Trade-based money laundering (TBML) is a method of disguising and moving illicit funds through the international trade system. Criminals often manipulate various aspects of trade transactions, such as pricing, quantity, documentation, and commodity type, to transfer value and obscure the source of funds. Some of the common red flags that may indicate TBML are:
The transaction involves the use of front (or shell) companies: Front or shell companies are entities that have no physical presence, no employees, and no business activity, but are used to facilitate money laundering.
They often have vague or generic names, are registered in secrecy jurisdictions, and have no available ownership information. In this case, ABC Holdings Ltd. and Sunrise Holdings Ltd. could be front or shell companies that are used to launder money through trade transactions.
The type of commodity being shipped appears inconsistent with the exporter or importer's regular business activities: Criminals may use commodities that are unrelated to their core business or that have low correlation with the market price to launder money. They may also use commodities that are difficult to value, verify, or trace, such as precious metals, gems, art, or antiquities. In this case, the automotive parts company and the silk flower supplier seem to have no logical connection, and the value of the silk flowers may be inflated or deflated to transfer funds.
Trade-Based Money Laundering: Risk Indicators - Financial Action Task Force, pp. 9-10, 14-15 Identifying TBML: 8 Trade-Based Money Laundering Red Flags - Alessa, pp. 1-2 FFIEC BSA/AML Appendices - Appendix F - Money Laundering and Terrorist Financing Red Flags, p. 7 AML Red Flags - What are the Top 10 Indicators? - ComplyAdvantage, p. 1

The Financial Action Task Force (FATF) 40 Recommendations address the transparency and beneficial ownership of legal persons (such as companies, foundations, associations, etc.) and legal arrangements (such as trusts, fiducies, anstalts, etc.) in Recommendations 24 and 25. These recommendations aim to prevent the misuse of legal persons and arrangements for money laundering, terrorist financing and other illicit purposes, by requiring countries to ensure that accurate and up-to-date information on the natural persons who ultimately own or control them (the beneficial owners) is available to the competent authorities in a timely manner.
CAMS Study Guide - 6th Edition, Chapter 4, page 112
CAMS Certification Exam Outline, Domain 1, Task 1.2, Skill 1.2.2
Guidance on Transparency and Beneficial Ownership, FATF, October 2014
Recommendation 24: Transparency and beneficial ownership of legal persons, FATF
[Recommendation 25: Transparency and beneficial ownership of legal arrangements], FATF Reference:https://www.fatf-gafi.org/documents/news/transparency-and-beneficial-ownership.html

According to the Anti-Money Laundering Specialist (the 6th edition) resources, the FATF mutual evaluation process is a peer review mechanism that assesses the level of compliance of a country with the FATF 40 recommendations and the effectiveness of its anti-money laundering and counter-terrorist financing system.
The mutual evaluation report identifies the strengths and weaknesses of the assessed country and provides recommendations for improvement. The assessed country needs to address the shortcomings identified in the report and agree to post-assessment monitoring by FATF, which involves regular follow-up reports and actions to remedy the deficiencies. The other options are not correct, as they do not reflect the FATF mutual evaluation process or the obligations of the assessed country.
References:
1: ACAMS Study Guide for the Certified Anti-Money Laundering Specialist (the 6th edition), Chapter 4:
International Standards and Global Initiatives, page 97.
2: FATF, Methodology for Assessing Technical Compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems, February 2013, updated October 2019, 1.
3: FATF, Procedures for the FATF Fourth Round of AML/CFT Mutual Evaluations, October 2019, 2.

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