ACFE CFE - Law Exam Dumps & Practice Test Questions

Question 1:

Greta has been found guilty of committing a white-collar crime. However, instead of serving time in prison, the court suspends her sentence, allowing her to remain in the community under the condition that she maintains lawful behavior. 

What is the most appropriate legal term for the sentence she received?

A. Determinate sentence
B. Probation
C. Indeterminate sentence
D. Deferred prosecution agreement

Correct Answer: B

Explanation:

The sentence Greta received aligns with probation, which is a type of criminal sentence allowing the convicted individual to remain in the community under supervision instead of being incarcerated, provided they adhere to certain conditions. Probation is often applied in non-violent or white-collar crimes, especially when the court believes the offender can be rehabilitated without imprisonment.

Probation is a post-conviction alternative that usually comes with specific requirements, such as reporting regularly to a probation officer, avoiding new criminal activity, performing community service, or attending counseling. If Greta fails to comply with these terms, the judge can revoke the probation and enforce the original jail sentence. This distinguishes probation from other legal mechanisms that might occur before a conviction.

Let’s consider why the other options are incorrect:

• A. Determinate sentence refers to a fixed-term sentence (e.g., “exactly 3 years in prison”), typically with little or no flexibility. Unlike Greta’s situation, a determinate sentence involves active incarceration and is not conditional on the defendant’s behavior outside prison.

• C. Indeterminate sentence involves a sentencing range (e.g., “5 to 10 years”), where parole boards later decide when the individual is eligible for release. While more flexible than a determinate sentence, it still involves incarceration and does not resemble the suspended sentence Greta received.

• D. Deferred Prosecution Agreement (DPA) is used before conviction. It’s an arrangement where the prosecutor agrees to delay filing charges or drop them entirely if the defendant meets certain conditions (e.g., paying fines or cooperating with investigations). In Greta’s case, she has already been convicted, so a DPA does not apply.
  In summary, probation is the only term that accurately captures Greta’s legal situation: she has been convicted, but instead of being incarcerated, she is allowed to stay in the community under court-ordered supervision with the understanding that any misconduct may trigger full enforcement of her original sentence.

Question 2:

Bob receives a confidential memo from his attorney that is protected under legal professional privilege. Later, Bob forwards this document to an unrelated third party who has no need to know its contents. 

Which of the following best describes the legal implications of Bob’s action?

A. Bob may have waived the privilege by sharing the document with someone who had no right to access the information.
B. Bob may have waived the privilege because the document was sent using email.
C. Bob did not waive the privilege because the attorney, not the client, owns the legal privilege.
D. Bob did not waive the privilege because sending the document to a third party does not affect the confidentiality of the information.

Correct Answer: A

Explanation:

Legal professional privilege, commonly known as attorney-client privilege, protects communications between a client and their attorney that are intended to be confidential and are made for the purpose of seeking or giving legal advice. This privilege ensures open, honest communication between clients and their legal counsel without fear of disclosure.

However, this privilege is not absolute—and one of the most common ways it can be lost is through waiver, particularly by disclosing privileged information to a third party who is not part of the legal team and has no legitimate reason to see the communication.

In Bob’s case, by voluntarily forwarding the confidential legal memorandum to someone outside the attorney-client relationship who has no legitimate reason to receive it, he risks being seen by the court as having waived the privilege. This is true regardless of whether Bob intended to waive it; courts focus on whether the client took reasonable steps to preserve confidentiality. Voluntary disclosure to a non-privileged third party generally undermines the confidential nature of the communication, nullifying the protection.

Now, let’s consider the incorrect options:

• B. The fact that Bob used email does not by itself constitute a waiver. Courts today recognize email as a valid and standard mode of legal communication, assuming that reasonable precautions (e.g., encryption, secure systems) are in place.

• C. Legal professional privilege belongs to the client, not the lawyer. Bob, as the client, holds the power to assert or waive this privilege. So if Bob shares privileged content, the waiver is on him—not his lawyer.

• D. Privilege can absolutely be waived by disclosing protected communications to unauthorized individuals. Confidentiality is essential to maintaining privilege, and voluntary exposure to outsiders strips that protection.

In summary, by sharing a legally privileged memo with an unrelated third party, Bob may have inadvertently waived that privilege—making the document admissible in future legal proceedings. Therefore, option A is the most accurate statement.

Question 3:

Following the conclusion of a civil court case, the judge orders the defendant to pay the plaintiff a substantial financial amount to make up for the harm caused. 

What is the most precise term for this type of legal compensation?

A. Declaratory relief
B. Equitable relief
C. Damages
D. Injunction

Correct Answer: C

Explanation:

When a civil court mandates one party to pay another to compensate for losses, the legal term used for this form of remedy is damages. In civil law, damages refer specifically to monetary compensation that a court awards a plaintiff who has suffered harm due to the actions or negligence of the defendant.

There are different types of damages. The most common form is compensatory damages, which aim to financially restore the plaintiff to the position they would have been in had the wrongdoing not occurred. This includes compensation for tangible losses like medical bills, lost income, or property damage, as well as intangible harms such as emotional distress. In some cases, the court may also award punitive damages, which are intended not to compensate but to punish the defendant for particularly egregious or malicious conduct and deter similar behavior in the future.

Option A, declaratory relief, refers to a court judgment that defines the legal relationship between parties without ordering any specific action or awarding financial compensation. For instance, a court might declare the terms of a contract or determine the legality of a specific action. Since this relief does not involve financial payment or restitution, it does not apply to the scenario.

Option B, equitable relief, involves court-ordered actions rather than monetary awards. This includes remedies such as specific performance (forcing a party to fulfill contractual duties) or rescission (canceling a contract). Equitable relief is used when money alone is insufficient to correct a wrong. In this case, where the court orders financial compensation, equitable relief is not relevant.

Option D, injunction, is a form of equitable relief where a party is ordered to do or stop doing something. It is preventive and usually used in cases involving ongoing or threatened harm. An injunction does not involve paying money for past harm, so it doesn’t fit the context.

In conclusion, since the remedy involves financial compensation for harm suffered, damages is the most accurate and legally precise term.

Question 4:

Which of the following best explains what constitutes a suitability violation by a broker-dealer when making investment recommendations to clients?

A. A suitability violation occurs when a broker suggests an investment or strategy that does not align with the client’s financial goals.
B. A suitability violation occurs when a broker fails to execute a trade that the client has requested.
C. A suitability violation occurs when a broker performs excessive trading solely to generate commissions.
D. A suitability violation occurs when a broker trades in a client’s account without obtaining consent beforehand.

Correct Answer: A

Explanation:

A suitability violation takes place when a broker-dealer recommends an investment or strategy that doesn’t align with a client's unique financial profile or goals. According to FINRA Rule 2111, brokers must ensure that any recommendation is suitable based on the client’s investment objectives, risk tolerance, financial situation, experience, time horizon, and other personal factors. This rule applies not only to the recommendation of a specific security but also to broader investment strategies.

Before making any recommendation, the broker has a duty to perform due diligence and collect the necessary information about the client to determine if the suggestion is appropriate. If a broker recommends high-risk assets to a conservative investor or suggests an investment that contradicts the client’s stated goals (like recommending speculative stocks for someone needing income stability), it would be a clear suitability violation.

Option B, failing to execute a trade requested by the client, would more appropriately be classified as a failure of duty or breach of contract, not a suitability violation. It doesn’t concern whether the recommendation aligns with the client’s profile—it relates to carrying out client instructions.

Option C refers to churning, which involves excessive and unnecessary trading in an account to generate commissions. While this behavior can sometimes intersect with suitability concerns, churning is considered a distinct form of fraudulent practice and misconduct, often involving abuse of discretionary authority.

Option D relates to unauthorized trading, where a broker places trades in a client’s account without obtaining prior approval or having discretionary authority. This is a serious violation of trust and regulation, but again, it falls under a different rule category than suitability.

To summarize, the essence of a suitability violation lies in the mismatch between what is recommended and what is appropriate for the client’s financial situation and investment profile. Brokers are expected to prioritize client needs over personal gain or convenience, and failure to do so compromises the integrity of financial advising.

Question 5:

Which of the following transactions is most likely to require a government report under Financial Action Task Force (FATF) guidelines on large cash transactions?

A. Buying jewelry with a credit card that exceeds the jurisdiction’s reporting threshold
B. Making a single cash deposit into a bank that exceeds the designated threshold
C. Purchasing a small boat internationally with cash, but the amount is below the threshold
D. Paying a restaurant supplier in cash above the reporting threshold

Correct Answer: B

Explanation:

The Financial Action Task Force (FATF) sets global standards to combat money laundering and the financing of terrorism. Among its key recommendations is the requirement for financial institutions and certain businesses to monitor and report large cash transactions to relevant national authorities. These reports are essential for detecting illicit activity that may be concealed using large sums of physical currency.

Option B refers to a lump-sum cash deposit at a bank exceeding the reporting threshold established in that jurisdiction. This is precisely the type of transaction FATF recommendations target for reporting. Most countries, in line with FATF guidance, have a legally defined cash transaction threshold (commonly around USD 10,000 or local currency equivalent). Banks and financial institutions are mandated to submit a Currency Transaction Report (CTR) to their Financial Intelligence Unit (FIU) whenever a deposit exceeds this limit. This action serves as a frontline measure against the placement stage of money laundering, where illicit cash is first introduced into the financial system.

Option A is a credit card purchase, which doesn’t involve physical cash. Because electronic transactions are traceable and processed through regulated financial institutions, they do not trigger FATF’s cash transaction reporting requirements. The purpose of these requirements is to catch the use of anonymous cash, not monitored card payments.

Option C describes a cash payment that is below the designated threshold. Even though it’s a lump-sum transaction involving physical cash, FATF guidelines apply only when the cash transaction surpasses the threshold. Unless the transaction is structured to avoid detection (i.e., smurfing), it would not require a mandatory report.

Option D, while involving cash above the threshold, refers to a payment to a restaurant supplier, a category that may not be covered unless the supplier falls under Designated Non-Financial Businesses and Professions (DNFBPs) such as real estate agents, jewelers, or casinos. Unless explicitly regulated under national laws, such a supplier may not be required to file reports, making this scenario less universally applicable than a bank transaction.

In summary, Option B best reflects FATF’s focus on reporting large cash deposits into financial institutions, which are high-risk for laundering schemes and are universally covered under FATF-compliant regulations.

Question 6:

Which judicial structure best fits the characteristics of a civil law legal system?

A. Courts primarily use prior decisions as binding precedent to resolve legal issues
B. Courts are obligated to follow both written statutes and previous judicial rulings
C. Courts may consider laws and past rulings but are not legally required to follow either
D. Courts apply codified statutes and are not required to follow past court decisions

Correct Answer: D

Explanation:

A civil law legal system is one of the primary legal traditions worldwide and differs significantly from the common law system. Civil law is characterized by the dominance of codified statutes and legislative authority, with much less emphasis placed on judicial precedent. Countries like France, Germany, Spain, Japan, and most of Latin America follow this tradition.

In Option D, the description is accurate: courts are bound by codified principles or statutes but not by past judicial decisions. In a civil law system, the legislature holds the primary law-making authority, and judges are tasked with applying these written laws to individual cases. While previous rulings might provide persuasive value or serve as practical guides, they are not binding precedents that judges must follow. This differs from the doctrine of stare decisis found in common law, which mandates consistency with past decisions.

Option A describes a key feature of common law systems, where courts are bound by previous decisions. This creates a body of case law that evolves over time and binds future courts to established legal interpretations. It is the dominant system in countries such as the United Kingdom, the United States, and other former British colonies.

Option B portrays a hybrid system, suggesting that courts are equally bound by statutes and judicial precedent. While some jurisdictions (like Canada or South Africa) may blend elements of civil and common law, this is not representative of a pure civil law system.

Option C implies that courts are entirely discretionary, with no binding obligation to follow statutes or precedent. Such a system would lack legal predictability and is not representative of either major legal tradition. Civil law courts are certainly bound by statutes — this is the foundation of the system.

To summarize, the defining feature of a civil law system is the supremacy of codified legal texts, and the courts’ responsibility is to apply these texts — not to interpret them through judicial precedent. Therefore, Option D best captures the essence of a civil law tradition.

Question 7:

Which situation best demonstrates how international trade can be exploited to conceal or move illicit funds?

A. An accountant inflates a restaurant’s earnings to mix illegal cash with legitimate income.
B. A drug syndicate launders money by making multiple small bank deposits across different U.S. cities.
C. An exporter and importer collaborate to misrepresent the quantity of goods in cross-border shipments.
D. A person transfers illegal funds to a company they control and later receives them back as a loan.

Correct Answer: C

Explanation:

Trade-Based Money Laundering (TBML) is a complex form of money laundering that uses international trade as a vehicle to disguise the origins and movement of illegally acquired money. It often involves the deliberate misrepresentation of trade documents—such as invoices and shipping declarations—to create a façade of legitimate commerce. TBML schemes can be difficult to detect due to the intricate nature of global trade and the involvement of multiple jurisdictions.

Option C accurately illustrates a TBML scenario. In this case, the exporter and importer collude to understate the quantity of goods shipped. This technique, known as under-invoicing, allows the transfer of value that goes unrecorded in the official documentation. Essentially, fewer goods are reported than are actually delivered, which facilitates the illegal movement of money across borders under the guise of a trade transaction. This manipulation creates discrepancies between what is recorded and what is actually exchanged, a hallmark of TBML.

Option A describes a method where illicit funds are blended into legitimate business earnings, often referred to as front business laundering. While it is a recognized money laundering method, it does not involve international trade and falls outside the scope of TBML.

Option B refers to a method called smurfing, where a large amount of illicit cash is broken into smaller transactions to avoid detection and regulatory thresholds. This is a common structuring technique, but it is not related to trade or falsified shipping documentation.

Option D involves a loan-back scheme, where illicit funds are deposited into a business secretly owned by the launderer, and the funds are later returned as a loan. This method disguises illegal money as loan proceeds, but like the others, it is unrelated to the manipulation of international trade.

In summary, only Option C involves the use of falsified trade documents to mask the flow of illicit funds through international transactions—making it the clearest example of trade-based money laundering.

Question 8:

In a jurisdiction where workplace laws protect employee privacy in areas with a reasonable expectation of confidentiality, in which scenario is an employee most likely entitled to that privacy?

A. A cabinet located in a shared office reception area
B. A trash bin within the employee's private workspace
C. A tablet computer provided by the employer
D. A backpack personally owned and brought from home

Correct Answer: D

Explanation:

Employee privacy rights in the workplace depend heavily on the jurisdiction, but a common principle across many legal systems is that employees are entitled to privacy in areas or with items where they have a reasonable expectation of confidentiality. Determining this expectation typically involves examining who owns the item, who controls access, and whether a workplace policy explicitly allows or prohibits inspection.

Option D represents the clearest example of such a protected space. A backpack brought from home is a personally owned item, and courts in many jurisdictions recognize that individuals maintain a strong expectation of privacy in their personal belongings, even when those belongings are brought into the workplace. Unless there is clear policy, consent, or legal cause, searching an employee’s personal backpack could constitute an unreasonable search, making it legally questionable or outright unlawful in privacy-protective regions.

Option A, a filing cabinet in a public or shared area like the office lobby, is usually considered company property and is often accessible to multiple people. As such, there is little to no reasonable expectation of privacy, especially when the contents relate to shared or business records.

Option B, a waste bin in the employee’s office, may seem personal due to its proximity, but workplace trash is usually regarded as company-owned and subject to inspection. Employers often monitor trash for compliance or cleanliness, and courts tend to uphold that employees should not expect privacy in disposed items at work.

Option C, a company-issued tablet, belongs to the employer, and usage is typically governed by internal policies. Employers often retain rights to inspect, monitor, or track use on such devices. Even if the tablet is used by a single employee, the fact that it is company property significantly reduces any reasonable expectation of privacy.

Therefore, the only option that provides a legally defensible and reasonable expectation of privacy under common workplace laws is Option D, the employee’s personal backpack.

Question 9:

What would be the clearest form of evidence showing that a former cashier at a home improvement store stole over $5,000 through a cash larceny scheme?

A. A witness reports seeing the defendant take the money
B. A store map is used to illustrate the register locations
C. A witness claims the defendant was frequently the last cashier to leave
D. A coworker says the defendant acted nervously on the day of the theft

Correct Answer: A

Explanation:

In legal investigations, especially involving criminal activities like cash larceny, evidence can be either direct or circumstantial. Understanding the distinction is essential for evaluating the strength of a claim.

Direct evidence proves a fact explicitly and does not require the court to infer or interpret anything beyond what the evidence plainly shows. Examples include eyewitness testimony, audio/video recordings, or signed confessions. Such evidence directly ties a suspect to an act or event, and if credible and admissible, it is usually considered the strongest form of proof.

Option A, where a witness claims to have actually seen the defendant take the money, constitutes direct evidence. The testimony provides a firsthand account of the theft, requiring no speculation or assumption to link the suspect to the act. If believed, it directly confirms the cashier’s involvement in the crime.

Option B, a diagram of register locations, is not evidence of the act itself. While it may provide useful context to understand the store layout or support a narrative, it doesn’t implicate anyone or establish what actually occurred. It is supportive, not incriminating on its own.

Option C describes the defendant frequently being the last to leave. This is circumstantial evidence—it suggests the individual had opportunity but doesn’t confirm wrongdoing. Courts would need to infer from this pattern of behavior that it’s somehow linked to the theft, which leaves room for alternative explanations.

Option D, about the defendant acting nervously, is also circumstantial. While nervousness may raise suspicion, it is not definitive proof of guilt. People can appear anxious for many unrelated reasons, especially under stress or scrutiny.

Therefore, only Option A qualifies as clear, direct evidence. The other options require assumptions and do not offer undeniable linkage between the defendant and the stolen funds. In criminal law, direct eyewitness testimony can play a pivotal role in establishing guilt when properly vetted.

Question 10:

Frederick owns several foreign bank accounts and knowingly avoids reporting them to evade taxation, as required by his country's laws.

What category of tax evasion best describes Frederick’s behavior?

A. Tax credit evasion
B. Income and wealth tax evasion
C. Excise tax evasion
D. Value-added tax (VAT) evasion

Correct Answer: B

Explanation:

Frederick’s deliberate failure to report foreign bank accounts constitutes a classic case of income and wealth tax evasion. This type of evasion involves concealing income, financial assets, or holdings from tax authorities to reduce or avoid tax obligations on personal earnings or accumulated wealth.

Income and wealth taxes are levied based on an individual’s income streams and total assets. Many countries require residents to disclose foreign bank accounts, not just for transparency, but to calculate the tax owed on interest, dividends, or capital gains generated abroad. By withholding this information, Frederick is misrepresenting his financial position—an intentional act meant to avoid paying what he legally owes. Such conduct is fraudulent and typically involves willful deception, a core element in criminal tax violations.

Option A, tax credit evasion, applies when a taxpayer fraudulently claims benefits or deductions they are not eligible for. Examples include falsely claiming education or energy tax credits. Frederick is not doing this—he’s hiding income, not misreporting eligibility for a credit.

Option C, excise tax evasion, concerns taxes imposed on specific goods and services, like alcohol, fuel, or tobacco. These taxes are generally paid by producers, importers, or retailers. Evading them often involves smuggling or false reporting during goods distribution—not personal asset concealment, making this inapplicable to Frederick’s situation.

Option D, value-added tax (VAT) evasion, is typically relevant to businesses and involves falsifying sales or purchase invoices to minimize VAT payments. Since Frederick’s actions are not related to any commercial enterprise or invoice manipulation, this doesn’t fit.

Ultimately, Frederick’s actions show a clear intention to avoid taxes through the nondisclosure of income and financial holdings, which is why Option B, income and wealth tax evasion, is the most accurate classification. It highlights the critical issue of financial transparency, which is at the heart of fair tax systems and regulatory enforcement worldwide.