Anti-Money-Laundering and Financial Crime Prevention
The three stages and the red flags
Candidates should be able to describe placement (introducing illicit cash into the financial system), layering (obscuring the trail through transactions and entities), and integration (reintroducing funds as apparently legitimate assets). These stages are a teaching model, not a legal test - modern schemes often blend them.
Concepts to master
- Suspicious activity reporting: staff must report suspicions internally; the nominated officer decides whether to submit a report to the financial intelligence unit. Tipping off - disclosing that a report has been made or is contemplated - is itself an offence. Internal reporting is not tipping off.
- Predicate offences: money laundering requires an underlying crime; questions may test whether a firm must know the predicate offence (it need not, in most regimes).
- Sanctions screening is distinct from AML: it is a prohibition on dealing with designated persons, not a risk-based judgement.
- Terrorist financing differs from money laundering in that the funds may be legitimately sourced.
Traps
Confusing suspicion (a lower threshold than proof) with evidence. Assuming a report must be filed only after the transaction completes. Assuming a customer's refusal to explain source of funds is merely poor service rather than a red flag.
Worked example
A client makes many small cash deposits just under the reporting threshold, then requests a rapid transfer to an unrelated jurisdiction. Under the risk-based approach, this pattern (structuring plus unexplained counterparty) warrants internal escalation regardless of the amount, because suspicion, not size, triggers reporting.
Rule of thumb
If a question asks whether to report, the answer is almost always: escalate internally, keep the customer unaware, and let the nominated officer decide.