not a factor for determining the AML program approach; resources are allocated after the approach is designed based on risk factors.
Question 142
In the summer, an institution identifies anti-money laundering concerns regarding a customer's account activity. The customer, an ice cream parlor, has deposited a lot of checks drawn on banks in foreign countries, sent large number of high dollar international wires to different countries, made cash deposits of a few hundred dollars every few days and written multiple checks for a few hundred dollars to the same dozen payees every two weeks. Which two transaction types warrant investigation? (Choose two.)
Show answer and explanation
Correct answer: B, D. The wires to foreign countries; Checks drawn on banks in foreign countries
Large numbers of high-dollar international wire transfers are suspicious because an ice cream parlor typically has localized business operations and limited need for frequent large international wires, suggesting possible layering in a money laundering scheme. Checks drawn on banks in foreign countries are also suspicious because they indicate foreign cash being converted into checks for deposit, which is atypical for a retail ice cream business and suggests potential structuring or movement of illicit foreign funds. Regular small cash deposits and repeated small checks to the same payees could reflect normal operational expenses and payroll.
Why the other options are wrong
- A. Regular small cash deposits of a few hundred dollars are consistent with normal retail business operations.
- C. Repeated checks of a few hundred dollars to the same dozen payees every two weeks is consistent with regular payroll and vendor payments.
Question 143
A money transmitter's nation-wide agent network remits funds to a country in Africa on behalf of an immigrant community based in the United States. A terrorist group is known to operate openly in this African country. In reviewing transaction records, the compliance officer detects a pattern where two customers together visit the same agent each week and remit the same amount of funds, $2,500, to the same recipient in the country in Africa. What should alert the compliance officer to possible money laundering or terrorist financing activity by the two customers?
Show answer and explanation
Correct answer: D. The dollar amount of each transaction is just below the record keeping threshold.
The transaction amount of $2,500 is just below the $10,000 Currency Transaction Report (CTR) threshold that triggers mandatory reporting requirements. This pattern, where two customers consistently remit exactly $2,500 each week to avoid crossing the reporting threshold, is a classic indicator of structuring, a technique used to evade financial reporting requirements and conceal the true nature and source of funds. The fact that they split the remittance into amounts below the threshold, rather than remitting larger amounts together, is the key red flag for money laundering or terrorist financing activity.
Why the other options are wrong
- A. Customers visiting together is normal and unremarkable for family members or community members sending remittances.
- B. Using the same agent is expected behavior when customers have an established trusted relationship with that agent.
- C. Sending funds to the same recipient each week is consistent with legitimate ongoing family support or regular business transactions common in remittance corridors.
Question 144
Who has the day-to-day responsibility of communicating and reinforcing the established anti-money laundering compliance culture and program?
Show answer and explanation
Correct answer: D. Compliance officer
The compliance officer has the day-to-day responsibility for communicating and reinforcing the established anti-money laundering compliance culture and program. This is the core operational function of the compliance role. While senior management sets the tone and the board provides governance oversight, and business lines implement controls, the compliance officer directly manages staff engagement, training, policy communication, and cultural reinforcement on a daily basis.
Why the other options are wrong
- A. Business lines implement controls but do not have primary responsibility for communicating overall AML culture institution-wide.
- B. Senior management sets tone at the top but delegates day-to-day communication to the compliance function.
- C. The board provides governance and oversight but does not handle daily communications with staff regarding AML culture.
Question 145
Which two methods have terrorist groups used to diversify their revenue stream and to fund their operations? (Choose two.)
Show answer and explanation
Correct answer: A, C. Human trafficking; Smuggling cultural artifacts
Terrorist groups fund operations through human trafficking and smuggling of cultural artifacts, both of which generate illicit revenue streams that are difficult to trace and highly profitable. Human trafficking generates substantial criminal proceeds that can be diverted to terrorist operations, while cultural artifact smuggling exploits black markets and operates through legitimate-appearing trade channels.
Why the other options are wrong
- B. Engaging in civil conflict is a tactical military activity, not a revenue diversification method or funding mechanism.
- D. Wire transfer activity is a financial mechanism for moving funds but is not itself a revenue-generating method that terrorists use to diversify their income streams.
Question 146
Which action should countries take related to the financing of terrorist acts in accordance with the Financial Action Task Force 40 Recommendations?
Show answer and explanation
Correct answer: D. Criminalize
The Financial Action Task Force 40 Recommendations require countries to criminalize the financing of terrorist acts. Criminalization means establishing it as a crime under law, which is the foundational legal step that enables prosecution and other enforcement actions. This goes beyond merely opposing or sanctioning; it requires making terrorist financing a criminal offense that can be prosecuted in courts.
Why the other options are wrong
- A. Opposing terrorism financing is too vague and does not establish a legal framework for enforcement.
- B. Sanctioning is an enforcement tool but not the primary requirement; criminalization must be established first.
- C. Prosecute describes enforcement action, but the countries must first criminalize the conduct to enable prosecution.
Question 147
What do Financial Action Task Force (FATF)-style regional bodies do for their members to help combat money laundering and terrorist financing?
Show answer and explanation
Correct answer: A. They provide technical assistance to members in implementing FATF recommendations
FATF-style regional bodies (FSRBs) support their member countries by providing technical assistance and capacity building to help implement FATF's 40 Recommendations and combat money laundering and terrorist financing through training, guidance, and best practice sharing.
Why the other options are wrong
- B. FSRBs do not have enforcement authority to penalize member countries or entities; they provide guidance and technical support.
- C. FATF and regional bodies focus specifically on AML/CFT matters, not broader areas of concern.
- D. FSRBs provide guidance but do not directly supervise member country financial institutions; supervision remains a national responsibility.
Question 148
A foreign politically exposed person (PEP) requests to add a beneficiary to a life insurance policy. How should the request be processed to mitigate risk?
Show answer and explanation
Correct answer: A. Perform due diligence on the beneficiary
When a politically exposed person requests changes to account beneficiaries, the appropriate mitigation is to perform due diligence on the proposed beneficiary to assess risk and ensure compliance with beneficial ownership requirements. This approach allows the transaction to proceed while properly managing risk. Declining all requests from PEPs is overly restrictive, and determining source of wealth is typically part of the initial due diligence process rather than the specific mitigation for adding a beneficiary.
Why the other options are wrong
- B. While source of wealth determination is important in PEP relationships, the specific response to adding a beneficiary is to conduct due diligence on that beneficiary.
- C. Blanket rejection of requests from foreign PEPs is not compliant with AML guidance; enhanced due diligence on the beneficiary is the appropriate response.
- D. Automatically declining to add any beneficiary due to increased risk is an overly rigid approach that fails to properly assess and manage the specific risk.
Question 149
A popular restaurant in town has begun depositing less cash than it has in prior years. In a review of the customer's accounts, you notice that credit card receipts have increased with no explanation. The account officer discovers that the restaurant has installed a privately-owned automated teller machine (ATM) onsite and has begun construction of a patio dining area. Which red flag should trigger additional investigation?
Show answer and explanation
Correct answer: A. Privately-owned ATM
A privately-owned ATM installed at the restaurant is a significant red flag because it enables the business to convert deposited cash into other forms or to withdraw funds without creating banking records, potentially facilitating structuring and layering activities in money laundering schemes. Lower cash deposits, increased credit card receipts, and patio construction all have legitimate business explanations, customers may simply prefer card payments, and restaurant improvements are normal capital investments. The ATM, however, provides a mechanism to manipulate deposit records and obscure the flow of funds.
Why the other options are wrong
- B. Lower cash deposits can be legitimately explained by customers' preference for credit card transactions and changing payment behaviors.
- C. Increased credit card receipts reflect normal market trends and customer payment preferences with no inherent suspicious activity.
- D. Construction of a patio dining area is a standard business expansion and improvement with clear legitimate business purpose.
Question 150
Which safeguard is in place for Financial Intelligence Units (FIUs) to share information securely according to Egmont?
Show answer and explanation
Correct answer: B. Information sharing is conducted according to processes contained in Memoranda of Understanding.
According to Egmont Group standards, Financial Intelligence Units share information securely through processes and protocols established in Memoranda of Understanding (MOUs). These formal agreements define the terms, conditions, and security measures for information exchange between FIUs, ensuring that data sharing is conducted within an established legal and operational framework.
Why the other options are wrong
- A. While Egmont does provide a Secure Web platform, not all FIU members have individual computer access to it, and this is not the primary safeguard mechanism.
- C. Messaging applications are not secure channels approved by Egmont for sensitive intelligence sharing.
- D. Direct requests between investigators bypass the formal FIU channels and violate the established protocols for information exchange.
Question 151
A high-volume dealer of precious metals and stones in a high-risk jurisdiction is approached by a new customer interested in selling gold worth $200,000. The customer was referred by a longtime family friend of the dealer and provides no indication of background or business purpose for the sale. The dealer agrees to make the purchase based solely on the reference. What is the money laundering red flag?
Show answer and explanation
Correct answer: D. The customer provides no background information or business purpose for the transaction
The red flag is that the new customer provides no background information or business purpose for the transaction. A $200,000 precious metals transaction requires appropriate customer due diligence and understanding of the transaction's legitimate business rationale. The absence of any background information or stated business purpose creates inability to assess the transaction's legitimacy. While the referral from a family friend may be comforting, it does not replace proper customer due diligence and understanding the source and purpose of funds.
Why the other options are wrong
- A. A referral from a longtime friend is a social connection but does not eliminate the need for proper due diligence.
- B. Operating in a high-risk jurisdiction is a risk factor, but the transaction-specific issue is the lack of customer information.
- C. A new customer making a large sale is not inherently suspicious; the issue is the absence of information about the customer and transaction purpose.
Question 152
What core objective does the Egmont Group suggest would lead to an effective national Financial Intelligence Unit (FIU)?
Show answer and explanation
Correct answer: C. The FIU must have absolute trust amongst national and international stakeholders before sensitive information will be exchanged with confidence.
The Egmont Group recognizes that an effective national FIU must establish absolute trust amongst national and international stakeholders before sensitive financial information will be exchanged with confidence. Trust is the foundational requirement that enables FIUs to operate effectively within their networks, as stakeholders must be assured that information will be handled appropriately and securely.
Why the other options are wrong
- A. While physical separation from other agencies may support independence, it is not identified as the core objective for effectiveness by the Egmont Group.
- B. Meeting assessment criteria is a compliance measure, not the core objective that drives effectiveness.
- D. Promoting corruption-free society governance is a desirable outcome but not the core objective specifically outlined by the Egmont Group for FIU effectiveness.
Question 153
A bank compliance officer discovers cash deposit activity inconsistent with the expected and historical cash activity within the personal accounts of the chairman of the board. The cash activity appears structured to avoid the local legal filing requirements for large cash transactions, and a suspicious transaction report (STR) was filed. How should the compliance officer report the filing of the STR to the board of directors without revealing the existence of the filing to the subject?
Show answer and explanation
Correct answer: B. Follow the financial institution's established STR reporting policy
The compliance officer should follow the financial institution's established STR reporting policy, which typically requires disclosure to appropriate governance bodies while maintaining the confidentiality of the STR itself and protecting against tipping off the subject. The policy ensures proper oversight while maintaining legal protections.
Why the other options are wrong
- A. Informing only legal counsel bypasses the governance and oversight required by the established reporting policy.
- C. Notifying the regulator is redundant because the STR itself has already been filed with the appropriate regulator.
- D. Interviewing the chairman would constitute tipping off and could compromise the investigation and violate anti-tipping off provisions.
Question 154
What is a key objective of the Egmont Group?
Show answer and explanation
Correct answer: B. Foster better and secure communications across Financial Intelligence Units (FIUs) through the application of technology
The Egmont Group of Financial Intelligence Units is a peer organization dedicated to fostering international cooperation among FIUs by promoting secure information exchange, developing best practices, and leveraging technology to enable safe and effective communication networks across jurisdictions for combating money laundering and terrorist financing.
Why the other options are wrong
- A. The Egmont Group does not formally exchange law interpretations; it focuses on operational cooperation and information sharing.
- C. The Egmont Group does not provide direct enforcement recommendations to law enforcement agencies.
- D. Validating FATF implementation and conducting evaluations is the role of the FATF Mutual Evaluation Process, not the Egmont Group.
Question 155
According to the 5th EU Money Laundering Directive, member states require entities to apply enhanced customer due diligence measures with respect to business relationships or transactions involving high-risk third country nationals. Which are included in these requirements? (Choose three.)
Show answer and explanation
Correct answer: A, D, F. Obtaining the approval of senior management for establishing or continuing the business relationship; Obtaining information on the reasons for intended or performed transactions; Obtaining information on the source of funds and source of wealth of the customer and of the beneficial owner(s)
The 5th EU Money Laundering Directive requires senior management approval for high-risk third country nationals (A), information on the source of funds and source of wealth (F), and establishment and verification of the client's address (C is also required but not in the answer). The requirement to obtain information on intended transaction reasons (D) completes the enhanced due diligence framework for high-risk customers involving third country nationals.
Why the other options are wrong
- B. Passport copies for all authorized persons is not a specific EDD requirement under the 5th Directive.
- C. While address establishment is part of basic CDD, it is not specifically highlighted as an enhanced measure for this particular requirement.
- E. Tax reference details are not an EDD requirement for high-risk third country nationals.
Question 156
The ultimate goal of economic sanctions is to:
Show answer and explanation
Correct answer: C. protect national security.
The ultimate goal of economic sanctions under international law and US policy is to protect national security by restricting the economic activity of targeted entities, countries, and individuals that pose security threats. Sanctions target state and non-state actors engaged in terrorism, weapons proliferation, human rights violations, and other activities harmful to national security interests.
Why the other options are wrong
- A. While reputation matters, it is not the ultimate goal; national security is the primary objective.
- B. Preventing terrorist profits is one mechanism, but the broader purpose encompasses all national security threats beyond just terrorism.
- D. Reducing profits is a method of sanctions, not the ultimate goal; the goal is security protection.
Question 157
Which should authorities do to safeguard AML information exchanged with other countries?
Show answer and explanation
Correct answer: A. Protect exchanged information as they would protect similar information received from domestic sources.
When authorities exchange AML information with other countries, they must protect that information using the same safeguards and level of confidentiality that would be applied to similar information received from domestic sources. This principle ensures consistent protection standards across international borders and maintains the integrity of information-sharing relationships between countries. Equal protection for international and domestic information is the fundamental standard for cross-border AML cooperation.
Why the other options are wrong
- B. While non-disclosure agreements may be part of some arrangements, they are not the standard or primary mechanism for protecting internationally exchanged AML information.
- C. Using the court system for every exchange of information would be impractical and is not the standard method for protecting internationally exchanged AML information.
- D. Destroying information once an investigation is complete may violate record-keeping requirements and eliminate important audit trails for future reference or related investigations.
That was 157 of 637.
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