CAFCA Study Guide Exams Questions/Answers Graded A+
2025/2026
Three stages of Money Laundering - 1. Placement
2. Layering
3. Integration
What is placement? - Putting "dirty money" into the financial system
What is Layering? - Concealing the origin of the "dirty money"
What is integration? - Using the "dirty money" in the legitimate economy
Terrorist Financing - Terrorist financing (proceeds for crime)
provides funds for terrorist activity.
Can be legal and/or illegal activity
Sanctions - Foreign policy and security tool
Target individuals, organizations, jurisdictions, vessels
Main types: Financial, economic, trade
What are the features of fraud? - An intentional act of criminal deception in order to
obtain an unjust advantage
Results in financial or personal gain
Can be committed by one or more individuals
What are the three reasons someone commits fraud? - Referred to as the Fraud
Triangle
Pressure
Opportunity
Rationalization
Tax avoidance vs tax evasion - Tax avoidance uses legal practices to reduce taxes
owed
Tax evasion uses illegal practices to evade paying taxes owed
Tax evasion includes hiding taxable assets from the authorities
Panama Papers (Case example) - A classic example of the use of shell companies to
conceal customer wealth
Millions of secret documents were leaked to the press
Over 200,000 shell companies set up by law firm in Panama
, What is a negative impact of financial crime? - Financial crime jeopardizes the
soundness of financial institutions
What is the primary purpose of money laundering? - To make criminally derived
property or funds appear to be legitimate
What is a feature of terrorist financing - The money is not necessarily derived from illicit
proceeds
What is a red flag of fraud? - A sense of urgency and pressure to act immediately is a
common red flag of fraud.
True or False: Some industries are at higher risk for bribery than others, especially
those in which commercial success is driven by getting approval, authority, or contracts
from government entities. - True
What is sign of a jurisdiction that facilitates tax evasion? - They levy low or minimal
taxation on the income of non-residents, and provide tax advantages to non-residents
What is an example of higher risk? - Customer: Non-resident, complex owner
Jurisdiction: Low regulation, tax haven
Product: Prepaid card, private banking
Channel: No direct relationship with customer
Politically Exposed Person (PEP) - According to FATF's revised 40 Recommendations
of 2012, a PEP is an individual who has been entrusted with prominent public functions
in a foreign country, such as a head of state, senior politician, senior government
official, judicial or military official, senior executive of a state-owned corporation or
important political party official, as well as their families and close associates. The term
PEP does not extend to middle- ranking individuals in the specified categories. Various
country regulations will define the term PEP, which may include domestic as well as
foreign persons.
Beneficial ownership - Person(s) having ultimate control over an account, through
ownership or other means
Account name might not be controller name
Regulation requires knowing beneficial owner(s)
Percentage of control - Jurisdiction sets threshold (often 25%)
Your organization sets threshold
Beneficial owner is natural or legal
Ultimate beneficial owner is always natural person
What are the Two types of beneficial owner - Those with "ownership" and those with
"control"
Owner owns 25% or more of equity interests of a legal person
2025/2026
Three stages of Money Laundering - 1. Placement
2. Layering
3. Integration
What is placement? - Putting "dirty money" into the financial system
What is Layering? - Concealing the origin of the "dirty money"
What is integration? - Using the "dirty money" in the legitimate economy
Terrorist Financing - Terrorist financing (proceeds for crime)
provides funds for terrorist activity.
Can be legal and/or illegal activity
Sanctions - Foreign policy and security tool
Target individuals, organizations, jurisdictions, vessels
Main types: Financial, economic, trade
What are the features of fraud? - An intentional act of criminal deception in order to
obtain an unjust advantage
Results in financial or personal gain
Can be committed by one or more individuals
What are the three reasons someone commits fraud? - Referred to as the Fraud
Triangle
Pressure
Opportunity
Rationalization
Tax avoidance vs tax evasion - Tax avoidance uses legal practices to reduce taxes
owed
Tax evasion uses illegal practices to evade paying taxes owed
Tax evasion includes hiding taxable assets from the authorities
Panama Papers (Case example) - A classic example of the use of shell companies to
conceal customer wealth
Millions of secret documents were leaked to the press
Over 200,000 shell companies set up by law firm in Panama
, What is a negative impact of financial crime? - Financial crime jeopardizes the
soundness of financial institutions
What is the primary purpose of money laundering? - To make criminally derived
property or funds appear to be legitimate
What is a feature of terrorist financing - The money is not necessarily derived from illicit
proceeds
What is a red flag of fraud? - A sense of urgency and pressure to act immediately is a
common red flag of fraud.
True or False: Some industries are at higher risk for bribery than others, especially
those in which commercial success is driven by getting approval, authority, or contracts
from government entities. - True
What is sign of a jurisdiction that facilitates tax evasion? - They levy low or minimal
taxation on the income of non-residents, and provide tax advantages to non-residents
What is an example of higher risk? - Customer: Non-resident, complex owner
Jurisdiction: Low regulation, tax haven
Product: Prepaid card, private banking
Channel: No direct relationship with customer
Politically Exposed Person (PEP) - According to FATF's revised 40 Recommendations
of 2012, a PEP is an individual who has been entrusted with prominent public functions
in a foreign country, such as a head of state, senior politician, senior government
official, judicial or military official, senior executive of a state-owned corporation or
important political party official, as well as their families and close associates. The term
PEP does not extend to middle- ranking individuals in the specified categories. Various
country regulations will define the term PEP, which may include domestic as well as
foreign persons.
Beneficial ownership - Person(s) having ultimate control over an account, through
ownership or other means
Account name might not be controller name
Regulation requires knowing beneficial owner(s)
Percentage of control - Jurisdiction sets threshold (often 25%)
Your organization sets threshold
Beneficial owner is natural or legal
Ultimate beneficial owner is always natural person
What are the Two types of beneficial owner - Those with "ownership" and those with
"control"
Owner owns 25% or more of equity interests of a legal person
