Chapter 3 : Anti-Money Laundering/Counter-Terrorist Financing Compliance Programs

This chapter is important in comparison to the rest of chapters because it talks about the foundation of AML/CFT or how the AML/CFT program should be laid out in the organization. So, if you are not happy with your current AML/CFT department in your organization or think that there may be some ways to improve the overall functionality of your department then this chapter will provide you with a lot of guidelines. Finally, this chapter is the longest of all of the other chapters, so you imagine correct, that more portion of the exam question will be directed towards this chapter.

If you have directly landed to this chapter you may want to go out previous articles before starting this on:

Preparing for CAMS Exam

CAMS Study Guide Chapter 1 Review

CAMS Study Guide Chapter 2 Review

Let’s dive in:

We have created CAMS TRAINING COURSE to help you prepare for this exam. you can watch THE PREVIEW OF THIS TRAINING COURSE from the video below. further, if you want to know more details about this course PLEASE CLICK HERE.

1. Risk

This section talks all about what there is about risk relating to AML/CFT and how to manage it. If you don’t know how to handle risk, you become paranoid. It starts with explaining why a risk-based approach is more preferable than other methods since instead of doing guesswork, you focus on the risky areas first. Then it talks about of Risk, yes they come in different shapes and sizes, how can risk be quantified with risk scoring matrix, what are three risk factors: products, geography, product and services that is used for the risk assessment of customer.

Point To Remember:

This section wants your head wrapped around the concept of measuring the risk of AML/CFT. From the previous chapters, you already know about the risk of AML/CFT, now this chapter focus on managing those risk. You can manage something if you can measure it in some ways. That is what, Risk assessment is about.

  1. AML/CFT program:

This section talks about the 4 main pillars of the AML/CFT program like having a system of 1. internal policies, procedures, and controls, 2. Having compliance function with the designated compliance officer and his AML/CFT duties like Transaction monitoring, STR, Reporting and so on 3. AML/CFT training regarding who to train and what to train 4. Independent Audit to monitor effectiveness.

Point To Remember:

The best way for you to understand this is by looking at the bigger picture. AML/CFT policies are a framework within which all AML/CFT activities need to conduct. A Compliance department with its’ department head with adequate authority is a must to implement this policy. The best method of implementing AML/CFT policy is educating your staff through numerous trainings. Finally, an internal audit is necessary to examine whether the AML system is effective or not, whether any improvement is needed.

  1. Compliance Culture:

Compliance Culture, in simple words means, that good deeds should be promoted, bad deeds should be punished and everyone should be treated equally. If your supervisor asks you to turn a blind eye for any activity that you think suspicious, you should have the freedom to report that supervisor without fear of being reprimanded.

  1. KYC and CDD:

Here is a trick question, Is Know Your Customer(KYC) and Customer Due Diligence(CDD)  the same thing? If your answer is No, you are incorrect. If you do proper CDD mechanism in your organization, you can be rest assured that KYC for every customer in your organization will be automatically completed. The rest that follows in this article is related to elements of CDD

The element of CDD:

There are seven elements of CDD, beginning with customer identification that follows through risk profiling and ends with investigation.

Point to Remember:

The seven elements can be treated as seven steps of CDD. You will first assess risk of the customer based on the information provided by him/her and then decide whether to establish a business relationship with him/her. Finally, you monitor his/her transaction to verify whether the pattern of transaction matches with customer profile or not; if not you raise STR.

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  • Enhanced Due Diligence(EDD)

You may already know that EDD is done for high-risk customers. High-risk customer can be classified on the basis of his nature, banking products and service that he opts for and geographical location to which he belongs to. This section talks about what extra supporting documents or information that you need to collect from the customer if he/she is identified as a high-risk customer.

Point To Remember:

There is the whole list of items that are collected from high-risk customers that you need to remember. So the best trick is that you understand what is usually taken in Standard Due diligence(SDD) of customers and compare this with EDD. For e.g. in SDD you may ask for the information about the source of income of the customer while in EDD you may want to obtain supporting documents regarding the source of income.

5. Sanctions

It is really shaming that an important topic like this is given little importance in the CAMS exam. Maybe this is because ACAMS have a separate certification for Sanction know as Certified Global Sanction Specialist(CGSS). Anyway, this section talks briefly about various categories in sanction and types of the sanction imposed by the UN, US, and EU.

Point To Remember:

This topic gives you the general idea of sanction and it is really interesting to go through it. Do focus on the major provision UN, US, and EU Sanctions. Also, mind the differences between various categories of the sanctions. Another really interesting way to understand about the sanctions is about understanding global conflict. For e.g. We all know that sanctions on Iran are due to Nuclear Reasons but the main reason goes back to decades ago when the conflict between Israel and Palestine started. You can look up Ted-Ed videos.

6. Politically Exposed Person Screening

Again this is an important concept that receives less attention. It tells you what are mechanisms to identify PEPs and their related parties.

Point To Remember:

The only thing you have to remember here is, your PEP screening is as good as your PEP database. If you have a good database with lots of lists of PEPs in it, then you will be able to identify PEPs through Name Screening. However, These are not sure-shot techniques to identify PEPs in real life but it serves CAMS Exam purpose.

7. Know Your Employee

Do you have heard the story of Ramayan, Hindu Mythology, where there is one character Bivishan, who betrays his brother Ravan, reveals all the weaknesses of Ravan to Ram so Ram can defeat Ravan. If you don’t know the story of Ramayan, just know this Ravan is Bad Guy while Ram is a good guy so that makes Bivishan also a good guy. Sometimes we are so focused on external threats that we forget about internal ones which usually comes from bad intention employees. Therefore, proper CDD of the employees should be done via background screening, references, KYC update at the time of promotion or role change.

Point To Remember:

This is a short topic and quite straightforward so. However, there are some papers which outlines key provision that states what need to be performed while doing CDD of your employees like searching employee name in the database, checking up with their references and many others. You need to know them.

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8. Suspicious Activity Reporting and Transaction Monitoring:

This section talks about how to establish SAR/STR and Transaction Reporting Mechanism in an organization and if you are going to implement an automated solution for transaction monitoring then what are the areas that need to be the focus and so on.

Point To Remember:

This one is easy to understand.

9.Red Flags

This section goes in great length in providing you the list of suspicious indicators relating to customer behavior, cash transactions, wire transfer, trade finance, investment, terrorism financing that you need to watch for the purpose of Suspicious Transaction Reporting. This is important section as it is the basis for the scenario-based question that is mostly asked in CAMS Exam

Point To Remember:

This will be a lot to take in, our best advice for you is to focus on that red flags which you do not know o or found unique and ignore the red flags that you are already familiar with know them. Also, this is a good time for you to go through Egmont 100 cases. They are very interesting to read and it also helps you to understand different techniques employed by money launderers and terrorists to channel their funds.

A final note to our readers, we have introduced the CAMS Forum section where you can put any question relating CAMS exam, CAMS study guide, general money laundering issues. We invite you all to participate here to gain and share knowledge. You can go to this forum by clicking this link. Just register to spread your word:

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WE ARE PLEASE TO INFORM YOU THAT, WE HAVE COMPLETED ARTICLE SERIES AND YOUTUBE SERIES OF OVERVIEW OF ALL CHAPTERS OF CAMS STUDY GUIDE. THEY CAN BE ACCESSED BY CLICKING FOLLOWING LINKS.

Chapter 1: Risks and Methods of Money Laundering and Terrorist Financing

Chapter 2 : International AML/CFT Standards

Chapter 3: Anti-Money Laundering/Counter-Terrorist Financing Compliance Programs

Chapter 4: Conducting and Responding to Investigations

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