General Securities Representative (Series 7) Practice Exam

What method of payment is often reviewed under anti-money laundering regulations?

1. Credit card transactions

2. Personal checks

3. Open accounts

4. Cash transactions

The correct answer is: Cash transactions

Cash transactions are often reviewed under anti-money laundering regulations due to their potential for facilitating illicit activities. Cash is inherently anonymous, allowing individuals to conduct transactions without a clear paper trail. This makes it easier for those engaged in money laundering to convert illegally obtained funds into legitimate assets. Financial institutions are required to monitor large cash transactions and report suspicious activities to identify and prevent money laundering. Regulators focus on cash because it can be quickly and easily moved, thus presenting a higher risk for money laundering compared to other payment methods. In contrast, credit card transactions, personal checks, and open accounts typically leave a more traceable record of the transaction, making them less attractive for those looking to launder money. This traceability provides financial institutions a clearer way to track the source and movement of funds, which is less prevalent in cash transactions. Therefore, the emphasis on cash transactions in anti-money laundering efforts is rooted in the need to mitigate risk and enhance transparency in financial systems.