Risk Assessment Process for Money Laundering/Terrorist Financing

Overview

The following article outlines a comprehensive risk assessment process for Money Laundering/Terrorist Financing (ML/TF) risk, based on Hansson and Aven’s risk assessment and management model.

Key Stages of the Risk Assessment Process

1. Identification

• Gather evidence and information to develop an inventory of potential ML/TF risk factors.
• This stage is crucial in identifying the risks that need to be assessed further.

2. Analysis

• Examine the risks identified in the first stage to gain a deeper understanding of their likelihood and consequences.
• This stage helps to prioritize the risks and allocate resources accordingly.

3. Evaluation

• Make decisions on the type and level of measures and priority that will be appropriate to prevent or reduce such risk.
• This stage involves selecting the most effective strategies to mitigate ML/TF risk.

Supporting the Risk Assessment Process

The following elements are essential in supporting this process:

• Appropriate and reliable evidence (fact-based): Use credible sources of information to inform decision-making.
• Experts: Employ individuals with expertise in understanding and interpreting the relevant data and evidence.
• Value-based information: Consider reputational implications or impact on other public policies when making decisions.

Sources of Information for Identifying ML/TF Risk

When identifying ML/TF risk, consider the following sources of information:

1. Relevant Standards

• Understand the requirements of international standards, such as:
  • Revised FATF Recommendations
  • IAIS standards on AML/CFT

2. Global Perspective on AML/CFT

• Review international best practices, guidance, typologies, trends, and mutual evaluation reports from organizations like:
  • World Bank
  • IMF
  • MONEYVAL
  • Academic research