Free ACAMS CAMS Practice Exam with Questions & Answers | Set: 2

A: The absence of professional oversight or accounting/auditing standards creates a high-risk environment for financial statement manipulation. Without external checks or mandated standards, criminals can more easily falsify statements to hide illicit assets.

“The lack of regulatory oversight and professional standards in accounting and auditing significantly increases the risk of manipulation and fraud in financial reporting.”(CAMS 6th Edition, Professional Service Providers; FATF Guidance on the Risk-Based Approach for Accountants)

An FIU is a central, national agency responsible for receiving, analyzing, and disseminating to the competent authorities disclosures of financial information concerning suspected proceeds of crime and potential financing of terrorism or required by nationallegislation or regulation1. FIUs play a crucial role in the detection and prevention of money laundering and terrorist financing by collecting, processing, and analyzing financial intelligence and sharing it with domestic and foreign counterparts2. FIUs may have different organizational structures, functions, and legal frameworks, but they all adhere tothe international standards and best practices set by the Egmont Group of FIUs3.

What We Do | FinCEN.gov

Financial Intelligence Units: An Overview (June 2004) - IMF, page 1

[Egmont Group of Financial Intelligence Units]

Financial institutions (FIs) are required to cooperate with law enforcement agencies (LEAs) in their investigations of money laundering, terrorist financing, and other financial crimes. However, sometimes LEAs may submit requests for information or documents that are overly broad, unduly intrusive, or unreasonable in scope or volume. Such requests may pose challenges or risks for FIs, such as violating customer privacy, compromising data security, disrupting business operations, or incurring excessive costs.

The most appropriate response for an FI in such a situation is to narrow the request through a prompt response to the LEA. This means that the FI should communicate with the LEA as soon as possible to clarify the purpose, scope, and relevance of the request, and to negotiate a more reasonable and proportionate request that meets the LEA’s needs and the FI’s capabilities. The FI should also explain the potential difficulties or consequences of complying with the original request, and propose alternative or additional sources of information that may be more useful or accessible. The FI should document the communication and the agreed terms of the request, and comply with the request in a timely and accurate manner.

By narrowing the request through a prompt response, the FI can demonstrate its good faith and willingness to cooperate with the LEA, while also protecting its own interests and obligations. This can help avoid or resolve any conflicts or misunderstandings between the FI and the LEA, and facilitate a more efficient and effective investigation.

The customer’s profile and transactions are highly suspicious and indicative of possible money laundering. The customer’s income, source of wealth, and investment plans do not match with the large and frequent transfers from a diamond distributor, which is a high-risk business sector for money laundering. The customer’s transfers to Hong Kong, which is a high-risk jurisdiction for money laundering, also raise red flags. The anti-money laundering specialist should recommend contacting the competent authority and local law enforcement to report the suspicious activity and cooperate with any investigation. This is in accordance with the FATF Recommendation 20, which states that "If a financial institution suspects or has reasonable grounds to suspect that funds arethe proceeds of a criminal activity, or are related to terrorist financing, it should be required, by law, to report promptly its suspicions to the financial intelligence unit (FIU)"1. The other options are not appropriate, as they do not address the urgency and severity of the situation.

 1: FATF (2012), International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation, FATF, Paris, France, www.fatf-gafi.org/recommendations.html, p. 19.

Money launderers usehigh-value goods(e.g., jewelry, art, and precious metals) todisguise illicit funds.

Option C (Correct):Requesting ahandwritten receipt for a cash purchasesuggests anattempt to avoid record-keeping, a knownmoney laundering technique.

Option A (Incorrect):Buying gold bars withcash and cryptocurrencyisunusualbut notinherently illegalunless the amounts are suspicious.

Option B (Incorrect):Credit card payments are traceableanddo not raise immediate red flags.

Option D (Incorrect):Kimberly Process-certified diamondsare legally sourced, and requesting themdoes not indicate suspicious intent.

Using the customer profile and expected activity information, a financial institution should be able to identify transactions that are difficult to make economic sense. Transactions that don't make economic sense may be suspicious, and should be investigated further to determine if they may be related to money laundering or other illicit activities. For example, if a customer is profiting from a series of transactions that don't make economic sense, such as buying and selling the same stock multiple times in a short period of time, then this could be a sign of money laundering or other illicit activities.

According to the FATF Procedures for the Fourth Round of AML/CFT Mutual Evaluations1, jurisdictions that are determined to have strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing are subject to the FATF’s International Cooperation Review Group (ICRG) process. The ICRG process involves the following actions for such jurisdictions:

Demonstrate a high-level commitment to swiftly resolve the identified deficiencies in the FATF mutual evaluation report. This commitment should be made in writing to the FATF President and should include an action plan with specific deadlines and milestones to address the deficiencies.

Report to FATF on the implementation of their progress under the enhanced follow-up mechanism. The FATF will monitor the progress of the jurisdiction through regular reports and on-site visits, and will decide whether the jurisdiction has made sufficient progress to exit the ICRG process or whether further actions are required, such as public statements, counter-measures, or suspension of membership.

The other options are not resulting actions for jurisdictions with strategic deficiencies, as they are either not part of the FATF procedures or not consistent with the FATF’s objectives and principles. For example, the FATF does not issue private statements regarding the level of compliance of a jurisdiction, nor does it allow a jurisdiction to appeal for a technical compliance re-rating based on its own criteria. The FATF also does not grant extensions of deadlines for jurisdictions to improve their regimes, as this would undermine the credibility and effectiveness of the mutual evaluation process.

1: Mutual Evaluations - Financial Action Task Force

2: Procedures for the FATF Fourth Round of AML/CFT Mutual Evaluations

The auditor should include the regulatory violation in the audit report and report it to the board of directors. This is because the auditor has the responsibility to report any findings of non-compliance or material weaknesses in the institution’s internal controls, policies, and procedures. The auditor should also provide recommendations for corrective actions and follow-up on their implementation. The board of directors has the ultimate oversight and accountability for the institution’s compliance program and should be informed of any significant issues or risks that may affect the institution’s reputation, operations, or regulatory status12.

1: CAMS Certification Package - 6th Edition | ACAMS, Chapter 6: Developing an Effective Anti-Money Laundering Program, p. 125-126 2: The Wolfsberg Group, The Wolfsberg Anti-Money Laundering Principles for Correspondent Banking, October 2014, p. 7, https://www.wolfsberg-principles.com/sites/default/files/wb/pdfs/Wolfsberg-Correspondent-Banking-Principles-2014.pdf

According to the ACAMS study guide, one of the best practices for dealing with law enforcement inquiries is to verify the identity and authority of the law enforcement officer before providing any information (p. 224). This is to ensure that the inquiry is legitimate and not a phishing attempt or a breach of confidentiality. The compliance officer should also document the inquiry and the information provided, and consult with legal counsel if necessary. The other options are not appropriate, as they may either violate the law, compromise the investigation, or create unnecessary work.

ACAMS. (2020). Study Guide for the Certification Examination for Anti-Money Laundering Specialists (6th ed.). Miami, FL: ACAMS.

What Is An AML Officer1

The FATF conducts mutual evaluations—a peer review process—whereby member countries assess each other’s AML/CFT systems. This includes on-site visits and reviews by international experts, with public reports containing recommendations for improvement. The process is not punitive and does not impose sanctions.

“FATF mutual evaluations are peer reviews in which experts from member countries assess another member's AML/CFT system and provide recommendations.”

(CAMS 6th Edition, International AML/CFT Standards; FATF Methodology, Recommendation 40)

The primary responsibility of a financial intelligence unit is to act as an intermediary between the entities subject to money laundering obligations and law enforcement agencies. Financial intelligence units are responsible for receiving and analyzing suspicious activity reports (SARs) from entities subject to money laundering obligations, and then forwarding relevant information to the appropriate law enforcement agencies. Additionally, the financial intelligence units are responsible for providing expertise to Egmont working groups to help develop new techniques to detect and prevent money laundering.

Designating a country as being of “prime money laundering concern” allows the U.S. government to impose one or more of five special measures under Section 311 of the USA PATRIOT Act12. These special measures are intended to protect the U.S. financial system from the risks posed by the designated country, such as money laundering, terrorist financing, or other illicit activities. The fifth special measure, which is the most severe, authorizes the Treasury Department to prohibit U.S. financial institutions from opening or maintaining correspondent or payable-through accounts for foreign financial institutions that involve the designated country12. Correspondent accounts are accounts that enable foreign banks to access the U.S. financial system and provide services to their customers, while payable-through accounts are accounts that allow foreign banks to offer their customers direct access to the U.S. financial system3. Closing these accounts effectively cuts off the designated country from the U.S. financial system and imposes significant costs and burdens on its financial sector.

1: 311 Actions | U.S. Department of the Treasury

2: Press Releases - U.S. Department of the Treasury

3: Anti-Money Laundering Laws and Regulations USA 2023-2024

1. A. Micro-structuring cash:

The customer’s behavior of putting high-denomination cash notes into a poker machine without placing bets and then collecting winnings in the form of a check resembles “structuring” or “smurfing.” Structuring involves breaking down large sums of money into smaller transactions to avoid detection. In this case, the customer may be attempting to legitimize illicit funds by converting them into casino winnings1.

2. B. Legitimizing illicit funds:

By using the poker machine to convert cash into a check, the customer is potentially legitimizing illicit funds. The casino winnings obtained through this process may appear legitimate, even though the initial source of the cash remains suspicious1.

A. Micro-structuring cash:

The customer’s actions of repeatedly inserting high-denomination cash notes into the poker machine without placing bets and then collecting winnings in the form of a check resemble structuring. Structuring involves deliberately breaking down large amounts of cash into smaller transactions to avoid detection. Money launderers engage in structuring to obscure the origin of funds and make them appear legitimate. In this case, the customer’s behavior raises red flags and warrants further investigation.

B. Legitimizing Illicit Funds:

By converting cash into casino winnings (in the form of a check), the customer may be attempting to legitimize illicit funds. The casino winnings obtained through this process could be used to create a veneer of legitimacy, even though the initial source of the cash remains suspicious. Casinos are attractive for money launderers due to the anonymity and fluidity of transactions, making it challenging to trace the origin of funds1.

The CAMS 6th Edition highlights that a risk-based approach enables organizations to efficiently allocate compliance resources, focusing efforts on areas presenting the highest risk, thereby ensuring both regulatory compliance and operational effectiveness.

“A risk-based approach allows firms to concentrate resources and controls where the risk of ML/TF is highest, while applying simplified measures to lower-risk areas. This enhances both effectiveness and efficiency.”

(CAMS 6th Edition, AML Compliance Program: Risk-Based Approach)

Incorrect Options:

A: Cost savings may occur, but it is not the main advantage.

B: Audits may still be required, just less frequently for low-risk customers.

D: Risk-based approaches are tailored, not standardized, across regions.

According to the Financial Action Task Force (FATF), substantial growth in wealth during a short period of time is a red flag for money laundering or terrorist financing. Additionally, when a client is a family member of a politically exposed person (PEP) from a country known for corruption, it raises concerns about the potential for corruption, bribery, or influence peddling. In this case, the client's father became the president of Country B, which makes him a PEP.

 A U.S. bank must block or reject an international funds transfer when there is an OFAC designated party to the transaction, regardless of the beneficiary or the correspondent bank. This is because the U.S. bank is prohibited from dealing with any person or entity that is on the Specially Designated Nationals and Blocked Persons List (SDN List) or subject to any other OFAC sanctions program1. The SDN List includes individuals, groups, and entities, such as terrorists and narcotics traffickers, that are designated under programs that are not country-specific2. The U.S. bank must also report any blocked or rejected transactions to OFAC within 10 business days3.

 1: FFIEC BSA/AML Office of Foreign Assets Control - Office of Foreign … 2: Specially Designated Nationals And Blocked Persons List (SDN) Human … 3: [Reporting Blocked Transactions | Office of Foreign Assets Control]

A customer’s account appears to function as a funnel account whereby cash deposits occur in cities/states where the customer does not reside or conduct business. Frequently, in the case of funnel accounts, the funds are quickly withdrawn (same day) after the deposits are made

According to the guidance issued by FinCEN and the Federal banking agencies, when a financial institution receives a request for SAR supporting documentation from FinCEN or an appropriate law enforcement or supervisory agency, it must first verify that the requestor is, in fact, a representative of such an agency. This is to ensure the confidentiality and security of the SAR information and to prevent unauthorized disclosures. A financial institution should have procedures for such verification in its BSA/AML compliance program, which may include, for example, independent employment verification with the requestor’s field office or face-to-face review of the requestor’s credentials.

According to the ACAMS CAMS Certification Video Training Course1, one of the red flags for money laundering is “transferring funds to or from foreign countries or jurisdictions that are known to have weak anti-money laundering standards or are considered high-risk for money laundering or terrorist financing” (Module 2, Lesson 3, Part 2). This is also consistent with the suspicious activity report (SAR) criteria, which require financial institutions to report transactions that “involve funds derived from illegal activity or are intended or conducted to hide or disguise funds or assets derived from illegal activity” or “involve the use of the financial institution to facilitate criminal activity” (31 CFR § 1020.320(a)(2)). Therefore, the customer’s request to transfer funds to accounts in three different foreign jurisdictions should be the focus of the SAR, as it may indicate an attempt to launder money or finance terrorism.

ACAMS CAMS Certification Video Training Course

[31 CFR § 1020.320 - Reports by banks of suspicious transactions]