Financial Crime and AML Foundations

Introduction

Financial crime threatens the integrity of financial institutions, markets and public administration. It can deprive governments of tax revenue, finance corruption and organized crime, undermine sanctions regimes, and expose banks to legal, regulatory and reputational damage. For investment banking professionals, anti-money laundering (AML) is not merely a compliance function. It is part of client acceptance, deal execution, market integrity, risk management and corporate governance.

This chapter establishes the conceptual foundation for understanding money laundering, terrorist financing and proliferation financing. It introduces predicate offences, the placement–layering–integration model, customer identification and due diligence, beneficial ownership, sanctions and transaction monitoring. It also explains why these concepts must be applied through a risk-based approach rather than by treating every customer or transaction identically.

Learning Objectives

By the end of this chapter, the reader should be able to:

1. Explain the nature and economic consequences of financial crime.
2. Distinguish money laundering, terrorist financing and proliferation financing.
3. Identify predicate offences and explain their relationship to laundering.
4. Apply the placement–layering–integration model to practical situations.
5. Distinguish KYC, customer due diligence (CDD), enhanced due diligence (EDD) and ongoing monitoring.
6. Explain beneficial ownership, politically exposed persons (PEPs), sanctions and suspicious transaction reporting.
7. Interpret the role and limitations of transaction monitoring in an investment-banking environment.

1. Financial Crime in the Financial System

Financial crime is an umbrella term for conduct involving the misuse of financial systems, institutions or instruments for unlawful gain or unlawful purposes. It includes fraud, bribery and corruption, insider dealing, market manipulation, tax crimes, cybercrime, theft, sanctions evasion, terrorist financing and money laundering.

The financial system is attractive to criminals because it provides speed, international reach, liquidity, apparent legitimacy and access to complex products. Investment banks may be exposed through corporate finance mandates, securities trading, prime brokerage, correspondent relationships, custody, private banking, fund distribution, mergers and acquisitions, and digital channels.

Financial crime typically has three connected dimensions:

• Underlying conduct: the original criminal activity, such as bribery, trafficking or fraud.
• Movement or use of value: the transfer, conversion, concealment or expenditure of proceeds.
• Institutional exposure: the way a bank, broker or other intermediary is used, deliberately or unknowingly.

A bank does not need to be the final recipient of criminal proceeds to face risk. It may be used to receive funds, route payments, provide securities accounts, establish shell-company structures, or create an appearance of legitimacy through an apparently reputable transaction.

Consequences of financial crime

The consequences include:

• direct losses to victims and investors;
• distorted competition and inefficient allocation of capital;
• increased costs of compliance and enforcement;
• loss of confidence in institutions and markets;
• regulatory penalties, licence restrictions and litigation;
• personal liability for directors and senior managers; and
• social harm caused by the underlying crimes.

AML controls therefore protect both the institution and the wider economy. They also support the principle that financial services should not be available to anonymous or illicit actors.

2. Money Laundering

Money laundering is the process by which criminal property is moved, converted or disguised so that it appears to have a legitimate origin, or so that its criminal origin, ownership, location or control is concealed. The term is commonly associated with proceeds of crime, but the precise legal definition varies by jurisdiction.

Money laundering may involve money, securities, virtual assets, real estate, precious metals, trade goods or other property. It can occur through a single transaction or through a long and sophisticated chain of transactions. It may also occur without the funds entering a traditional bank account; for example, value can be transferred through trade, informal value-transfer systems or digital assets.

A useful conceptual expression is:

This is a conceptual model, not a legal test. Whether conduct constitutes money laundering depends on applicable law, including the required mental element and the definition of criminal property.

The three-stage model

The traditional model describes three overlapping stages: placement, layering and integration. The stages are analytical tools, not mandatory legal steps. A laundering scheme may omit a stage, repeat a stage or conduct several stages simultaneously.

Figure: The placement–layering–integration model of money laundering.

Placement

Placement is the introduction of illicit proceeds into the financial or commercial system. Examples may include depositing cash, purchasing monetary instruments, using proceeds to acquire assets, or mixing illicit funds with revenue from a cash-intensive business.

Placement can be particularly risky for institutions because large or unusual cash activity, rapid account funding, or deposits inconsistent with a customer’s profile may be observable at this stage. In investment banking, placement may occur through the subscription of securities, funding of a brokerage account or acquisition of an investment product.

Layering

Layering involves transactions designed to distance proceeds from their source. Common patterns include transfers across multiple jurisdictions, movement among related companies, rapid purchases and sales of securities, intercompany loans, complex ownership structures and transactions with no clear economic rationale.

Layering does not require enormous complexity. A short sequence of unexplained transfers may be sufficient to create concern where it is inconsistent with the customer’s known business.

Integration

Integration occurs when the value returns to the economy in a form that appears legitimate. Examples include income from a property acquired with illicit proceeds, repayment of a fictitious loan, dividends from a controlled company, or profits from an apparently genuine investment.

Integration may be difficult to identify because the funds can resemble ordinary wealth. This is why effective AML relies on understanding the origin of wealth and source of funds, not merely reviewing the final transaction.

3. Predicate Offences

A predicate offence is an offence that generates the property or proceeds subsequently laundered. It is sometimes called an underlying offence. Examples include:

• fraud and cyber-enabled fraud;
• corruption, bribery and embezzlement;
• drug trafficking and human trafficking;
• illegal arms trading;
• robbery, theft and extortion;
• tax crimes and customs offences;
• environmental crime and illegal resource extraction;
• insider trading and market manipulation; and
• terrorism-related offences.

The relationship can be represented as follows:

The predicate offence and the laundering offence are conceptually distinct. A person may commit the predicate offence, launder the proceeds, assist another person to launder them, or possess criminal property while knowing or suspecting its origin. Jurisdictions differ on whether a conviction for the predicate offence is required before a laundering prosecution can proceed. Professionals must therefore apply the law of the relevant jurisdiction rather than assume that a particular procedural sequence is universal.

Predicate-offence analysis is important in investment banking because a transaction may appear commercially plausible while being connected to corruption, fraud or tax crime. A bank is not expected to prove the underlying offence. It is expected to identify risk indicators, obtain reasonable information, document its assessment and escalate concerns appropriately.

4. Terrorist Financing

Terrorist financing is the provision, collection, movement or use of funds or other assets for terrorist acts, terrorists or terrorist organisations. Unlike conventional money laundering, terrorist financing may involve funds obtained from both lawful and unlawful sources. Donations, business income, salaries, charitable contributions or criminal proceeds can all be misused.

The key distinction is often described as:

• Money laundering: the focus is generally on disguising the illicit origin of value.
• Terrorist financing: the focus is generally on supporting terrorist activity or actors, regardless of whether the funds originated lawfully or unlawfully.

Terrorist financing may involve relatively small amounts and simple methods. Consequently, transaction size alone is not a reliable indicator. Relevant factors can include links to designated persons, unexplained cross-border transfers, unusual charitable activity, use of intermediaries, false invoices and movement through high-risk regions.

5. Proliferation Financing

Proliferation financing concerns the provision of funds or financial services connected with the development, acquisition, manufacture, possession, transport or use of nuclear, chemical or biological weapons and their means of delivery, where prohibited by applicable law or sanctions regimes.

Proliferation financing frequently involves trade and supply-chain activity. A transaction may appear to concern ordinary industrial goods, but the goods, end user, route, vessel, intermediary or payment pattern may indicate an attempt to evade export controls or sanctions. Risks can arise through front companies, opaque ownership, transshipment points, falsified documentation, unusual routing and dual-use goods.

Money laundering, terrorist financing and proliferation financing overlap but should not be treated as identical. Their purposes, indicators and legal controls may differ. A risk-based framework therefore considers the customer, product, geography, delivery channel, transaction and relevant restrictions together.

6. The Risk-Based Approach

A risk-based approach allocates resources according to the nature and level of risk. It does not mean ignoring low-risk customers, nor does it mean treating every unusual event as criminal. It requires institutions to identify, assess, mitigate and periodically reassess risk.

A practical conceptual representation is:

This is not a universally prescribed calculation. It is a management framework. Inherent risk is the exposure before controls; control effectiveness reflects the quality and operation of safeguards; residual risk is the exposure remaining after controls. Institutions may use qualitative ratings or quantitative scoring, but scores must not replace professional judgement.

Risk factors commonly include:

• customer type and ownership structure;
• country or geographic exposure;
• products and services used;
• delivery channels and degree of non-face-to-face interaction;
• transaction behaviour and volume;
• use of intermediaries;
• links to PEPs or sanctioned persons; and
• adverse media or law-enforcement information.

The risk-based approach should be proportionate. A complex offshore structure with opaque ownership may require EDD, while a transparent, regulated institutional customer may require standard CDD. Neither conclusion is automatic; the facts must be documented.

7. KYC, CDD and EDD

Know Your Customer

KYC is the broad process through which an institution identifies and understands its customer, its business, its ownership and its expected activity. KYC is not limited to collecting identity documents. It involves forming a reasonable understanding of why the relationship exists and how it is expected to operate.

Customer identification and verification

Customer identification means obtaining identifying information. Verification means using reliable, independent sources to establish that the information is accurate. Typical information includes legal name, registered address, date of birth or incorporation, nationality or place of business, identification number, regulatory status and contact details.

For legal entities, the institution should understand incorporation, management, ownership, control, business activity and authority to act. Documents may include incorporation records, constitutional documents, registers, licences, ownership charts and audited accounts. Documents alone are not sufficient if they are inconsistent, outdated or commercially implausible.

Beneficial ownership

The beneficial owner is the natural person or persons who ultimately own or control a customer, or on whose behalf a transaction is conducted. Ownership is only one route to control. Control may also arise through voting rights, contractual arrangements, the ability to appoint management, or dominant influence over decision-making.

A beneficial-ownership analysis should therefore ask:

1. Who ultimately owns the entity?
2. Who ultimately controls it?
3. Who benefits from the relationship or transaction?
4. Is the apparent ownership consistent with the business rationale?

A nominee director, trustee, professional intermediary or shareholder of record should not automatically be treated as the beneficial owner.

Customer due diligence

CDD normally includes:

• identifying and verifying the customer;
• identifying and reasonably verifying beneficial owners;
• understanding the purpose and intended nature of the relationship;
• establishing expected activity and source of funds where appropriate;
• screening relevant parties; and
• conducting ongoing monitoring and periodic review.

Enhanced due diligence

EDD is additional investigation applied when risk is elevated. It may include independent corroboration of source of wealth, detailed source-of-funds evidence, senior-management approval, more frequent reviews, deeper ownership analysis, investigation of adverse media and enhanced transaction monitoring.

EDD is not a punishment and does not necessarily require rejecting the customer. It is a method of obtaining evidence proportionate to risk. Conversely, a low-risk classification must not be used to avoid basic legal requirements.

Source of wealth and source of funds

Source of wealth concerns how a person accumulated total wealth, such as through employment, business ownership, inheritance or investments. Source of funds concerns the origin of the particular money or assets used in a transaction. A wealthy customer may have a credible source of wealth but an unexplained payment for a specific deal. Both concepts may be relevant in private banking, corporate finance and securities transactions.

8. PEPs, Sanctions and Screening

A politically exposed person (PEP) is an individual entrusted with a prominent public function. Domestic PEPs, foreign PEPs and persons associated with international organisations may be treated differently under local law, but the central concern is heightened exposure to bribery and corruption. Family members and close associates may also be relevant.

PEP status is not proof of wrongdoing. It is a risk factor that generally requires proportionate enhanced measures, such as approval by senior management, establishing source of wealth and funds, and enhanced ongoing monitoring.

Sanctions are restrictive measures imposed by states or international bodies. They may target countries, governments, companies, vessels, aircraft, sectors, individuals or specific activities. Sanctions can include asset freezes, prohibitions on dealing, trade restrictions, financial restrictions and restrictions on designated services.

Sanctions screening compares customer and transaction information with relevant lists and other risk data. Screening should address customers, beneficial owners, directors, counterparties, payees, securities, vessels and other relevant parties. Name matching is imperfect: spelling variation, transliteration, common names and incomplete data create both false positives and false negatives.

AML controls and sanctions controls overlap but are not interchangeable. A transaction may be suspicious without involving a sanctioned party, and a sanctions concern may exist even where there is no evidence of money laundering.

9. Transaction Monitoring

Transaction monitoring is the process of reviewing activity to identify patterns inconsistent with a customer’s profile or indicative of financial crime. Monitoring may be manual, automated or hybrid.

A monitoring system commonly uses:

• rules or scenarios, such as rapid movement of funds;
• thresholds, such as unusually large or frequent payments;
• peer analysis, comparing activity with similar customers;
• network analysis, identifying links among accounts and entities;
• behavioural analytics and anomaly detection; and
• alerts generated through sanctions or watchlist screening.

An alert is not a conclusion that crime has occurred. It is a prompt for investigation. Analysts should examine the customer profile, transaction purpose, counterparties, geography, timing, supporting documents, previous explanations and related activity.

A sound investigation normally records:

1. the reason for the alert;
2. relevant facts and data reviewed;
3. information obtained from the customer or relationship team;
4. the rationale for closing or escalating the alert;
5. any change to the customer risk rating; and
6. whether a suspicious transaction or activity report is required.

Investment-banking examples

Transaction-monitoring risks may include:

• securities purchased and sold rapidly without an evident investment rationale;
• funds entering an account from unrelated third parties;
• payments involving entities with no apparent commercial connection;
• subscription funds returned to a different account;
• unusual securities transfers before a corporate event;
• unexplained use of complex special-purpose vehicles; and
• trading or financing activity inconsistent with the customer’s stated business.

Monitoring must be tailored to the business. A cash-deposit rule designed for retail banking may be ineffective for an investment bank. In securities businesses, the relevant indicators may involve trading behaviour, beneficial ownership, market events, settlement patterns and relationships among issuers, brokers and investors.

10. Suspicious Transaction Reporting and Confidentiality

Where there are reasonable grounds for suspicion, applicable law may require an institution to submit a suspicious transaction report (STR) or suspicious activity report (SAR) to the relevant financial-intelligence unit. The reporting threshold is generally suspicion, not proof beyond reasonable doubt.

The institution should not inform the customer that a report has been made where this would constitute unlawful tipping-off. Internal escalation, legal privilege, record retention and confidentiality must be managed according to local law and policy. Reporting does not replace risk management: an institution may need to restrict activity, exit a relationship, remediate controls or notify authorities through other channels.

11. Illustrative Case: The Meridian Infrastructure Financing

This is a fictional educational case.

Background

Meridian Capital Markets is asked to arrange financing for a company incorporated in Country A to acquire renewable-energy assets in Country B. The borrower is owned through three holding companies in different jurisdictions. Its stated beneficial owner is a private investment vehicle, while a trust appears to control voting rights. A politically exposed former minister is identified as an adviser to the trust.

Problem

The proposed transaction is commercially plausible, but several facts create elevated risk:

• ownership is difficult to understand;
• the adviser has a public-sector background;
• part of the acquisition price will be paid to a company in a high-risk jurisdiction;
• the target assets have recently changed ownership twice; and
• the customer provides general assurances but limited evidence of source of wealth and funds.

Analysis

The issue is not whether the transaction is automatically unlawful. The institution must determine who ultimately owns and controls the borrower, who benefits from the transaction, why the payment route is necessary, and whether the funds are consistent with the parties’ financial capacity.

The case presents possible corruption, layering, sanctions and beneficial-ownership risks. The PEP connection requires risk-sensitive EDD, but PEP status alone does not establish misconduct. The unusual ownership chain could have a legitimate investment purpose, yet it prevents the institution from relying on superficial documentation.

Approach and solution

Meridian should:

1. map the complete ownership and control chain to natural persons;
2. verify the trust, trustee, protector, beneficiaries and persons exercising control;
3. obtain independent evidence of source of wealth and source of funds;
4. understand the commercial rationale for each intermediary and payment route;
5. screen all relevant parties, vessels, assets and jurisdictions;
6. obtain senior-management approval before proceeding;
7. apply enhanced monitoring to financing and settlement flows; and
8. escalate any unresolved suspicion to the appropriate compliance and reporting channels.

If the institution cannot establish beneficial ownership or obtain credible explanations, it should not proceed merely because the transaction is profitable or supported by reputable advisers.

Outcome

Following EDD, the institution discovers that a payment intermediary is controlled by a close associate of the former minister and that the proposed payment account is unrelated to the target’s ordinary business. The transaction is paused, the matter is escalated and the relationship is subject to a formal decision under applicable law. The case illustrates that AML analysis can affect deal timing, execution risk and the commercial decision to accept a mandate.

Learning points

• Commercial plausibility does not eliminate AML risk.
• Beneficial ownership requires analysis of control and benefit, not only share registers.
• PEP status is a risk factor, not proof of criminality.
• EDD should produce evidence and explanations, not simply more documents.
• Investment-banking professionals must escalate unresolved concerns before execution.

12. Governance, Technology and Current Challenges

Effective AML requires board oversight, senior-management accountability, independent compliance, trained staff, adequate data and internal audit. Responsibilities should be clear across the three lines of defence: business and operations own day-to-day risk, compliance provides oversight and challenge, and internal audit provides independent assurance.

Common weaknesses include fragmented customer data, excessive reliance on automated alerts, poor beneficial-ownership information, inconsistent escalation, weak documentation and pressure to prioritise revenue over control quality.

Technology can improve screening, network analysis, anomaly detection and case management. Artificial intelligence may help identify complex relationships or prioritise alerts, but it introduces risks involving data quality, explainability, bias, model drift, privacy and overreliance. Human investigators remain necessary for contextual judgement and accountability. A sophisticated model cannot compensate for inaccurate customer data or a weak control framework.

Contemporary AML practice increasingly addresses virtual assets, instant payments, remote onboarding, complex corporate structures, trade-based money laundering, cybercrime and cross-border data sharing. Financial institutions must keep controls current while respecting privacy, due process, proportionality and non-discrimination.

Best-Practice Principles

A professional AML framework should:

1. begin with a documented enterprise-wide risk assessment;
2. identify customers and beneficial owners before providing relevant services;
3. understand purpose, expected activity and source of funds where appropriate;
4. apply enhanced measures to higher-risk relationships;
5. tailor transaction monitoring to actual products and risks;
6. investigate alerts using facts and context rather than thresholds alone;
7. maintain complete, accurate and retrievable records;
8. escalate and report suspicion promptly under applicable law;
9. protect confidentiality and prevent tipping-off; and
10. test, challenge and improve controls continuously.

Chapter Summary

Financial crime involves the misuse of financial institutions and markets for unlawful gain or unlawful purposes. Money laundering concerns the concealment or disguise of criminal property and is usefully analysed through placement, layering and integration, although real schemes may overlap or omit stages. Predicate offences generate the proceeds that are later laundered.

Terrorist financing differs because funds may come from lawful or unlawful sources and are directed toward terrorism or terrorist actors. Proliferation financing concerns funds or financial services connected with prohibited weapons-related activity and often involves trade, supply chains and sanctions evasion.

KYC is the broad process of understanding customers. CDD includes identification, verification, beneficial-ownership analysis, purpose and intended nature, screening and ongoing monitoring. EDD applies additional measures where risk is elevated. PEP status, complex ownership, high-risk jurisdictions and unusual payment routes are risk factors requiring judgement, not automatic proof of wrongdoing.

Transaction monitoring generates alerts that require investigation; an alert is not itself a finding of crime. Effective AML depends on a risk-based framework, good data, governance, trained professionals, proportionate controls, timely escalation and respect for legal and ethical safeguards.

Key Terms

Anti-money laundering (AML): Laws, regulations, policies and controls designed to prevent and detect money laundering.

Beneficial owner: The natural person who ultimately owns, controls or benefits from a customer or transaction.

Customer due diligence (CDD): Measures used to identify and understand a customer and monitor the relationship.

Enhanced due diligence (EDD): Additional measures applied to higher-risk customers, products or transactions.

Financial crime: Criminal conduct involving financial systems, institutions, markets or assets.

Integration: The stage at which illicit value is made to appear legitimate.

Layering: The movement or conversion of value through transactions intended to obscure its origin.

Money laundering: Concealing, disguising, converting or transferring criminal property to give it an appearance of legitimacy.

Placement: Introducing criminal proceeds into the financial or commercial system.

Politically exposed person (PEP): A person entrusted with a prominent public function, together with relevant associated persons under applicable law.

Predicate offence: An underlying offence that generates proceeds subsequently laundered.

Proliferation financing: Financing connected with prohibited weapons-related activity or their means of delivery.

Risk-based approach: Allocating controls and resources according to assessed risk.

Sanctions: Restrictive measures imposed by states or international bodies against persons, entities, countries, sectors or activities.

Source of funds: The origin of money or assets used in a particular transaction.

Source of wealth: The origin of a person’s total accumulated wealth.

Suspicious transaction report (STR): A report submitted to a competent authority when activity gives rise to the legally required level of suspicion.

Terrorist financing: Providing, collecting or moving funds or assets to support terrorism, terrorists or terrorist organisations.

Transaction monitoring: Reviewing activity to identify patterns inconsistent with a customer’s profile or indicative of financial crime.

Review Questions

Short Answer Questions

1. What is a predicate offence?
2. Define beneficial ownership.
3. What is the difference between source of wealth and source of funds?
4. Why is PEP status treated as a risk factor rather than proof of criminality?
5. What is the purpose of transaction monitoring?

Long Answer Questions

1. Explain the placement–layering–integration model and discuss its limitations as a description of real laundering schemes.
2. Compare money laundering, terrorist financing and proliferation financing.
3. Explain the principal components of CDD and the circumstances in which EDD may be required.
4. Discuss how sanctions controls and AML controls overlap and differ.
5. Evaluate the role of governance, data quality and human judgement in an effective AML framework.

Analytical / Application Questions

1. A corporate customer with a complicated ownership chain requests that financing proceeds be paid to an unrelated company in a high-risk jurisdiction. Identify the principal risks and propose an EDD plan.
2. An automated monitoring system generates repeated alerts for rapid securities purchases and sales by an institutional client. Explain how an analyst should investigate the alerts before deciding whether to close, escalate or report them.
3. A charity receives many small international donations and transfers most of the funds to an overseas intermediary. Analyse the possible terrorist-financing and proliferation-financing indicators and identify additional information the institution should obtain.

Multiple Choice Questions with Answers

Question 1

Which sequence represents the traditional money-laundering model?

A. Integration, placement, layering

B. Placement, layering, integration

C. Layering, integration, placement

D. Verification, screening, reporting

Correct Answer: B. Placement, layering, integration

Question 2

What is the principal focus of placement?

A. Introducing illicit proceeds into the financial or commercial system

B. Making a suspicious transaction report

C. Determining the customer’s tax residence

D. Freezing every customer account

Correct Answer: A. Introducing illicit proceeds into the financial or commercial system

Question 3

Which statement best distinguishes terrorist financing from conventional money laundering?

A. Terrorist financing always involves large cash deposits

B. Terrorist financing can involve funds from lawful sources

C. Terrorist financing is concerned only with tax offences

D. Terrorist financing never involves cross-border transactions

Correct Answer: B. Terrorist financing can involve funds from lawful sources

Question 4

Who is generally the beneficial owner of a legal entity?

A. The person who prepared its annual report

B. The bank employee who opened its account

C. The natural person who ultimately owns or controls it

D. Any professional adviser acting for it

Correct Answer: C. The natural person who ultimately owns or controls it

Question 5

What is the main purpose of enhanced due diligence?

A. To eliminate all commercial relationships with companies

B. To apply additional investigation and controls to higher-risk situations

C. To replace customer identification requirements

D. To guarantee that no financial crime can occur

Correct Answer: B. To apply additional investigation and controls to higher-risk situations

Question 6

Which statement about a PEP is most accurate?

A. PEP status proves that the person has committed corruption

B. PEP status is irrelevant to AML risk

C. PEP status is a risk factor that may require enhanced measures

D. PEPs may never hold a bank account

Correct Answer: C. PEP status is a risk factor that may require enhanced measures

Question 7

What does an automated transaction-monitoring alert represent?

A. A final legal finding of money laundering

B. A prompt requiring investigation

C. An automatic obligation to close the account

D. Proof that the customer is sanctioned

Correct Answer: B. A prompt requiring investigation

Question 8

Which activity is most directly associated with proliferation-financing risk?

A. A routine salary payment to a verified employee

B. A transparent domestic dividend payment

C. An unusual trade route involving dual-use goods and opaque end users

D. A standard mortgage repayment

Correct Answer: C. An unusual trade route involving dual-use goods and opaque end users

Question 9

What is the principal distinction between source of wealth and source of funds?

A. Source of wealth concerns total accumulated wealth; source of funds concerns money used in a specific transaction

B. Source of wealth applies only to companies; source of funds applies only to individuals

C. They are identical terms

D. Source of funds concerns nationality; source of wealth concerns residence

Correct Answer: A. Source of wealth concerns total accumulated wealth; source of funds concerns money used in a specific transaction

Question 10

Why must AML controls be tailored to an investment bank’s business model?

A. Investment banks are exempt from AML obligations

B. Retail cash rules always identify securities-market risks

C. Relevant risks may involve trading, ownership, settlement and complex structures rather than only cash activity

D. Tailoring controls removes the need for monitoring

Correct Answer: C. Relevant risks may involve trading, ownership, settlement and complex structures rather than only cash activity