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

What is a key requirement for financial institutions regarding correspondent banking relationships?

1. They should partner with all banks

2. They must have relationships with shell banks

3. They should not partner with shell banks

4. They are encouraged to work with high-risk jurisdictions

The correct answer is: They should not partner with shell banks

Financial institutions are required to avoid partnerships with shell banks, which are entities that exist only on paper and do not have a physical presence. Engaging with shell banks can expose financial institutions to significant risks, including increased vulnerability to money laundering and terrorist financing activities. Shell banks are often used to facilitate illicit financial activities due to their lack of regulatory oversight and transparency. By not partnering with shell banks, financial institutions adhere to established anti-money laundering (AML) standards and ensure a due diligence process to identify and mitigate potential risks associated with their clients. This practice is in line with international guidelines, such as those set by the Financial Action Task Force (FATF), which stress the importance of knowing and understanding the risks involved in correspondent banking relationships. The other options imply partnerships or associations that do not align with AML best practices. For instance, partnering with all banks indiscriminately could lead to increased exposure to potential risks without proper evaluation. Similarly, actively working with shell banks or engaging with high-risk jurisdictions without adequate safeguards would be contrary to the principles of sound risk management and compliance in the financial sector.