CAMS Questions Bank

According to the Basel Committee on Banking Supervision, banks should adopt a risk-based approach to customer due diligence, which includes four essential elements1:

A customer acceptance policy that defines the types of customers that are likely to pose a higher than average risk to the bank.

A customer identification program that collects and verifies information about the customer’s identity, beneficial ownership, and purpose of the account or relationship.

An on-going monitoring of high-risk accounts to detect and report any unusual or suspicious activity, and to keep customer information up-to-date.

A risk management program that ensures that the bank’s policies and procedures are implemented effectively, and that the bank’s staff are trained and aware of their AML/CFT obligations.

Therefore, documenting a customer acceptance policy and establishing on-going monitoring of high-risk accounts are the correct choices for the essential elements that should be included in the program based on Basel’s KYC principles.

References: 1: Basel Committee on Banking Supervision, Customer due diligence for banks, October 2001, page 8.

Trade finance transactions involve the financing of the movement of goods and services across borders. Trade finance products include letters of credit, guarantees, documentary collections, open account, and supply chain finance. Trade finance transactions are exposed to various risks, such as credit risk, operational risk, fraud risk, and money laundering risk. Money laundering risk refers to the possibility that trade finance transactions are used to conceal the origin, ownership, or destination of illicit funds, or to evade taxes, sanctions, or exchange controls. Trade-based money laundering (TBML) is a form of money laundering that involves the manipulation of trade transactions, such as mispricing, misinvoicing, over- or under-shipping, or falsifying documents, to transfer value or obscure the true nature of the funds12.

An analyst reviewing trade finance transactions should be alert to any red flags or indicators of potential TBML, such as significant discrepancies between the value or quantity of the goods and the invoice, payment, or contract; unusual or complex shipment routes or methods; involvement of high-risk jurisdictions, entities, or commodities; or lack of transparency or documentation of the trade transaction12. If the analyst notices an increase in price of 25% over 12 months for commodities with the same specification and quantity, this could be a sign of mispricing, which is a common technique of TBML. Mispricing involves inflating or deflating the price of the goods to transfer value or evade taxes or duties. For example, an exporter may overprice the goods to move funds out of a country with exchange controls, or an importer may underprice the goods to reduce the customs duty payable12.

However, an increase in price of 25% over 12 months for commodities with the same specification and quantity does not necessarily indicate TBML, as there could be other legitimate factors that may have affected the transaction cost, such as market fluctuations, supply and demand, quality, transportation, insurance, or other fees. Therefore, the analyst should not jump to the conclusion that TBML is occurring, but rather conduct a thorough investigation to verify the validity and rationale of the price change. The analyst should produce an investigation report that considers the client activity and factors that may have legitimately affected the transaction cost, such as:

The nature and purpose of the client’s business and trade activities

The client’s profile, risk rating, and transaction history

The source and destination of the funds and the goods

The market price and trends of the commodities involved

The contractual terms and conditions of the trade transaction

The supporting documents, such as invoices, bills of lading, certificates of origin, inspection reports, etc.

The due diligence and verification procedures performed by the bank or the third parties

The compliance with the relevant laws, regulations, and standards of the jurisdictions involved

The investigation report should document the findings, analysis, and conclusions of the analyst, and provide evidence and references to support the assessment. The investigation report should also include any recommendations or actions to be taken by the bank or the authorities, such as:

Requesting additional information or clarification from the client or the counterparties

Conducting enhanced due diligence or monitoring of the client or the transaction

Escalating the case to the senior management or the compliance department

Reporting the case to the Financial Investigation Unit (FIU) or the relevant regulator

Filing a Suspicious Activity Report (SAR) or a Suspicious Transaction Report (STR) if there are reasonable grounds to suspect TBML or other criminal activity

Therefore, the best action for the analyst to take is to produce an investigation report that considers the client activity and factors that may have legitimately affected the transaction cost, as this would allow the analyst to determine whether the price increase is justified or indicative of TBML, and to take appropriate measures accordingly.

References:

Trade Finance and Trade-Based Money Laundering

Trade-Based Money Laundering: Red Flag Indicators

The potential client is attempting to commit the illegal activity of using insider information to trade securities. Insider information is any material, non-public information that could affect the price or value of a security, such as earnings reports, mergers, acquisitions, or regulatory actions. Insider trading is the act of buying or selling securities based on insider information, which gives the trader an unfair advantage over other investors who do not have access to such information. Insider trading violates the principles of market integrity, fairness, and transparency, and can undermine investor confidence and trust. Insider trading is also a form of market abuse and financial crime, and is subject to civil and criminal penalties.

References:

ACAMS Study Guide for the CAMS Certification Examination - 6th Edition, Chapter 1: Risks and Methods of Money Laundering and Terrorism Financing, Section 1.3: Financial Crime, Subsection 1.3.3: Market Abuse, pp. 25-26

ACAMS CAMS Certification Video Training Course, Module 1: Risks and Methods of Money Laundering and Terrorism Financing, Lesson 1.3: Financial Crime, Sublesson 1.3.3: Market Abuse, Video Time: 2:00-3:30

Exam CAMS: Certified Anti-Money Laundering Specialist (the 6th edition), Question 12, Answer C

 Antiques are a potential tool for money laundering because they can be used to conceal, move, and convert illicit funds. Antiques can be of high value and often easily transported across borders, making them attractive for criminals who want to evade detection and reporting. Antiques can also be difficult to value and authenticate, creating a lack of transparency and accountability in the market. Criminals can exploit this to inflate or deflate the prices of antiques, or to use them as collateral for loans or other transactions. Antiques can also be used to layer or integrate illicit funds into the legitimate economy, by selling them through auction houses, dealers, or online platforms.

References:

CAMS Certification Package - 6th Edition, Chapter 4: Conducting and Supporting the Investigation Process, pp. 97-98.

Anti-money laundering and the art and antiquities market - a US and UK perspective, Mishcon de Reya LLP, 2022.

Antiques: an unconventional money laundering tool, The Express Tribune, 2023.

Art and Antiquities an Attractive Market for Money Laundering, FATF Argues, OCCRP, 2021.