Wash trading is a form of market manipulation where two parties coordinate to create artificial trading activity, often for money laundering, tax fraud, or price manipulation.
Why Option C (Wash Trading) is Correct:
No real market risk is taken-transactions are simply cycled between the same parties.
Creates an illusion of liquidity or inflates asset prices artificially.
Common in commodities, stocks, cryptocurrency, and futures markets.
Red flag for money laundering: Criminals may use wash trading to layer illicit funds through financial markets.
Why Other Options Are Incorrect:
Option A (Short Position): A short position involves selling an asset one does not own and repurchasing it later at a lower price-this does not describe the described scheme.
Option B (Reverse Flip): A reverse flip is a real estate money laundering typology, not applicable here.
Option D (Bid-Ask Spread): This refers to the difference between the highest price a buyer is willing to pay and the lowest price a seller will accept, but it does not involve fraudulent trading.
AML Risks in Wash Trading:
Can be used to move illicit funds through financial markets.
Artificially increases trading volume and market price manipulation.
Frequently flagged in AML transaction monitoring systems.
Best Practices for Detecting Wash Trading:
Monitor repetitive trading between related entities.
Look for circular transactions with no economic justification.
Use AI-based transaction monitoring to detect high-frequency wash trades.
Reference:
FATF Report on Money Laundering in Capital Markets
SEC & CFTC Enforcement on Wash Trading Cases
Wolfsberg Group Market Manipulation Risk Guidelines

QUEAccording to the ACAMS Study Guide, one of the skills of an effective AML investigator is to conduct investigative interviews using appropriate techniques and methods1. One of the techniques is to use open- ended questions that elicit detailed responses from the interviewee, and to avoid leading or suggestive questions that may reveal the investigator's assumptions or suspicions1. Therefore, the best option is to ask question of a material nature about the suspected false statements without revealing the suspected deception, as this would allow the investigator to gather more information and evidence, and to test the consistency and credibility of the interviewee's answers.
The other options are not advisable or effective, because:
* A. Informing the suspect that deception is obvious and continuing the interview is not a good strategy, because it may antagonize the suspect and make them less cooperative or more defensive. It may also alert the suspect to the investigator's knowledge and sources, and give them an opportunity to change or modify their story2.
* B. Advising the suspect that the interview will be terminated if there is suspicion of deception is not a good strategy, because it may create a negative impression of the investigator and the investigation, and it may discourage the suspect from providing any useful information. It may also imply that the investigator has insufficient evidence or authority to pursue the case2.
* C. Directing the interview in another direction until there is better rapport before returning back to the troubling question is not a good strategy, because it may waste time and resources, and it may lose the focus and momentum of the investigation. It may also signal to thesuspect that the investigator is not confident or competent, and it may give the suspect a chance to prepare or rehearse their answers2.
:
1: ACAMS Study Guide, 6th Edition, Chapter 4: Conducting and Supporting the Investigation, page
105. 2: 46 AML Investigator Interview Questions (And Sample Answers)

High-risk: The risks here are significant, but are not necessarily prohibited. To mitigate the heightened risk presented, the financial institution should apply more stringent controls to reduce the ML/FT risk, such as conducting enhanced due diligence and more rigorous transaction monitoring. Countries that maintain a reputation for corruption or drug trafficking are generally considered high-risk. High-risk customers may include politically exposed persons (PEPs) or certain types of money services businesses or cash-intensive businesses; high-risk products and services may include correspondent banking and private banking.

Lawyers' trust accounts arecommonly exploited for money laundering, particularly forlayering and integration stages.
Option A (Correct):Receiving and immediately forwarding wire transfers from unknown sources in a high- risk jurisdiction is a strong red flag for money laundering.
Option B (Incorrect):While legal professionals in high-risk countries require monitoring, the transaction itself is not necessarily suspicious.
Option C (Incorrect):Insurance company payments are typically traceable, reducing money laundering risk.
Option D (Incorrect):Lawyers handling real estate transactions is normal unless the deal structure is highly irregular.
Red Flags for Money Laundering in Legal Professions:
Use of client accounts to receive and distribute funds without legal purpose.
Multiple transactions involving unrelated third parties.
Legal services that do not align with the nature of payments received.
Best Practices for AML in Legal Professions:
Conduct enhanced due diligence (EDD) on high-risk transactions.
Monitor transactions involving high-risk jurisdictions.
File Suspicious Activity Reports (SARs) for unexplained transactions.
Reference:
FATF Report on the Misuse of Legal Professionals for ML/TF
6th EU AML Directive (6AMLD) on DNFBPs & Legal Professionals
Wolfsberg Group Guidance on AML for Lawyers & Law Firms

The customer's profile and transactions are highly suspicious and indicative of possible money laundering.
The customer's income, source of wealth, and investment plans do not match with the large and frequent transfers from a diamond distributor, which is ahigh-risk business sector for money laundering. The customer' s transfers to Hong Kong, which is a high-risk jurisdiction for money laundering, also raise red flags. The anti- money laundering specialist should recommend contacting the competent authority and local law enforcement to report the suspicious activity and cooperate with any investigation. This is in accordance with the FATF Recommendation 20, which states that "If a financial institution suspects or has reasonable grounds to suspect that funds are the proceeds of a criminal activity, or are related to terrorist financing, it should be required, by law, to report promptly its suspicions to the financial intelligence unit (FIU)"1. The other options are not appropriate, as they do not address the urgency and severity of the situation.: 1: FATF (2012), International Standards on Combating Money Laundering and the Financing of Terrorism
& Proliferation, FATF, Paris, France, www.fatf-gafi.org/recommendations.html, p. 19.