Preventing Money Laundering and Terrorist Financing in Financial Institutions

Introduction

Financial institutions play a crucial role in preventing money laundering (ML) and terrorist financing (TF). To achieve this, they must implement robust risk management guidelines to identify, assess, and mitigate ML/TF risks. In this article, we will break down the key components of these guidelines into three main sections: Risk Identification, Risk Assessment, and Risk Mitigation.

Risk Identification

Identifying ML/FT risks is essential in preventing financial crimes. A financial institution must comprehensively evaluate risks associated with:

• Products and services offered
• Transaction types
• Countries and geographic areas of transactions
• Customer attributes

Key Activities

• Involve the Board in the risk identification process
• Obtain approval from the Board for documenting results

Risk Assessment

A firm-wide risk assessment is necessary to visualize ML/FT risks. This involves breaking down risks into smaller categories, assessing risks for each category, and combining results.

Key Activities

• Break down risks by product, transaction type, country, customer attribute
• Assess risks for each category
• Visualize the risk map in a timely manner

Risk Mitigation

Implementing measures to mitigate identified ML/FT risks is critical. This involves:

• Customer Due Diligence (CDD): identification and assessment of ML/TF risks
• Reviewing information about customers and transactions
• Determining necessary mitigation measures

Key Considerations

• Enhanced mitigation measures for high-risk customers and transactions
• Simplified measures for lower-risk customers and transactions