To protect the financial system from money laundering and terrorist financing, the United States, the United Nations, the European Union, and other governing bodies may impose sanctions against foreign countries, entities or individuals, terrorists and terrorist groups, drug traffickers, and other security threats.

P.S. PEPs is not one of the factors that should be sanctioned.

FATF demonstrated that money laundering can be achieved through virtually every medium, financial institution or business.

Examples of placement transactions include:
• Commingling of illegitimate funds with legitimate funds such as placing the cash from illegal narcotics sales into the cash-intensive locally owned restaurant
• Purchasing of foreign exchange with illegal funds
• Placing cash in small amounts and depositing them into numerous bank accounts in an attempt to evade reporting requirements

Marketable risks do not pertain to the direct result of money laundering.
P.S. This concept is usually confused by many candidates. Marketable risks do not regard as a direct result of money laundering.

Money Laundering: TPPPs can be used by criminals to mask transactions and launder the proceeds of crime. One way to engage in money laundering through a TPPP is to send funds directly to a financial institution from a foreign jurisdiction through an international ACH payment. Given the large number of transactions conducted through a TPPP, this activity may not be identified.

FATF and FATF-style regional bodies publish periodic typology reports to “monitor changes and better understand the underlying mechanisms of money laundering and terrorist financing.”

P.S. Candidates usually mistook the concept that FATF is a regulatory body. FATF does not enforce any law and does not commence any investigation process.

Money launderers may initiate unauthorized domestic or international electronic transfers of funds — such as ACH debits or by making cash advances on a stolen credit card — and place the funds into an account established to receive the transfers.

P.S. Pay attention to the word “except” in the real examination. Which is commonly used to trick candidates to select the opposite answers

Many private banks establish PICs for their clients, often through an affiliated trust company in an offshore secrecy haven. Illicit actors may establish complex shell company networks where a company registered in one offshore jurisdiction may be linked to companies or accounts in other jurisdictions.

P.S. Please pay attention to the word “Except” when selecting the answers.

Elements of a PTA relationship that can threaten the correspondent bank’s money-laundering defenses include:

• PTA arrangements where the correspondent bank regards the respondent bank as its sole customer and fails to apply its Customer Due Diligence policies and procedures to the customers of the respondent bank.
• PTA arrangements in which sub-account holders have currency deposit and withdrawal privileges.
• PTAs used in conjunction with a subsidiary, representative or other offices of the respondent bank, which may enable the respondent bank to offer the same services as a branch without being subject to supervision.
• PTAs with foreign institutions licensed in offshore financial service centers with weak or nascent bank supervision and licensing laws.

Credit unions do not have clients or customers; instead, they have members who are also owners. Credit unions serve only the financial needs of their members and are governed by a “one member, one vote” philosophy. Credit union membership is based on a common bond, a linkage shared by savers and borrowers who belong to a specific community, organization, religion or place of employment.

Most credit unions focus primarily on servicing personal banking relationships from within their community. Credit unions do not participate in trade-based financing, will not facilitate correspondent banking relationships, and will not maintain large corporate relationships, particularly those with international banking needs.

The credit card industry business includes:
• Credit card associations, such as American Express, MasterCard and Visa, which license member banks to issue bankcards, authorize merchants to accept those cards, or both
• Issuing banks, which solicit potential customers and issue the credit cards.
• Acquiring banks, which process transactions for merchants who accept credit cards.
• Third-party payment processors (TPPP), which contract with issuing or acquiring banks to provide payment processing services to merchants and other business entities

Third-party payment processors are generally bank customers that provide payment-processing services to merchants and other business entities and often use their commercial bank accounts to conduct payment processing for their merchant clients.

A money services business (MSB), or money or value transfer service (MVTS) as defined by FATF, transmits or converts currencies. Such businesses usually provide currency exchange, money transmission, check-cashing, and money order services.

FinCEN’s 2008 Guidance and FATF’s 2009 Report on Casinos and Gaming Sector identified specific
behaviors to watch for:
• Attempts to evade AML reporting or recordkeeping requirements
• Using the cage solely for its banking-like financial services
• Minimal gaming activity without a reasonable explanation
• Unusual gaming and transaction patterns

Vulnerabilities in the insurance sector include:
• Lack of oversight /controls over intermediaries
• Decentralized oversight over aspects of the sales force
• Sales-driven objectives
P.S. The number of employees and the commission program is not deemed as a vulnerable factor.

When a company assesses laundering and terrorist financing risks, it must consider whether it permits customers to:
• Use cash or cash equivalents to purchase insurance products.
• Purchase an insurance product with a single premium or lump-sum payment.
• Borrow money against an insurance product’s value.

P.S. Please note the number of funds itself do not means it must be money laundering and terrorist financing. It requires in-depth understanding of client business, and if necessary to acquire business proof to decide whether the transaction is deemed normal.

FATF fulfills these objectives by focusing on several important tasks including:
1. Spreading the AML message worldwide.
2. Monitoring implementation of the FATF Recommendations among its members.

An Effectiveness Assessment under the FATF is evaluated based on 11 Immediate Outcomes:
1. Money laundering/ terrorist financing (ML/TF) risks are known and actions coordinated to combat or thwart the proliferation of ML/TF.
2. International cooperation provides actionable information to use against criminals.
3. Supervisors regulate financial institutions and non-bank financial institutions (NBFIs) and their risk-based AML/CFT programs.
4. Financial institutions and NBFIs apply preventative measures and report suspicious transactions.
5. Legal persons are not misused for ML/TF and beneficial ownership information is available to authorities.
6. Financial intelligence information is used by authorities in money laundering and terrorist financing investigations.
7. Money laundering offenses are investigated, criminally prosecuted, and sanctions imposed.
8. Proceeds of crime are confiscated.
9. Terrorist financing offenses are investigated, criminally prosecuted, and sanctions imposed.
10. Terrorists and terrorist organizations are prevented from raising, moving, and using money, and not permitted to abuse non-profit organizations (NPOs).
11. Persons and organizations involved in the proliferation of weapons of mass destruction are prevented from raising, moving, and using Money.

P.S. Merely reporting to local regulatory or enforcement agencies is not sufficient and is not under the FATF 11 immediate outcomes in effectiveness assessment.

Financial institutions must, using a risk-based approach:
— Identify the customer and verify that customer’s identity using reliable, independent source documents, data or information. Establishing accounts in anonymous or fictitious names should be prohibited.
— Take reasonable measures to verify the identity of the beneficial owner such that the financial institution is satisfied that it knows who the beneficial owner is. For legal persons and arrangements, this should include understanding the ownership and control structure of the customer.
— Understand and, as appropriate, obtain information on the purpose and intended nature of the business relationship.
— Conduct ongoing due diligence on the business relationship and scrutinize transactions undertaken in the course of that relationship to ensure that the transactions are consistent with the institution’s knowledge of the customer, the customer’s business and risk profile, including, where necessary, the source of funds.
— Maintain records of the above customer information as well as all transactions to enable them to comply with requests from competent authorities.
— Rely on other parties to conduct customer due diligence in certain circumstances; however, the relying institution remains liable for compliance with completing the required customer due diligence.
— Establish a group-wide AML program for financial groups.

Customer identification is an essential element of an effective customer due to diligence program, which banks need to guard against reputational, operational, legal and concentration risks. It is also necessary to comply with AML legal requirements and to be able to identify bank accounts related to terrorism.

P.S. IT Risks are not stipulated as one of the risks albeit it looks similar to the other options.

The Audit Function should report to the audit committee of the board of directors (or similar oversight body) and independently evaluate the risk management and controls of the bank through periodic assessments, including: the adequacy of the bank’s controls to mitigate the identified risks, the effectiveness of the bank’s staff’s execution of the controls, the effectiveness of the compliance oversight and quality controls, and the effectiveness of the training.

The Third Money Laundering Directive applies to:
• Credit institutions.
• Financial institutions.
• Auditors, external accountants, and tax advisors
• Legal professionals.
• Trust and company service providers.
• Estate agents.
• High-value goods dealers who trade in cash over 15,000 Euros.
• Casinos.

• New definitions for Fourth Money Laundering Directive:
— Correspondent relationship.
— PEP’s family members and persons are known to be close associates.
— Senior management and others.

There are nine FATF-style regional bodies (FSRBs) that have similar form and functions to those of FATF. They are also considered FATF Associate Members.

P.S. Remembering all nine FATF related bodies is not necessary, but understanding the major functions will suffice.

The main objective of the CFATF is to achieve effective implementation of and compliance with its recommendations to prevent and control money laundering and to combat the financing of terrorism. The Secretariat has been established as a mechanism to monitor and encourage progress to ensure full implementation of the Kingston Ministerial Declaration.

P.S. In the real examination, many questions are seemingly correct but are actually wrong. Candidates should pay attention to not only details but also the relevancy of the options.

Member countries of MENAFATF agreed on the following objectives and are working towards achieving them:
• To adopt and implement FATF’s 40 Recommendations against money laundering and terrorist financing and proliferation, as well as the related UN Conventions and UN Security Council Resolutions as the accepted international standards in this regard, in addition to any other standards that are adopted by Arab states to enhance the fight against money laundering and the financing of terrorism and proliferation in the region.

• To implement the relevant UN treaties and agreements and UN Security Council Resolutions dealing with fighting money laundering and terrorist financing.

• To cooperate to raise compliance with these standards and measures within the MENA region and to work with other international organizations to raise compliance worldwide.

• To work together to identify regional money laundering and terrorist financing issues, to share experiences with these problems, and to develop regional solutions for dealing with them.

• To build effective arrangements and systems throughout the region to effectively fight money laundering and terrorist financing and that do not contradict with the cultural values, constitutional frameworks, and legal systems of the member countries.

In 1999, the Inter-American Development Bank (IADB) and CICAD started a program in eight South American countries to train employees from financial institutions and from the financial regulatory agencies responsible for enforcing anti-money laundering requirements.

P.S. The purpose of this question is to enable the candidate’s awareness of the function and duties of IADB and CICAD. You may encounter questions related to IADB and CICAD major duties and responsibilities in real exam.

In 2002, the World Bank and the IMF developed the “Reference Guide to Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT)” to provide practical steps for countries implementing AML/CFT regimes by international standards.

Section 311: Special Measures for Primary Money Laundering Concerns ( 31 U.S.C. 5318A) . This section provides the US Treasury Department with the authority to apply graduated, proportionate measures against a foreign jurisdiction, a foreign financial institution, a type of international transaction or a type of account that the Treasury Secretary determines to be a “primary money laundering concern.”

In ascertaining whether an account owner is a “senior foreign political figure,” the institution must take reasonable steps to determine if the person is a “current or former senior official in the executive, legislative, administrative, military or judicial branches of a foreign government.” The definition also covers officials of foreign political parties and government-owned commercial enterprises. The definition includes immediate family members and persons who are “widely and publicly known” to be close associates.

All US persons must comply with OFAC regulations including the following;

• Permanent resident aliens
• All persons and entities within the United States
• All US incorporated entities and their foreign branches

P.S. There is no probationary status of US citizenship.

The first step in designing an effective AML/CFT training program is to identify the target audience. Most areas of the financial institution should receive AML/CFT training. In some countries, training programs must extend beyond full or part-time employees to include contractors, consultants, students or apprentice placements and secondees from other branches or subsidiaries.

In identifying all relevant money laundering and terrorist financing risks, all relevant information must be taken into account and requires expert input from the following;

• Business lines
• Compliance
• Risk management

Financial institutions should use a risk-based approach to transaction monitoring. The institution should also have policies and procedures for monitoring for suspicious activity and should specify the parameters and thresholds that are in place to trigger an investigation. Transaction monitoring rules should be reviewed at a regular cadence and tuned accordingly to ensure that they continue to operate as designed. Common approaches to transaction monitoring include the creation of in-house, customizable transaction monitoring rules or engaging a third-party vendor to assist with the development and implementation of automated rules.

Transaction monitoring rules should be reviewed at a regular cadence and tuned accordingly to ensure that they continue to operate as designed. Tuning practices may include evaluating the output of monitoring rules, examining specific thresholds and conducting above and below-the-line testing to determine whether rule adjustments are necessary.

Multinational public corporations tend to score lower than private companies because there is much more publicly available information a corporation listed on a major stock exchange.

The audit must be independent (i.e., performed by people not involved with the organization’s AML/ CFT compliance staff), and individuals conducting the audit should report directly to the board of directors or a designated board committee composed primarily or completely of outside directors.

Financial institutions may initiate investigations upon receipt of a governmental subpoena or search warrant. In either situation, the financial institution maintains two independent obligations: (1) legally fulfill the requirements of the subpoena or warrant, and (2) determine whether the activity of its customer identified in the subpoena or warrant requires the filing of an STR.

P.S. Not all suspicious transactions should be filled with an STR immediately. The firm should have an appropriate protocol in place to review the seriousness and try its best to acquire more information prior to filling an STR.

Product scoring is not universal because different financial institutions face varying degrees of risk. The following has an impact in regards to product scoring in new or current product or service;

• Does a particularly new or current product or service have an especially high transaction or investment value?
• Does a particularly new or current product or service enable significant volumes of transactions to occur rapidly?
• Does a particularly new or current product or service afford significant levels of anonymity to the users?
• Does a particularly new or current product or service allow the customer to engage in transactions with minimal oversight by the institution?

The institution should have the following personnel to review the subpoena compelling the production of certain documents or an individual related to its customer except the following;

• The accountant
• The board of directors
• The CFO

An AML/CFT compliance program should be in writing and include policies, procedures, and controls that are designed to prevent, detect, and deter money laundering and terrorist financing.

P.S. The option “Ensure a standardization reporting regime to the local regulatory and enforcement agencies” seems to be a correct answer but is not one of the options taught in CAMS examination manual. Please note that the CAMS exam is based on US regulatory format and hence some of the country’s usual practices might not be the ideal or correct answer in the real examination.

A sound Customer Due Diligence (CDD) program is one of the best ways to prevent money laundering and other financial crime. Knowledge is what the entire AML/CFT compliance program is built upon. The more the institution knows about its customers, the greater the chance of preventing money laundering abuses.

When construction a sound CDD program, the following items are elements that should be included:

Risk rating categorization

Documentation Required

Investigation Procedure

Monitoring Methodology

P.S. Revenue appetite should not be one of the factors when formulating the CDD program.

• Financial Investigations
— Monitors alerts generated on customer transactions, such as those from automated systems, as well as referrals from the line of business staff.
— Investigates such alerts and referrals and files STRs with the appropriate financial intelligence unit (FIU) as required.

The International Money Laundering Information Network has the following features except for Country Status.

Internal hotlines are also known as ethics, compliance, or whistleblower hotlines.

The hotlines may ask the employee to provide their identity but can also allow for anonymous reporting. The financial institution is prohibited from retaliating against the person making a report via the hotline in most jurisdictions. The financial institution must maintain policies, procedures, and processes to confidentially investigate the information provided through the hotline.

Investigations may be initiated in response to notable media stories about a financial institution’s customer, how a product is used in the market, a geographic location it serves, or a money laundering or terrorist event.

The FIUs, with the task of receiving and analyzing suspicious transaction reports and maintaining close links with police and customs authorities, share information among themselves informally in the context of investigations, usually based on memoranda of understanding (MOU).

The Final Rule establishes the following as requirements for the Transaction Monitoring and Filtering Program;

• Vendor selection process if a third-party vendor is used.
• Periodic training.
• Qualified personnel or outside consultant.

The following measures US financial institutions should follow once the Treasury Department has identified a primary money laundering concern;

• Obtain information on the beneficial ownership of any account opened or maintained in the US by a foreign person or a foreign person’s representative.
• Close certain payable-through or correspondent accounts.
• Identify and obtain information about customers permitted to use, or whose transactions are routed through, a foreign bank’s “correspondent” account.

Risk Rating: Assessment and grading of risks presented by the customer’s account relationship. Numerous factors should be considered when determining risk (e.g., client type, products and services, transactional activity and geographic locations).

P.S. Tax evasion is an entirely different topic and is not covered in AML/CFT. In the real exam, the example of USD80m turnover with less than USD50k taxation payment is suspicious in tax evasion but is not AML/CFT concerns.

Some of the factors that a financial institution should consider whether to close the account in issue based on its internal investigation include the following except the institution’s contract policies and procedures for keeping an account, which may include automatic recommendation following a specified number of STR filings.

When a financial institution is confronted with a law enforcement investigation, an institution should respond quickly and completely to all requests. Failure to do so could cause unnecessary risk or damage to the institution. If a request is overly broad or unduly intrusive, the institution can attempt to narrow the request or can even seek to contest the request, or portions of the request, in court. However, under no circumstances should an institution ignore or delay responding to a law enforcement inquiry or request for documents.

In addition to securing and reviewing all relevant documentation, it is important to interview all knowledgeable employees. These employees should be interviewed as soon as practicable so that their memories are the freshest and so that they can direct management or counsel to relevant documents and people on a timely basis.

If evidence is required from another jurisdiction, a request can be made for mutual legal assistance. Mutual legal assistance treaties (MLATs) provide a legal basis for transmitting evidence that can be used for prosecution and judicial proceedings.

Casa de Cambio also called a “bureau de change” or an “exchange office,” a casa de cambio offers a range of services that are attractive to money launderers: currency exchange and consolidation of small denomination banknotes into larger ones; exchange of financial instruments such as travelers checks, money orders and personal checks; and telegraphic transfer facilities.

Recommendation 29 of the 2012 FATF Recommendations states that countries should establish an (FIU) that serves as a national center for the receipt and analysis of the following;

• Information relevant to money laundering
• Information relevant to associated predicate offenses
• Suspicious transaction reports
• Information relevant to terrorist financing

Articles 30 and 31 of the Recommendations outline the powers that the FIU and other competent authorities responsible for conducting investigations. These include using a wide range of investigative techniques suitable for the investigation of money laundering, associated predicate offenses, and terrorist financing. These investigative techniques include: undercover operations, intercepting communications, accessing computer systems and controlled delivery.

Investigations may be initiated in response to notable media stories about a financial institution’s customer, how a product is used in the market, a geographic location it serves, or a money laundering or terrorist event.

The Third Money Laundering Directive applies to the following except for;

• Banks
• Insurance institutions
• Property investors