REPORTING OF SUSPICIOUS TRANSACTIONS [https://www.fatf- gafi.org/media/fatf/documents
/recommendations/pdfs/FATF%20Recommendations%202012.pdf] 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). According to the Financial Action Task Force's (FATF) Recommendation 20, a suspicious transaction report (STR) or a suspicious activity report (SAR) is filed by a financial institution or, by a concerned citizen, to the local Financial Intelligence Unit if they have reasonable grounds to believe that a transaction is related to criminal activity. [https://aml-cft.net/library/suspicious-transaction-report-str-suspicious-activity-report-sar/]

Reference:http://www.bis.org/bcbs/about.htm(4th
para)
Basel Committee on Banking Supervision (Basel Committee) The Basel Committee was established by the G-
10's central bank of governors in 1974 to promote sound supervisory standards worldwide. Its secretariat is appointed by the Bank for International Settlements in Basel, Switzerland.

According to the ACAMS Study Guide for the CAMS Certification Exam (6th edition), page 211, dealers in precious metals and stones (DPMS) are vulnerable to money laundering and terrorist financing risks due to the high value, portability, and fungibility of their products. Therefore, DPMS should apply a risk-based approach to their AML/CFT compliance program and monitor their customers and transactions for any red flags or suspicious activities. One of the red flags for DPMS is receiving payments from or sending payments to unknown or unverified third parties, especially if they are located in high-risk jurisdictions that have weak AML/CFT controls, are subject to sanctions, or are known to be sources or destinations of illicit funds.
Suchpayments may indicate that the DPMS is being used as a conduit or a front for money laundering, terrorist financing, tax evasion, or other criminal activities. Therefore, if a precious metals dealer opens a new account with a bank and receives or makes payments that reference unknown companies from high-risk jurisdictions, the bank should refer the account to AML investigations for further review and verification of the source and purpose of the funds, the identity and legitimacy of the third parties, and the nature and rationale of the business relationship.
References:
ACAMS Study Guide for the CAMS Certification Exam (6th edition), page 2111 FATF Guidance on the Risk-Based Approach for Dealers in Precious Metals and Stones2 Risk-Based Approach for Dealers in Precious Metals and Stones (DPMS)3

Thethird line of defense (internal audit)is responsible forproviding independent assurance to the Board of Directorsaboutthe effectiveness of AML/CFT controls.
* Option C (Correct):Theinternal audit function provides independent review and oversight of AML risksto theboard.
* Option A (Incorrect):There is no "fourth line of defense" in AML risk management frameworks.
* Option B (Incorrect):Thesecond line (compliance & risk management)is responsible formonitoring AML processes but does not provide direct board assurance.
* Option D (Incorrect):Thefirst line (business units) manages AML risks dailybut does not provide board assurance.
Best Practices for Internal Audit in AML Programs:
* Ensure audits are risk-based and independent.
* Report findings directly to the board's audit committee.
* Regularly test AML controls to assess effectiveness.
Reference:
FATF Recommendation 18 (AML/CFT Internal Audit Function)
Basel Committee's AML Risk Management Principles
Wolfsberg Group AML Oversight Guidelines