National AML Risk Assessments - Update & Resources from FCN

All countries are expected to generate a meaningful National AML Risk Assessment. These are useful for the authorities, and the other institutions that use them (eg FIs and DNFBPs), so that all relevant parties understand and mitigate material money laundering risks. ML is a fast moving and adaptive environment with criminals changing methodologies, routes and institutions used to perpetrate and benefit from their crimes. Dedicated TF and PF assessments are also increasingly the expectation.

According to FATF, “Understanding the money laundering and terrorist financing risks is an essential part of developing and implementing a national anti-money laundering / countering the financing of terrorism (AML/CFT) regime.”

“A risk assessment allows countries to identify, assess and understand its money laundering and terrorist financing risks. Once these risks are properly understood, countries can apply AML/CFT measures that correspond to the level of risk, in other words: the risk-based approach (RBA). The risk-based approach, which is central to the FATF Recommendations, enables countries to prioritise their resources and allocate them efficiently.”

NRAs can become outdated or obsolete from year to year. NRAs should be updated as and when necessary and required (as per monitored threats), and not only in preparation for a FATF review.

A tick-box approach to conducting a risk assessment will not necessarily assist a country, organisation or sector to mitigate financial crimes, money laundering, terror financing and proliferation financing risks.

Multiple agencies (with engagement from the private sector including important NGOs and civil society) should be involved in conducting NRAs for the purpose of sharing data, insights and validating statistics on a timely basis.

An NRA should be performed with the intention of providing information for decision making about risk.

Most FATF member countries have undertaken NRAs in the last 5-7 years with different approaches. Some have experienced some challenges in relation to missing underlying data, or the ability to properly scrutinise the methodology used to arrive as a risk rating. There are interpretive challenges relating to risk allocation as well as meanings of “threats or “vulnerabilities” in the context of the NRA. as well as considering cross border crime. The FATF Guidance (see below) is not clear about whether to assess imported and exported money laundering risks), although this is clearly a risk factor that must be considered in order to fully understand ML vulnerabilities and threats.

A World Bank Comparative study (see below) suggested that “An intuitive start for a vulnerability assessment is to assess the strength of the policy framework with critical path analysis. The chain is only as strong as the weakest link. An example of consequential steps in the field of anti-money laundering policy is from investigation via prosecution to conviction. The investigation and prosecution may be successful but are useless when the convictions are hampered by incompetent or corrupt judges. Analysing where the bottleneck is in such systems is a good start for a vulnerability assessment. Other examples of such chains in the field of AML policy are (a) detection of money laundering by banks, which can be rendered useless if the FIU is unable to do its part in processing STRs; or (b) monitoring of customers by banks, which may be hampered by an unreliable identification infrastructure in a country. NRAs set out to answer whether the nation’s government understands how money laundering risks are distributed. Insufficient understanding of money laundering risks makes it challenging for a government to implement an effective risk-based anti-money laundering regime. The World Bank found that “Setting up an international research centre focused on money laundering risk assessment is needed to advance understanding of how to conduct such an assessment well

Ratings for FATF IO1 which includes understanding risks, identifies the UK as the only FATF member country with a High rating for effectiveness (with Bermuda the only other country with a High rating). All other FATF members are rated as Substantially effective, except for Sweden, Austria, Denmark & South Africa which are rated with a Moderate level of effectiveness, (UAE is rated also at moderate) . Only Iceland is rated with a Low level of effectiveness.

That said a number of countries produce very valuable risk assessments and regularly republish, including the USA and the UK. Other notable and highly useful NRAs (according to FCN) include Luxembourg, Norway and Malaysia. A number of countries have very dated NRAs for example Canada (2015) and Singapore (2014) with even some yet to publish, for example Argentina & India, (in progress but not yet published) & South Africa (though a banking sector NRA has been published in July 2022). Whilst Australia hasn’t published a full country AML NRA since 2011, it is as a country probably the most prolific when it comes to assessments targeted at different sectors.

Countries which produce and publish separate standalone NRAs covering terrorism and terror finance and proliferation finance should be commended for example the USA has standalone NRAs for all 3 and the UK a combined AML and CTF NRA and a standalone PF NRA.

The FATF has developed guidance which assists countries in the conduct of risk assessment at the country or national level. The principles described in this guidance are also relevant to more focussed risk assessments, for example of a particular financial sector. Annexes to this document contain additional information relating to money laundering / terrorist financing risk assessments. In addition to the annexes contained in the report itself, the IMF and the World Bank provide the following.

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