ACAMS AML/CFT Risk and Methods 2 — Questions and Answers

Question 1: Which money laundering method involves purchasing multiple monetary instruments in amounts just below the Currency Transaction Report (CTR) threshold?

Smurfing
Structuring (Correct answer)
Layering
Integration

Correct answer: Structuring

Structuring (also known as 'smurfing') involves breaking up large cash transactions into smaller amounts specifically to avoid triggering CTR filing requirements. It is a federal crime under the Bank Secrecy Act.

Structuring is defined as breaking up currency transactions to evade the $10,000 CTR filing requirement under the BSA. The term 'smurfing' refers to using multiple individuals (smurfs) to conduct these sub-threshold transactions. Both terms describe the same illegal activity. Structuring is itself a federal offense regardless of whether the underlying funds are from a criminal source. Financial institutions must file SARs when they detect structuring behavior, and must not tip off the customer that a SAR is being filed.

Question 2: In the context of AML, what does 'layering' primarily aim to achieve?

Converting cash into other asset types
Disguising the audit trail between illicit funds and their source (Correct answer)
Reintroducing funds into the legitimate economy
Identifying the beneficial owner of an account

Correct answer: Disguising the audit trail between illicit funds and their source

Layering is the second stage of money laundering, designed to create a complex web of financial transactions that obscures the audit trail and makes tracing funds back to their criminal origin extremely difficult.

The three stages of money laundering are: (1) Placement — introducing illicit cash into the financial system; (2) Layering — separating proceeds from their source through a complex series of financial transactions, often involving multiple jurisdictions, shell companies, and wire transfers; (3) Integration — reintroducing the funds into the legitimate economy. Layering may involve converting cash to other assets, transferring funds through multiple accounts across different countries, purchasing and selling high-value assets, and using anonymous shell companies.

Question 3: Which of the following is a key red flag indicating potential money laundering through real estate?

Buyer uses a mortgage from a licensed lender
Property is purchased with all-cash from a shell company with no apparent business purpose (Correct answer)
Buyer requests a title insurance policy
Transaction is conducted through a licensed real estate agent

Correct answer: Property is purchased with all-cash from a shell company with no apparent business purpose

All-cash purchases through opaque shell companies are a classic real estate money laundering indicator, as they allow criminals to obscure the true beneficial owner and inject illicit funds without bank scrutiny.

Real estate money laundering red flags include: all-cash purchases, especially through shell companies or LLCs that obscure beneficial ownership; rapid resale at a loss; use of third-party intermediaries; properties sold at above or below market value; transactions involving high-risk jurisdictions; and buyers with no apparent connection to the local area. FinCEN has issued Geographic Targeting Orders (GTOs) requiring title insurance companies in certain U.S. metropolitan areas to identify beneficial owners behind all-cash purchases above threshold amounts.

Question 4: What is 'trade-based money laundering' (TBML)?

Using stock market trades to launder funds
Exploiting international trade transactions to disguise money laundering (Correct answer)
Exchanging foreign currencies at inflated rates
Using cryptocurrency exchanges to move funds

Correct answer: Exploiting international trade transactions to disguise money laundering

TBML involves manipulating international trade transactions — such as over- or under-invoicing goods and services — to transfer value across borders and disguise the proceeds of crime.

TBML is one of the three main methods used to launder money (the others being bulk cash smuggling and using the financial system). Common TBML techniques include: over-invoicing (exporter receives more than the goods are worth, effectively transferring value to exporter's country); under-invoicing (importer pays less than goods are worth); multiple invoicing (billing for the same goods more than once); falsely described goods and services; and phantom shipments (billing for goods that were never shipped). TBML is difficult to detect because it requires expertise in both trade finance and AML.

Question 5: Which term describes the use of multiple financial institutions or accounts to conceal the source of illicit funds?

Cuckoo smurfing (Correct answer)
Micro-structuring
Bulk cash smuggling
Currency arbitrage

Correct answer: Cuckoo smurfing

Cuckoo smurfing is a technique where criminal proceeds are substituted for legitimate funds in cross-border transactions, so the money launderer's funds reach their destination while the legitimate customer's account appears to receive a normal transfer.

Cuckoo smurfing involves a criminal network working with corrupt money transfer businesses. When a legitimate customer expects a foreign remittance, the criminal deposits equivalent cash locally into that customer's account while the actual criminal funds travel abroad. The legitimate customer receives their expected funds and may be unaware of what occurred. This method is particularly challenging to detect because the account holder is typically unaware of the scheme. Financial institutions should monitor for unexpected cash deposits that closely match expected incoming wire amounts.

Question 6: Which AML risk factor is most associated with professional money laundering networks (PMLNs)?

Reliance on a single jurisdiction for all transactions
Use of gatekeepers such as lawyers, accountants, and company formation agents (Correct answer)
Conducting only small-value transactions
Exclusively using regulated financial institutions

Correct answer: Use of gatekeepers such as lawyers, accountants, and company formation agents

Professional money laundering networks frequently exploit gatekeepers — professionals such as lawyers, accountants, and corporate service providers — who can create complex corporate structures and move funds while providing a veneer of legitimacy.

Gatekeepers (also called Designated Non-Financial Businesses and Professions or DNFBPs under FATF) include lawyers, notaries, accountants, real estate agents, and trust and company service providers. PMLNs exploit these professionals because: attorney-client privilege may shield communications; accountants can manipulate financial records; company formation agents can create opaque shell structures; real estate agents can facilitate property purchases. FATF Recommendation 22 requires DNFBPs to apply AML/CFT measures including customer due diligence and suspicious transaction reporting.

ACAMS AML/CFT Risk and Methods 2

Which money laundering method involves purchasing multiple monetary instruments in amounts just below the Currency Transaction Report (CTR) threshold?