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

How does 'Product Diversion' typically operate?

1. Product is shipped directly to the final destination

2. Product is redirected for higher profits in different markets

3. Products are sold at local market prices only

4. Products are kept in storage until prices align

The correct answer is: Product is redirected for higher profits in different markets

Product diversion typically operates by redirecting goods intended for one market to another market where they can be sold for higher profits. This practice exploits price differentials between markets, allowing entities to gain financially by taking advantage of misalignment in supply and demand. For instance, if a product is manufactured and priced for distribution in one region, but demand is significantly higher in another region where the price is elevated, the product can be diverted to that market instead. This not only affects the intended sales strategy but can also lead to shortages in the original market, disrupting normal supply chains. Other options reflect different scenarios that do not accurately account for the essence of product diversion. Shipping directly to the final destination implies compliance with the original distribution plan, while selling at local prices or storing products until prices align suggests a more traditional, legitimate market strategy rather than the often illicit maneuvering associated with product diversion.