Free and Premium ACAMS CAMS Dumps Questions Answers

Using brokerage accounts like deposit accounts (e.g., frequent cash deposits or withdrawals) and conducting transactions through nominees or third parties are common red flags in the securities industry. These behaviors can obscure the origin or ownership of funds and are often used to facilitate money laundering.

Artificial intelligence and machine learning technologies support the risk-based approach (RBA) to AML compliance by enhancing an institution’s ability to identify, assess, and prioritize financial crime risks. Regulatory guidance emphasizes that these technologies should augment—not replace—human judgment.

One key benefit is advanced customer risk assessment. AI and ML can synthesize large volumes of customer data, including background information, transaction behavior, and external risk indicators, allowing institutions to develop more accurate and dynamic risk profiles.

AI and ML also enable the identification of complex networks among seemingly unrelated clients. Through network analytics and pattern recognition, these tools can uncover hidden relationships used in layering and structuring activities.

Additionally, AI-driven systems excel at detecting complex money laundering patterns within transaction data that may not trigger traditional rule-based alerts, improving effectiveness and efficiency.

Automatically generating SARs or adapting thresholds without human oversight is inconsistent with regulatory expectations. Human review and governance remain essential components of AML compliance.

Residual risk represents the remaining level of risk after considering the effectiveness of controls. Under a risk-based approach, strong controls reduce risk, while weak or ineffective controls increase it.

In this scenario, the inherent risk is assessed as moderate, meaning the underlying exposure is neither low nor extreme. However, the controls are evaluated as less than satisfactory, indicating that existing measures are not adequately mitigating the identified risks.

When controls are weak, residual risk increases above the inherent risk level, as vulnerabilities remain unaddressed. Regulators expect financial institutions to escalate residual risk ratings and implement remediation plans in such cases.

Therefore, the most likely residual risk conclusion is high, reflecting the combination of moderate inherent risk and ineffective controls. This outcome aligns with AML best practice and regulatory expectations.

The First Line of Defense (1LoD) consists of customer-facing business units (e.g., relationship managers, front-office staff, and operational teams). Their primary responsibility in financial crime risk management is to implement AML/CFT controls as part of daily operations. This includes Collecting complete customer information.

The First Line of Defense is responsible for conducting Know Your Customer (KYC) and Customer Due Diligence (CDD) during onboarding and throughout the customer relationship. Ensuring that all relevant customer details (e.g., identity, business purpose, ownership structure) are accurately collected and documented is crucial for mitigating financial crime risks.

Effective sanctions screening depends heavily on strong list management governance, as emphasized in sanctions compliance guidance from regulators such as OFAC and FATF.

First, restricting list modification to authorized individuals is critical. This ensures proper governance, auditability, and control over updates, reducing the risk of errors, unauthorized changes, or manipulation of screening outcomes.

Second, sanctions and watchlists may be sourced internally or from reputable third-party vendors. Many financial institutions supplement regulatory lists with internal watchlists, law enforcement requests, or commercially curated databases to enhance detection capabilities. This flexibility supports a risk-based approach.

Using only regulatory lists may be insufficient for identifying broader sanctions evasion risks, while applying all lists in all jurisdictions may lead to legal conflicts and over-screening. Institutions must tailor list usage based on jurisdictional applicability and legal requirements.

Together, controlled access and flexible list sourcing form the foundation of effective sanctions list management.

Using multiple sanctions lists ensures that financial institutions meet international regulatory obligations and can identify sanctions-related risks across different jurisdictions. This comprehensive approach strengthens compliance and reduces the likelihood of exposure to sanctioned individuals or entities.

A: The first step in any suspicious activity investigation is to review the transaction history and other relevant account information to establish context, identify patterns, and determine if the behavior is consistent with known typologies of money laundering.

“The initial phase of an AML investigation is to review relevant account information and transaction activity to assess whether a SAR filing is warranted.”

This approach ensures that any subsequent decisions, such as escalation, SAR filing, or customer outreach, are based on a comprehensive understanding of the facts.

The remote gambling sector presents unique money laundering and terrorist financing risks due to its online, non-face-to-face nature, as recognized in FATF and national regulatory guidance.

A major risk is that customers are not physically present for identification, which increases impersonation and identity fraud risks and requires robust digital onboarding controls.

Another significant risk is the use of anonymous prepaid cards or other anonymous payment methods. These instruments reduce traceability and can be used to introduce illicit funds into gambling platforms with limited customer identification.

Additionally, numerous low-level transactions may indicate structuring behavior designed to avoid enhanced due diligence thresholds and monitoring controls. This tactic allows criminals to layer transactions while appearing consistent with normal gambling behavior.

Large cash deposits are less relevant in remote gambling, as transactions are typically electronic. Betting beyond affordability may indicate problem gambling but is not, by itself, a core AML risk indicator.

Effective AML/CFT policies, controls, and procedures must be risk-based, proportionate, and well-governed, as emphasized by FATF and national regulators. Proportionality ensures that controls are appropriate to the firm’s size, complexity, products, services, and risk exposure.

Senior management approval is essential to establish accountability and tone from the top. Regular review ensures policies remain effective as risks, regulations, and business models evolve.

AML responsibility is shared across the three lines of defense, not owned solely by the business. External validation may support assurance but does not replace internal accountability. While technology can enhance controls, regulators do not mandate the use of advanced or cutting-edge solutions; effectiveness and governance are more important than sophistication.

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

Real estate ML/TF risk is highest where transparency is low or the origin of funds is obscured:

Use of cash to purchase property (A):“All-cash transactions in real estate present a high ML risk, as they bypass traditional financial scrutiny and facilitate the placement of illicit funds.”(CAMS 6th Edition, Real Estate Money Laundering Risks)

Use of a company for the purchase of property (D):“Purchasing property through companies, especially shell companies, can conceal the beneficial owner and the true source of funds.”(CAMS 6th Edition, Real Estate ML/TF Risks; FATF, Real Estate Sector)

Incorrect Options:

B: Unlicensed agents may be risky, but the core risks are A and D.

C: Trusts may add complexity but are less common/high-risk than company structures.

E: Value manipulation is risky but less so than the above.

One of the biggest organizational challenges for law enforcement agencies and Financial Intelligence Units (FIUs) in cross-border money laundering (ML) investigations is dealing with jurisdictions that do not have an FIU or lack proper AML enforcement structures. When funds are transferred through countries without effective AML frameworks, it becomes difficult to trace, freeze, or recover illicit assets.

Key challenges include:

Lack of mutual legal assistance agreements (MLAs), which slows down or prevents information-sharing.

Weak AML regulations in some countries, making it easier for criminals to exploit financial systems.

Jurisdictional conflicts, as different countries have different legal definitions and enforcement mechanisms for money laundering.

In anEnterprise-Wide Risk Assessment (EWRA),residual riskis the level of risk that remains after applying mitigating controls to theinherent risk(the risk present before controls are applied).

In this scenario, theinherent risk is highdue to the nature of private banking—high net worth clients,cross-border transactions,complex ownership structures, andhigh-value financial products. However, the institution has implementedrobust CDD and EDD, as well asadvanced transaction monitoring systems.

According to the CAMS Study Guide – 6th Edition, wheneffective and properly implemented controlsare in place, they cansignificantly reducethe residual risk—even in high-risk business areas like private banking. However, no control framework caneliminate all riskentirely.

Option Ais correct: Controls can significantly reduce the residual risk when strong, effective systems and procedures are in place.

Option Bis partially true but suggests inadequacy, which is not indicated here.

Option Cincorrectly assumes residual risk cannot be lowered even with controls.

Option Dis incorrect because residual riskcannot be eliminated entirely.

Risk assessment is the foundation of an effective AML compliance program. It enables an organization to identify, understand, and prioritize its exposure to money laundering and terrorist financing risks, which in turn informs the development of appropriate controls, including policies, procedures, and customer due diligence measures.

The most effective way to reduce irrelevant results in AI/ML-driven adverse media screening is to fine-tune the models to prioritize high-risk keywords and reliable sources. This improves precision by filtering out noise and directing focus toward content that is more likely to indicate financial crime risk.

Virtual Asset Service Providers (VASPs) are considered higher-risk customers under FATF guidance due to their exposure to anonymity, speed of transactions, and cross-border activity. When onboarding a VASP, a financial institution must conduct a thorough risk assessment to determine whether the relationship aligns with its financial crime risk appetite.

Understanding the percentage of higher-risk clients served by the VASP is critical, as it indicates the level of exposure to illicit activity and the robustness of the VASP’s own risk management practices. A high concentration of higher-risk customers may significantly increase money laundering and terrorist financing risk.

Identifying which registered institutions act on behalf of the VASP, such as wallet providers or exchange operators, is also essential. Reliance on third parties introduces additional risk and requires assessment of those entities’ regulatory status and AML controls.

Finally, knowing who the VASP’s clients are, including the proportion of foreign versus domestic customers, is a core component of geographic and customer risk analysis. Cross-border exposure often elevates risk due to differing regulatory standards.

Data privacy practices and the use of central bank digital currencies, while relevant operational considerations, are not primary determinants of AML risk appetite decisions.

A global organization must ensure its group policies accommodate compliance with each country’s specific AML and sanctions regulations to effectively manage risks across multiple jurisdictions.

Data encryption protects sensitive information from unauthorized access, while privacy-enhancing technologies (PETs) enable secure and compliant data sharing with third parties, helping financial institutions meet privacy and data protection regulations.

Large individual cash transactions pose the highest money laundering risk for money services businesses. Cash is difficult to trace and, when handled in significant amounts, can be used to introduce illicit funds into the financial system with minimal transparency.

FATF Recommendation 29 states that an FIU should serve as a national center for the receipt and analysis of suspicious transaction reports and other information relevant to money laundering and terrorist financing.

“The FIU should serve as a national center for the receipt and analysis of suspicious transaction reports (STRs) and other information relevant to ML/TF, and for the dissemination of the results of that analysis.”

(CAMS 6th Edition, Role of the FIU; FATF Recommendation 29)

USA PATRIOT Act Section 314(b)allows financial institutions tovoluntarily share information with one another, after notifying the U.S. Treasury, toidentify and report possible money laundering or terrorist financing activities.

Key elements include:

Voluntary participation

Prior notice to FinCEN (part of the U.S. Treasury)

Protection from liability when acting in good faith

Enhanced collaborative detection across institutions

Section 314(a)refers toinformation sharing between law enforcement and financial institutions, not peer-to-peer sharing.

COSMICis an initiative in certain jurisdictions like Singapore, not U.S. regulation.

Regulation (EU) 2024/1624is part of the EU AML framework, not relevant to U.S. institutions.

One of the core components of a strong AFC (Anti-Financial Crimes) compliance program is establishingclear roles, responsibilities, and lines of accountability, especially forescalating and addressing AFC risks and compliance issues. This governance clarity ensures effective implementation, transparency in decision-making, and timely resolution of compliance concerns.

While external audits (option A) and internal controls (option B) are important,defining governance structure and escalation responsibilities (option D)is a foundational element. Additionally, the board of directors (option C) provides oversight—not day-to-day compliance monitoring.

Customer loyalty program tracking and product usage analysis can uncover unusual patterns or behaviors that deviate from expected norms. These insights may help detect suspicious activity or hidden risks, making them valuable tools for supporting AML compliance even if not directly linked to traditional monitoring systems.

Paying premium several years in advance and terminating early for a refund (A):“A typical red flag is when a policyholder pays large premiums up front and then seeks early termination to receive a refund. This can be used to launder illicit funds by integrating them into the financial system and then retrieving ‘clean’ money.”(CAMS 6th Edition, Life Insurance ML/TF Risks; FATF Guidance for a Risk-Based Approach for the Life Insurance Sector)

Regularly switching policies and accepting penalties (D):“Frequent changes in insurance policies or products, even at a financial loss, are considered suspicious. This may indicate an attempt to obscure the money trail or integrate illicit proceeds.”(CAMS 6th Edition, ML/TF Red Flags in Life Insurance)

Incorrect Options:

B: Having multiple policies is common and not itself a red flag.

C: High premiums/payouts are not inherently suspicious.

E: Beneficiary payouts to elderly people are not ML/TF red flags.

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

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

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

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

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

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

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

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

Incorrect Options:

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

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

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

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

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

Cryptoassets, such as cryptocurrencies, pose specific ML/TF risks due to their technological characteristics and usage patterns:

Potential for anonymity (C): Cryptoassets allow users to make transactions without revealing their true identities, which hinders law enforcement from tracking illicit activity. The CAMS 6th Edition states:“Cryptoassets can be transferred or exchanged between users without the need for identification, presenting a significant risk due to the potential for anonymity.”(CAMS 6th Edition, Chapter: Risks and Methods of Money Laundering and Terrorist Financing, Virtual Assets section)

Global reach (D): Cryptoassets operate on a global scale, enabling rapid cross-border transfers without the limitations of traditional financial systems. This increases the complexity of monitoring and controlling illicit transactions.“The global nature of virtual assets makes it easy for criminals to move value across borders quickly, evading jurisdictional controls.”(CAMS 6th Edition; FATF Guidance on Virtual Assets 2019)

Use to layer illicit funds (F): The ability to move cryptoassets between numerous wallets and exchanges allows criminals to obscure the source of funds through layering, a key stage of money laundering.“Layering can be achieved by rapidly moving cryptoassets between wallets, exchanges, and across different jurisdictions, making tracing more difficult.”(CAMS 6th Edition, Chapter: Risks and Methods of Money Laundering and Terrorist Financing)

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

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

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

Conceptual soundness validation is a foundational element of AML model governance and is emphasized in regulatory guidance on model risk management. It focuses on whether the design, logic, assumptions, and methodology of a model are appropriate for its intended purpose.

Validating conceptual soundness ensures that the model’s underlying framework makes sense for identifying money laundering and terrorist financing risks. This includes evaluating scenario logic, risk factors, thresholds, segmentation, and assumptions used in detection.

Statistical validation and performance testing are separate steps that assess outcomes and predictive power, while technology compatibility relates to system implementation rather than conceptual design. Alignment with regulatory guidance is important, but it is not the core objective of conceptual soundness testing.

Regulators expect institutions to demonstrate that their AML models are fit for purpose before relying on them operationally.

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

Option B – The prevalence of international wire transfers:

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

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

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

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

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

The United Nations develops sanctions regimes primarily to support the peaceful resolution of conflicts, deter unconstitutional or non-democratic changes in governments, and promote the protection of human rights. These objectives aim to maintain international peace, security, and uphold global norms.

Trade-based money laundering red flags include third-party involvement in transactions, amended letters of credit without clear justification, and non-standard settlement arrangements, all of which can indicate attempts to disguise illicit fund movements or the true nature of the trade.

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

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

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

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

Transaction monitoring governanceinvolves ensuring thatAML detection systems are effective, aligned with regulatory standards, and capable of identifying evolving threats.

Option B (Correct):Legal cooperation is essential for responding to subpoenas and law enforcement inquiries.

Option D (Correct):Regularly updating transaction monitoring scenarios ensures that the system adapts to emerging financial crime trends.

Why Other Options Are Incorrect:

Option A (Incorrect):SARs cannot be withdrawn unless an error was made—once filed, SARs remain confidential and must be retained.

Option C (Incorrect):Client profile updates are a CDD/KYC function, not directly related to transaction monitoring governance.

Best Practices for Transaction Monitoring Governance:

Regularly review system effectiveness through validation tests.

Collaborate with legal and compliance teams for risk mitigation.

Use AI and data analytics to refine detection accuracy.

Corruption risks in the supply of goods and services often arise when contractors receive preferential treatment, enabling inflated margins, and when procurement processes lack sufficient oversight, making it easier for bribes or kickbacks to influence tender outcomes.

Receiving funds from a decentralized mixer and using multiple incoming wires from different sources to purchase virtual currency are red flags, as they can indicate attempts to obscure the origin of funds and facilitate money laundering through virtual asset transactions.

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

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

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

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

The combination of frequent address changes and a recent change in the ultimate beneficial owner raises potential red flags that warrant immediate investigation. To mitigate risk, the insurance company should investigate these changes and temporarily decline any payment or withdrawal instructions until the review is complete and appropriate steps are agreed upon. This ensures both regulatory compliance and protection against potential misuse of the policy.

High-risk customers present elevated money laundering and terrorist financing risks, requiring careful consideration before onboarding. FATF guidance emphasizes that higher-risk relationships demand stronger controls due to their increased vulnerability to misuse.

One key risk is the greater potential for laundering illicit proceeds. High-risk customers may operate in sectors, jurisdictions, or business models that are frequently abused for financial crime, increasing the likelihood that illicit funds could pass through the institution.

Another significant risk is the increased likelihood of involvement in financial crimes, either directly or indirectly. This may include exposure to corruption, fraud, sanctions evasion, or organized crime networks.

Enhanced due diligence is not a risk but rather a risk-mitigating control imposed by regulators. Reduced regulatory scrutiny is incorrect, as high-risk customers are subject to greater—not lesser—oversight.

When setting a fuzzy matching threshold for sanctions screening, it is crucial to consider the reliability and accuracy of the data being screened. High-quality, verified data supports more effective matching and reduces both false positives and the risk of missing true matches.

The Basel Committee on Banking Supervision (BCBS) requires that the board of directors establish and oversee the compliance function and approve the bank's AML/CTF compliance policies and procedures, including processes for identifying, assessing, monitoring, and reporting compliance risks.

“The board of directors should establish a compliance function and approve compliance policies and processes for identifying, assessing, monitoring, and reporting compliance risks throughout the organization.”

(CAMS 6th Edition, Corporate Governance and Oversight; BCBS, Corporate Governance Principles for Banks, Principle 6)

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

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

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

A risk-based approach is central to AML/CFT programs and includes:

A: Creating detailed risk profiles for customers based on their behaviors and connections.

C: Applying controls that are tailored to the actual risk (not a one-size-fits-all approach).

D: Performing a thorough risk assessment, considering customer, transaction, and geographic factors.

“A risk-based approach involves risk profiling, tailored controls, and comprehensive risk assessment across key risk factors.”

(CAMS 6th Edition, Risk-Based Approach and Risk Assessment)

Incorrect:

B: Monitoring only flagged customers is not sufficient.

E: Equal allocation of resources ignores differing risk levels.

The suspicion increases when the beneficiary is a foreign company whose shareholders and director are other companies, as this can indicate the use of layered corporate structures to obscure the ultimate beneficial owner and conceal illicit fund flows.

Governance arrangements (A):“Sound governance and risk management arrangements are fundamental to assessing and managing ML/TF risk in products and services.”(CAMS 6th Edition, Risk-Based Approach for Products and Services)

Complexity of the products (B):“Complexity increases risk—products that are highly complex, opaque, or allow for multiple layers or jurisdictions are more vulnerable to misuse for ML/TF.”(CAMS 6th Edition, Product Risk Assessment)

Incorrect Options:

C: Last audit results inform program effectiveness, not inherent product risk.

D: Business financial status is considered in customer risk assessment, not product risk.

Money laundering has far-reaching consequences that extend beyond individual institutions and directly affect national and global economic stability. FATF and international bodies consistently highlight that large-scale money laundering can undermine political and economic systems.

One of the most significant impacts is the destabilization of legitimate governments. Money laundering enables organized crime, corruption, and terrorist financing, which can weaken public institutions, distort policy-making, and erode public trust. In extreme cases, criminal organizations gain influence over governments, law enforcement, or key economic sectors.

While money laundering can indirectly affect inflation and growth, it does not directly cause declining money supplies. “Sectoral polarization” is not a standard or widely recognized economic impact in AML literature. The most consistently recognized systemic consequence is the erosion of governance, rule of law, and institutional integrity.

Therefore, destabilization of legitimate governments is the most accurate and regulator-supported answer.

Adverse media screening is an important component of customer due diligence, but reliance on general search engines presents several limitations recognized by AML practitioners and regulators.

Search engines typically provide unstructured data, which makes it difficult to systematically analyze and document results for compliance purposes. Information may be incomplete, duplicated, or lack context.

The process is also time-consuming and highly manual, particularly for institutions screening large customer populations. Manual reviews increase operational burden and introduce inconsistency and human error.

Additionally, search engine algorithms vary, meaning results can differ depending on timing, location, and personalization, leading to inconsistent outcomes that are difficult to audit or reproduce.

While language coverage and relevance may be challenges, the most critical limitations relate to lack of structure, inefficiency, and inconsistent results.

A: The absence of professional oversight or accounting/auditing standards creates a high-risk environment for financial statement manipulation. Without external checks or mandated standards, criminals can more easily falsify statements to hide illicit assets.

“The lack of regulatory oversight and professional standards in accounting and auditing significantly increases the risk of manipulation and fraud in financial reporting.”(CAMS 6th Edition, Professional Service Providers; FATF Guidance on the Risk-Based Approach for Accountants)

AML/CFT guidance from FATF emphasizes that overly complex ownership structures are a key red flag when they appear unnecessary for legitimate business purposes and may be designed to obscure beneficial ownership.

A privately held company owned by two individuals whose interests are held through multiple layers of trusts and foundations represents an unnecessarily complex structure. Trusts and foundations are frequently identified in AML typologies as vehicles that can be misused to conceal the true beneficial owners, especially when layered without clear commercial rationale. This complexity increases the risk of money laundering and necessitates enhanced due diligence.

By contrast, a trust with two co-trustees, including the grantor and a professional service provider, is common and not inherently complex. Similarly, family-owned businesses with many shareholders may be complex but are not automatically deemed “overly complex” if ownership is transparent. Multinational banks with layered ownership tied to a publicly traded holding company are also common and subject to regulatory oversight.

Therefore, the use of multiple trusts and foundations without clear justification is the clearest indicator of an overly complex ownership structure.

Tax evasion is the deliberate and illegal act of not paying taxes that are legally owed. It is a criminal offense that can have serious consequences, including penalties, fines, and imprisonment.

This scenario presents multiple classic money laundering red flags, particularly within the life insurance sector, which is recognized by FATF as vulnerable to misuse due to its investment and payout features.

The use of an offshore trust in a jurisdiction with no clear link to the customer raises concerns about concealment of beneficial ownership and layering. Criminals frequently use trusts and offshore structures to obscure the origin and destination of illicit funds.

The client’s request to split premium payments into multiple transactions to avoid bank charges is indicative of structuring, a known money laundering technique used to evade monitoring and reporting thresholds.

Furthermore, the lack of a legitimate source of wealth or income consistent with the high-value policy is a significant red flag. Purchasing high-value insurance products with no apparent financial means is a common placement method for laundering illicit proceeds.

While fraud or sanctions evasion could be relevant in other contexts, the combination of structuring, unexplained wealth, offshore structures, and non-residency most strongly indicates money laundering risk.

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

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

B: If a bank fails to demonstrate sustained improvement or cannot resolve identified deficiencies, it can face civil or even criminal penalties from regulators. Regulators expect not just policy changes, but proof of effectiveness and ongoing compliance improvements.

C: Even after addressing many concerns, if all issues are not resolved—such as outstanding transaction monitoring backlogs—regulators may issue orders to further remediate the AML program until full compliance is achieved.

CAMS 6th Edition and regulatory guidance clarify that “regulators may impose penalties, issue consent orders, or require further remediation where weaknesses persist.”

Incorrect:

A: Secondary sanctions generally apply to sanctions violations, not standard AML program weaknesses.

D: Regulatory actions can be public and do pose reputational risk.

E: While transparency is sometimes required, this is not a universal regulatory response.

Countries that are members of the Egmont Group can securely exchange information between their Financial Intelligence Units (FIUs) to support money laundering and terrorist financing investigations, even when the activity involves multiple jurisdictions.

A low number of sanctions screening alerts relative to the size and scope of operations may indicate overly restrictive or inappropriate monitoring parameters. Revisiting and adjusting the post-transaction monitoring system parameters and thresholds ensures that the system is calibrated to detect potential sanctions breaches effectively.

Independent testing is critical for the third line of defense to provide unbiased and effective oversight, ensuring that reviews and audits are objective and free from influence by the first or second lines of defense.

The risk-based approach (RBA) is a foundational principle of FATF standards. It requires countries, regulators, and financial institutions to identify, assess, and understand their money laundering and terrorist financing risks.

Once risks are understood, entities must apply proportionate mitigation measures. Higher risks require stronger controls, while lower risks may justify simplified measures. However, no risk is ignored or exempted from mitigation.

Regulators do not expect all residual risks to be reduced to low; rather, risks must be managed within an acceptable risk appetite. Resource allocation under an RBA prioritizes AML/CFT activities, not unrelated tasks.

Therefore, the correct definition of an RBA focuses on understanding and managing risk proportionately.

The review should prioritize politically exposed persons (PEPs) risk, as state ownership increases the likelihood of political connections, and anti-bribery and corruption risk, since such environments may have higher exposure to corrupt practices and misuse of influence.

Terrorist financing can be facilitated on gaming platforms particularly through the trading of in-game items for fiat currency. This mechanism allows for the movement of value outside the formal financial system, potentially evading detection and reporting requirements.

“One of the key ML/TF risks in online gaming is the ability to convert virtual assets or in-game items into real-world (fiat) currency, thereby providing a channel for laundering money or funding terrorist activities.”

(CAMS 6th Edition, Chapter: Risks and Methods of Money Laundering and Terrorist Financing; FATF, Virtual Assets Guidance 2019)

Incorrect Options:

A: Buying in-game items with in-game currency does not in itself facilitate terrorist financing.

B: Exchanging items between players may be a step in layering but is not direct TF unless items are traded for fiat.

D: Obtaining items by in-game activity is standard gameplay and not a TF method.

A robust AML training program should incorporate the followingbest practicesto ensure awareness and ongoing engagement:

Option A – Tailored and regular training:

Training should berisk-based and role-specific, ensuring employees understand how AML applies to their function.

Option D – Variety and resources:

Use ofinteractive, digital, live, and scenario-based methodskeeps training effective and adaptable. Providing materials and resources supports continued learning.

Option E – Communication and measurement:

Ongoing AML awareness campaigns andfeedback mechanismshelp assess theeffectivenessof training and reinforce its importance.

Option Bis too vague and not recognized as a best practice.

Option C, while helpful, isnot sufficient alone—annual frequency without contextual or tailored content is inadequate.

The CAMS 6th Edition specifically lists environmental crime as a predicate offense for money laundering. Environmental crimes include activities such as illegal logging, illegal mining, and illegal trade in wildlife.

“Environmental crime, including illegal logging and mining, is recognized as a predicate offense to money laundering. Such crimes often involve complex corporate structures to hide the illicit origin of the proceeds.”

(CAMS 6th Edition, Chapter: Risks and Methods of Money Laundering and Terrorist Financing; FATF Recommendations, Predicate Offenses)

Incorrect Options:

A: Trade-based ML refers to manipulating trade transactions, not the underlying crime.

B: Corruption may be involved, but the primary crime is environmental.

C: Illicit resource trade describes the act, but the official predicate crime category is environmental crime.

The US Department of the Treasury identifies money services businesses (MSBs) and non-profit organizations with international operations as high money laundering risks when they lose access to traditional financial institutions, as this can push them toward less regulated channels that are more vulnerable to abuse.

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

Red flags include using personal accounts for business transactions (which can obscure fund tracing), preferring minimal direct interaction (potentially avoiding scrutiny), and unclear ultimate beneficial ownership (which can conceal the true controllers of the entity and facilitate illicit activity).

UN sanctions regimes are not punitive but aim to:

B: “Support peaceful resolution of conflicts.”

D: “Deter non-democratic and unconstitutional changes of government.”

E: “Promote respect for human rights and humanitarian law.”(CAMS 6th Edition, United Nations Sanctions; UN Security Council Mandates)

Incorrect:

A: The UN does not impose sanctions to force regime type.

C: Sanctions are not for punishing weak AML controls.

FATF standards require financial institutions to adopt a risk-based approach (RBA) that is informed by national and sectoral risk assessments. These assessments identify key threats, vulnerabilities, and typologies within a jurisdiction or industry and provide essential context for institutional risk management.

Financial institutions must reference and align their internal AML/CFT risk assessments with the findings of NRAs and sectoral assessments. This means demonstrating awareness of identified risks and showing how these risks are mitigated through policies, controls, and procedures.

However, institutions are not required to copy or mechanically apply the exact methodologies, weightings, or conclusions of these assessments. Each institution must tailor its risk assessment to its own business model, customer base, products, services, and geographic exposure.

Board oversight is required, but NRAs do not dictate how internal assessments must be written or approved. The key regulatory expectation is alignment, awareness, and effective risk management—not rigid adoption.

Policies, controls, and procedures must be proportionate to the size and nature of the firm, approved by senior management, and regularly reviewed to ensure they remain effective in preventing and mitigating financial crime risk while aligning with regulatory expectations.

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

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

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

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

Global organizations must ensure their policies and procedures comply with local laws and regulations in each country where they operate, even when maintaining group-wide consistency. Relying solely on international or U.S. standards does not ensure compliance with all local requirements, which may be more stringent or specific.

“A global group-wide program should ensure adherence to local AML and sanctions laws and regulations in every jurisdiction in which it operates. Local adaptation of policies is essential to address jurisdiction-specific risks and legal requirements.”

(CAMS 6th Edition, International AML/CFT Standards; FATF Recommendations 18, 35; EU & US Sanctions Regulations)

The pseudonymous nature of cryptoasset transactions enables criminals to transfer large sums globally while concealing their identities. This lack of transparency poses a significant money laundering risk, as it hinders efforts to trace the ultimate beneficial owner.

When reviewing business operations of a Money Services Business (MSB), it is critical to identify behaviors that indicate potential money laundering activity. TheCAMS Study Guide – 6th Editionoutlines severalred flagscommonly associated with MSBs.

Option Ais correct:

A customer beinghesitant to provide beneficiary information, such as the name or address, is a red flag. It may indicate attempts to hide the true purpose or recipient of the funds and could suggeststructuring or layering activity.

Option Dis correct:

A customer usingmultiple accounts under different namesto conduct transactions is a strong red flag. This could indicate efforts toobscure ownership, avoid detection, or conductsuspicious structuringbehavior to stay below reporting thresholds.

Option Bis incorrect:

While large cash deposits from cash-intensive businesses may require further review, they are not inherently suspicious unlessinconsistent with the nature of the business or transaction volume.

Option Cis incorrect:

Currency exchanges under the reporting threshold, even from high-risk jurisdictions, are not in themselves red flags unless they show a pattern ofstructuringor are part oflarger suspicious behavior.

Option Eis incorrect:

Frequent small-dollar transfers to a native country may benormal remittance behaviorand only become suspicious if tied to additional indicators such asstructuring or third-party involvement.

A risk appetite statement clearly defines the level and type of financial crime risk a financial institution is willing to accept in pursuit of its objectives. It guides decision-making and ensures consistency in risk-taking across the organization.

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

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

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

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

Virtual Asset Service Providers (VASPs) are considered higher-risk customers due to their exposure to anonymity, speed, and cross-border transactions. FATF guidance highlights several red flags indicative of potential money laundering activity.

The use of shell companies to move funds into and out of a VASP is a strong indicator of attempts to conceal beneficial ownership and obscure transaction flows. Similarly, frequent use of mixers and tumblers is a well-recognized technique used to break transaction trails and hinder blockchain tracing.

Receiving funds from jurisdictions with weak AML frameworks significantly increases geographic risk, particularly when combined with other red flags.

By contrast, peer-to-peer infrastructure use and market volatility are inherent features of the virtual asset ecosystem and do not, on their own, indicate money laundering.

FATF standards require organizations to adopt a risk-based approach (RBA) that is informed by both internal risk factors and national and sectoral risk assessments. These assessments provide critical insight into prevalent money laundering and terrorist financing threats within specific jurisdictions and industries.

Organizations should integrate relevant findings from these assessments into their internal risk assessments to ensure that policies, controls, and monitoring systems are aligned with identified risks. This enables institutions to tailor enhanced due diligence (EDD) measures and allocate compliance resources effectively.

Ignoring national or sectoral assessments would weaken the organization’s ability to respond to known threats and would be inconsistent with regulatory expectations. These assessments are not limited to worst-case scenarios nor intended solely for regulators; they are a foundational input for private-sector AML programs.

Technology plays a critical role in strengthening AML/CFT programs by improving efficiency, consistency, and scalability. Regulators encourage the responsible use of technology while maintaining governance and oversight.

One major benefit is processing large volumes of data efficiently, helping institutions eliminate investigative backlogs and manage increasing transaction volumes. Technology also automates repetitive tasks, reducing human error and improving data accuracy, allowing compliance professionals to focus on higher-value investigative work.

Technology does not eliminate privacy concerns, and front-end search tools alone are not sufficient to drive effectiveness. Human oversight remains essential for decision-making, investigations, and regulatory reporting.

Many jurisdictions lack robust sanctions frameworks, requiring international cooperation and education to improve compliance.

Option B (Correct):Educational initiatives such as AML/sanctions training and workshops help raise awareness and build capacity.

Option D (Correct):Bilateral cooperation allows knowledge-sharing and technical assistance between regulatory authorities.

Why Other Options Are Incorrect:

Option A (Incorrect):Trade restrictions may pressure non-compliant nations, but they do not directly improve sanctions awareness.

Option C (Incorrect):Enforcing fines without prior education or assistance is ineffective and may create diplomatic tensions.

Best Practices for Sanctions Awareness & Compliance:

Develop international AML/sanctions training programs for emerging markets.

Encourage diplomatic engagement to strengthen legal frameworks.

Leverage FATF’s Mutual Evaluation process to assess progress.

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

Foreign countries and regimes

Terrorist organizations

Narcotics traffickers

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

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

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

The finance industry is inherently vulnerable to money laundering risks due to the nature, scale, and complexity of its operations. FATF and global regulators consistently identify several structural characteristics that increase exposure to illicit financial activity.

One major vulnerability is the availability of complex financial products and services, such as derivatives, correspondent banking, and structured investments. These products can be misused to disguise the origin of funds through layering and complex transaction chains.

Another key risk arises from engagement with high-risk jurisdictions. Financial institutions often operate across borders, including in countries with weak AML controls or limited regulatory oversight, increasing exposure to money laundering and terrorist financing risks.

Additionally, high transaction volumes present a significant challenge. The sheer scale and speed of transactions make it difficult to detect suspicious activity, particularly when illicit transactions are deliberately structured to blend in with legitimate activity.

In contrast, heightened regulatory obligations and investments in technology are risk-mitigating factors, not vulnerabilities. They are designed to reduce exposure to financial crime rather than increase it.

FATF standards identify several designated non-financial businesses and professions (DNFBPs) as obliged entities due to their exposure to money laundering risks. These gatekeepers are required to perform customer due diligence (CDD).

Notaries involved in real estate transactions play a critical role in property transfers and are required to identify parties and beneficial owners. Dealers in precious metals and stones handle high-value, portable assets attractive to criminals. Real estate agents facilitate property purchases often used to launder large sums of money. Accountants and auditors may assist in financial structuring, tax planning, or company formation and must conduct CDD when providing covered services.

Casino security guards and judges are not obliged entities under AML/CFT frameworks.