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

What should countries avoid in relation to shell banks?

1. Allowing shell banks

2. Establishing new shell banks

3. Forming partnerships with shell banks

4. Promoting the use of shell banks

The correct answer is: Allowing shell banks

The correct approach for countries regarding shell banks is to avoid allowing these entities to operate within their jurisdictions. Shell banks are financial institutions that exist only on paper and have no physical presence or significant operations, which often makes them an attractive vehicle for money laundering and other illicit financial activities. By allowing shell banks, countries expose themselves to increased risks of financial crime, as these banks can easily facilitate the movement of illicit funds across borders without adequate oversight or regulatory scrutiny. This lack of accountability undermines the integrity of the financial system and can lead to serious repercussions, including international sanctions and damaged reputations. The other options—establishing new shell banks, forming partnerships with them, and promoting their use—are all direct actions that would further perpetuate the risks associated with these institutions. Therefore, the focus should always be on preventing their operation and ensuring that robust anti-money laundering measures are in place to protect the financial system from exploitation by criminals.