Financial Crime World

Money Laundering Concerns Highlighted as Financial Institutions Transfer Funds to Other Centres

Risks Associated with Money Laundering and Terrorist Financing (ML/TF)

A recent report by the Reserve Bank of Malawi has highlighted the risks associated with money laundering and terrorist financing (ML/TF) when financial institutions transfer funds to other centres. The guidelines, published in October 2018, emphasize the importance of financial institutions understanding the threats they face and taking steps to mitigate these risks.

Consequences of ML/TF Activities

  • Local businesses may struggle to compete with front companies that offer services at lower rates, distorting currencies and interest rates and causing economic instability.
  • Countries linked to ML/TF activities will suffer from reputation damage, leading to a loss of legitimate investment opportunities and international sanctions.

Understanding Inherent Risks

The guidelines stress the need for financial institutions to develop a thorough understanding of inherent ML/TF risks present in their customer base, products, delivery channels, and services offered. This assessment should be based on:

  • Specific operational and transaction data
  • Internal information collected by the institution
  • External sources such as national risk assessments and country reports from international organizations

Managing Identified Risks

Financial institutions must also identify specific products, services, customers, delivery channels, and geographic locations that pose a ML/TF risk to the institution. To manage these risks, institutions should:

  • Develop policies and procedures for customer acceptance, due diligence, and ongoing monitoring
  • Periodically update their risk assessments to take into account dynamic changes to risk levels

High-Risk Products and Services

The report lists various products and services that may pose a high degree of ML/TF risk, including:

  • Electronic funds payment services
  • Foreign exchange
  • Trade finance
  • Lending activities

Effective Compliance Programs

The Reserve Bank of Malawi’s guidelines aim to ensure that financial institutions have effective compliance programs in place to identify and mitigate ML/TF risks. By doing so, the institution can help protect its reputation, prevent economic instability, and maintain a safe and secure financial system.