Free Practice Questions for ACAMS CAMS Exam

 A key risk indicator associated with terrorism financing is the link between the charity group and a known terrorist group. This indicates that the funds transferred to the charity group may be used to support the terrorist group’s activities, such as recruitment, training, propaganda, or attacks. Charities are often vulnerable to abuse by terrorist financiers, as they may operate in high-risk areas, have access to large amounts of cash, and enjoy public trust and legitimacy. Therefore, financial institutions (FIs) should conduct due diligence on the charity group, its directors, its beneficiaries, and its sources and uses of funds, and monitor the transactions for any red flags, such as unusual patterns, amounts, or destinations. FIs should also comply with the relevant sanctions and regulatory requirements, and report any suspicious or unusual activity to the authorities.

1: FATF Guidance on Private Sector Information Sharing1

2: Mitigating the risks of terrorist financing | Crowe LLP3

3: ACAMS Study Guide for the CAMS Certification Examination3

According to the ACAMS CAMS Certification Study Guide, 6th Edition, one of the four pillars of an effective anti-money laundering compliance program is the training of appropriate employees on their responsibilities and the institution’s policies and procedures. Training is essential to ensure that employees are aware of the risks of money laundering and terrorist financing, the applicable laws and regulations, the red flags and indicators of suspicious activity, and the reporting and record-keeping requirements. Without proper training, employees may not be able to perform their duties effectively and efficiently, and may expose the institution to legal, regulatory, reputational, and operational risks.

ACAMS CAMS Certification Study Guide, 6th Edition, Chapter 2, Section 2.1.4, page 39.

ACAMS CAMS Certification Video Training Course, Module 2, Lesson 2.1.4.

According to the Third European Union Money Laundering Directive (3rd AMLD), a politically exposed person (PEP) is an individual who is or has been entrusted with prominent public functions, such as heads of state, government ministers, judges, senior military officers, or members of parliament1. The 3rd AMLD requires institutions and persons covered by the Directive to apply enhanced customer due diligence measures when dealing with PEPs residing in another Member State or in a third country, in order to prevent money laundering and terrorist financing risks1. The 3rd AMLD also specifies that a person who is no longerentrusted with a prominent public function shall not be considered a PEP after a period of at least one year has elapsed since that person left office, unless the institution or person covered by the Directive has knowledge or reason to believe that the person is still exposed to specific risks2. However, the Commission Directive 2006/70/EC, which lays down implementing measures for the 3rd AMLD, extends this period to at least two years, and allows Member States to extend it further, depending on the level of risk and the type of prominent public function involved3.

1: Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing

2: Article 3(8) of Directive 2005/60/EC

3: Article 2 of Commission Directive 2006/70/EC of 1 August 2006 laying down implementing measures for Directive 2005/60/EC of the European Parliament and of the Council as regards the definition of ‘politically exposed person’ and the technical criteria for simplified customer due diligence procedures and for exemption on grounds of a financial activity conducted on an occasional or very limited basis

Correspondent banking is a service that allows banks to access financial services in different jurisdictions through intermediary banks, known as correspondent banks. Correspondent banking can facilitate cross-border transactions, foreign exchange, and other financial activities for banks and their customers. However, correspondent banking also poses various risks, such as money laundering, terrorist financing, fraud, corruption, tax evasion, and sanctions evasion. Correspondent banks may have no direct relationship with the customers of the respondent banks, making it difficult to verify their identity and monitor their transactions. Correspondent banks may also rely on the compliance programs of the respondent banks, which may not meet the standards of the correspondent banks’ jurisdictions.

One of the risk factors that increases the risk for a correspondent bank is being a major service provider to money service businesses (MSBs). MSBs are entities that provide money transmission, currency exchange, check cashing, prepaid cards, and other similar services. MSBs are often considered high-risk customers, because they may serve as conduits for illicit funds, especially if they operate in jurisdictions with weak anti-money laundering regulations or oversight. MSBs may also have a large and diverse customer base, making it challenging to conduct customer due diligence and transaction monitoring. Therefore, correspondent banks that provide services to MSBs may face higher exposure to money laundering and other financial crimes, and may need to apply enhanced due diligence and risk mitigation measures.

Understanding Risk in Correspondent Banking

GUIDANCE ON CORRESPONDENT BANKING SERVICES

Correspondent Bank: Definition and How It Works

Correspondent banking – why it’s important to understand the risks

According to the ACAMS CAMS Certification Study Guide (6th edition), one of the key steps of conducting an investigation of a suspicious activity is to maintain and secure supporting documentation used to perform the investigation. This includes the transaction activity that generated the alert, the analysis performed, the decision made, and the rationale for the decision. This documentation serves as evidence of the investigation process and the compliance with the relevant policies and procedures. It also helps to ensure consistency, accountability, and transparency in the investigation process1

 1: ACAMS CAMS Certification Study Guide (6th edition), page 156.

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.

A financial institution should examine the country or location where the customer is from or does business, the type and size of the business the customer runs, and the legal structure of the customer’s business, because these factors can indicate the level ofmoney laundering risk associated with the customer. For example, some countries or locations may have weak anti-money laundering laws or high levels of corruption, some types or sizes of businesses may be more prone to generating or concealing illicit funds, and some legal structures may be more complex or opaque than others, making it harder to identify the beneficial owners or controllers of the customer.

ACAMS CAMS Certification Video Training Course1, Module 2: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), Lesson 2: Know Your Customer (KYC) and Customer Due Diligence (CDD)

ACAMS CAMS Certification Study Guide2, Chapter 2: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), Section 2.2: Know Your Customer (KYC) and Customer Due Diligence (CDD), Pages 42-44

According to the Anti-Money Laundering Specialist (the 6th edition) resources, electronic funds transfers (EFTs) are transactions that involve the movement of funds electronically from one account to another, either within the same financial institution or across different institutions, domestically or internationally1. EFTs can be used for legitimate purposes, such as facilitating trade, commerce, and remittances, but they can also beexploited by money launderers to conceal the origin, ownership, and destination of illicit funds2. Some of the indicators of money laundering associated with using EFTs are:

Funds transfers to or from a financial secrecy haven without an apparent business reason. Financial secrecy havens are jurisdictions that offer a high degree of banking secrecy, low or no taxes, lax regulation and supervision, and weak or non-existent anti-money laundering and counter-terrorist financing (AML/CTF) measures3. Money launderers may use these havens to hide their illicit funds, evade taxes, and avoid scrutiny from authorities. Funds transfers to or from these havens without a clear or plausible explanation may indicate an attempt to launder money or finance terrorism.

Funds transfers are received or sent from the same person to or from different accounts. This may indicate a layering technique, which is the process of moving funds through multiple accounts, institutions, or jurisdictions to obscure the audit trail and the source and ownership ofthe funds4. Money launderers may use this technique to avoid detection, reporting, or freezing of their funds by authorities or financial institutions.

Payment or receipts with no apparent link to legitimate contracts, goods or services. This may indicate a trade-based money laundering technique, which is the process of using trade transactions to disguise the movement of illicit funds, either by over- or under-invoicing, misrepresenting the quantity or quality of goods, or falsifying documents. Money launderers may use this technique to transfer value across borders, evade taxes or customs duties, or justify the movement of funds that have no legitimate origin or purpose.

The other option is incorrect because:

Regular and frequent transfers from the account of a large company said to be payment for goods bought on credit is not necessarily an indicator of money laundering associated with using EFTs. This may be a normal business practice for some companies that have a high volume of transactions or a long-term relationship with their suppliers or customers. However, this may also be a red flag if the company is not well-known, has no physical presence, has no apparent business activity, or is located in a high-risk jurisdiction. Therefore, this option requires further investigation and verification before concluding that it is an indicator of money laundering.

1: ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 104 2: ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 105 3: ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 107 4: ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 106 : ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 108

A qualified independent party/auditor is the most effective resource to evaluate the effectiveness of an anti-money laundering program. This is because an independent auditor can provide an objective and unbiased assessment of the program, identify any weaknesses or gaps, and make recommendations for improvement. An independent auditor can also verify the compliance of the program with the relevant regulations and best practices, and test the adequacy and functionality of the internal controls, customer due diligence processes, and transaction monitoring systems. An independent auditor can also help an organization prepare for regulatory examinations and audits, and avoid potential penalties or sanctions.

= The main references for this question are the following sources:

The document titled “Frequently Asked Questions Conducting Independent Reviews of Money Services Business Anti-Money Laundering Programs” published by the Financial Crimes Enforcement Network (FinCEN) in July 2010. You can access it by clicking here.

The document titled “AML Audit: How to Effectively Assess Your Compliance Program” published by Alessa in May 2023. You can access it by clicking here.

The document titled “Mutual Evaluations” published by the Financial Action Task Force (FATF). You can access it by clicking here.

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)

AML risk assessments are a key component of the risk-based approach to AML compliance, as required by the MLR 20171 and the FATF Recommendations2. AML risk assessments help FIs to identify, assess, and mitigate the money laundering and terrorist financing risks they face, taking into account their specific products, services, customers, and geographic locations. AML risk assessments also help FIs to allocate their resources and implement their AML policies and procedures in a proportionate and effective manner. AML risk assessments are not meant to be a one-off exercise, but rather an ongoing process that should be updated regularly to reflect changes in the FI’s risk profile and the external environment.

1: The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017

2: The FATF Recommendations - International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation

Non-compliance with anti-money laundering (AML) laws and regulations can lead to severe consequences for both financial institutions and individuals. One of the indirect consequences is the imposition of punitive fines. These fines can vary based on the type of violation and the institution’s willingness to address the issue. Additionally, non-compliance may damage a company’s reputation, impacting its standing in the market and potentially leading to financial losses beyond the fines themselves123.

Money laundering has a significant negative impact on the financial sector by undermining the integrity of financial markets. It distorts asset and commodity prices and leads to the misallocation of resources, which can dampen economic growth. The process also erodes public trust in the financial system and can deter foreign investment.

B: When a subpoena is received, the institution should first consult with legal counsel to ensure the validity and scope of the subpoena. Compliance with law enforcement requests is mandatory and subject to strict legal obligations. All documentation and responses should be properly recorded.

“A subpoena requires a legal response; consult legal counsel to validate the request and respond as required by law.”

FinCEN 314(b) information-sharing requests are voluntary and can proceed only after fulfilling required legal steps, such as verifying membership in the program and ensuring information-sharing agreements are in place.

CAMS 6th Edition clarifies that “under no circumstances should a customer be notified of a law enforcement inquiry or subpoena.”

When presented with a search warrant, the AML specialist should record the names and affiliations of the agents who conduct the search. This will help in identifying who conducted the search in case there are any issues that need to be addressed later. Additionally, the AML specialist should obtain a copy of the warrant or photocopy the original warrant. This is important to ensure that the warrant is valid and that the agents are authorized to conduct the search. It is not appropriate to ask the agents questions or remember what items they have seized, as this could interfere with the search and potentially lead to legal issues. Finally, leaving the premises to allow the agents to conduct the search is not necessary, as the AML specialist has the right to be present during the search.

The anti-money laundering specialist should secure all the documents related to the suspicious activity and the decision to report before submitting the suspicious transaction report (STR). This is to ensure that the evidence is preserved, the confidentiality is maintained, and the audit trail is documented. The documents may include the customer identification, transaction records, account statements, monitoring alerts, investigation reports, and any other relevant information12.

Checking with other financial institutions, adding information to the customer’s file, or contacting the customer are not appropriate actions to take before submitting the STR. These actions may compromise the confidentiality of the report, alert the customer of the suspicion, or interfere with the investigation by the competent authorities12.

 1: ACAMS (2020), Study Guide for the Certification Examination, 6th Edition, ACAMS, Miami, FL, USA, www.acams.org/en/cams-certification-package-6th-edition, pp. 35-36. 2: ACAMS (2020), CAMS Examination Preparation Video, 6th Edition, ACAMS, Miami, FL, USA, www.acams.org/en/cams-certification-package-6th-edition, Module 2.