A Risk-Based Approach (RBA) allows financial institutions to allocate compliance resources effectively and prioritize higher-risk areas for enhanced due diligence (EDD).
Option A (Correct): An RBA enables institutions to tailor their AML controls based on risk exposure, ensuring better resource allocation.
Option B (Incorrect): While RBA improves efficiency, it does not guarantee faster implementation of controls.
Option C (Incorrect): RBA is a regulatory requirement, but it is not necessarily determined by customer acceptance.
Option D (Incorrect): RBA provides guidance on risk mitigation, but it does not dictate specific resource usage.
Benefits of a Risk-Based Approach (RBA):
Efficient use of compliance resources by focusing on high-risk transactions, customers, and geographies.
Regulatory compliance alignment with FATF, Basel Committee, and Wolfsberg Group AML principles.
Flexibility to adjust AML controls as new threats emerge.
Best Practices for Implementing RBA in AML Compliance:
Conduct enterprise-wide risk assessments (EWRAs).
Classify customers and transactions based on risk levels.
Apply enhanced due diligence (EDD) for high-risk clients.
Reference:
FATF Recommendation 1 (Risk-Based Approach to AML)
Basel Committee's Risk-Based AML Compliance Guidelines
Wolfsberg Group Principles on Risk-Based Compliance

According to the Financial Action Task Force (FATF), the use of large amounts of cash is a common method for money launderers to move illicit funds [1]. Purchasing luxury items with cash can indicate an attempt to convert illegal funds into tangible assets that can be easily resold or moved across borders. As a result, businesses that deal with luxury items are required to implement enhanced due diligence measures, including monitoring transactions involving large amounts of cash [1].
Reference: [1] Financial Action Task Force. (2013). Money Laundering & Terrorist Financing Through the Real Estate Sector. https://www.fatf-gafi.org/media/fatf/documents/reports/ML-TF-through-real-estate.pdf

Money laundering can have negative effects on a country's currencies and interest rates, as it distorts the allocation of resources and the demand and supply ofmoney. According to the IMF1, money laundering can also adversely affect currencies and interest rates as launderers reinvest funds where their schemes are less likely to be detected, rather than where rates of return are higher. This can create artificial fluctuations and imbalances in the exchange and interest rates, and undermine the effectiveness of monetary policy. For example, if launderers invest in low-yield assets such as government bonds or real estate, they may drive up the prices and lower the yields of these assets, while reducing the availability of funds for more productive investments. This can also affect the inflation and growth prospects of the country.
1: Macroeconomic Implications of Money Laundering by Peter J. Quirk, IMF Working Paper, 1996
2: Understanding Money Laundering: How It Impacts the Global Economy by Tookitaki, 2019
3: Money Laundering by U.S. Department of the Treasury, 2021
4: The Consequences of Money Laundering and Financial Crime by John McDowell and Gary Novis, U.S.
Department of State, 2001

Correspondent banking is the product type that is subject to US extra-jurisdictional reach over non-US banks and non-US persons under the USA PATRIOT Act. This is because correspondent banking involves the provision of banking services by one bank (the correspondent) to anotherbank (the respondent) or to the respondent's customers. Correspondent banking enables cross-border transactions and access to foreign financial systems, but also poses significant money laundering and terrorist financing risks due to the lack of transparency and accountability of the parties involved. The USA PATRIOT Act requires US financial institutions to apply enhanced due diligence measures to correspondent accounts for certain foreign banks, such as those operating under offshore banking licenses, those owned or controlled by foreign governments, or those of primary money laundering concern. These measures include obtaining information about the ownership, management, and anti-money laundering controls of the foreign bank, as well as the identity and activity of the customers using the correspondent account. The USA PATRIOT Act also authorizes the US Treasury to prohibit or impose conditions on the opening or maintaining of correspondent accounts for foreign banks that are involved in money laundering or terrorist financing activities.
References:
CAMS Study Guide, 6th Edition, Chapter 5, Section 5.2.1, p. 1611
Financial Crimes Enforcement Network; Anti-Money Laundering Programs; Special Due Diligence Programs for Certain Foreign Accounts, 31 CFR Part 103, RIN 1506-AA292 U).S. Extra-Jurisdictional Reach under the USA PATRIOT Act - Exam-Answer3

The Office of Foreign Assets Control (OFAC) is a US agency that administers and enforces economic and trade sanctions based on US foreign policy and national security goals1. OFAC has a list of sanctions programs and country information for various regions and topics, such as Russia, Iran, North Korea, Cuba, and more2. If a charity is headquartered in a country on the OFAC list, it means that the US government has imposed restrictions or prohibitions on transactions or dealings with that country, its government, entities, or individuals. This poses a high risk of violating the sanctions regulations and exposing the bank to legal, regulatory, or reputational consequences. Therefore, the bank may decide to terminate the banking relationship with the charity to avoid such risks.
The other options are not sufficient reasons to terminate the banking relationship, as they may not indicate illegal or suspicious activities by the charity. A high turnover rate of official positions may be due to various factors, such as organizational changes, staff turnover, or personal reasons. It does not necessarily imply that the charity is involved in money laundering or terrorist financing. However, the bank should verify the identity and authority of the new officials and update the customer due diligence information accordingly. The charity may have several incoming international funds transfers because it receives donations or grants from different sources or countries. This is not unusual for an international charity, as long as the funds are consistent with its stated purpose and activities. The bank should monitor the transactions and report any anomalies or red flags to the relevant authorities. The flow of funds both in and out may be complex and hard to trace because the charity operates in multiple jurisdictions or sectors, or has a decentralized or layered structure. This may increase the risk of money laundering or terrorist financing, but it does not necessarily mean that the charity is engaged in such activities. The bank should conduct enhanced due diligence and ongoing monitoring of the charity's transactions and beneficiaries, and apply a risk-based approach to mitigate the potential risks.
1: Sanctions List Search Tool | Office of Foreign Assets Control 2: Sanctions Programs and Country Information | U.S. Department of the Treasury