Basic AML Interview Question and Answers

Last Updated on Feb 11, 2026, 2k Views

Basic AML Interview Question and answers

✅ 1. What is Money Laundering?

Answer:
Money laundering is the process of disguising illegally obtained funds to make them appear legitimate. It typically involves three stages: placement (introducing illicit funds into the financial system), layering (moving funds to hide their origin), and integration (reintroducing funds as legitimate assets).

✅ 2. What is KYC and why is it important?

Answer:
KYC (Know Your Customer) is the process of verifying a customer’s identity and assessing their risk profile. It helps prevent fraud, money laundering, terrorist financing, and regulatory penalties. Strong KYC ensures institutions understand who their customers are and the nature of their financial activities.

✅ 3. What is the difference between CDD and EDD?

Answer:
Customer Due Diligence (CDD) is the standard verification process for customers.
Enhanced Due Diligence (EDD) applies to high-risk customers such as PEPs or clients from high-risk jurisdictions and involves deeper scrutiny, including source of funds and ongoing monitoring.

✅ 4. What are some red flags of suspicious transactions?

Answer:

Multiple cash deposits just below reporting thresholds (structuring)
Sudden spike in transaction activity
Frequent transfers to high-risk countries
Inconsistent transaction behavior compared to customer profile

Reluctance to provide source of funds

✅ 5. What would you do if you detect suspicious activity?

Answer:
First, I would review the transaction history and customer profile to confirm unusual behavior. Then, I would document findings and escalate the case according to internal procedures. If required, I would prepare a Suspicious Activity Report (SAR) while maintaining confidentiality.

✅ 6. What is a PEP and how should they be handled?

Answer:
A Politically Exposed Person (PEP) is someone who holds a prominent public position and may present higher corruption risk. PEPs require Enhanced Due Diligence, senior management approval, source of wealth verification, and ongoing monitoring.

✅ 7. What is the Risk-Based Approach in AML?

Answer:
The Risk-Based Approach means allocating compliance resources according to the level of risk. High-risk customers receive enhanced monitoring, while low-risk customers undergo standard due diligence. This ensures efficiency and regulatory compliance.

✅ 8. How do you reduce false positives in transaction monitoring?

Answer:

Improve customer risk profiling
Refine alert thresholds
Use better data quality
Apply machine learning models
Continuously tune monitoring scenarios

Reducing false positives improves efficiency without increasing risk exposure.

✅ 9. What is a Suspicious Activity Report (SAR)?

Answer:
A SAR is a confidential report filed with regulatory authorities when suspicious transactions or activities are detected. It includes detailed analysis, customer information, and reasons for suspicion.

✅ 10. Why is AML compliance important for financial institutions?

Answer:
AML compliance protects institutions from regulatory fines, reputational damage, and criminal misuse of services. It ensures legal compliance and protects the integrity of the financial system.

⭐ Scenario-Based Question

If a customer deposits $9,900 multiple times, what would you do?

Answer:
This may indicate structuring to avoid reporting thresholds. I would review the account history, identify patterns, document findings, and escalate the case for further investigation and potential SAR filing.