Certified Anti-Money Laundering Specialist Certification (CAMS) Practice Exam

Foreign Shell Banks are primarily used for which two purposes?

1. Loan Management and Investment

2. Money Laundering and Tax Evasion

3. Fraud Prevention and Detection

4. Currency Exchange and Trade

The correct answer is: Money Laundering and Tax Evasion

The primary purposes of foreign shell banks are closely associated with money laundering and tax evasion. Foreign shell banks are typically financial institutions that exist only on paper and do not have a physical presence in the country where they are registered. This limited oversight allows these banks to operate with a degree of anonymity, making them appealing for illicit financial activities. In the context of money laundering, these banks can facilitate the layering of financial transactions, which obscures the origins of illegally obtained funds. Criminals can send money through these offshore entities, making it difficult for law enforcement to trace the source of the funds back to their criminal origins. This process can involve numerous jurisdictions, further complicating investigations. Regarding tax evasion, foreign shell banks may enable individuals and corporations to hide assets and income from tax authorities in their home countries. By using these banks to hold funds or conduct transactions, taxpayers may evade their legal obligations, leading to substantial revenue losses for governments. While other options provided may involve legitimate financial transactions, they do not align with the primary uses and risks associated with foreign shell banks, particularly in the realms of compliance and crime prevention. Thus, the focus on money laundering and tax evasion accurately reflects the problematic nature of such institutions in financial crime scenarios.