CAMS Version 7.03 Study Guide: Anti-Money Laundering Review

Comprehensive practice flashcards covering money laundering methods, banking risks, compliance frameworks (FATF, BSA, EU), risk assessment, and investigative technology.

What is the generally understood definition of money laundering?

The process of concealing or disguising the existence, source, movement, destination, or illegal application of criminally derived property or funds to make them appear legitimate.

What are the three basic stages of money laundering?

Placement, layering, and integration.

What is a 'predicate crime' in the context of AML?

Specified unlawful activities whose proceeds can give rise to prosecution for money laundering (e.g., drug trafficking, fraud, corruption).

What is the difference between tax avoidance and tax evasion?

Tax avoidance is the legitimate, legal activity of reducing tax owed, while tax evasion is the use of illegal practices to avoid paying a tax liability and is a predicate offense for money laundering.

What are the three components of the 'Fraud Triangle'?

Pressure (incentive), opportunity (lack of controls), and rationalization (justification).

How does terrorism financing differ from money laundering regarding the source of funds?

In terrorism financing, the source of funds can be both legitimate (donations/business) or illegitimate (crime), whereas money laundering exclusively involves illegitimate/criminal proceeds.

What is a 'shelf company'?

A corporation that has had no activity, created and 'put on a shelf' to be sold later to someone who prefers a pre-registered corporation over a new one, often used to mask beneficial ownership.

What is a Politically Exposed Person (PEP)?

An individual in a prominent political function, their immediate family, and close associates, who pose a higher risk of bribery and corruption.

At what percentage is beneficial ownership usually identified for AML purposes?

Most jurisdictions require identifying anyone who owns 25% or more, though high-risk thresholds may be lower (e.g., 5% or 10%).

What are the 'five pillars' of an AML program under the US Bank Secrecy Act?

1. Internal policies/controls; 2. A designated AML compliance officer; 3. Ongoing employee training; 4. Independent audit; 5. Customer Due Diligence (CDD).

What is the 'Three Lines of Defense' risk governance model?

1. First Line: Business units/Front-facing staff; 2. Second Line: AML/Compliance functions; 3. Third Line: Internal Audit.

What is the difference between Inherent Risk and Residual Risk?

Inherent Risk is the risk level before applying mitigation controls; Residual Risk is the risk remaining after controls are applied (Inherent Risk - Control Effectiveness = Residual Risk).

What is 'tipping off'?

The illegal act of alerting a customer or third party that they are being investigated or that a Suspicious Activity Report (SAR) has been filed.

What is 'Structuring' (or Smurfing)?

The practice of splitting large illicit funds into small transactions (e.g., under US$10,000) to avoid triggering AML reporting thresholds.

What is the primary role of the FATF (Financial Action Task Force)?

To set international standards (the 40 Recommendations) and coordinate global efforts to combat money laundering and terrorist financing.

What is ‘Perpetual KYC’ (pKYC)?

A data-led practice where customer risk profiles are updated in near-real-time based on behavioral triggers rather than fixed periodic review cycles.

What is a 'Correspondent Bank'?

A bank that acts as an agent for another bank (the respondent) in a different jurisdiction to support international transactions for the respondent's customers.

What are 'Mixers' or 'Tumblers' in cryptocurrency?

Services that mix the coins of multiple users together to hide the source of funds and make transaction tracing nearly impossible.

What is Trade-Based Money Laundering (TBML)?

The process of disguising criminal proceeds by using trade transactions to move value, often through over-/under-invoicing or phantom shipments.

What is the 'Grey List' vs. the 'Black List' in FATF context?

The Grey List includes jurisdictions under increased monitoring working to fix deficiencies; the Black List includes high-risk jurisdictions subject to a call for action/countermeasures.