ACAMS Updated CAMS Exam Questions and Answers by malik

According to the Basel Committee on Banking Supervision’s Customer Due Diligence for Banks1, banks should have policies and procedures to identify and manage high-risk customers, such as those who provide false or incomplete information, have complex oropaque beneficial ownership structures, or are involved in large or unusual transactions. In such cases, banks should apply enhanced due diligence measures, such as obtaining additional information or documentation, verifying the source and purpose of funds, conducting more frequent and intensive monitoring of account activity, and reporting any suspicious transactions to the relevant authorities. Therefore, the best course of action for the bank in this scenario is to implement enhanced due diligence procedures to monitor the account for suspicious activity, as option B suggests. Option A is not recommended, as it would imply that the bank accepts the customer without verifying his identity and background, which would expose the bank to money laundering and terrorist financing risks. Option C is not advisable, as it would terminate the relationship without investigating the origin and destination of the funds, which could hinder the efforts of law enforcement agencies to trace and recover illicit assets. Option D is also not appropriate, as it would involve sending a check to a customer whose address and identity are not confirmed, which could facilitate money laundering and fraud.

5: Customer due diligence for banks - Bank for International Settlements, October 2001, pages 8-9, 13-14.

According to the Basel Committee on Banking Supervision standards, the following statements best describe sound practices in relation to customer due diligence (CDD) policies and procedures:

Banks should take into consideration the occasional banking transaction or the size/level of assets to build an understanding of the customer’s profile and behavior. This is because the nature and frequency of transactions and the size of the account balance may indicate the level of risk associated with the customer and the need for ongoing monitoring1

Banks should develop and implement clear acceptance policies and procedures to identify the types of customer that are likely to pose a higher risk of financing terrorism or money laundering. This is because banks should not enter into or maintain relationships with customers who pose unacceptable risks to the bank or the financial system. Banks should also apply a risk-based approach to CDD and apply more stringent measures to higher-risk customers12

Banks should implement enhanced due diligence measures for entering business relationships with high-risk customers, such as approval by senior management. This is because banks should ensure that they have adequate information and controls to manage the risks posed by such customers and to comply with the relevant laws and regulations. Senior management should be involved in the decision-making process and be accountable for the outcomes12

 1: Basel Committee on Banking Supervision, Consolidated KYC Risk Management, October 2004, page 6-7. 2: Basel Committee on Banking Supervision, Customer due diligence for banks, October 2001, page 8-9.

Paying premium several years in advance and terminating early for a refund (A):“A typical red flag is when a policyholder pays large premiums up front and then seeks early termination to receive a refund. This can be used to launder illicit funds by integrating them into the financial system and then retrieving ‘clean’ money.”(CAMS 6th Edition, Life Insurance ML/TF Risks; FATF Guidance for a Risk-Based Approach for the Life Insurance Sector)

Regularly switching policies and accepting penalties (D):“Frequent changes in insurance policies or products, even at a financial loss, are considered suspicious. This may indicate an attempt to obscure the money trail or integrate illicit proceeds.”(CAMS 6th Edition, ML/TF Red Flags in Life Insurance)

Incorrect Options:

B: Having multiple policies is common and not itself a red flag.

C: High premiums/payouts are not inherently suspicious.

E: Beneficiary payouts to elderly people are not ML/TF red flags.

According to the Basel Committee on Banking Supervision, banks should adopt a risk-based approach to customer due diligence, which includes four essential elements1:

A customer acceptance policy that defines the types of customers that are likely to pose a higher than average risk to the bank.

A customer identification program that collects and verifies information about the customer’s identity, beneficial ownership, and purpose of the account or relationship.

An on-going monitoring of high-risk accounts to detect and report any unusual or suspicious activity, and to keep customer information up-to-date.

A risk management program that ensures that the bank’s policies and procedures are implemented effectively, and that the bank’s staff are trained and aware of their AML/CFT obligations.

Therefore, documenting a customer acceptance policy and establishing on-going monitoring of high-risk accounts are the correct choices for the essential elements that should be included in the program based on Basel’s KYC principles.

 1: Basel Committee on Banking Supervision, Customer due diligence for banks, October 2001, page 8.