ACAMS Certified Anti-Money Laundering Specialist (CAMS) Practice Test
Prepare confidently for the prestigious ACAMS Certified Anti-Money Laundering Specialist (CAMS) certification with Exam Sage’s comprehensive practice exam. The CAMS credential is globally recognized as the gold standard for professionals specializing in anti-money laundering (AML), financial crime prevention, and compliance. Earning this certification demonstrates your expertise in detecting, preventing, and reporting money laundering activities—an essential skill in today’s financial and regulatory environment.
What is the CAMS Certification?
The CAMS certification validates a professional’s knowledge of AML laws, regulations, and best practices. It is ideal for compliance officers, financial investigators, auditors, and other professionals tasked with safeguarding financial institutions against illicit activities. The certification covers the entire AML lifecycle, including customer due diligence, transaction monitoring, suspicious activity reporting, and regulatory compliance.
What You Will Learn
By practicing with Exam Sage’s CAMS practice exam, you will strengthen your understanding of:
The foundations of money laundering and terrorist financing
AML regulatory frameworks and international standards such as FATF recommendations
Customer identification and enhanced due diligence (EDD) processes
Transaction monitoring techniques and detection of suspicious activity
Reporting obligations, including Suspicious Activity Reports (SARs)
Risk assessment and mitigation strategies in financial institutions
Emerging trends and typologies in financial crime
Topics Covered in This Practice Exam
Money laundering stages: placement, layering, and integration
AML laws, regulations, and compliance programs
Role and responsibilities of AML professionals
Risk-based approach to AML compliance
Identification of politically exposed persons (PEPs)
Use of technology in AML detection and reporting
Case studies and real-world scenarios
Why Choose Exam Sage for Your CAMS Exam Preparation?
Exam Sage offers a meticulously crafted practice exam designed to mirror the difficulty and scope of the official CAMS certification test. Our questions come with detailed explanations to help you understand key concepts and improve your exam-taking strategies. With Exam Sage, you get:
Up-to-date, high-quality questions based on the latest AML standards
Clear, comprehensive explanations for every answer
User-friendly platform for flexible and convenient practice
A proven resource trusted by thousands of AML professionals worldwide
Ace your CAMS certification with confidence—start practicing with Exam Sage today and take a significant step toward advancing your career in anti-money laundering compliance.
Sample Questions and Answers
1. What is the primary objective of anti-money laundering (AML) legislation?
A. To increase tax revenues
B. To improve consumer credit scores
C. To detect and prevent illicit financial activities
D. To promote online payment systems
Answer: C
Explanation: AML legislation is primarily aimed at detecting, deterring, and preventing the process of disguising illegally obtained funds as legitimate income. The focus is to combat crimes like drug trafficking, corruption, and terrorism financing by disrupting the financial infrastructure criminals use to launder money.
2. Which of the following best describes “structuring” in the context of money laundering?
A. Using shell companies to hide assets
B. Breaking large transactions into smaller ones to avoid reporting thresholds
C. Investing in foreign real estate
D. Using cryptocurrency for peer-to-peer payments
Answer: B
Explanation: Structuring, also called “smurfing,” involves breaking down large transactions into smaller ones below the legal reporting threshold to avoid detection by financial institutions or regulators. It’s a common tactic used in the placement stage of money laundering.
3. Which is the correct order of the three stages of money laundering?
A. Integration, Placement, Layering
B. Placement, Layering, Integration
C. Layering, Placement, Integration
D. Placement, Integration, Layering
Answer: B
Explanation: The three stages of money laundering are: 1) Placement – introducing illegal funds into the financial system, 2) Layering – separating the funds from their source through complex transactions, and 3) Integration – making the funds appear legally earned.
4. A politically exposed person (PEP) is typically:
A. A celebrity with a large following
B. A person with access to government funds and decision-making power
C. An individual on a sanctions list
D. A person involved in military activities
Answer: B
Explanation: PEPs are individuals who hold or have held prominent public positions that may make them susceptible to corruption or bribery. AML programs require enhanced due diligence (EDD) for PEPs due to the higher risk they pose.
5. What is the main purpose of a Suspicious Activity Report (SAR)?
A. To block a transaction
B. To report unusual financial activities to regulators
C. To penalize a customer
D. To freeze bank accounts
Answer: B
Explanation: A SAR is filed by financial institutions to report activities that may indicate money laundering, fraud, or terrorist financing. It helps authorities investigate and identify criminal behavior without alerting the subject of the report.
6. Which international body develops global AML standards?
A. Basel Committee
B. IMF
C. FATF
D. World Bank
Answer: C
Explanation: The Financial Action Task Force (FATF) sets global AML and Counter-Terrorist Financing (CTF) standards. Its 40 Recommendations form the basis for effective national AML regimes and international cooperation.
7. Enhanced due diligence (EDD) is required when:
A. A customer has poor credit
B. The transaction is above $100
C. A PEP opens an account
D. The customer lives in a rural area
Answer: C
Explanation: EDD involves gathering more detailed information and monitoring high-risk customers, such as PEPs, due to the elevated risk of corruption or money laundering. It ensures that risks are appropriately assessed and mitigated.
8. What is “layering” in the context of money laundering?
A. Placing funds in an offshore account
B. Converting cash into gold
C. Conducting complex financial transactions to obscure the origin of money
D. Purchasing luxury goods
Answer: C
Explanation: Layering involves conducting a series of financial maneuvers—such as transfers, withdrawals, and currency exchanges—to conceal the origin of illicit funds. This step is critical to separating dirty money from its criminal source.
9. Which of the following is a red flag for potential money laundering?
A. A customer with a mortgage
B. Regular deposits of small amounts
C. A sudden large wire transfer from a high-risk country
D. Buying groceries with a debit card
Answer: C
Explanation: Sudden, large transfers from high-risk jurisdictions without clear business rationale raise AML red flags. Such activities warrant further investigation, especially if inconsistent with a customer’s known profile or business activity.
10. Which customer profile is generally considered low-risk in AML programs?
A. A cash-intensive business
B. A nonprofit in a sanctioned country
C. A salaried employee with a local bank account
D. A foreign diplomat
Answer: C
Explanation: Salaried employees with stable income and transparent financial behavior are typically categorized as low-risk. They usually engage in predictable, domestic transactions with limited exposure to corruption or laundering risk.
11. What role do financial intelligence units (FIUs) play in AML efforts?
A. Enforce tax codes
B. Provide credit ratings
C. Collect and analyze suspicious transaction reports
D. Issue loans to banks
Answer: C
Explanation: FIUs are central national agencies that collect, analyze, and disseminate financial intelligence. They play a crucial role in AML by processing suspicious activity reports (SARs) and collaborating with law enforcement to combat financial crimes like money laundering and terrorist financing.
12. Which of the following is a key requirement under the USA PATRIOT Act?
A. Waiving KYC obligations
B. Encouraging anonymous banking
C. Implementing Customer Identification Programs (CIP)
D. Deregulating financial markets
Answer: C
Explanation: The USA PATRIOT Act mandates that financial institutions implement Customer Identification Programs to verify the identities of their customers. This helps to prevent the financial system from being used by criminals and terrorists to launder money or fund illegal activities.
13. What is “correspondent banking”?
A. A joint venture between central banks
B. Banking services provided to one bank by another
C. Electronic mail services for banks
D. The process of sending bank statements by mail
Answer: B
Explanation: Correspondent banking involves a relationship where one bank (correspondent) provides services to another bank (respondent), often in a different country. This setup can be exploited for money laundering, so enhanced due diligence is required for such relationships.
14. A red flag in trade-based money laundering (TBML) might be:
A. Standard shipping times
B. Invoice values that match market rates
C. Over-invoicing or under-invoicing goods
D. Shipping from neighboring countries
Answer: C
Explanation: Over-invoicing or under-invoicing is a technique used in TBML to move illicit funds across borders under the guise of legitimate trade. These discrepancies help hide the true value of a transaction and are indicators of potential laundering schemes.
15. Which document establishes a framework for AML compliance in a financial institution?
A. KYC Form
B. Business Continuity Plan
C. AML Compliance Program
D. Risk Appetite Statement
Answer: C
Explanation: An AML Compliance Program outlines a financial institution’s internal policies, controls, and procedures to detect and prevent money laundering. It includes employee training, internal controls, independent audits, and a designated compliance officer.
16. What does the term “beneficial owner” refer to in AML?
A. The director of a company
B. The person who benefits from a company’s profits, even if not on paper
C. A company shareholder
D. The lawyer representing a business
Answer: B
Explanation: A beneficial owner is the natural person who ultimately owns or controls a customer or entity. Identifying the beneficial owner is vital for AML compliance to prevent criminals from hiding behind complex corporate structures.
17. Which of the following is an example of “placement” in the money laundering process?
A. Wiring money overseas
B. Depositing large amounts of cash into a business account
C. Buying high-end watches online
D. Mixing legitimate with illicit funds in accounts
Answer: B
Explanation: Placement is the first stage of money laundering and involves introducing illicit funds into the financial system. Cash deposits into a business account are a common method for placement, often through legitimate-looking fronts like restaurants or casinos.
18. One goal of Customer Due Diligence (CDD) is to:
A. Minimize marketing costs
B. Identify and verify customers
C. Improve customer service ratings
D. Determine creditworthiness
Answer: B
Explanation: CDD ensures financial institutions know who their customers are by collecting identity documents and assessing risk profiles. This helps prevent the misuse of services for money laundering and supports ongoing monitoring of customer transactions.
19. Which U.S. agency primarily oversees AML compliance in national banks?
A. SEC
B. FinCEN
C. OCC
D. IRS
Answer: C
Explanation: The Office of the Comptroller of the Currency (OCC) is the primary regulator of national banks in the U.S., including oversight of their AML compliance. It ensures institutions have sound AML programs and follow applicable laws and regulations.
20. Which of the following would require enhanced due diligence (EDD)?
A. A salaried school teacher opening a savings account
B. A university student applying for a credit card
C. A foreign PEP opening a business account
D. A local grocery store setting up a merchant account
Answer: C
Explanation: Foreign Politically Exposed Persons (PEPs) pose a higher risk of corruption and illicit activity. Financial institutions must apply enhanced due diligence measures when dealing with such clients to mitigate the elevated AML risk.
21. The Wolfsberg Group is known for promoting:
A. High-risk investment strategies
B. Global AML compliance standards
C. Anonymous financial transactions
D. Political lobbying
Answer: B
Explanation: The Wolfsberg Group, a consortium of major international banks, develops guidance on financial crime compliance, particularly regarding AML, anti-bribery, and counter-terrorism financing. Their principles help improve global financial transparency and integrity.
22. A shell company is typically used in money laundering to:
A. Reduce taxes
B. Avoid employee benefits
C. Hide the true ownership and origin of funds
D. Offer better interest rates
Answer: C
Explanation: Shell companies often have no real operations and are used to obscure the beneficial ownership of assets or the source of funds. They are a favored tool in layering and integration stages of money laundering.
23. What is the purpose of sanctions screening in AML programs?
A. To verify citizenship
B. To prevent business with individuals/entities on government watchlists
C. To analyze market volatility
D. To promote international tourism
Answer: B
Explanation: Sanctions screening helps financial institutions identify whether clients or transactions involve sanctioned individuals, entities, or jurisdictions. It ensures compliance with international laws and helps prevent money laundering and terrorism financing.
24. Which activity is MOST likely to trigger a SAR filing?
A. Monthly utility payments
B. Buying groceries
C. Structuring cash deposits just under $10,000
D. Opening a joint bank account
Answer: C
Explanation: Structuring deposits to avoid the $10,000 reporting threshold is a red flag for possible money laundering. Financial institutions are obligated to file a Suspicious Activity Report when such patterns are detected.
25. An effective AML training program should be:
A. One-time and general
B. Annual and tailored to staff roles
C. Conducted only during onboarding
D. Outsourced without follow-up
Answer: B
Explanation: AML training should be conducted at least annually and customized based on employees’ job functions. It ensures that staff can identify red flags, understand compliance responsibilities, and stay updated on AML regulations.
26. What is the purpose of Know Your Customer (KYC) procedures?
A. Assess customer satisfaction
B. Reduce service charges
C. Identify and assess customer AML risk
D. Upsell financial products
Answer: C
Explanation: KYC procedures help financial institutions verify a customer’s identity and assess the risk they may pose. This is essential for compliance with AML laws and for preventing the abuse of financial systems by criminals.
27. An AML risk assessment should be updated:
A. Every 10 years
B. Only when requested by the board
C. Periodically and whenever new risks emerge
D. Only during audits
Answer: C
Explanation: AML risk assessments must be current and dynamic. They should be reviewed periodically and updated in response to changes in business operations, regulatory updates, or the emergence of new risk factors.
28. What’s one reason financial institutions de-risk by exiting customer relationships?
A. To promote competition
B. To meet marketing goals
C. To avoid AML compliance risks
D. To maximize profitability
Answer: C
Explanation: Institutions may exit high-risk customer relationships as a de-risking strategy to reduce exposure to money laundering and regulatory penalties. While this may reduce compliance burdens, it must be balanced against financial inclusion responsibilities.
29. What’s the risk of anonymous prepaid cards in AML?
A. High interest rates
B. Lack of KYC data
C. Government subsidies
D. Excessive fees
Answer: B
Explanation: Anonymous prepaid cards pose a significant AML risk due to the difficulty in tracing the cardholder and the origin of funds. Criminals often use them to move money discreetly across borders or launder illicit earnings.
30. Which of the following would likely be considered a high-risk customer in an AML program?
A. Local government employee
B. Retired schoolteacher
C. Foreign casino operator
D. College student
Answer: C
Explanation: Foreign casino operators are often classified as high-risk due to the cash-intensive nature of their business and potential ties to organized crime. They require closer scrutiny and enhanced due diligence in AML frameworks.
31. What is a Suspicious Activity Report (SAR)?
A. A report detailing customer feedback
B. A regulatory audit
C. A report filed for potentially illegal financial activity
D. A business profit report
Answer: C
Explanation: A Suspicious Activity Report (SAR) is filed by financial institutions when they detect activities that may involve money laundering or fraud. It provides law enforcement with critical leads for investigation. Filing SARs is a legal obligation under AML regulations and helps identify financial crimes.
32. Which of the following is part of the “layering” stage in money laundering?
A. Structuring transactions to avoid detection
B. Purchasing illegal substances
C. Commingling funds with business income
D. Investing in real estate
Answer: A
Explanation: The layering stage aims to obscure the source of illicit funds through complex financial transactions. Structuring deposits just below reporting thresholds, moving funds through multiple accounts, or using offshore accounts are all typical layering techniques used to confuse audit trails and investigators.
33. Which international organization sets global AML standards?
A. IMF
B. FATF
C. OECD
D. WTO
Answer: B
Explanation: The Financial Action Task Force (FATF) develops and promotes global standards to combat money laundering and terrorist financing. Its 40 Recommendations serve as the international benchmark for AML legislation and regulation, encouraging consistency and cooperation among jurisdictions.
34. What is “smurfing” in money laundering?
A. Large single deposit
B. Online identity theft
C. Breaking down transactions into smaller amounts
D. Laundering via cryptocurrency
Answer: C
Explanation: Smurfing involves splitting large sums of money into smaller, less suspicious amounts and depositing them into different accounts to avoid triggering reporting requirements. It’s a tactic commonly used in the placement stage of money laundering to reduce detection risk.
35. What is a key challenge with non-face-to-face customer onboarding?
A. Poor sales
B. High operational cost
C. Increased risk of identity fraud
D. Legal penalties
Answer: C
Explanation: Non-face-to-face customer onboarding poses a heightened AML risk due to the potential for impersonation and document fraud. Financial institutions must employ stronger verification methods like biometric data or secure video calls to ensure accurate customer identification and reduce fraud.
36. Which is an example of an internal AML control?
A. Customer satisfaction survey
B. Transaction fee analysis
C. Independent audit of compliance functions
D. Social media marketing
Answer: C
Explanation: Internal AML controls include independent audits that test the effectiveness of compliance procedures. These audits identify gaps and ensure the institution adheres to laws and best practices. Regular reviews are essential to maintaining a strong AML compliance posture.
37. What does the term “de-risking” mean in AML contexts?
A. Enhancing customer rewards
B. Avoiding high-risk clients or regions
C. Reducing loan interest rates
D. Promoting financial literacy
Answer: B
Explanation: De-risking refers to the practice where financial institutions close accounts or restrict services to clients or regions deemed too high-risk for money laundering. While it protects the institution, it can limit financial inclusion and access in underserved areas.
38. Which element is NOT part of a standard AML program?
A. Employee training
B. Risk assessment
C. Customer satisfaction metrics
D. Transaction monitoring
Answer: C
Explanation: While customer satisfaction is important for business success, it is not a core component of an AML program. Key AML components include employee training, internal controls, transaction monitoring, risk assessments, and independent audits to detect and prevent financial crime.
39. What is the primary role of the compliance officer in an AML program?
A. Manage employee benefits
B. Review marketing strategies
C. Ensure regulatory adherence and oversee AML processes
D. Approve credit card applications
Answer: C
Explanation: The AML compliance officer is responsible for ensuring the organization’s adherence to relevant laws and internal policies. This includes overseeing transaction monitoring, reporting suspicious activities, coordinating audits, and training staff, making this role crucial to an effective AML framework.
40. Which technique is often used in the integration stage of money laundering?
A. Bulk cash smuggling
B. Large casino gambling
C. Buying luxury goods with laundered funds
D. Layering wire transfers
Answer: C
Explanation: In the integration stage, illicit funds are reintroduced into the economy as seemingly legitimate wealth. Buying high-value assets like cars, art, or real estate allows criminals to enjoy the proceeds of crime while making detection more difficult for authorities.
41. What is the primary function of FinCEN?
A. Collect tax payments
B. Oversee federal elections
C. Combat financial crimes through intelligence gathering
D. Regulate insurance firms
Answer: C
Explanation: The Financial Crimes Enforcement Network (FinCEN) is a bureau of the U.S. Treasury. Its mission is to safeguard the financial system by collecting, analyzing, and disseminating financial intelligence to detect and prevent money laundering, terrorist financing, and other financial crimes.
42. What’s a major risk of virtual currencies in AML?
A. High inflation
B. Public transparency
C. Pseudonymity and ease of cross-border movement
D. Low transaction volume
Answer: C
Explanation: Virtual currencies like Bitcoin are attractive for money laundering because they allow users to move large sums across borders with relative anonymity. Their pseudonymous nature makes it harder for regulators to trace transactions and identify beneficial owners.
43. Under FATF guidelines, which entity is NOT typically required to implement AML measures?
A. Banks
B. Insurance companies
C. Retail clothing stores
D. Casinos
Answer: C
Explanation: While retailers may play a role in preventing fraud, they are generally not directly regulated under AML frameworks unless they offer financial services. Financial institutions, insurance companies, and casinos are subject to strict AML measures under FATF guidance.
44. What is a Politically Exposed Person (PEP)?
A. A high-risk investor
B. An individual with a history of tax evasion
C. Someone entrusted with a prominent public function
D. A whistleblower
Answer: C
Explanation: A PEP is an individual who holds or has held a significant public position, such as a head of state or senior official. Due to the potential for corruption, they are subject to enhanced due diligence under AML guidelines.
45. Which of the following best demonstrates “willful blindness”?
A. Reporting every transaction
B. Avoiding high-risk customers
C. Ignoring suspicious activity despite red flags
D. Failing to file tax returns
Answer: C
Explanation: Willful blindness occurs when a person deliberately ignores obvious signs of wrongdoing. In AML, this may involve failing to investigate or report suspicious transactions even when clear red flags are present, and it can lead to legal consequences.
46. What is the role of STRs in AML?
A. They list financial products
B. They report significant profits
C. They alert authorities about suspicious transactions
D. They replace annual reports
Answer: C
Explanation: Suspicious Transaction Reports (STRs) are critical tools used to alert regulators or FIUs of potentially illegal activity. These reports help authorities trace criminal proceeds and build cases against individuals or networks involved in financial crimes.
47. Which is a red flag for potential money laundering in real estate?
A. Normal mortgage application
B. Paying in full with unrelated third-party funds
C. Using a bank loan
D. Purchasing a low-value property
Answer: B
Explanation: Using third-party funds to purchase high-value real estate without a clear relationship is a known money laundering tactic. Criminals use such schemes to distance themselves from transactions and integrate illicit money into the economy.
48. Which term describes transferring money across borders to disguise its origin?
A. Repurposing
B. Layering
C. Structuring
D. Misallocating
Answer: B
Explanation: Layering often includes moving money across jurisdictions to complicate the paper trail and make detection harder. This stage is crucial in disguising the illicit origin of funds by using various banks, shell companies, or offshore accounts.
49. The “Risk-Based Approach” in AML means:
A. Applying rules uniformly
B. Focusing solely on high-value clients
C. Allocating resources based on risk levels
D. Ignoring low-risk customers
Answer: C
Explanation: A risk-based approach tailors AML efforts according to the risk profile of customers, products, and services. Higher-risk areas receive more scrutiny and resources, making this approach more effective and efficient in detecting and deterring money laundering.
50. An AML program should be based on:
A. National pride
B. Profit targets
C. Internal audit feedback
D. Comprehensive risk assessment
Answer: D
Explanation: A sound AML program is grounded in a comprehensive risk assessment that identifies vulnerabilities across the institution. This helps determine where to implement controls, allocate resources, and enhance compliance procedures effectively.
61. What is the purpose of Customer Due Diligence (CDD)?
A. To provide customer rewards
B. To verify a customer’s financial knowledge
C. To identify and assess AML risk associated with customers
D. To improve marketing strategies
Answer: C
Explanation: CDD is a fundamental AML process involving the identification and verification of a customer’s identity, as well as an assessment of the potential money laundering risk they pose. It helps financial institutions determine the level of monitoring and scrutiny necessary for each client.
62. What is Enhanced Due Diligence (EDD)?
A. Basic customer identification
B. A procedure used for low-risk customers
C. Additional scrutiny for high-risk clients
D. Regular customer service inquiry
Answer: C
Explanation: EDD is an extended form of due diligence required for customers considered high-risk, such as politically exposed persons (PEPs) or clients from high-risk jurisdictions. It includes deeper investigations into the source of funds, ownership structure, and transaction behavior.
63. Which document typically triggers a requirement to perform CDD?
A. Job application
B. Government tax return
C. Account opening form
D. Service cancellation request
Answer: C
Explanation: Financial institutions must conduct CDD at account opening to ensure the identity of the customer is verified and the risk level is understood. This enables the institution to apply appropriate AML measures based on the customer’s risk profile.
64. What is the primary purpose of Know Your Customer (KYC)?
A. To build personal relationships
B. To measure employee performance
C. To prevent identity theft and financial crimes
D. To assess product demand
Answer: C
Explanation: KYC is a regulatory requirement that involves verifying customer identities and assessing risk. Its primary aim is to prevent illegal activities such as identity theft, fraud, and money laundering by understanding who the customer is and how they intend to use the financial system.
65. Which of the following is a risk indicator in trade-based money laundering (TBML)?
A. Multiple customers at a branch
B. Consistent product descriptions
C. Discrepancy in quantity, quality, or price of goods
D. Use of loyalty points
Answer: C
Explanation: TBML red flags include discrepancies in invoices, undervaluing or overvaluing goods, and unusual shipping routes. Such inconsistencies are tactics used to move illicit funds across borders under the guise of legitimate trade transactions.
66. What role does a Financial Intelligence Unit (FIU) play?
A. Approves loans
B. Conducts stock trading
C. Receives and analyzes suspicious transaction reports
D. Manages retail investment accounts
Answer: C
Explanation: FIUs serve as national centers for receiving, analyzing, and disseminating financial intelligence related to money laundering and terrorist financing. Their insights are essential for law enforcement agencies in tracking illicit financial activities and prosecuting offenders.
67. Which regulation requires U.S. banks to establish AML programs?
A. Sarbanes-Oxley Act
B. USA PATRIOT Act
C. Freedom of Information Act
D. Sherman Antitrust Act
Answer: B
Explanation: The USA PATRIOT Act mandates U.S. financial institutions to develop robust AML programs that include internal controls, a designated compliance officer, employee training, and independent audits. It significantly strengthened AML enforcement after 9/11.
68. What is a shell company?
A. A business with many physical branches
B. A registered but inactive company
C. A regulated public corporation
D. A government-funded business
Answer: B
Explanation: Shell companies have legal registration but little to no active operations. They are often used to disguise ownership and move illicit funds under the appearance of legitimate business transactions, making them a common vehicle in money laundering schemes.
69. Which is a key component of an AML audit?
A. Reviewing customer satisfaction
B. Verifying product discounts
C. Assessing transaction monitoring systems
D. Offering investment advice
Answer: C
Explanation: AML audits evaluate the effectiveness of transaction monitoring systems, ensuring they can detect and escalate suspicious activities. These audits also assess compliance with laws and policies, and provide recommendations to strengthen internal controls and reduce risk.
70. Why are correspondent banking relationships high-risk?
A. They increase interest rates
B. They involve cash handling
C. They involve cross-border transactions with limited oversight
D. They are used mainly for retail customers
Answer: C
Explanation: Correspondent banking relationships, especially with foreign banks, pose a higher AML risk due to potential exposure to poorly regulated institutions. These cross-border relationships may lack transparency, making it harder to verify the source and legitimacy of funds.
71. When should ongoing monitoring of a customer take place?
A. Only during onboarding
B. Once a year
C. Throughout the customer relationship
D. After account closure
Answer: C
Explanation: Ongoing monitoring is essential to ensure customer activity aligns with expected behavior and risk profile. This allows for timely detection of suspicious activities, enabling financial institutions to adjust risk ratings and report irregularities.
72. Why is beneficial ownership transparency important in AML?
A. It lowers company taxes
B. It promotes e-commerce
C. It identifies true owners behind legal entities
D. It prevents investment fraud
Answer: C
Explanation: Understanding beneficial ownership helps financial institutions and regulators trace who ultimately controls or profits from a legal entity. Criminals often hide behind layers of ownership to obscure their involvement in illegal financial activities.
73. What are the 3 stages of money laundering?
A. Placement, Monitoring, Surveillance
B. Collection, Exchange, Transfer
C. Placement, Layering, Integration
D. Deposit, Withdrawal, Storage
Answer: C
Explanation: The three traditional stages of money laundering are: Placement (inserting illicit funds into the system), Layering (concealing their source via complex transactions), and Integration (reintroducing the laundered funds as legitimate wealth).
74. Why is training important in an AML compliance program?
A. To increase product sales
B. To reduce staff turnover
C. To ensure employees recognize and report suspicious activity
D. To improve internal marketing
Answer: C
Explanation: AML training equips employees with knowledge to detect suspicious behavior, understand red flags, and comply with legal requirements. Well-trained staff form the first line of defense against money laundering within financial institutions.
75. What is a red flag for money laundering through wire transfers?
A. Transfers between family members
B. Transfers in local currency
C. Multiple wire transfers just under the reporting threshold
D. Transfers with complete documentation
Answer: C
Explanation: Structuring wire transfers to avoid triggering reporting thresholds—known as smurfing—is a red flag for money laundering. Repeated small-value transactions with no clear business justification may indicate an attempt to evade AML controls.
76. What’s a common indicator of terrorist financing?
A. High volume of luxury purchases
B. Unusual charitable donations to high-risk regions
C. Trading in precious metals
D. Real estate purchases in low-income areas
Answer: B
Explanation: Unusual or frequent donations to charities operating in conflict zones or high-risk countries can be a sign of terrorist financing. Criminals may exploit legitimate nonprofit organizations to move or conceal funds used in supporting terrorism.
77. What is “front running” in financial crimes?
A. Laundering through the front desk
B. Making trades based on insider tips
C. Executing trades before clients to benefit from price changes
D. Reporting late suspicious transactions
Answer: C
Explanation: Front running involves executing orders on a security for one’s own benefit while taking advantage of advance knowledge of pending orders from clients. While not directly an AML violation, it’s unethical and potentially illegal market manipulation.
78. What kind of entities should perform sanctions screening?
A. Only government agencies
B. Only insurance firms
C. All regulated financial institutions
D. Only credit unions
Answer: C
Explanation: All regulated financial institutions must conduct sanctions screening to prevent doing business with individuals or entities on government-issued sanction lists. Failing to screen can result in severe regulatory penalties and reputational damage.
79. Which U.S. agency maintains the SDN list?
A. SEC
B. IRS
C. OFAC
D. DOJ
Answer: C
Explanation: The Office of Foreign Assets Control (OFAC) administers and enforces economic and trade sanctions. It maintains the Specially Designated Nationals (SDN) list, which includes individuals and entities prohibited from doing business with U.S. persons.
80. Which action indicates a “high-risk” jurisdiction under AML guidelines?
A. High GDP
B. Low crime rates
C. Lack of AML regulations
D. Well-known audit firms
Answer: C
Explanation: Jurisdictions lacking robust AML frameworks or cooperation with international enforcement agencies are considered high-risk. Engaging in financial transactions with entities from such regions requires enhanced due diligence and heightened monitoring.
