Sure Pass Exam CAMS PDF

Reputational risk is the potential for negative publicity, public perception, or legal action to adversely affect a financial entity’s image, brand, or customer loyalty1. Violating AML laws can have significant reputational risks for financial entities, as they may be perceived as facilitating or enabling money laundering, terrorist financing, or other illicit activities. This can result in a loss of trust, credibility, and revenue from existing and potential customers, especially those who are high-profile, sensitive, or socially responsible23. Moreover, violating AML laws can also attract negative media attention, regulatory scrutiny, and legal action, which can further damage the reputation of the financial entity and expose it to additional sanctions, fines, or penalties4.

 The correct answer is C because the European Union Money Laundering Directives require lawyers and other independent legal professionals to report suspicious transactions to the competent authority when they are involved in certain activities on behalf of their clients, such as creating or managing companies, trusts, or other legal arrangements. The directives also provide that the obligation to report overrides any professional secrecy or confidentiality rules, except when the lawyer is ascertaining the legal position of the client or representing the client in legal proceedings or in connection with such proceedings. Therefore, the lawyer in this scenario should report the activity as suspicious to the competent authority, as creating a financial holding company for the client falls within the scope of the reporting obligation and does not qualify for the exemption12

 Structuring transactions is a common method of money laundering, where cash deposits or withdrawals are broken down into smaller amounts to avoid reporting or record-keeping requirements. Employees who unintentionally assist customers in structuring transactions may not be aware of the legal and regulatory implications of their actions, or may have been misled or coerced by the customers. Therefore, the most appropriate and proportionate response is to provide remedial training to these employees, to ensure they understand the anti-money laundering policies and procedures, the red flags of suspicious activity, and their reporting obligations. Terminating, contacting law enforcement, or transferring these employees may be excessive, premature, or ineffective measures, depending on the circumstances and the level of involvement of the employees.

The FATF is an inter-governmental body that sets standards and promotes effective implementation of legal, regulatory, and operational measures for combating money laundering, terrorist financing, and other related threats to the integrity of the internationalfinancial system. The FATF conducts mutual evaluations of its members and other jurisdictions to assess their compliance with the FATF Recommendations and the effectiveness of their AML/CFT regimes1.

The FATF defines effectiveness as "the extent to which a country’s AML/CFT regime is achieving the defined outcomes of an effective regime that allows them to mitigate their risks and threats of ML/TF"2. The FATF assesses effectiveness based on 11 immediate outcomes, which are grouped into three thematic goals: financial system integrity, legal system and operational issues, and international cooperation2.

One of the immediate outcomes under the financial system integrity goal is that “FIs adequately apply preventive measures commensurate with their risks, and report suspicious transactions” (IO.4)2. This outcome measures how well FIs implement the FATF Recommendations on customer due diligence, record-keeping, internal controls, risk assessment, and suspicious transaction reporting. These preventive measures are essential for FIs to identify and mitigate the risks of being misused for money laundering or terrorist financing, and to provide useful information to the authorities for investigation and prosecution2.

Therefore, the correct answer is D. FIs adequately apply preventive measures, as this is one of the FATF characteristics used to assess a country’s effectiveness of its AML regime.