Which statement about AML and CTF compliance is incorrect?

• A. Both AML and CTF aim to detect and prevent illicit financial activity.
• B. AML focuses on detecting money laundering; CTF focuses on financing terrorism.
• C. Both are unrelated to customer due diligence.
• D. Compliance programs for AML/CTF can include transaction monitoring and reporting.

Answer: (C)

Customer due diligence is central to AML and CTF programs. Verifying who a customer is, understanding their risk level, and continuously monitoring their activity lets a financial institution spot suspicious patterns and apply appropriate controls, such as heightened scrutiny for higher-risk customers.

That’s why the statement claiming AML/CTF are unrelated to customer due diligence isn’t correct. Without identifying customers and assessing risk, it’s easy for illicit activity to go undetected, and you wouldn’t know which accounts require closer monitoring or which transactions warrant further investigation.

Both AML and CTF aim to deter illicit financial activity. AML is focused on the money laundering process, while CTF concentrates on preventing funds from flowing to terrorist activities; in practice, programs often address both areas, recognizing their overlap.

Compliance programs for AML/CTF commonly include transaction monitoring and reporting. Automated systems flag unusual patterns, and firms report suspicious activities to regulators, forming a key part of the risk-based approach.