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

In anti-money laundering, what is the purpose of Enhanced Due Diligence?

1. To simplify transaction processes

2. To assess customer risk more thoroughly

3. To reduce costs for compliance

4. To limit customer access to funds

The correct answer is: To assess customer risk more thoroughly

Enhanced Due Diligence (EDD) plays a critical role in anti-money laundering (AML) efforts by focusing on those customers and transactions that pose a higher risk for money laundering and other illicit activities. This approach involves a more comprehensive assessment of a customer’s background, source of funds, transaction patterns, and overall risk profile. The necessity for Enhanced Due Diligence arises from the recognition that standard due diligence measures may not be sufficient in identifying and addressing the risks associated with high-risk customers, such as politically exposed persons (PEPs), clients from high-risk jurisdictions, or those engaged in complex business structures. By implementing a more thorough review and ongoing monitoring of these customer relationships, financial institutions can better detect suspicious patterns and potentially prevent money laundering activities. In contrast to the correct answer, the simplification of transaction processes, cost reduction, or limitation of customer access to funds do not align with the intent of EDD. These approaches could undermine the effectiveness of monitoring and risk management in a financial institution's compliance framework.