Risk Assessment Crucial for Effective Money Laundering and Terrorist Financing Prevention

In an effort to combat money laundering and terrorist financing (ML/TF), obliged entities are required to define and assess risks related to individual groups or types of customers with whom they have entered into business. This is stipulated in Article 18 of the ZPPDFT-2.

The Importance of Obliged Entity’s Risk Assessment (OERA)

According to experts, a crucial tool for this purpose is the Obliged Entity’s Risk Assessment (OERA). The OERA methodology encompasses the entirety of an obliged entity’s operations where it is exposed to ML/TF risks and consists of an assessment of inherent risk and an assessment of the control environment put in place.

Inherent Risk

“Inherent risk” refers to the risk to which the obliged entity is exposed before the control environment has been put in place. This includes:

• Customer risk criteria such as:
  • Customer type or group
  • Customer status
  • Customer activities
  • Customer reputation
  • Customer behavior

Country Risk Criteria

The OERA also takes into account “country risk criteria”, which assesses the extent to which an obliged entity does business with customers that have connections with higher- or lower-risk geographical regions.

The Role of OERA in ML/TF Prevention

“The OERA is a critical tool for senior management in determining whether an effective system of ML/TF risk management has been put in place,” said a financial expert. “It also provides a basis for developing an appropriate strategy to mitigate the identified risks.”

Execution and Responsibility

The preparation of the OERA methodology and its execution actively involve the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) officer, who has the requisite information and professional expertise to assess whether the OERA accords with the nature and scale of the obliged entity’s operations.

Conclusion

In conclusion, a thorough risk assessment is essential for preventing ML/TF and ensuring compliance with regulatory requirements. The OERA provides a framework for obliged entities to identify and mitigate their risks, thereby protecting the financial system from illicit activities.