BACKGROUND

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Introduction


This training module has been designed to help you understand the processes needed to properly assess money laundering and terrorist financing risk on a country-by-country basis, including risks arising from Sanctions, Bribery and Corruption, Human Trafficking, Industry, and the issues concerning competent authorities rendered ineffective either as a result of inadequate legal framework, inadequate resources or inadequate political will to enforce measures in place




Background


The global extent of money laundering is huge, with the value of money laundered globally each year estimated to be up to US$2 trillion. OECD has reported that up to 5% of some countries Gross Domestic Product is the result of money laundering.

With the introduction of the Risk Based Approach as the overriding principle in the fight against financial crime, country risk has been identified as being one of the most important risk factors to consider when assessing the financial crime risk of any customer. It is an integral part of any customer due diligence and risk assessment process.

However, Country/Geographical anti-money laundering risk is an ever-changing landscape. Jurisdictions are placed on high-risk lists; jurisdictions are taken off high-risk lists. Economies boom; economies crash. Governments are ousted; new ones take their place. Sanctions are imposed; sanctions are revoked. New criminal trends appear.

Although there is no universally agreed definition by either competent authorities or financial institutions that prescribes whether a particular country or geographic area (including the country within which the institution operates) represents a higher risk, there are generally a number of risk factors that have to be taken into consideration when assessing country risk ranging from whether the country is on the FATF AML Deficiency list to the level of political stability and rule of law within the country.

At the time of any risk assessment, the following criterium relating to jurisdictional risk should be determined: -

  • The customer's domicile and/or tax residency

  • The customer's nationality

  • The customer's principal countries of economic activity

Therefore, it is essential that Financial Service Providers, on a customer-by-customer basis, identify, understand and assess the money laundering issues posed by the geographical location of that customer, their business, and the entry/exit point of any international transaction undertaken in the course of the customer’s business, in order to ensure that they are aware of the implications of any risks posed and, therefore, are able to mitigate against those risks.