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CAFP: AML/CFT Fundamentals, Terminology, and the International Standards Framework

CAFP · Work through your exam, one topic at a time.

All guide sections

AML/CFT Fundamentals, Terminology, and the International Standards Framework

What the exam tests

This domain tests the vocabulary and architecture of global AML/CFT: the three stages of money laundering, the difference between money laundering and terrorist financing, and how FATF, the Wolfsberg Group and the Basel Committee shape national rules. Expect definitional questions and scenario questions that ask you to classify conduct or identify the standard that applies.

Core rules and concepts

  • Money laundering is the process of disguising the origin of criminal proceeds. The classic stages are placement (introducing cash into the financial system), layering (obscuring the trail through transfers, entities or trades) and integration (reintroducing funds as apparently legitimate wealth). Conduct can be a single transaction or a series.
  • Terrorist financing can involve small amounts, legally sourced funds, and charitable or cash channels; a profit motive is not required. Sanctions and CFT often overlap but are distinct legal regimes.
  • The FATF 40 Recommendations are soft law: they bind only when implemented through national legislation or regulation. Key Recommendations include R.1 (risk-based approach), R.10 (CDD), R.11 (record keeping), R.12 (PEPs), R.13 (correspondent banking), R.15 (virtual assets), R.20 (STRs) and R.24 (transparency of legal persons).
  • The Wolfsberg Group is an industry association that issues private-banking, correspondent-banking and AML principles; it is not a regulator and does not make binding law.
  • Basel Committee guidance addresses KYC, customer due diligence and risk management for banks. It is supervisory guidance, not a criminal statute.

Worked example

A customer deposits EUR 9,000 in cash at three branches, then wires the funds to a shell company in a secrecy jurisdiction; the company lends the money back to the customer as a personal loan. Classification: placement (cash deposits), layering (wire to shell and loan-back), integration (funds re-enter as legitimate debt). Because the deposits were split to avoid reporting, structuring is also a red flag. The relevant FATF standards are R.10 and R.20; the bank should investigate, consider an STR and review the customer risk rating.

Traps that cost marks

Do not confuse placement with layering; the first entry of cash is placement. Do not treat FATF Recommendations as directly enforceable law. Do not attribute Wolfsberg principles to the Basel Committee. Do not assume terrorist financing always involves criminal proceeds. Do not ignore that the risk-based approach allows simplified measures only in lower-risk situations, not as a blanket exemption.