Money laundering through capital markets often involves pump-and-dump schemes, wash trading, and layering funds through rapid trading activity.
Option A (Correct): A sudden spike in demand for a low-priced security is a red flag for pump-and-dump schemes, where criminals manipulate the market to inflate stock prices artificially before selling off shares for a profit.
Option B (Incorrect): A gradual decline in trading volume and price does not indicate suspicious activity related to money laundering.
Option C (Incorrect): An increase in demand for ETFs is common and not necessarily linked to money laundering.
Option D (Incorrect): Holding securities in one specific emerging market may indicate a geographic investment strategy, not necessarily money laundering.
Common Money Laundering Typologies in Capital Markets:
Pump-and-Dump Schemes - Fraudulently inflating stock prices to cash out illicit funds.
Wash Trading - Conducting self-trades to create an illusion of high market activity.
Layering Funds Through Rapid Trading - Engaging in frequent buy-and-sell orders to obfuscate the origin of funds.
Best Practices for AML in Capital Markets:
Monitor unusual trading volume and price fluctuations.
Use AI-driven surveillance systems to detect manipulative behavior.
Investigate transactions involving offshore brokers or shell entities.
Reference:
FATF Report on Money Laundering in Capital Markets
SEC and FINRA Guidance on Market Manipulation Risks
Wolfsberg Group Principles for Capital Markets AML Compliance

Funds transfers are electronic payments that move money from one account to another, either within the same financial institution or across different institutions, countries, or currencies1. Funds transfers are commonly used for legitimate purposes, such as remittances, trade, or investment, but they can also be abused by money launderers, terrorists, or fraudsters to move illicit funds or conceal their origin or destination2. Therefore, financial institutions and other entities that offer funds transfer services are required to apply anti-money laundering and counter-terrorism financing (AML/CFT) measures, such as customer due diligence, transaction monitoring, record-keeping, and reporting of suspicious activities2.
One of the red flags for funds transfers that may indicate money laundering or other criminal activity is when funds transfers are repeatedly sent to the same beneficiary out of line with the business purpose3. This could suggest that the originator and the beneficiary are colluding to layer or integrate illicit funds, or to evade reporting or sanctions requirements. For example, a business may send multiple funds transfers to the same supplier, but the amounts or frequencies do not match the invoices or contracts, or the supplier is located in a high-risk jurisdiction or is subject to sanctions. Alternatively, an individual may send frequent funds transfers to the same person, but the relationship or the reason for the transfers is unclear or inconsistent, or the person is associated with a criminal or terrorist organization. In such cases, the financial institution or the funds transfer service provider should conduct enhanced due diligence, verify the source and purpose of the funds, and report any suspicious activity to the relevant authorities.
:
1: Wire Transfer Definition - Investopedia
2: International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation - The FATF Recommendations | FATF
3: Wire Transfer Red Flags: Money Laundering & Fraud Risks - Alessa1
Reference: https://www.fmu.gov.pk/docs/Red-flags-for-banks.pdf

According to the Wolfsberg Anti-Money Laundering Principles for Correspondent Banking, the risk of a correspondent bank customer depends on various factors, such as the nature of the customer's business, the customer's location, the products and services offered, the customer's ownership and management structure, and the customer's customer base1. Among these factors, two that should increase the risk and require additional due diligence are:
* The customer is located in a Financial Action Task Force (FATF) member country and the bank's head of information security is a politically exposed person (PEP). A PEP is an individual who is or has been entrusted with a prominent public function, such as a senior government official, a judicial or military officer, a senior executive of a state-owned corporation, or a political party leader2. PEPs pose a higher risk of money laundering, corruption, or bribery due to their influence and access to public funds3. Therefore, a correspondent bank customer that has a PEP in a key position should be subject to enhanced due diligence, such as verifying the source of funds, the purpose of the relationship, and the PEP's reputation and integrity4.
* The customer is located in a non-FATF member country and services mostly commercial customers who engage in international trade. A non-FATF member country is a country that is not part of the FATF, an inter-governmental body that sets standards and promotes effective implementation of legal, regulatory, and operational measures for combating money laundering, terrorist financing, and other related threats to the integrity of the international financial system5. Non-FATF member countries may have weaker or less consistent anti-money laundering and counter-terrorist financing regimes, and may pose a higher risk of financial crime or sanctions evasion6. Moreover, a correspondent bank customer that services mostly commercial customers who engage in international trade may be exposed to trade- based money laundering, which is the process of disguising the proceeds of crime and moving value through the use of trade transactions7. Therefore, a correspondent bank customer that operates in a non- FATF member country and deals with international trade should be subject to enhanced due diligence, such as obtaining information on the nature and volume of the trade transactions, the origin and destination of the goods, and the identity and reputation of the trade counterparties8.
The other options are not correct because they do not necessarily increase the risk of a correspondent bank customer or require additional due diligence. A customer that is located in a FATF member country and provides services primarily to a local individual customer may pose a lower risk of money laundering or terrorist financing, as the customer's activities are subject to the FATF standards and recommendations, and the customer's customer base is less likely to involve complex or cross-border transactions. A customer that is located in a FATF member country and provides services to other correspondent banks in neighboring countries may also pose a lower risk of money laundering or terrorist financing, as the customer's activities are subject to the FATF standards and recommendations, and the customer's customer base is composed of regulated financial institutions that are subject to their own anti-money laundering and counter-terrorist financing obligations.
nswer: BD
According to the Wolfsberg Anti-Money Laundering Principles for Correspondent Banking, the risk of a correspondent bank customer depends on various factors, such as the nature of the customer's business, the customer's location, the products and services offered, the customer's ownership and management structure, and the customer's customer base1. Among these factors, two that should increase the risk and require additional due diligence are:
* The customer is located in a Financial Action Task Force (FATF) member country and the bank's head of information security is a politically exposed person (PEP). A PEP is an individual who is or has been entrusted with a prominent public function, such as a senior government official, a judicial or military officer, a senior executive of a state-owned corporation, or a political party leader2. PEPs pose a higher risk of money laundering, corruption, or bribery due to their influence and access to public funds3. Therefore, a correspondent bank customer that has a PEP in a key position should be subject to enhanced due diligence, such as verifying the source of funds, the purpose of the relationship, and the PEP's reputation and integrity4.
* The customer is located in a non-FATF member country and services mostly commercial customers who engage in international trade. A non-FATF member country is a country that is not part of the FATF, an inter-governmental body that sets standards and promotes effective implementation of legal, regulatory, and operational measures for combating money laundering, terrorist financing, and other related threats to the integrity of the international financial system5. Non-FATF member countries may have weaker or less consistent anti-money laundering and counter-terrorist financing regimes, and may pose a higher risk of financial crime or sanctions evasion6. Moreover, a correspondent bank customer that services mostly commercial customers who engage in international trade may be exposed to trade- based money laundering, which is the process of disguising the proceeds of crime and moving value through the use of trade transactions7. Therefore, a correspondent bank customer that operates in a non- FATF member country and deals with international trade should be subject to enhanced due diligence, such as obtaining information on the nature and volume of the trade transactions, the origin and destination of the goods, and the identity and reputation of the trade counterparties8.

The bank's reputation is not a valid criterion for filing a SAR/STR, as it is not related to the objective assessment of the suspiciousness of the transaction or the activity. The bank should file a SAR/STR based on the facts and circumstances of the case, and not on the potential impact on its image or reputation. The other options are possible indicators of money laundering or terrorist financing, and could warrant a SAR/STR filing,depending on the context and the risk profile of the customer and the transaction. For example, a large, round number wire to an obscure organization could suggest an attempt to conceal the source or destination of the funds, or to support a criminal or terrorist entity. A beneficiary that is largely unknown or has no apparent connection to the customer could indicate a lack of transparency or a false identity. A customer activity that is unreasonable or inconsistent with the customer's profile, business, or expected behavior could indicate a deviation from the normal or legitimate purpose of the account or the transaction.
:
CAMS Certification Package - 6th Edition, ACAMS, Chapter 5, page 123
CAMS Certifications: How to Get CAMS Certified, ACAMS
Suspicious Activity Reporting - Overview, FFIEC, page 2
3.2. Basic Structure of an STR or SAR, CBUAE Rulebook, page 1
What is a suspicious activity report?, Thomson Reuters
How to decide if SAR filing is needed, Wipfli
STR (Suspicious Transaction Reports), Ministry of Finance, India