Free ACAMS CAMS Practice Exam with Questions & Answers | Set: 5

Money launderers preferlarge-denomination billsbecause theyfacilitate bulk cash smuggling and placement.

Option A (Correct):Increased demand for large-denomination banknotesis a knownmoney laundering red flag.

Option B (Incorrect):Increased digital service adoption isnormal banking behavior.

Option C (Incorrect):Faster settlement times may reflecttechnology upgrades, not financial crime.

Option D (Incorrect):Maintaining a log of monetary instruments isa compliance best practice, not a red flag.

The Basel Committee on Banking Supervision’s Customer Due Diligence for Banks Paper recommends that banks should verify the bank has a physical presence in the country where it is incorporated and confirm the bank is subject to regulatory supervision with adequate anti-money laundering laws before opening a correspondent account. These steps are intended to prevent the establishment of relationships with shell banks, which are banks that have no physical presence in any country and are not affiliated with a regulated financial group. Shell banks pose a high risk of money laundering and terrorist financing, as they can be used to hide the identity and source of funds, evade regulatory oversight, and facilitate illicit transactions. Therefore, banks should conduct enhanced due diligence on correspondent banks that operate in offshore jurisdictions, where the regulatory standards and transparency may be lower or insufficient.

ACAMS CAMS Certification Study Guide, 6th Edition, Chapter 4, Section 4.3.1, p. 1091

ACAMS CAMS Certification Exam Outline, 6th Edition, Domain 2, Task 2.2, p. 52

Basel Committee on Banking Supervision, Customer Due Diligence for Banks, October 2001, p. 13-143

The Basel Committee on Banking Supervision (BCBS) is a global standard-setting body for the prudential regulation of banks. It does not have any formal authority to enforce its standards, but relies on its members’ commitment and peer pressure to implement them. The BCBS’s principles on customer due diligence (CDD) are part of its guidelineson anti-money laundering and combating the financing of terrorism (AML/CFT), which aim to enhance the soundness and integrity of banking systems. The BCBS’s principles on CDD provide guidance to banks and bank supervisors on the essential elements of a CDD programme, such as customer acceptance, identification, verification, risk assessment, monitoring, and record-keeping. The BCBS’s principles on CDD are not legally binding, but are intended to be a benchmark for national practices and for banks to design their own policies and procedures. The BCBS’s principles on CDD are consistent with the recommendations of the Financial Action Task Force (FATF), the global standard-setter for AML/CFT.

Customer due diligence for banks 1, BCBS, October 2001.

The Basel Committee on Banking Supervision report on customer due diligence 2, Journal of Banking Regulation, 2002.

One of the main challenges of online banking is verifying the identity of customers who open accounts or conduct transactions remotely, without face-to-face interaction. This poses a higher risk of money laundering, as criminals may use false or stolen identities, or hide behind shell companies or nominees, to move illicit funds through online platforms. Therefore, online banking providers must implement robust and risk-based customer due diligence (CDD) measures, such as verifying identity documents, using biometric or digital verification methods, screening customers against sanctions and watchlists, and monitoring customer behavior and transactions for any red flags or anomalies.

ACAMS Study Guide for the CAMS Certification Examination, 6th Edition, Chapter 2: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), Section 2.2: Customer Due Diligence (CDD) and Know Your Customer (KYC), p. 32-35.

eWallets: AML Risks & How to Comply1

as there's NO mitigating control, the temporary control system must be developed and implemented until the permanent mitigating control is developed and implemented.

an employee who avoids taking periodic vacations despite having accrued vacation time may be trying to conceal fraudulent or illegal activities that would be exposed in their absence. This is a common red flag for internal fraud and money laundering, as it indicates a lack of segregation of duties, internal controls, and oversight. Employees who engage in such behavior may also exhibit other signs of stress, defensiveness, or secrecy.

Learn about red flags for internal fraud, section “An employee may be a higher internal fraud risk when a combination of the following red flags are present”, bullet point 1: “Unwilling to share duties or take leave.”

Money Laundering Red Flags | Key Behaviours and Indicators, section “Employee Red Flags”, bullet point 1: “Avoiding taking holidays or time off work.”

Top 10 AML Red Flags: Warning Signs and Financial Risks, section “AML Red Flags Categories”, sub-section “Employee Red Flags”, bullet point 1: “Avoiding taking vacations or sick leaves.”

Mutual Legal Assistance (MLA) is a form of cooperation between different countries for the purpose of collecting and exchanging information and evidence in criminal matters. MLA is usually governed by bilateral or multilateral treaties that establish the procedures and requirements for requesting and providing assistance. The first valid step in the MLA process is to send a formal request from the central authority of the requesting country to the central authority of the requested country. The central authority is the designated entity that is responsible for making, receiving, and facilitating the execution of MLA requests. The request should contain the necessary information and documents to enable the requested country to assess and execute the request, such as the nature and purpose of the request, the legal basis, the description of the assistance sought, the identity of the persons involved, the applicable legal provisions, and the deadline for the response. The request may also be accompanied by a commission letter of request, which is a judicial document that authorizes a foreign authority to perform certain acts on behalf of the requesting authority, such as taking evidence or statements from witnesses or suspects.

Guidelines on Mutual Legal Assistance in Criminal Matters, Section 1.1, 1.2, 1.3, 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8, 2.9, 2.10, 2.11, 2.12, 2.13, 2.14, 2.15, 2.16, 2.17, 2.18, 2.19, 2.20, 2.21, 2.22, 2.23, 2.24, 2.25, 2.26, 2.27, 2.28, 2.29, 2.30, 2.31, 2.32, 2.33, 2.34, 2.35, 2.36, 2.37, 2.38, 2.39, 2.40, 2.41, 2.42, 2.43, 2.44, 2.45, 2.46, 2.47, 2.48, 2.49, 2.50, 2.51, 2.52, 2.53, 2.54, 2.55, 2.56, 2.57, 2.58, 2.59, 2.60, 2.61, 2.62, 2.63, 2.64, 2.65, 2.66, 2.67, 2.68, 2.69, 2.70, 2.71, 2.72, 2.73, 2.74, 2.75, 2.76, 2.77, 2.78, 2.79, 2.80, 2.81, 2.82, 2.83, 2.84, 2.85, 2.86, 2.87, 2.88, 2.89, 2.90, 2.91, 2.92, 2.

 A financial institution located in a Financial Action Task Force (FATF) member country should address the following issues in its anti-money laundering program when dealing with customers located in countries/jurisdictions that are not members of FATF:

The requirement to identify the beneficial owners of accounts: Beneficial owners are the natural persons who ultimately own or control a customer or a legal entity. Identifying the beneficial owners of accounts is a key component of customer due diligence (CDD) and helps the financial institution to assess the risk profile of the customer, prevent the misuse of legal entities for money laundering or terrorist financing, and comply with the FATF Recommendations12.

The requirement for customer identification for the opening of new accounts: Customer identification is the process of verifying the identity of a customer using reliable and independent sources of information or documents. Customer identification is another essential element of CDD and helps the financial institution to establish a business relationship with the customer, prevent identity fraud, and comply with the FATF Recommendations13.

The financial institution’s obligation to report suspicious transactions: Suspicious transactions are transactions that have no apparent economic or lawful purpose, or are inconsistent with the customer’s known profile or business activities, or indicate involvement in money laundering or terrorist financing. Reporting suspicious transactions to the competent authorities is a core obligation of the financial institution under the FATF Recommendations14 and helps to detect and deter illicit activities and support law enforcement investigations.

The obligation to freeze funds involved in suspicious transactions is not an issue that should be addressed in the anti-money laundering program, as it is not a requirement under the FATF Recommendations. The FATF Recommendations require the financial institution to freeze funds or other assets of designated persons and entities that are subject to targeted financial sanctions related to terrorism, proliferation of weapons of mass destruction, or other threats to the international financial system1 . However, the financial institution is not obliged to freeze funds involved in suspicious transactions, unless it receives a specific order from the competent authorities or the courts.

The FATF Recommendations, as amended November 2023

Interpretive Note to Recommendation 10 (Customer Due Diligence), paragraphs 5(b) and 6

Recommendation 10 (Customer Due Diligence), paragraph 1

Recommendation 20 (Reporting of Suspicious Transactions)

Recommendation 6 (Targeted Financial Sanctions Related to Terrorism and Terrorist Financing), Recommendation 7 (Targeted Financial Sanctions Related to Proliferation), and Recommendation 8 (Non-Profit Organisations)

According to the Wolfsberg Principles on Correspondent Banking1, an institution should consider the following three elements in its enhanced due diligence process for higher risk respondent bank customers:

The quality of the respondent’s AML and client identification controls: The correspondent should assess the adequacy and effectiveness of the respondent’s AML policies, procedures, and systems, as well as its compliance with applicable AML laws and regulations. The correspondent should also verify that the respondent has implemented appropriate customer identification and verification measures, and that it maintains sufficient records of its customers and transactions.

A risk-based determination as to whether or not the respondent is a shell bank: The correspondent should ensure that the respondent is not a shell bank, which is defined as a bank that has no physical presence in any country and is not affiliated with a regulated financial group. The correspondent should also avoid establishing or maintaining relationships with banks that are known to allow their accounts to be used by shell banks.

Whether a Politically Exposed Person (PEP) has an interest or management role in the respondent: The correspondent should identify and assess the potential risks associated with any PEPs who have an ownership or management interest in the respondent, or who are customers of the respondent. The correspondent should apply enhanced scrutiny and monitoring to such relationships, and obtain senior management approval before establishing or continuing them.

Wolfsberg Correspondent Banking Principles 2022 by the Wolfsberg Group, October 2022.

Regulatory exams assess whether financial institutions comply with AML/CFT laws and have adequately addressed previous deficiencies.

Option C (Correct):Regulators may still issue remediation orders if the bank's improvements do not fully resolve prior AML compliance gaps.

Option D (Correct):If deficiencies persist, regulators may impose civil or criminal penalties.

Why Other Options Are Incorrect:

Option A (Incorrect):Secondary sanctions typically apply to institutions violating international sanctions laws, not AML program deficiencies.

Option B (Incorrect):Regulatory orders are not always confidential—major enforcement actions may be publicly disclosed.

Option E (Incorrect):Boards are responsible for AML oversight but are not always required to disclose corrective actions publicly.

Best Practices for Addressing AML Exam Findings:

Document all remediation efforts with clear implementation timelines.

Demonstrate a culture of compliance through leadership and training.

Ensure sustained improvements, not just short-term fixes.

C: “The system must be adequate and proportionate to the bank’s size, activities, complexity, and risk profile. A one-size-fits-all solution is not appropriate.”

D: “Effective monitoring systems should support the detection of unusual trends and business relationships, facilitating meaningful analysis and alerts.”(CAMS 6th Edition, Transaction Monitoring System Requirements)

Incorrect:

A: Vendor internal controls are important, but not a top selection criterion for AML system effectiveness.

B: Permissions should be appropriate for the bank’s structure, not just compared to other banks.

A (ISO): Ensures information security controls are aligned with AFC efforts, protecting sensitive data and reducing the risk of cyber-enabled financial crime.

D (DPO): Helps ensure compliance with data privacy laws and enables secure, lawful information-sharing for AML purposes.

“Collaboration with the ISO and DPO is critical to maintaining data security and privacy within AFC compliance frameworks.”(CAMS 6th Edition, Governance and Cross-Functional Collaboration)

 According to the Wolfsberg Group, the FI should take the following steps regarding the opening of the account for the senior government official:

Reasonably establish if the source of wealth and funds of the official is legitimate. This is to ensure that the FI is not facilitating the laundering of proceeds of corruption, bribery, or other illicit activities by the official, who is considered a politically exposed person (PEP) and poses a higher risk of financial crime. The FI should obtain information and documentation on the origin andownership of the funds, the official’s income and assets, and the purpose and expected activity of the account12.

Perform due diligence procedures on the managing intermediary. This is to verify the identity, reputation, and regulatory status of the intermediary, who acts as a third party on behalf of the official. The FI should also assess the intermediary’s own AML/CFT policies and controls, and the nature and extent of the relationship between the intermediary and the official13.

Determine whether the intermediary representative is acting on the officer’s behalf. This is to establish the beneficial ownership and control of the account, and to avoid any potential conflicts of interest or undue influence by the intermediary. The FI should obtain a written confirmation from the intermediary that they are authorized to act on behalf of the official, and that they will disclose any changes in the beneficial ownership or control of the account13.

Reviewing parameter settings based on the latest risk assessment should be included in the evaluation of system settings for anti-money laundering alert surveillance. This is because parameter settings determine the thresholds and criteria for generating alerts based on the risk profile of the customers, products, services, channels, and jurisdictions involved in the transactions. A risk assessment is a periodic and comprehensiveanalysis of the potential money laundering and terrorist financing risks faced by an organization, and it should inform the design and implementation of an effective anti-money laundering program, including the alert surveillance system. By aligning the parameter settings with the risk assessment, an organization can ensure that the system is capturing the most relevant and high-risk transactions, and reducing the number of false positives or irrelevant alerts.

CAMS Study Guide 6th Edition, page 37-38.

Implementing AML Transaction Monitoring Systems: Critical Considerations, page 2-3.

3 techniques to improve AML transaction monitoring strategies, page 2.

Structured transactions are a common method of money laundering, where large amounts of cash are broken down into smaller deposits or withdrawals to avoid reporting thresholds or detection. The most effective tool to detect such transactions is a software program that can link apparently unrelated transactions by using various criteria, such as customer name, address, account number, identification number, transaction amount, date, time, location, etc. Such a program can help identify patterns, trends, and anomalies that may indicate money laundering activity.

ACAMS CAMS Certification Study Guide1, Chapter 2: Money Laundering Risks and Methods, Section 2.2: Common Money Laundering Methods, pp. 51-52

ACAMS CAMS Certification Video Training Course2, Module 2: Money Laundering Risks and Methods, Lesson 2.2: Common Money Laundering Methods

ACAMS CAMS Certification Exam Outline3, Domain 2: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), Task 2.2: Implement risk-based CDD, EDD and ongoing due diligence policies, procedures and processes, p. 13

RefThis transaction should result in a SAR/STR filing because it indicates possible structuring, which is a form of money laundering that involves breaking down large amounts of cash into smaller deposits to avoid detection or reporting requirements. Structuring is often done to conceal the source or destination of illicit funds, or to evade taxes, regulations, or sanctions. A small business owner who deposits checks just below the $10,000 USD threshold on a daily basis without providing a legitimate purpose raises a red flag for suspicious activity and should be reported to the relevant Financial Intelligence Unit.

Suspicious Transaction Report (STR) / Suspicious Activity Report (SAR)

What Is a Suspicious Activity Report (SAR)? Triggers and Filing

How to decide if SAR filing is needed

erence: https://aml-cft.net/library/suspicious-transaction-report-str-suspicious-activity-report-sar/

Under the USA PATRIOT Act, a U.S. bank that maintains a correspondent account for a foreign bank operating under an offshore license must obtain from the foreign bank the name and address of a person residing in the United States who is authorized to accept service of legal process for records related to the correspondent account1. This requirement is intended to facilitate the U.S. authorities’ access to information and records regarding the correspondent account and its underlying transactions, especially in cases where the foreign bank is located in a jurisdiction that does not cooperate with U.S. law enforcement or regulatory requests2.

USA PATRIOT Act, Section 319(b)(2)(A)1

ACAMS, CAMS Examination Study Guide, 6th Edition, Chapter 5, pp. 151-152

UN sanctions regimes are not punitive but aim to:

B: “Support peaceful resolution of conflicts.”

D: “Deter non-democratic and unconstitutional changes of government.”

E: “Promote respect for human rights and humanitarian law.”(CAMS 6th Edition, United Nations Sanctions; UN Security Council Mandates)

Incorrect:

A: The UN does not impose sanctions to force regime type.

C: Sanctions are not for punishing weak AML controls.