CAMS Questions Bank

Money laundering negatively affects economic stability by discouraging investment, distorting markets, and eroding public trust.

Option A (Correct):A financial system tainted by money laundering loses credibility, leading to reduced investor and consumer confidence.

Option D (Correct):Foreign investors avoid jurisdictions with weak AML controls due to the risk of sanctions and reputational damage.

Option B (Incorrect):While tax evasion is linked to money laundering, it does not directly affect the decision to implement tax incentives.

Option C (Incorrect):Unemployment may result from economic instability, but money laundering does not directly cause job losses.

Option E (Incorrect):Money laundering often increases volatility in financial markets, not reduces it.

Certain corporate structuresobscure beneficial ownership, making themattractive for money laundering.

Option A (Correct):Nominee shareholders and directors conceal the true owners of a company, increasing AML risk.

Option C (Correct):Bearer shares allow ownership to be transferred anonymously, making it difficult to trace transactions.

Option E (Correct):Private investment companies in tax havens with strict secrecy laws enable illicit fund movements.

Why Other Options Are Incorrect:

Option B (Incorrect):A private company that does not operate in a tax haven presents lower ML risk.

Option D (Incorrect):A foreign LLC is not necessarily high-risk unless linked to a secrecy jurisdiction.

Best Practices for Identifying High-Risk Corporate Structures:

Require full disclosure of beneficial ownership.

Apply enhanced due diligence (EDD) on tax-haven entities.

Monitor for unusual cross-border transactions.

Financial institutions must screen customers against adverse information and determine whether they pose a significant financial crime risk.

Option B (Correct):A direct link to an organized crime group is a severe red flag. Organized crime networks engage in money laundering, corruption, and other illicit activities. UnderFATF Recommendations 10 and 12, financial institutions must implement enhanced due diligence (EDD) for high-risk customers and consider account closure if they pose undue risk.

Option A (Incorrect):Bankruptcy does not necessarily indicate financial crime risk, though it may raise financial stability concerns.

Option C (Incorrect):While PEPs pose a higher risk for corruption, financial institutions typically apply EDD rather than immediately terminating the relationship.

Option D (Incorrect):Violating a construction permit is a regulatory issue, not directly linked to financial crime.