AML/CFT Foundations
Domain 1 tests whether you can distinguish money laundering from terrorist financing, identify the stages of laundering, and apply a risk-based approach rather than a tick-box one. Expect short scenarios asking where a transaction sits and which control should have caught it.
Core rules
- Money laundering is the concealment or conversion of proceeds of crime; the predicate offence is the underlying crime that generated them.
- The classic stages are placement, layering and integration, but they can overlap or occur in a single transaction.
- Terrorist financing can use legitimate funds, small amounts and self-funding; the money does not have to come from crime.
- Attempted transactions and aborted relationships still matter: controls should capture them.
- Risk-based means higher risk gets enhanced measures, not that low risk gets no measures.
Worked example
A customer with a modest salary profile makes 14 cash deposits of PKR 180,000 each at different branches, then buys a bank draft payable to a trading company in a high-risk jurisdiction. The deposits are placement; the draft and destination shift value away from the cash origin (layering). The bank should not simply file a currency transaction report: the pattern is inconsistent with profile, so it should escalate, consider an STR and apply enhanced monitoring. If the funds were raised for an overseas group, the analysis may become TF rather than ML.
Traps
- Treating TF as requiring criminal proceeds; it does not.
- Assuming layering always follows placement in a neat sequence.
- Ignoring attempted or split transactions because each one is below a threshold.
- Calling every unusual transaction suspicious without linking it to a red flag.