ACAMS Updated CAMS Exam Questions and Answers by hettie

The 40 Recommendations provide a complete set of countermeasures against money laundering

and terrorist financing, covering

• the identification of risks and development of appropriate policies;

• the criminal justice system and law enforcement;

• the financial system and its regulation;

• the transparency of legal persons and arrangements; and

• international cooperation.

The Patriot Act, enacted in 2001, introduced several provisions to enhance the anti-money laundering and counter-terrorist financing (AML/CFT) measures for U.S. banks and their foreign correspondent relationships. Some of the potential issues for foreign financial institutions (FFIs) maintaining correspondent accounts with U.S. banks under the Patriot Act are:

Cancellation of correspondent banking relationships: The Patriot Act requires U.S. banks to conduct due diligence and enhanced due diligence on their foreign correspondent accounts, and to terminate any account that poses a significant risk of money laundering or terrorist financing. This may result in the cancellation of correspondent banking relationships with FFIs that do not meet the U.S. standards or cooperate with the U.S. authorities. The loss of correspondent banking relationships may affect the FFIs’ ability to access the U.S. financial system and provide services to their customers.

Forfeiture of funds in a U.S. interbank account: The Patriot Act authorizes the U.S. government to seize and forfeit any funds in a U.S. interbank account that are involved in or traceable to money laundering or terrorist financing activities. This means that FFIs may face the risk of losing their funds in a U.S. interbank account if they or their customers are suspected or accused of engaging in illicit activities. The forfeiture of funds may have significant financial and reputational consequences for the FFIs and their customers.

Prohibition of correspondent accounts for shell banks: The Patriot Act prohibits U.S. banks from establishing or maintaining correspondent accounts for shell banks, which are banks that have no physical presence in any country and are not affiliated with a regulated financial group. This means that FFIs that are shell banks or have relationships with shell banks cannot access the U.S. financial system through correspondent accounts. The prohibition of correspondent accounts for shell banks aims to prevent the use of shell banks as vehicles for money laundering and terrorist financing.

References:

CAMS Study Guide, 6th Edition, Chapter 4: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), pp. 81-841

USA PATRIOT Act, Title III: International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, Sections 312, 319, and 3132

Wolfsberg Anti-Money Laundering Principles for Correspondent Banking, October 2014, pp. 3-43

One of the key components of an effective anti-money laundering (AML) program is customer due diligence (CDD), which involves verifying the identity of the customer, understanding the nature and purpose of the customer’s relationship with the financial institution (FI), and assessing the risk of money laundering or terrorist financing that the customer poses. CDD is essential for preventing and detecting the misuse of the FI’s services by criminals, and for complying with the relevant laws and regulations.

However, CDD can be challenging for FIs that offer online services to customers, as there is a greater difficulty in matching the customer with the provided identification documentation. Unlike face-to-face interactions, online services rely on electronic or remote methods of identification and verification, such as scanned copies of documents, biometric data, digital signatures, or third-party verification services. These methods may not be as reliable or secure as physical verification, and may expose the FI to the risk of identity fraud, document forgery, or impersonation. Moreover, online services may attract customers from different jurisdictions, which may have different standards and requirements for identification and verification, and may pose different levels of risk.

Therefore, FIs that offer online services to customers should implement enhanced due diligence (EDD) measures to mitigate the risk of money laundering, such as obtaining additional information or documentation from the customer, applying more stringent verification procedures, conducting more frequent and intensive monitoring of the customer’s transactions and behavior, and restricting or limiting the types or amounts of transactions that the customer can perform online.

References:

CAMS Study Guide - 6th Edition, Chapter 3, Section 3.4, page 82

Anti-Money Laundering in a Nutshell, Chapter 4, Section 4.2, page 63

Guidance on Digital Identity, Section 2, page 8

Anti-Money Laundering, The Basics: Installment 1, Section 3.2, page 5

A financial institution should examine the country or location where the customer is from or does business, the type and size of the business the customer runs, and the legal structure of the customer’s business, because these factors can indicate the level of money laundering risk associated with the customer. For example, some countries or locations may have weak anti-money laundering laws or high levels of corruption, some types or sizes of businesses may be more prone to generating or concealing illicit funds, and some legal structures may be more complex or opaque than others, making it harder to identify the beneficial owners or controllers of the customer.

References:

ACAMS CAMS Certification Video Training Course1, Module 2: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), Lesson 2: Know Your Customer (KYC) and Customer Due Diligence (CDD)

ACAMS CAMS Certification Study Guide2, Chapter 2: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), Section 2.2: Know Your Customer (KYC) and Customer Due Diligence (CDD), Pages 42-44