The third line of defense (internal audit) is responsible for providing independent assurance to the Board of Directors about the effectiveness of AML/CFT controls.
Option C (Correct): The internal audit function provides independent review and oversight of AML risks to the board.
Option A (Incorrect): There is no "fourth line of defense" in AML risk management frameworks.
Option B (Incorrect): The second line (compliance & risk management) is responsible for monitoring AML processes but does not provide direct board assurance.
Option D (Incorrect): The first line (business units) manages AML risks daily but 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

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/]

In accordance with Financial Action Task Force (FATF) standards [1][2], when the minimum AML requirements of the host country where a financial institution (Fl) operates are less strict than those of the Fl's home country, the Fl is required to ensure that their branches and majority-owned subsidiaries in host countries implement the requirements of the home country, to the extent that host country laws and regulations permit. This means that the Fl should not impose more strict requirements on host country branches, disregarding if host country laws and regulation permit such action, and should not close down its operations in the host countries where minimum AML requirements are less strict than those of the home country. However, the Fl should always apply additional measures on their branches and majority-owned subsidiaries in host countries to manage the money laundering and terrorist financing risk overseas.

Results of related audits and examinations are the most useful report for an anti-money laundering specialist to inform senior management about the status of the anti-money laundering program across the organization.
This is because audits and examinations provide an independent and objective assessment of the effectiveness, efficiency, and compliance of the anti-money laundering program, as well as identify any gaps, weaknesses, or areas for improvement. Audits and examinations can also help senior management to monitor the performance of the anti-money laundering program, ensure accountability and oversight, and demonstrate commitment to regulatory expectations and best practices.
Anti-Money Laundering Preparedness Survey Report 2020 - Deloitte US, page 4.
CAMS Study Guide 6th Edition, page 39.

* Paying premium several years in advance and terminating early for a refund (A):"A typical red flag is when a policyholder pays large premiums up front and then seeks early termination to receive a refund. This can be used to launder illicit funds by integrating them into the financial system and then retrieving 'clean' money."(CAMS 6th Edition, Life Insurance ML/TF Risks; FATF Guidance for a Risk-Based Approach for the Life Insurance Sector)
* Regularly switching policies and accepting penalties (D):"Frequent changes in insurance policies or products, even at a financial loss, are considered suspicious. This may indicate an attempt to obscure the money trail or integrate illicit proceeds."(CAMS 6th Edition, ML/TF Red Flags in Life Insurance) Incorrect Options:
* B: Having multiple policies is common and not itself a red flag.
* C: High premiums/payouts are not inherently suspicious.
* E: Beneficiary payouts to elderly people are not ML/TF red flags.
References:
CAMS 6th Edition, Life Insurance Red Flags
FATF Guidance for a Risk-Based Approach for the Life Insurance Sector