A startup virtual currency exchange that operates as a money services business (MSB) must comply with the anti-money laundering (AML) regulations and standards applicable to MSBs, such as the Bank Secrecy Act (BSA) in the United States. One of the key requirements for MSBs is to develop and implement an effective AML compliance program that covers the following four pillars: internal controls, independent testing, designated compliance officer, and training12.
Before launching its operations, the startup should consider the following two AML responsibilities that are essential for its compliance program:
* A customer onboarding process: The startup should establish a customer identification program (CIP) that verifies the identity of its customers and collects relevant information, such as name, address, date of birth, and identification number12. The startup should also perform customer due diligence (CDD) and enhanced due diligence (EDD) for higher-risk customers, such as those who engage in large or frequent transactions, use anonymous or pseudonymous digital wallets, or originate from high-risk jurisdictions34. The startup should also screen its customers against sanctions lists and other watchlists to prevent dealing with prohibited or suspicious entities12.
* Transaction limits consistent with risk appetite: The startup should set appropriate transaction limits for its customers based on its risk assessment and risk appetite. Transaction limits can help mitigate the exposure to money laundering and terrorist financing risks, as well as comply with the reporting and recordkeeping obligations under the BSA. For example, the startup should report any cash transactions over $10,000 or any suspicious transactions over$2,000 to the Financial Crimes Enforcement Network (FinCEN)12. The startup should also monitor its customers' transactions for any unusual or inconsistent patterns or behaviors that may indicate money laundering or other illicit activities34.
:
1: ACAMS CAMS Certification Package - 6th Edition, Chapter 6: AML Compliance Program, pp. 139-1461
2: ACAMS CAMS Certification Video Training Course, Module 6: AML Compliance Program, Lesson 6.1:
The Four Pillars of an AML Compliance Program3
3: ACAMS CAMS Certification Package - 6th Edition, Chapter 4: Customer Due Diligence, pp. 87-1061
4: ACAMS CAMS Certification Video Training Course, Module 4: Customer Due Diligence, Lesson 4.1:
CustomerIdentification Program and Lesson 4.3: Enhanced Due Diligence3

The audit function should report to the audit committee of the board of directors (or similar oversight body) and independently evaluate the risk management and controls of the bank through periodic assessments, including the adequacy of the bank's controls to mitigate the identified risks, the effectiveness of the bank's staff's execution of the controls, the effectiveness of the compliance oversight and quality controls and the effectiveness of the training.

The USA PATRIOT Act imposes several requirements on U.S. financial institutions when dealing with foreign financial institutions, especially those that pose a high risk of money laundering or terrorist financing.
Two of these requirements are:
* Performing enhanced due diligence on shell banks: A shell bank is a bank that has no physical presence in any country and is not affiliated with a regulated financial group. The USA PATRIOT Act prohibits
U.S. financial institutions from opening or maintaining correspondent accounts for shell banks, and requires them to take reasonable steps to ensure that their correspondent accounts are not being used by shell banks indirectly12.
* Performing due diligence on correspondent accounts: A correspondent account is an account established by a financial institution to receive deposits from, make payments on behalf of, or handle other financial transactions for a foreign financial institution. The USA PATRIOT Act requires U.
S. financial institutions to collect and verify certain information about the foreign financial institution, such as its ownership, licensing, and anti-money laundering policies, and to assess the risk of money laundering or terrorist financing associated with the correspondent account13.
:
CAMS Certification Package - 6th Edition | ACAMS, Chapter 3: Compliance Standards for Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT), pages 82-84 CAMS Certifications: How to Get CAMS Certified |ACAMS, Candidate Handbook, page 14 ACAMS CAMS Certification Video Training Course - Exam-Labs, Video 3.4: Correspondent Banking and Money Laundering Risks

According to the Anti-Money Laundering Specialist (the 6th edition) study guide, one of the best practices for conducting an internal investigation is to request formal company authorization to conduct the investigation. Such authorization should be granted, if possible, by the board of directors or audit committee, as this will help to establish the independence and legitimacy of the investigation, as well as the protection of the attorney-client privilege and the work product doctrine1. The other options are incorrect because:
* B. Refusing to provide any records or documents to law enforcement may be seen as obstructing justice or violating regulatory obligations, and may also result in the loss of the privilege or the imposition of sanctions or penalties23.
* C. Letting the bank hire any and all contract investigators may compromise the quality and integrity of the investigation, as well as the protection of the privilege or the work product doctrine, as the investigators may not be properly supervised or instructed by legal counsel, or may not be covered by the Kovel doctrine45.
* D. Not marking files or documents with privileged and confidential: attorney-client privilege and/or work-product may undermine the claim of the privilege or the work product doctrine, as it may indicate that the materials were not prepared for the purpose of seeking or providing legal advice or in anticipation of litigation, or that they were not intended to be kept confidential67.
:
1: ACAMS, CAMS Certification Package - 6th Edition, Chapter 5, page 150
2: ACAMS, CAMS Certification Package - 6th Edition, Chapter 5, page 151
3: Perkins Coie, Protecting Internal Investigation Materials From Disclosure, Updates, August 10, 2020
4: ACAMS, CAMS Certification Package - 6th Edition, Chapter 5, page 150
5: Eversheds Sutherland, Legal privilege of corporate internal investigations under US law - 2019 caselaw update, JDSupra, December 20, 2019
6: ACAMS, CAMS Certification Package - 6th Edition, Chapter 5, page 150
7: Norton Rose Fulbright, Internal investigations: when does privilege apply?, Global law firm, September 11,
2018

Money laundering negatively affects economic stability by discouraging investment, distorting markets, and eroding public trust.
* Option A (Correct):A financial system tainted by money laundering loses credibility, leading to reduced investor and consumer confidence.
* Option D (Correct):Foreign investors avoid jurisdictions with weak AML controls due to the risk of sanctions and reputational damage.
* Option B (Incorrect):While tax evasion is linked to money laundering, it does not directly affect the decision to implement tax incentives.
* Option C (Incorrect):Unemployment may result from economic instability, but money laundering does not directly cause job losses.
* Option E (Incorrect):Money laundering often increases volatility in financial markets, not reduces it.
Reference:FATF Report on the Consequences of Money Laundering (2011); World Bank Report on Financial Integrity (2020).