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

How does the 'Loan Back' method of laundering money typically operate?

1. By reinvesting laundered money in domestic businesses

2. By using foreign investors for legal ventures

3. By creating a company that borrows money to fund illegal gains

4. By directly purchasing assets with legal provenance

The correct answer is: By creating a company that borrows money to fund illegal gains

The 'Loan Back' method of laundering money typically operates by creating a company that borrows money to fund illegal gains. This approach involves establishing a legitimate-appearing business that can then take out loans or receive investments. The funds obtained through these loans can be disguised as legitimate income when, in reality, they are derived from illicit activities. By going through this process, criminals can integrate their proceeds into the financial system in a way that conceals the illicit origins of the money. This method exploits the trust and credibility associated with businesses and financial institutions. It allows the laundered funds to appear as legitimate business income, thus facilitating the transition from illegal activities to seeming lawful enterprises. Through this scheme, the criminals gain access to the financial system while maintaining a pretense of legitimacy, making it challenging for regulators and law enforcement to trace the origin of the funds. Other methods mentioned in the alternatives focus on aspects that either do not produce the same effect or involve legitimate operations that do not primarily aim to mask unclean money. Reinvesting laundered money in legitimate businesses or using foreign investors may involve more straightforward investment practices that don't directly reflect the core mechanism of the 'Loan Back' method, while directly purchasing assets with legal provenance would bypass layers