CAMS Certified Anti-Money Laundering Specialist (CAMS7 the 7th edition) Questions and Answers

Perpetual KYC (pKYC) involves real-time monitoring of data triggers, such as static changes or behavioral anomalies, and prioritization based on client-specific data rather than fixed refresh schedules. This dynamic approach enhances risk management by responding more quickly to changes in client risk profiles.

It is essential to ensure that anti-financial crime (AFC) tools are compatible and can be integrated with existing systems to avoid operational disruptions. Additionally, evaluating both implementation and ongoing maintenance costs is crucial for long-term sustainability and effective budget planning.

An adequate organizational policy must be up to date with all relevant regulatory developments to remain compliant, and it must be clearly communicated and understood by staff to ensure proper implementation and adherence.

Regulatory Technology (RegTech) is a specialized subset of FinTech that focuses on improving how organizations meet regulatory and compliance obligations, including AML/CFT requirements. RegTech solutions leverage technologies such as automation, data analytics, artificial intelligence, and machine learning to enhance efficiency, accuracy, and scalability.

In the AML context, RegTech supports functions such as customer due diligence (CDD), transaction monitoring, sanctions screening, regulatory reporting, and record-keeping. These tools help financial institutions reduce manual processes, improve detection of suspicious activity, and respond more quickly to regulatory changes.

SupTech, by contrast, refers to supervisory technology used by regulators, not regulated institutions. The other options are not recognized regulatory terms.

Global regulators, including FATF and national supervisory authorities, actively encourage the responsible adoption of RegTech as part of a risk-based approach, provided appropriate governance, data quality, and model oversight are in place.

The Office of Foreign Assets Control (OFAC), part of the U.S. Department of the Treasury, is responsible for theadministration and enforcement of economic and trade sanctions. These sanctions are based on U.S. foreign policy and national security objectives and target:

Foreign countries and regimes

Terrorist organizations

Narcotics traffickers

Individuals and entities engaged in activities related to the proliferation of weapons of mass destruction

OFAC acts under various authorities, including national emergency powers granted by the President and specific legislation. One of its primary tools is theSpecially Designated Nationals(SDN) List, which identifies individuals and entities whose assets are blocked and with whom U.S. persons are generally prohibited from dealing.

It is important to note that OFAC is not responsible for designating jurisdictions as primary money laundering concerns (a task handled by FinCEN under Section 311 of the USA PATRIOT Act), nor does it manage trade agreements.

To maximize the benefits of PPPs while addressing data privacy and regulatory concerns, the bank should establish a clear framework within the partnership that defines privacy protections and ensures all information sharing complies with applicable legal and regulatory requirements across jurisdictions. This approach fosters trust, enables effective collaboration, and mitigates potential legal risks.

Technology plays a critical role in strengthening AML/CFT programs by improving efficiency, consistency, and scalability. Regulators encourage the responsible use of technology while maintaining governance and oversight.

One major benefit is processing large volumes of data efficiently, helping institutions eliminate investigative backlogs and manage increasing transaction volumes. Technology also automates repetitive tasks, reducing human error and improving data accuracy, allowing compliance professionals to focus on higher-value investigative work.

Technology does not eliminate privacy concerns, and front-end search tools alone are not sufficient to drive effectiveness. Human oversight remains essential for decision-making, investigations, and regulatory reporting.

After identifying and rating inherent risks, the next key step in the risk assessment process is to evaluate the effectiveness of existing controls. This allows the organization to calculate the residual risk - i.e., the level of risk remaining after controls are applied.

The effectiveness of AML training programs depends on comprehensive content that covers relevant regulatory, risk, and procedural topics, combined with engaging delivery methods that promote retention and practical application by participants.

Professional service providers can be misused as enablers of money laundering when they abuse their trusted positions and expertise. FATF guidance highlights several risks linked to such abuse.

The creation of shell companies is a common method used to obscure beneficial ownership and facilitate placement or layering of illicit funds. Similarly, opening third-party accounts to mask the true client identity directly undermines transparency and due diligence requirements.

Additionally, actively directing or facilitating the structuring or movement of illicit funds constitutes direct involvement in money laundering schemes and is a serious criminal offense.

By contrast, opening estate or trust accounts for legitimate, transparent purposes does not inherently pose a financial crime risk when proper due diligence is applied.

Financial institutions must conduct thorough background checks on employees in sensitive roles (e.g., private banking) to mitigate fraud, insider trading, and money laundering risks.

Option A (Correct):Past employment records help verify work history and identify any red flags related to prior financial misconduct.

Option D (Correct):Internet and media searches reveal any negative press, regulatory issues, or connections to illicit activity.

Option E (Correct):Criminal history searches help screen for prior convictions related to financial crimes.

Why Other Options Are Incorrect:

Option B (Incorrect):Personal references are less reliable and may not uncover objective risk factors.

Option C (Incorrect):A resume is self-reported and should be verified using independent sources.

Best Practices for Employee Background Screening:

Conduct enhanced due diligence for high-risk roles (e.g., private bankers, compliance officers).

Use reliable background screening tools and legal databases.

Verify employment history and check against regulatory blacklists.

The remote gambling sector presents unique money laundering and terrorist financing risks due to its online, non-face-to-face nature, as recognized in FATF and national regulatory guidance.

A major risk is that customers are not physically present for identification, which increases impersonation and identity fraud risks and requires robust digital onboarding controls.

Another significant risk is the use of anonymous prepaid cards or other anonymous payment methods. These instruments reduce traceability and can be used to introduce illicit funds into gambling platforms with limited customer identification.

Additionally, numerous low-level transactions may indicate structuring behavior designed to avoid enhanced due diligence thresholds and monitoring controls. This tactic allows criminals to layer transactions while appearing consistent with normal gambling behavior.

Large cash deposits are less relevant in remote gambling, as transactions are typically electronic. Betting beyond affordability may indicate problem gambling but is not, by itself, a core AML risk indicator.

An effective AML/CFT compliance program must include several core elements outlined in FATF recommendations and national regulations. One of these essential elements is an independent and skilled audit function.

The purpose of independent audit is to test and validate the effectiveness of AML controls, identify weaknesses, and ensure compliance with regulatory requirements. Audits must be conducted by qualified personnel who are independent from the day-to-day AML operations to maintain objectivity.

While enterprise risk management frameworks and advanced technologies such as AI can enhance AML programs, they are not mandatory foundational elements. Regulators focus on governance, oversight, and accountability rather than technology sophistication.

An independent audit function ensures continuous improvement and provides assurance to senior management and regulators that the AML program is operating effectively.

Explainable artificial intelligence (AI) and machine learning (ML) technologies are increasingly adopted within AML/CFT compliance to enhance effectiveness while maintaining regulatory transparency. Regulators emphasize that explainability and human oversight are essential when using advanced analytics.

One key benefit is the ability to process and analyze large volumes of data quickly and accurately. AML programs must review massive transaction datasets, customer profiles, and behavioral patterns. AI and ML models improve detection capabilities by identifying complex patterns and anomalies that may not be evident through traditional rule-based systems.

Another critical benefit of explainable AI is improved auditability, accountability, and governance. Explainable models allow compliance teams, auditors, and regulators to understand how decisions are made, why alerts are generated, and how risks are assessed. This transparency supports regulatory compliance and model governance requirements.

AI systems are not intended to replace human involvement or eliminate compliance staff. Human judgment remains essential for investigations, decision-making, and regulatory reporting.

Accountants are classified as designated non-financial businesses and professions (DNFBPs) under FATF standards and must apply a risk-based approach to AML/CFT compliance.

A customer acceptance policy is a key tool that helps accountants define which clients or engagements fall outside their risk appetite. This supports consistent onboarding decisions and ensures high-risk clients are either subject to enhanced due diligence or declined.

Additionally, due to the nature of accounting services—such as advisory, tax preparation, and financial reporting—traditional automated transaction monitoring systems used by banks are often not appropriate. Instead, accountants rely more heavily on engagement-based risk assessments, client profiling, and professional judgment.

Accountants are subject to record-keeping requirements longer than two years in most jurisdictions, and geographic risk is always relevant when assessing AML/CFT exposure. Risk assessments must be comprehensive and proportionate, not artificially limited.

Money laundering corrodes financial-system integrity, eroding investor confidence and impeding sustainable economic growth.

Illicit funds entering legitimate economies can finance terrorism and organized crime, skew resource allocation, and stifle development.

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)

Countries that are members of the Egmont Group can securely exchange information between their Financial Intelligence Units (FIUs) to support money laundering and terrorist financing investigations, even when the activity involves multiple jurisdictions.

A risk appetite statement clearly defines the level and type of financial crime risk a financial institution is willing to accept in pursuit of its objectives. It guides decision-making and ensures consistency in risk-taking across the organization.

Open-source tools offer cost-effective access to diverse data sources, making them valuable for financial crime investigations. They also support partial automation of data collection and analysis, reducing manual effort and improving efficiency in identifying suspicious patterns or links.

FATF standards require financial institutions to adopt a risk-based approach (RBA) that is informed by national and sectoral risk assessments. These assessments identify key threats, vulnerabilities, and typologies within a jurisdiction or industry and provide essential context for institutional risk management.

Financial institutions must reference and align their internal AML/CFT risk assessments with the findings of NRAs and sectoral assessments. This means demonstrating awareness of identified risks and showing how these risks are mitigated through policies, controls, and procedures.

However, institutions are not required to copy or mechanically apply the exact methodologies, weightings, or conclusions of these assessments. Each institution must tailor its risk assessment to its own business model, customer base, products, services, and geographic exposure.

Board oversight is required, but NRAs do not dictate how internal assessments must be written or approved. The key regulatory expectation is alignment, awareness, and effective risk management—not rigid adoption.

Receiving funds from a decentralized mixer and using multiple incoming wires from different sources to purchase virtual currency are red flags, as they can indicate attempts to obscure the origin of funds and facilitate money laundering through virtual asset transactions.

The first step in designing an effective controls framework using a risk-based approach is conducting a risk assessment. This identifies and evaluates inherent risks, providing the basis for determining which controls are necessary and how they should be prioritized.

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.

FIUs rely on formal cooperation mechanisms to exchange information lawfully and efficiently across borders. One of the most widely used mechanisms is a Memorandum of Understanding (MOU) between FIUs in different jurisdictions.

MOUs establish the terms, scope, confidentiality protections, and procedures for sharing financial intelligence. They enable FIUs to exchange information directly, quickly, and securely while respecting data protection and domestic legal requirements. This structure significantly reduces bureaucratic delays and supports effective cross-border investigations.

FATF and regional bodies are standard-setters and evaluators, not operational information-sharing hubs. The Wolfsberg Group is a private-sector association and does not facilitate FIU-to-FIU communication. MLATs are used primarily by law enforcement and judicial authorities for criminal proceedings and arrests—not for FIU intelligence exchange.

Therefore, MOUs are the correct and most appropriate mechanism for FIU cooperation.

The compliance team should request further clarification to assess the AML risk appropriately. This includes understanding which cryptoassets were sold and whether the exchange used applies adequate due diligence. These details help determine the legitimacy of the source of funds and ensure compliance with AML requirements.

Effective sanctions screening depends heavily on strong list management governance, as emphasized in sanctions compliance guidance from regulators such as OFAC and FATF.

First, restricting list modification to authorized individuals is critical. This ensures proper governance, auditability, and control over updates, reducing the risk of errors, unauthorized changes, or manipulation of screening outcomes.

Second, sanctions and watchlists may be sourced internally or from reputable third-party vendors. Many financial institutions supplement regulatory lists with internal watchlists, law enforcement requests, or commercially curated databases to enhance detection capabilities. This flexibility supports a risk-based approach.

Using only regulatory lists may be insufficient for identifying broader sanctions evasion risks, while applying all lists in all jurisdictions may lead to legal conflicts and over-screening. Institutions must tailor list usage based on jurisdictional applicability and legal requirements.

Together, controlled access and flexible list sourcing form the foundation of effective sanctions list management.

A risk-based approach is central to AML/CFT programs and includes:

A: Creating detailed risk profiles for customers based on their behaviors and connections.

C: Applying controls that are tailored to the actual risk (not a one-size-fits-all approach).

D: Performing a thorough risk assessment, considering customer, transaction, and geographic factors.

“A risk-based approach involves risk profiling, tailored controls, and comprehensive risk assessment across key risk factors.”

(CAMS 6th Edition, Risk-Based Approach and Risk Assessment)

Incorrect:

B: Monitoring only flagged customers is not sufficient.

E: Equal allocation of resources ignores differing risk levels.

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.

Public-Private Partnerships (PPPs)are collaborative initiatives involvinglaw enforcement, FIUs, and financial institutions. Their objective is to improve theefficiency and effectivenessof the fight against money laundering, terrorist financing, and other financial crimes bysharing both operational and strategic intelligence.

Option A – Exchange operational information between public authorities and obliged entities:

PPPs often facilitate real-time or near-real-time information sharing that supportsspecific investigations and the detection of suspicious activity, helping financial institutions respond quickly and accurately to ongoing threats.

Option B – Exchange strategic information between FIUs and obliged entities:

Strategic-level intelligence sharing helps financial institutionsunderstand typologies, risk trends, and evolving criminal methods, thereby strengthening their risk assessments and transaction monitoring frameworks.

Option Cis incorrect: Strategic information exchange between private institutions is limited and heavily regulated.

Option Dis incorrect: FATF does not collect or manage databases of suspicious activity reports; it sets standards and reviews national frameworks.

Transaction monitoring governanceinvolves ensuring thatAML detection systems are effective, aligned with regulatory standards, and capable of identifying evolving threats.

Option B (Correct):Legal cooperation is essential for responding to subpoenas and law enforcement inquiries.

Option D (Correct):Regularly updating transaction monitoring scenarios ensures that the system adapts to emerging financial crime trends.

Why Other Options Are Incorrect:

Option A (Incorrect):SARs cannot be withdrawn unless an error was made—once filed, SARs remain confidential and must be retained.

Option C (Incorrect):Client profile updates are a CDD/KYC function, not directly related to transaction monitoring governance.

Best Practices for Transaction Monitoring Governance:

Regularly review system effectiveness through validation tests.

Collaborate with legal and compliance teams for risk mitigation.

Use AI and data analytics to refine detection accuracy.

AML/CFT (Anti-Money Laundering/Countering the Financing of Terrorism) applications are heavily influenced by various laws and regulations. The most impactful areas include:

Information security, data privacy, and cybersecurity – AML/CFT compliance relies on collecting and analyzing financial data. Data protection laws (e.g., GDPR) impact how financial institutions store, share, and protect sensitive customer information while ensuring that AML measures remain effective.

Foreign exchange control, and precious gemstone and metal dealing – Criminals often launder money through foreign currency transactions, gold, diamonds, and other high-value assets. Regulations governing these sectors help prevent financial crime.

Consumer protection, financial inclusion, and ESG – AML/CFT frameworks must balance risk mitigation with ensuring access to financial services (financial inclusion). Additionally, ESG policies play a growing role in identifying illicit financial.

Public-private partnerships (PPPs) are a key component of modern AML/CFT frameworks and are strongly encouraged by FATF and national regulators. Their primary benefit lies in enhancing timely and effective information sharing between financial institutions, regulators, law enforcement, and financial intelligence units (FIUs).

Through PPPs, authorities can share typologies, red flags, and emerging threat intelligence, while private institutions contribute operational insights derived from real transaction data. This rapid exchange of information on risks, high-risk activities, and suspicious actors significantly improves the detection and prevention of money laundering and terrorist financing.

PPPs do not exist to source staffing resources, provide salaries, or ensure basic understanding of regulatory concepts such as PEPs, which are already addressed through standard AML requirements. Their true value is the speed, quality, and relevance of shared intelligence, allowing participants to respond more effectively to evolving financial crime threats.

Trade-Based Money Laundering (TBML) is a recognized method used to move and disguise illicit funds through trade transactions. Regulatory guidance from FATF highlights several red flags that may indicate TBML risks.

Irregular or inconsistent trade volume and frequency that deviates from a counterparty’s historical activity can suggest artificial or manipulated transactions. This behavior may indicate over- or under-invoicing or fictitious trade.

Structuring transactions below reporting thresholds, such as repeated cash deposits just under regulatory limits, is a classic money laundering technique used to avoid detection and reporting obligations.

Engaging in unusual shipping routes, methods, or counterparties that do not align with normal business practices is another key TBML indicator. Criminals often use complex or illogical logistics to obscure the true nature of transactions.

Conversely, detailed trade documentation and transparent pricing with proactive explanations are indicators of legitimate trade activity and reduce AML risk rather than increase it.

BSA/AML compliance staff should report to the compliance function or another second line of defense internal control function to maintain independence from business line management, ensuring objective oversight and effective compliance controls.

A: “Effective training includes practical examples and use cases tailored to the business.”

B: “Firms must keep accurate records of all AML/CFT training, including completion logs.”

D: “Staff should be aware of the consequences of non-compliance with AML/CFT obligations.”(CAMS 6th Edition, AML/CFT Training and Awareness)

Incorrect:

C: Training should be tailored and role-specific.

E: Third-party trainers are not required for effective training.

Under FinCEN Section 314(b), financial institutions are permitted to share information with other financial institutions about suspected money laundering or terrorist financing activities. This collaboration helps identify and report suspicious transactions while complying with legal safeguards and privacy requirements.

A: The first step in any suspicious activity investigation is to review the transaction history and other relevant account information to establish context, identify patterns, and determine if the behavior is consistent with known typologies of money laundering.

“The initial phase of an AML investigation is to review relevant account information and transaction activity to assess whether a SAR filing is warranted.”

This approach ensures that any subsequent decisions, such as escalation, SAR filing, or customer outreach, are based on a comprehensive understanding of the facts.

A, C, D:

“Trust and asset management services can facilitate the concealment of the source of funds (A), provide a layer of anonymity to transactions (C), and obscure the true legal and beneficial owners (D). These are well-established ML/TF risks in the private wealth sector.”(CAMS 6th Edition, ML/TF Risks in Trust and Asset Management)

B and E are normal aspects of asset management and are not in themselves ML/TF risks unless combined with other suspicious behaviors.

Reference data screening is a core element of AML/CFT programs and typically covers:

Customers (B):“All customers must be screened against sanctions, PEP, and adverse media lists as part of onboarding and ongoing due diligence.”(CAMS 6th Edition, Due Diligence and Screening)

Third-party service providers (C):“Screening should extend to relevant third parties, such as agents and service providers, to prevent indirect exposure to sanctioned entities.”(CAMS 6th Edition, Third-Party Screening; FATF Recommendations)

Incorrect Options:

A: Types of payment messages are not screened; the entities/individuals are.

D: Customer spouses may be screened in some KYC processes but are not a standard dataset for reference screening.

Terms of Reference (ToR) are a fundamental governance document that define how a committee operates, makes decisions, and fulfills its responsibilities. Regulatory guidance and corporate governance best practices emphasize clarity and accountability in committee mandates.

The extent of power and decision-making authority must be clearly defined to ensure members understand what decisions they are authorized to make and where escalation is required. This prevents overlaps or governance gaps.

The composition and structure of the committee, including membership criteria and roles, ensures appropriate expertise and representation. This is essential for effective oversight, particularly in AML/CFT and risk committees.

Delegation of authority outlines how responsibilities may be assigned or escalated, supporting efficient decision-making while maintaining accountability.

Organization charts and company culture statements are not typically core components of a ToR, as they do not define operational authority or governance mechanics.

Nominee shareholders may be used for legitimate commercial reasons; however, FATF guidance identifies nominee arrangements as a significant money laundering risk when they obscure beneficial ownership.

The greatest risk arises when nominee shareholders provide anonymity to the true beneficial owner, preventing transparency in public registers and complicating due diligence. Criminals may exploit this opacity to conceal ownership, evade sanctions, launder illicit proceeds, or avoid tax and regulatory scrutiny.

The ability to hide ownership undermines one of the core objectives of AML/CFT frameworks: identifying and verifying beneficial owners. As a result, regulators require enhanced due diligence and clear documentation when nominee shareholders are involved.

Other features—such as administrative efficiency, compliance with local laws, or ease of share transfer—do not inherently increase financial crime risk when transparency and disclosure requirements are met.

Money services businesses (MSBs) are considered higher-risk customers under AML/CFT frameworks due to their role in facilitating payment flows and fund transfers. FATF guidance highlights specific characteristics that elevate financial crime risk.

One significant risk arises when MSBs process the activity of their customers’ customers. This indirect exposure reduces transparency and makes it more difficult for the financial institution to identify the true originators and beneficiaries of transactions, increasing vulnerability to money laundering and terrorist financing.

Another major risk is frequent cross-border transfers. International transactions introduce geographic risk, particularly when funds move through or to jurisdictions with weaker AML controls or higher financial crime prevalence.

While high volumes of low-value transactions can present monitoring challenges, this characteristic alone does not necessarily represent the greatest risk without additional factors. Registration requirements are a regulatory control, not a risk indicator.

Independent testing is critical for the third line of defense to provide unbiased and effective oversight, ensuring that reviews and audits are objective and free from influence by the first or second lines of defense.

Tax evasion is a criminal offense and is widely recognized as a predicate offense to money laundering under FATF standards and national AML laws.

It involves the deliberate non-payment or under-reporting of taxes, often through false declarations, concealment of income, or failure to file required tax returns. The key distinction is intentional deception of tax authorities.

In contrast, tax avoidance refers to lawful strategies used to minimize tax liability within the boundaries of the law. Deductions and tax planning activities are legal and do not constitute tax evasion.

Because tax evasion generates illicit proceeds, it is directly relevant to AML/CFT frameworks, and financial institutions must be alert to indicators of tax-related financial crime.

Forming complex trust structures and acting as a nominee director, providing tax advice to clients moving assets across borders, and assisting offshore entities from opaque jurisdictions in acquiring property are all higher-risk services. These activities may facilitate concealment of beneficial ownership, asset flight, or the integration of illicit funds into legitimate systems.

A risk appetite statement defines the amount and type of risk an organization is willing to accept in pursuit of its objectives. It must be clearly communicated to all stakeholders and supported by corresponding controls and processes to ensure it is embedded in day-to-day decision-making and risk management.

Shell companies and other high-risk business structures are commonly associated with money laundering schemes designed to obscure ownership and transaction purpose. FATF guidance identifies several red flags indicative of such misuse.

A mismatch between goods or services and the company’s stated business profile suggests fictitious or manipulated transactions. Insufficient information on originators or beneficiaries of funds transfers further increases suspicion, as transparency is a core AML requirement. Additionally, payments lacking a clear purpose or meaningful description may indicate layering or attempts to conceal illicit activity.

Conversely, well-documented transactions with established partners and legitimate audit trails are indicators of lower risk. While structuring below reporting thresholds can be suspicious, it must also be inconsistent with standard business practices to qualify as a red flag.

Public-private partnerships facilitate strategic information exchange between FIUs and obliged entities and operational information sharing between public authorities and obliged entities, improving collaboration and effectiveness in detecting and preventing financial crime.

Financial institutions should have a standardized process for terminating customer relationships, including conducting risk assessments and documenting the reasons for termination. A final review of the customer’s transaction history helps address any outstanding concerns or unresolved issues. Keeping thorough records of the termination process ensures compliance and provides documentation in case of any future inquiries or disputes.

Artificial intelligence (AI) enhances transaction monitoring by complementing or improving upon traditional rules-based systems. Regulators recognize that AI can strengthen AML programs when deployed with appropriate governance and oversight.

One key benefit is the ability to identify changes in customer behavior over time. AI models analyze historical and real-time data to detect deviations from expected patterns, allowing institutions to reassess customer risk more dynamically and accurately.

AI can also generate predictive customer risk scores, helping institutions prioritize alerts and focus investigative resources on higher-risk customers and activities. This improves efficiency and effectiveness while supporting a risk-based approach.

AI is designed to reduce false positives, not increase them, and bias must be carefully managed during training through governance and data controls.

An effective anti-financial crime (AFC) program relies on strong collaboration across risk management functions, including AML, fraud, sanctions, cybersecurity, and operational risk. Regulatory guidance encourages integrated approaches to managing financial crime risk.

A framework for continuous threat intelligence sharing allows different functions to exchange insights on emerging risks, typologies, and vulnerabilities, improving the organization’s ability to detect and respond to threats holistically.

Cross-functional training programs help ensure that staff across risk functions understand AFC risks, regulatory expectations, and the tools used to manage them. This fosters consistency and breaks down silos within the organization.

Developing common metrics and key performance indicators (KPIs) aligns objectives across functions and enables management to assess program effectiveness consistently.

While senior management accountability is essential for governance, it does not directly facilitate collaboration among risk functions. Reward programs are not standard or recommended measures in regulatory guidance for enhancing AFC collaboration.

Hawala operatives rely on informal networks outside the regulated banking system, allowing funds to move across borders without the usual AML controls.

Because hawala transactions are settled on trust rather than recorded through formal channels, it’s often impossible to trace who originated or ultimately received the funds.

Money Services Businesses (MSBs)are commonly recognized by regulatory and supervisory authorities as havinghigher inherent AML/CFT risk, particularly due to certain business characteristics.

Option B – The prevalence of international wire transfers:

MSBs often facilitatecross-border transactions, which present a higher money laundering and terrorist financing risk due to challenges in verifying customer identity, the origin of funds, and the end destination—especially when dealing with higher-risk jurisdictions.

Option D – The cash-intensive nature of the services offered:

Many MSBs deal primarily incash, which increases the risk ofanonymous transactionsandfunds layering, making it harder to trace illicit activity. Cash is the most vulnerable medium for placement of illicit funds into the financial system.

Option AandOption E, while involving modern technologies,can actually reduce riskwhen implemented with proper controls (e.g., secure digital onboarding and traceable payments enhance auditability).

Option Cdoes not in itself signal high AML risk unless combined with other red flags.

Regulatory reports—such as those published by FATF, FIUs, and supervisory authorities—provide valuable insights into emerging money laundering and terrorist financing risks.

A crucial step is systematically integrating identified risks into the institution’s internal risk assessment. This ensures that the organization’s understanding of threats remains current and aligned with regulatory expectations.

Another key action is building or enhancing transaction monitoring scenarios based on the typologies and red flags described in regulatory reports. This directly improves detection effectiveness and responsiveness to evolving threats.

While internal benchmarking and peer comparison may be useful, they are not substitutes for directly updating risk assessments and monitoring logic based on regulatory intelligence.

In anEnterprise-Wide Risk Assessment (EWRA),residual riskis the level of risk that remains after applying mitigating controls to theinherent risk(the risk present before controls are applied).

In this scenario, theinherent risk is highdue to the nature of private banking—high net worth clients,cross-border transactions,complex ownership structures, andhigh-value financial products. However, the institution has implementedrobust CDD and EDD, as well asadvanced transaction monitoring systems.

According to the CAMS Study Guide – 6th Edition, wheneffective and properly implemented controlsare in place, they cansignificantly reducethe residual risk—even in high-risk business areas like private banking. However, no control framework caneliminate all riskentirely.

Option Ais correct: Controls can significantly reduce the residual risk when strong, effective systems and procedures are in place.

Option Bis partially true but suggests inadequacy, which is not indicated here.

Option Cincorrectly assumes residual risk cannot be lowered even with controls.

Option Dis incorrect because residual riskcannot be eliminated entirely.

Effective AML/CFT policies, controls, and procedures must be risk-based, proportionate, and well-governed, as emphasized by FATF and national regulators. Proportionality ensures that controls are appropriate to the firm’s size, complexity, products, services, and risk exposure.

Senior management approval is essential to establish accountability and tone from the top. Regular review ensures policies remain effective as risks, regulations, and business models evolve.

AML responsibility is shared across the three lines of defense, not owned solely by the business. External validation may support assurance but does not replace internal accountability. While technology can enhance controls, regulators do not mandate the use of advanced or cutting-edge solutions; effectiveness and governance are more important than sophistication.

Red flags include using personal accounts for business transactions (which can obscure fund tracing), preferring minimal direct interaction (potentially avoiding scrutiny), and unclear ultimate beneficial ownership (which can conceal the true controllers of the entity and facilitate illicit activity).

A risk-based approach involves conducting a comprehensive risk assessment, applying controls that match the identified risk levels, and creating detailed customer risk profiles to focus monitoring and resources where they are most needed to mitigate financial crime risks effectively.

The Basel Committee on Banking Supervision (BCBS) requires that the board of directors establish and oversee the compliance function and approve the bank's AML/CTF compliance policies and procedures, including processes for identifying, assessing, monitoring, and reporting compliance risks.

“The board of directors should establish a compliance function and approve compliance policies and processes for identifying, assessing, monitoring, and reporting compliance risks throughout the organization.”

(CAMS 6th Edition, Corporate Governance and Oversight; BCBS, Corporate Governance Principles for Banks, Principle 6)

Accounting can help detect irregular financial patterns, technology solutions and IT security provide systems for monitoring and data protection, and fraud risk management identifies and mitigates suspicious activities - all of which are essential to supporting AML and sanctions compliance programs.

The review should prioritize politically exposed persons (PEPs) risk, as state ownership increases the likelihood of political connections, and anti-bribery and corruption risk, since such environments may have higher exposure to corrupt practices and misuse of influence.

Proliferation financingrefers to the act of providing financial services or funds for thedevelopment, acquisition, or delivery of nuclear, chemical, or biological weapons. The core threat involvesnetworks of individuals and entities using the financial systemto obtain sensitive technologies, materials, or knowledge forweapons of mass destruction (WMDs).

TheFinancial Action Task Force (FATF)identifies this as a major international security threat and requires institutions to assess and mitigate such risks.

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)

Appointing individuals to serve in official capacities poses a higher money laundering risk because it can be used to obscure the true beneficial ownership and control of the company, making it easier to conceal illicit activities or the identity of those directing the business.

For multinational financial institutions, regulatory expectations are clear: institutions must comply with all applicable laws and regulations in each jurisdiction where they operate or where a transaction has regulatory touchpoints.

In this case, the transaction is subject to both U.S. and EU AML/CFT frameworks, including BSA reporting obligations, OFAC sanctions screening, 6AMLD requirements, and EBA supervisory expectations. Selecting only one regulatory regime would expose the institution to compliance failures and enforcement risk.

A dual-compliance approach ensures that reporting, sanctions screening, customer due diligence, and record-keeping obligations are met in both jurisdictions. This approach aligns with FATF principles on cross-border compliance and consolidated supervision.

Deferring to the “most stringent” regime is not sufficient, as different rules may apply to different aspects of the transaction. Therefore, simultaneous compliance is required.

A National Risk Assessment (NRA) provides valuable guidance on which customers, products, services, and transactions pose the highest risk for money laundering and terrorist financing, enabling financial institutions to tailor their risk-based approach and allocate resources more effectively.

When a financial institution receives a grand jury subpoena, it is legally compelled to respond, but must do so in a controlled, lawful, and coordinated manner.

The first step is to consult with legal counsel to verify the subpoena’s validity, scope, deadlines, and confidentiality requirements. Legal counsel ensures the institution responds accurately, protects privileged information, and complies with applicable laws.

Notifying the customer would constitute tipping off, which is prohibited. Immediate disclosure without legal review may result in over-disclosure or violation of customer privacy laws. Filing a SAR may be appropriate depending on the facts, but it is not the first step and must not reference the subpoena.

This approach aligns with U.S. AML, BSA, and law enforcement cooperation requirements.

Percentage change in transaction monitoring alerts escalated for investigation and number/percentage of senior PEPs onboarded are key risk indicators that can highlight shifts in the inherent risk profile of the customer base, enabling leadership to proactively address emerging financial crime risks.

The vulnerability of insurance products to money laundering is typically assessed based on purpose and intended use, liquidity (how easily funds can be accessed or moved), and customer anonymity or use of third-party transactions, as these factors can be exploited to disguise illicit funds.

Law firms are classified as gatekeepers under FATF standards when they provide services such as company formation, trust creation, or management of client funds. These services can be misused to facilitate money laundering if proper due diligence is not conducted.

In this scenario, the law firm is establishing complex offshore structures with minimal documentation of source of funds and without questioning suspicious activity. This behavior directly enables the concealment of beneficial ownership and the layering of illicit proceeds, both core money laundering techniques.

Failing to apply scrutiny or report suspicious activity allows criminals to exploit legal services to move and disguise illicit funds under the appearance of legitimacy. This is a recognized vulnerability across multiple FATF typologies.

The behavior described is not merely aggressive tax planning or routine legal work; rather, it represents facilitation of illicit financial flows through professional services.

This scenario presents multiple classic money laundering red flags, particularly within the life insurance sector, which is recognized by FATF as vulnerable to misuse due to its investment and payout features.

The use of an offshore trust in a jurisdiction with no clear link to the customer raises concerns about concealment of beneficial ownership and layering. Criminals frequently use trusts and offshore structures to obscure the origin and destination of illicit funds.

The client’s request to split premium payments into multiple transactions to avoid bank charges is indicative of structuring, a known money laundering technique used to evade monitoring and reporting thresholds.

Furthermore, the lack of a legitimate source of wealth or income consistent with the high-value policy is a significant red flag. Purchasing high-value insurance products with no apparent financial means is a common placement method for laundering illicit proceeds.

While fraud or sanctions evasion could be relevant in other contexts, the combination of structuring, unexplained wealth, offshore structures, and non-residency most strongly indicates money laundering risk.

The US Department of the Treasury identifies money services businesses (MSBs) and non-profit organizations with international operations as high money laundering risks when they lose access to traditional financial institutions, as this can push them toward less regulated channels that are more vulnerable to abuse.

Fingerprint is an inherent factor because it is a biometric trait - something the user is. Inherent factors rely on physical or behavioral characteristics such as fingerprints, facial recognition, or voice, which are unique to the individual.

Artificial intelligence and machine learning technologies support the risk-based approach (RBA) to AML compliance by enhancing an institution’s ability to identify, assess, and prioritize financial crime risks. Regulatory guidance emphasizes that these technologies should augment—not replace—human judgment.

One key benefit is advanced customer risk assessment. AI and ML can synthesize large volumes of customer data, including background information, transaction behavior, and external risk indicators, allowing institutions to develop more accurate and dynamic risk profiles.

AI and ML also enable the identification of complex networks among seemingly unrelated clients. Through network analytics and pattern recognition, these tools can uncover hidden relationships used in layering and structuring activities.

Additionally, AI-driven systems excel at detecting complex money laundering patterns within transaction data that may not trigger traditional rule-based alerts, improving effectiveness and efficiency.

Automatically generating SARs or adapting thresholds without human oversight is inconsistent with regulatory expectations. Human review and governance remain essential components of AML compliance.

Conceptual soundness validation is a foundational element of AML model governance and is emphasized in regulatory guidance on model risk management. It focuses on whether the design, logic, assumptions, and methodology of a model are appropriate for its intended purpose.

Validating conceptual soundness ensures that the model’s underlying framework makes sense for identifying money laundering and terrorist financing risks. This includes evaluating scenario logic, risk factors, thresholds, segmentation, and assumptions used in detection.

Statistical validation and performance testing are separate steps that assess outcomes and predictive power, while technology compatibility relates to system implementation rather than conceptual design. Alignment with regulatory guidance is important, but it is not the core objective of conceptual soundness testing.

Regulators expect institutions to demonstrate that their AML models are fit for purpose before relying on them operationally.

A key regulatory expectation for transaction monitoring systems is flexibility and adaptability. Financial crime risks evolve rapidly, and institutions must be able to respond quickly to new typologies, threats, and regulatory guidance.

The ability to build, iterate, and test rules enables compliance teams to rapidly adjust monitoring scenarios, thresholds, and logic as new risks emerge. This capability allows institutions to implement changes without lengthy system redevelopment, ensuring timely and proportionate responses to financial crime threats.

While cloud deployment and AI integration can enhance scalability and analytics, they do not directly address the need for rapid rule changes. Configurable reporting supports oversight and governance but does not directly affect detection responsiveness.

Therefore, rule agility is the most critical characteristic for rapid response.

Residual risk represents the remaining level of risk after considering the effectiveness of controls. Under a risk-based approach, strong controls reduce risk, while weak or ineffective controls increase it.

In this scenario, the inherent risk is assessed as moderate, meaning the underlying exposure is neither low nor extreme. However, the controls are evaluated as less than satisfactory, indicating that existing measures are not adequately mitigating the identified risks.

When controls are weak, residual risk increases above the inherent risk level, as vulnerabilities remain unaddressed. Regulators expect financial institutions to escalate residual risk ratings and implement remediation plans in such cases.

Therefore, the most likely residual risk conclusion is high, reflecting the combination of moderate inherent risk and ineffective controls. This outcome aligns with AML best practice and regulatory expectations.

Public-private partnerships (PPPs) are widely recognized in AML/CFT frameworks, including FATF guidance, as an effective mechanism to combat financial crime. One key strength of PPPs is improving the speed of action in identifying and responding to emerging financial crime risks. By facilitating closer collaboration, PPPs enable faster detection of typologies, threats, and vulnerabilities across the financial system.

Another major strength is enhanced information-sharing between governments and financial institutions. PPPs allow public authorities to share strategic intelligence and red flag indicators, while private institutions contribute operational insights from real transaction data. This two-way exchange improves the overall quality of financial crime detection and prevention.

While some PPPs operate within legal information-sharing frameworks, they do not eliminate liability entirely, nor do they remove the obligation for institutions to comply with data protection laws. Importantly, PPPs do not replace an institution’s responsibility to conduct its own customer due diligence. Each participating organization remains accountable for maintaining independent AML controls.

The Bank Secrecy Act (BSA) is the foundational Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) law in the United States. Enacted in 1970, the BSA requires financial institutions to establish and maintain effective AML programs designed to detect and prevent money laundering and terrorist financing.

Under the BSA and its implementing regulations, financial institutions must implement key controls such as Customer Identification Programs (CIP), customer due diligence (CDD), enhanced due diligence (EDD) for higher-risk customers, transaction monitoring, record-keeping, and the filing of Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs) with FinCEN.

While the USA PATRIOT Act expanded AML obligations—particularly in relation to terrorist financing—it amended and strengthened the BSA rather than replacing it. The Money Laundering Control Act criminalized money laundering activities but does not establish the operational compliance framework. MiCA is an EU regulation and does not apply in the U.S.

Therefore, the BSA remains the cornerstone of U.S. AML/CFT compliance requirements.