AML controls should be measured for effectiveness using quantifiable metrics.
Option D (Correct): The true positive/false positive ratio assesses the efficiency of AML detection.
Option A (Incorrect): The number of alerts alone does not measure effectiveness, as many could be false positives.
Option B (Incorrect): Client exits do not indicate whether an AML program is working properly.
Option C (Incorrect): High-risk customer onboarding must be monitored, but it does not indicate AML effectiveness.

According to the Wolfsberg Principles on Correspondent Banking1, an institution should consider the following three elements in its enhanced due diligence process for higher risk respondent bank customers:
The quality of the respondent's AML and client identification controls: The correspondent should assess the adequacy and effectiveness of the respondent's AML policies, procedures, and systems, as well as its compliance with applicable AML laws and regulations. The correspondent should also verify that the respondent has implemented appropriate customer identification and verification measures, and that it maintains sufficient records of its customers and transactions.
A risk-based determination as to whether or not the respondent is a shell bank: The correspondent should ensure that the respondent is not a shell bank, which is defined as a bank that has no physical presence in any country and is not affiliated with a regulated financial group. The correspondent should also avoid establishing or maintaining relationships with banks that are known to allow their accounts to be used by shell banks.
Whether a Politically Exposed Person (PEP) has an interest or management role in the respondent: The correspondent should identify and assess the potential risks associated with any PEPs who have an ownership or management interest in the respondent, or who are customers of the respondent. The correspondent should apply enhanced scrutiny and monitoring to such relationships, and obtain senior management approval before establishing or continuing them.
Reference:
Wolfsberg Correspondent Banking Principles 2022 by the Wolfsberg Group, October 2022.

According to the Financial Action Task Force (FATF), a country's financial intelligence unit (FIU) plays a key role in safeguarding against money laundering and terrorist financing. One of the main functions of an FIU is to receive, analyze, and disseminate suspicious activity reports (SARs) submitted by financial institutions and other obligated entities. By analyzing SARs, an FIU can identify trends, patterns, and other intelligence related to money laundering and terrorist financing, which can assist in the pursuit of criminal activity. While an FIU may also generate currency transaction reports (CTRs) or other types of financial reports, these functions are not specific to safeguarding against money laundering and terrorist financing. Similarly, while monitoring monthly public statistics on the economy may be an important aspect of macroeconomic analysis, it is not a specific role of an FIU in safeguarding against money laundering and terrorist financing.

According to the Anti-Money Laundering Specialist (the 6th edition) resources, electronic funds transfers (EFTs) are transactions that involve the movement of funds electronically from one account to another, either within the same financial institution or across different institutions, domestically or internationally1. EFTs can be used for legitimate purposes, such as facilitating trade, commerce, and remittances, but they can also be exploited by money launderers to conceal the origin, ownership, and destination of illicit funds2. Some of the indicators of money laundering associated with using EFTs are:
Funds transfers to or from a financial secrecy haven without an apparent business reason. Financial secrecy havens are jurisdictions that offer a high degree of banking secrecy, low or no taxes, lax regulation and supervision, and weak or non-existent anti-money laundering and counter-terrorist financing (AML/CTF) measures3. Money launderers may use these havens to hide their illicit funds, evade taxes, and avoid scrutiny from authorities. Funds transfers to or from these havens without a clear or plausible explanation may indicate an attempt to launder money or finance terrorism.
Funds transfers are received or sent from the same person to or from different accounts. This may indicate a layering technique, which is the process of moving funds through multiple accounts, institutions, or jurisdictions to obscure the audit trail and the source and ownership of the funds4. Money launderers may use this technique to avoid detection, reporting, or freezing of their funds by authorities or financial institutions.
Payment or receipts with no apparent link to legitimate contracts, goods or services. This may indicate a trade-based money laundering technique, which is the process of using trade transactions to disguise the movement of illicit funds, either by over- or under-invoicing, misrepresenting the quantity or quality of goods, or falsifying documents. Money launderers may use this technique to transfer value across borders, evade taxes or customs duties, or justify the movement of funds that have no legitimate origin or purpose.
The other option is incorrect because:
Regular and frequent transfers from the account of a large company said to be payment for goods bought on credit is not necessarily an indicator of money laundering associated with using EFTs. This may be a normal business practice for some companies that have a high volume of transactions or a long-term relationship with their suppliers or customers. However, this may also be a red flag if the company is not well-known, has no physical presence, has no apparent business activity, or is located in a high-risk jurisdiction. Therefore, this option requires further investigation and verification before concluding that it is an indicator of money laundering.
Reference:
1: ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 104 2: ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 105 3: ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 107 4: ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 106 : ACAMS, CAMS Study Guide, 6th Edition, Chapter 5, p. 108

Money laundering through capital markets often involves pump-and-dump schemes, wash trading, and layering funds through rapid trading activity.
Option A (Correct): A sudden spike in demand for a low-priced security is a red flag for pump-and-dump schemes, where criminals manipulate the market to inflate stock prices artificially before selling off shares for a profit.
Option B (Incorrect): A gradual decline in trading volume and price does not indicate suspicious activity related to money laundering.
Option C (Incorrect): An increase in demand for ETFs is common and not necessarily linked to money laundering.
Option D (Incorrect): Holding securities in one specific emerging market may indicate a geographic investment strategy, not necessarily money laundering.
Common Money Laundering Typologies in Capital Markets:
Pump-and-Dump Schemes - Fraudulently inflating stock prices to cash out illicit funds.
Wash Trading - Conducting self-trades to create an illusion of high market activity.
Layering Funds Through Rapid Trading - Engaging in frequent buy-and-sell orders to obfuscate the origin of funds.
Best Practices for AML in Capital Markets:
Monitor unusual trading volume and price fluctuations.
Use AI-driven surveillance systems to detect manipulative behavior.
Investigate transactions involving offshore brokers or shell entities.
Reference:
FATF Report on Money Laundering in Capital Markets
SEC and FINRA Guidance on Market Manipulation Risks
Wolfsberg Group Principles for Capital Markets AML Compliance