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

In the context of AML, what is the role of Correspondent Banks?

1. They engage in high-risk lending

2. They provide services for Respondent Banks

3. They distribute government aid

4. They manage trust accounts

The correct answer is: They provide services for Respondent Banks

Correspondent banks play a crucial role in the global banking system by providing essential services to respondent banks, which are institutions that rely on correspondent banks to conduct transactions, particularly in foreign currencies or in regions where they have limited presence. This relationship is vital for facilitating international trading, cross-border payments, and other transactions that may arise in the global economy. These banks allow respondent banks to access services such as wire transfers, foreign currency exchange, and other financial services that enhance their operational capabilities. In regard to anti-money laundering (AML) efforts, correspondent banks must conduct due diligence on their respondent banks to ensure they are not inadvertently facilitating money laundering or other illicit activities, thereby helping to maintain the integrity of the financial system. The other options, while relevant to various banking functions, do not accurately describe the primary role of correspondent banks within the context of AML. For instance, high-risk lending is typically a responsibility of individual banks assessing their own loan portfolios rather than a function of correspondent banking. Similarly, distributing government aid generally falls under the purview of social services or specialized financial institutions rather than correspondent banks. Managing trust accounts, while an important banking function, is more closely associated with private banking or wealth management services, again not reflecting the correspondent banking function focused on