CAMS Study Guide — 2026 Edition

A1. Money laundering, terrorist financing, sanctions, and related crimes

Money laundering is the process of making illegally obtained funds appear legitimate. The classic model has three stages. Placement puts the dirty money into the financial system — for example, depositing cash from drug sales into a bank account. Layering moves it through a maze of transactions designed to obscure its origin — wire transfers between accounts, shell companies, trade invoices. Integration returns the money to the criminal as apparently clean wealth — buying real estate, luxury goods, or business assets^[1].

Terrorist financing is different in a way the exam loves to test. Money laundering starts with dirty money and tries to make it look clean; terrorist financing often starts with clean money and uses it for a dirty purpose. Funds for terrorism can come from entirely legitimate sources — salaries, donations, business profits — and the crime is in the destination, not the origin; the FATF standard says terrorist-financing offences extend to funds whether from a legitimate or illegitimate source^[2]. That is why transaction monitoring tuned only for "dirty source" patterns can miss terrorist financing.

Sanctions are restrictive measures — asset freezes, trade restrictions, travel bans — imposed by governments and the UN Security Council to change behavior. Sanctions evasion is the set of techniques used to dodge them: front companies, falsified shipping documents, transshipment through third countries^[3].

Fraud, anti-bribery and corruption (ABC), and tax evasion are closely related but distinct. Fraud is deception for financial gain. Bribery and corruption involve the abuse of entrusted power. Tax evasion is the illegal non-payment of taxes owed. Any of these can be a predicate crime — the underlying offense that generates the dirty money later laundered.

Key numbers. None are fixed by a single global rule here; the thresholds that matter (US$10,000 for currency transaction reporting, US$5,000 for bank suspicious-activity reporting) belong to Chapter 3.

Key takeaways. Placement → layering → integration. ML cleans dirty money; TF directs money (often clean) toward terrorism. Sanctions evasion hides the parties and the goods, not just the money.

A2. The consequences of financial crime

Financial crime is not victimless, and the exam expects you to articulate why institutions and societies care. For a financial institution, the consequences include regulatory enforcement actions, massive fines, loss of correspondent banking relationships, and reputational damage that drives away legitimate customers. For society, laundered money funds further crime — drug trafficking, human trafficking, terrorism — while distorting markets and property prices and eroding trust in the financial system. The Basel Committee notes that, beyond fines and sanctions by regulators^[4], AML/CFT deficiencies can cause reputational damage leading to depositor outflows and loss of counterparties, including correspondent banking relationships^[4]. Countries with weak controls face pressure from the international community, including FATF listing.

Key takeaways. Consequences cascade: institutional (fines, lost relationships, reputation), economic (distorted markets, lost investment), and social (more crime, less trust).

A3. Predicate crimes that generate illicit proceeds

A predicate crime is the criminal activity that produces the money to be laundered. The FATF asks countries to apply the money-laundering offence to all serious offences, covering the widest range of predicates^[2]; its designated categories include drug trafficking, arms trafficking, trafficking in stolen goods, corruption and bribery, and fraud^[2], alongside human trafficking, tax crimes and environmental crime. The exam tests whether you recognize that money laundering is always downstream of something — identify the predicate and you understand the laundering method.

Key takeaways. Every laundering scheme starts with a predicate crime. Different predicates favor different laundering channels (cash-intensive businesses for drug proceeds, trade channels for fraud proceeds).

A4. How criminal activity manifests in financial institutions

Criminals do not walk in wearing labels. Their activity shows up as red flags: transactions inconsistent with the customer's profile, rapid movement of funds with no economic purpose, structuring deposits just below reporting thresholds, reluctance to provide identification or beneficial-ownership information, use of shell companies with no real operations, and round-dollar or repetitive wire transfers to high-risk jurisdictions. The compliance officer's job is to recognize the pattern, not any single transaction.

Key takeaways. Look for inconsistency with the customer profile, lack of economic purpose, threshold avoidance, and opacity about ownership.

A5–A7. Banking: where the money first touches the system

Banks remain the primary gateway because almost every laundering scheme eventually needs the banking system. Retail banking faces cash placement, structuring, and mule accounts. Private banking and wealth management face PEPs and complex structures. Correspondent banking — where a correspondent bank provides services to a respondent bank's customers — concentrates risk because the correspondent never sees the underlying customer; it relies on the respondent's controls. The Wolfsberg Correspondent Banking Principles are the industry's global guidance on establishing and maintaining these cross-border relationships^[5].

Politically exposed persons (PEPs) are individuals entrusted with prominent public functions, plus their family members and close associates. They are not presumed corrupt, but their position creates corruption risk. For foreign PEPs the FATF requires senior management approval, source-of-wealth and source-of-funds checks, and enhanced ongoing monitoring^[6]; for domestic PEPs these measures apply where the relationship is higher risk, and the requirements extend to family members and close associates^[2].

Key takeaways. Correspondent banking = risk without visibility into the end customer. PEPs get EDD, not automatic rejection.

A8. Insurance

Insurance products can launder money through overpayment and early surrender: buy a policy with dirty funds, then cancel and take a "clean" refund check. Single-premium policies, early redemptions, and third-party premium payments are the classic red flags; FinCEN lists early termination of a product, especially at a cost to the customer, among them^[7].

A9. Money services businesses and payment service providers

MSBs — currency dealers, check cashers, money transmitters, issuers of money orders and traveler's checks, sellers of prepaid access — move money fast with thin customer relationships^[8]. They must register with FinCEN^[9]. Their risks: structuring across agents, smurfing through multiple locations, and weak agent oversight.

A10. Virtual asset service providers

VASPs (crypto exchanges, custodians, some DeFi touchpoints) offer speed, pseudonymity, and cross-border reach. Risks include mixers/tumblers, chain-hopping across blockchains, and peer-to-peer transfers outside regulated intermediaries. The FATF travel rule (Recommendation 16) extends to virtual asset transfers: originator and beneficiary information must travel with the transfer^[10].

A11. Gaming and gambling

Casinos and online gaming offer a classic placement channel: buy chips with cash, play briefly, cash out with a "winnings" check. Red flags include minimal play before redemption, chip purchases with no play, and third-party funding of accounts; US Treasury reports casino SARs about large deposits or withdrawals with minimal gaming activity^[11].

A12. Real estate

Real estate absorbs large sums in a single transaction and is easy to over- or under-value. Red flags: all-cash purchases far above or below market, rapid flipping, purchases through shell companies, and third-party funding with no clear link to the buyer^[11].

A13. Gatekeepers: lawyers and legal professionals

Lawyers create and manage the structures criminals use — companies, trusts, escrow accounts. Client accounts can commingle and obscure funds. The risk is not the profession but the services: company formation, real-estate conveyancing, and handling client money — the activities for which the FATF applies CDD to lawyers and accountants^[12]. US Treasury calls such facilitators gatekeepers^[11].

A14. Trusts and trust/company service providers

Trusts split legal and beneficial ownership, which is exactly what makes them attractive for hiding who really controls assets. TCSPs that form companies, provide nominee directors, or administer trusts on behalf of clients concentrate this risk. Bearer shares and nominee arrangements are the sharpest red flags^[2]; the FATF expects accurate information on a trust's settlor, trustee and beneficiaries^[2].

A15. Accountants and auditors

Accountants see the books — and can be misused to create false invoices, manipulate valuations, or design structures that obscure ownership. Their proximity to financial records is both the risk and the reason they are gatekeepers.

A16. High-risk business structures and trade

Shell companies, shelf companies, and complex multi-jurisdiction structures with no commercial rationale exist to obscure beneficial ownership. Trade-based money laundering (TBML) manipulates trade transactions — over- and under-invoicing, multiple invoicing, phantom shipments, misrepresented goods — to move value across borders disguised as legitimate commerce^[13].

A17. Non-profit organizations

NPOs and charities can be misused for terrorist financing: legitimate donations commingled with diverted funds, or sham charities that are simply conduits. The risk is diversion of the charitable purpose^[2], and the control is governance — knowing the NPO's donors, beneficiaries, and cross-border flows.

Chapter 1 key takeaways. Know the three ML stages cold, the ML/TF distinction, and the predicate concept. For each sector, know why criminals like it (speed, cash, opacity, size) and the two or three red flags that give it away.

Quiz 1

1. A criminal deposits cash from illegal drug sales into a bank account through a series of small deposits over several weeks. Which money-laundering stage does this describe?

• A. Placement, funds entering the financial system
• B. Layering, obscuring the criminal origin through complexity
• C. Integration, wealth appearing legitimate
• D. Extraction, removing proceeds from economy

2. How does terrorist financing most fundamentally differ from money laundering?

• A. Terrorist financing misuses legitimate funds
• B. Terrorist financing uses larger sums always
• C. Terrorist financing targets banks only
• D. Terrorist financing avoids all borders

3. A company in a sanctioned country routes payments through front companies in third countries and falsifies shipping documents to obtain restricted goods. What is this an example of?

• A. Trade laundering via over-invoicing
• B. Correspondent abuse via nested accounts and affiliates
• C. Structuring to evade CTR filing
• D. Sanctions evasion hiding parties and goods

4. A fraudster steals money through investment scams and then buys real estate to make the proceeds appear legitimate. What is the investment scam in relation to the money laundering?

• A. The predicate crime generating the funds
• B. The placement stage of laundering operations
• C. The integration technique for cleaning
• D. The layering method obscuring trails

5. Which consequence would a bank most directly face if its anti–money laundering controls repeatedly fail?

• A. Increased deposits from high-risk clients seeking weak controls
• B. Lower regulatory capital requirements from its supervisor
• C. Automatic exemption from suspicious-activity reporting duties
• D. Enforcement actions, fines, and loss of correspondent relationships

6. A correspondent bank processes US-dollar payments for a respondent bank's customers, whom it has never identified. What is the core risk in this arrangement?

• A. Lower fees on respondent transactions
• B. Mandatory disclosure of all customers
• C. Risk from unseen, unvetted customers
• D. Travel-rule breach on every payment

7. A bank identifies a new customer as a foreign politically exposed person (PEP). What should the bank do?

• A. Enhanced diligence, approval, monitoring
• B. Immediate refusal as presumed corrupt
• C. Standard diligence only, informational
• D. Close all family member accounts

8. A customer buys a single-premium life insurance policy with a large cash payment, then surrenders it two months later and accepts a loss on the refund. What does this suggest?

• A. Legitimate retirement planning product offerings
• B. Tax-efficient estate planning wrapper
• C. Standard insurer policy servicing
• D. Laundering via early surrender refund

9. A business that transmits money for customers as its primary activity has not registered with FinCEN. What is true?

• A. Registration optional for single-state firms only
• B. Must register with FinCEN as MSB
• C. Only banks register with FinCEN
• D. Registration for tax purposes only

10. A crypto exchange sends customer virtual-asset transfers without including originator or beneficiary information. Which standard does this violate?

• A. Travel rule on originator/beneficiary info
• B. Basel capital rules for crypto
• C. Egmont reporting format rules
• D. Wolfsberg fiat payment principles

11. A casino patron buys a large amount of chips with cash, gambles briefly, then redeems the remaining chips for a check. What is the most likely concern?

• A. Counting cards at table games for advantage
• B. Colluding with the casino dealer
• C. Laundering cash into a clean check
• D. Structuring chip buys below limits

12. A buyer purchases luxury apartments entirely in cash through a shell company, at prices far above market value, then quickly resells them. What does this indicate?

• A. A legitimate investment strategy in appreciating real estate
• B. Possible money laundering through overvalued property transactions
• C. Standard tax planning for high-net-worth individuals
• D. Normal market-making activity in the property sector

13. Why are lawyers considered gatekeepers in the context of financial crime?

• A. Filing CTRs for client transactions
• B. Setting SAR reporting thresholds
• C. Approving correspondent relationships
• D. Creating companies, trusts, accounts misused

14. A trust holds assets for beneficiaries whose identities are hidden behind nominee directors and bearer shares. What is the primary financial-crime risk?

• A. The trust will necessarily fail to file accurate tax returns
• B. The trust cannot legally hold real estate in any jurisdiction
• C. The trust's investment returns will be below market averages
• D. The structure obscures the true beneficial owners of the assets

15. An accountant creates false invoices to justify payments between companies controlled by the same criminal group. What role is the accountant playing?

• A. Independent auditor detecting fraud
• B. Tax advisor optimizing deductions
• C. Officer filing suspicious reports
• D. Facilitator obscuring illicit flows

16. An importer pays far above market price for goods from a related exporter, with the shipment documents misdescribing the merchandise. What is this?

• A. Trade-based money laundering through over-invoicing and misrepresentation
• B. Standard trade finance using letters of credit
• C. Normal currency hedging through commercial invoices
• D. Legitimate transfer pricing within a multinational group

17. A charity receives large donations that are quickly wired to high-risk jurisdictions with little documentation of charitable programs. What is the concern?

• A. Optimizing foreign-exchange costs
• B. Diversifying investment portfolios
• C. Conduit for terrorist financing
• D. Complying with donor-fund rules

18. A company with no employees, no operations, and no clear business purpose opens accounts at several banks and receives large wire transfers. What is it most likely to be?

• A. Shell hiding ownership, moving illicit funds
• B. Startup in pre-revenue development phase
• C. Holding company with subsidiaries
• D. Vehicle for documented securitization

Answer Key — Quiz 1 1. A. Depositing drug cash into a bank account is the moment illicit funds first enter the financial system, which is placement: FinCEN describes the first step as illegitimate funds being "furtively introduced into the legitimate financial system." The many small deposits make layering tempting, but layering moves money that is already inside the system to create confusion about its origin; integration comes last, when the money appears clean.^[1]

2. A. Terrorist financing can be funded from entirely lawful money such as salaries, donations or business income, and the FATF standard says terrorist-financing offences extend to funds "whether from a legitimate or illegitimate source." Money laundering always starts from criminal proceeds that are then made to look clean. Size is not the dividing line: terrorist financing often involves small sums, so "larger sums always" gets it backwards, and neither crime is confined to banks or to domestic activity.^{[1, 2]}

3. D. Front companies in third countries and falsified shipping documents hide who is really behind the deal and what is being shipped, which is sanctions evasion. US authorities report that sanctions evaders have falsified shipping documentation to disguise the origin of goods. Trade-based laundering through over-invoicing is the tempting label, but nothing here misprices the goods: the aim is to obtain restricted goods, not to move criminal value.^[3]

4. A. The investment scam is the predicate crime, the underlying offence that produced the proceeds. FATF requires countries to apply the money-laundering offence to all serious offences, covering the widest range of predicates, and fraud is one of its designated categories. Buying real estate with the proceeds is the laundering (integration). The scam is not itself a stage of laundering, so calling it placement confuses the crime with the cleaning.^{[1, 2]}

5. D. Repeated AML failures bring regulatory enforcement. The Basel Committee notes that, besides fines and sanctions by regulators, AML/CFT deficiencies can cause reputational damage that leads to loss of counterparties, including loss of correspondent banking relationships. Attracting high-risk clients who look for weak controls is a side effect that makes the problem worse; it is not the consequence imposed on the bank. Supervisors do not respond to failures with lower capital requirements or relief from SAR duties.^[4]

6. C. When a respondent uses a correspondent relationship to serve its own customers, the correspondent becomes an intermediary for underlying customers it has never identified, and the Wolfsberg Group says this generally makes the risk higher. That is why FATF Recommendation 13 requires the correspondent to understand the respondent's business and assess its AML/CFT controls. The travel rule is tempting because the payments are wires, but nothing suggests originator data is missing. The core risk is relying on another bank's customer controls.^{[2, 5]}

7. A. For a foreign PEP, FATF Recommendation 12 requires risk-management systems to identify PEPs, senior management approval for the relationship, reasonable measures to establish source of wealth and source of funds, and enhanced ongoing monitoring. Automatic refusal is wrong because PEP status is a risk to manage, not proof of corruption. Standard diligence alone ignores the Recommendation. Closing relatives' accounts is not required either; the same measures simply extend to family members and close associates.^{[2, 6]}

8. D. FinCEN lists early termination of an insurance product as a money-laundering red flag, especially when it comes at a cost to the customer. A single large cash premium surrendered two months later turns cash into an insurer's refund cheque that looks clean. Accepting a loss is the giveaway: genuine retirement or estate planning does not buy a long-term product and abandon it at a penalty within weeks.^{[1, 7]}

9. B. (US rule) Every money services business must register with FinCEN, whether or not a state has licensed it, so a business whose main activity is transmitting money must register. A state licence, single-state or otherwise, does not replace federal registration. Registration is not limited to banks, and it is an AML requirement, not a tax filing.^{[8, 9]}

Sources cited in this excerpt

1. FinCEN — History of Anti-Money Laundering Laws. https://www.fincen.gov/resources/history-anti-money-laundering-laws
2. FATF Recommendations (text as updated March 2022). https://www.fatf-gafi.org/en/publications/Fatfrecommendations/Fatf-recommendations.html
3. Treasury/State/US Coast Guard — Sanctions Advisory for the Maritime Industry, Energy and Metals Sectors (May 14, 2020). https://ofac.treasury.gov/media/37751/download?inline=
4. Basel Committee — Sound management of risks related to money laundering and financing of terrorism (revised July 2020). https://www.bis.org/publications/202007-guidelines-sound-management-risks-related-money-laundering-and-financing-terrorism-revisions-supervisory.pdf
5. Wolfsberg Correspondent Banking Principles (2022). https://www.wolfsberg-group.org/library/publication/correspondent-banking-principles
6. FATF Recommendations (Recommendation 12 — politically exposed persons). https://www.fatf-gafi.org/en/publications/Fatfrecommendations/Fatf-recommendations.html
7. FinCEN — FAQs: AML Program and SAR Requirements for Insurance Companies. https://www.fincen.gov/resources/statutes-regulations/guidance/frequently-asked-questions-anti-money-laundering-program
8. FinCEN MSB/GTO FAQs. https://www.fincen.gov/frequently-asked-questions
9. 31 CFR 1022.380 (eCFR, current as of 2026-09-10). https://www.ecfr.gov/api/versioner/v1/full/2026-09-10/title-31.xml?section=1022.380
10. FATF Recommendations (Recommendation 16 — wire transfers). https://www.fatf-gafi.org/en/publications/Fatfrecommendations/Fatf-recommendations.html
11. US Treasury — 2024 National Money Laundering Risk Assessment. https://home.treasury.gov/system/files/136/2024-National-Money-Laundering-Risk-Assessment.pdf
12. FATF Recommendations (Recommendation 22 — DNFBPs: customer due diligence). https://www.fatf-gafi.org/en/publications/Fatfrecommendations/Fatf-recommendations.html
13. FinCEN Advisory FIN-2010-A001 — Trade-Based Money Laundering. https://www.fincen.gov/sites/default/files/advisory/fin-2010-a001.pdf