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Money Laundering: Developing a risk-based framework by Sharmini Rampersaud

Sharmini Rampersaud, AICA.

A risk- based approach has an important role in financial institutions in relation to Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT). Bank of Guyana (BOG) Supervision Guideline 13 states, “ the FATF (Financial Action Task Force) in its revised forty recommendations plus nine special recommendations on AML/CFT recommended that financial institutions adopt a risk-based approach to customer due diligence.”

Taking a risk- based approach will enable financial institutions to determine the correct, “level of information and documentation required to verify a customer’s identify based on the nature and degree of risk inherent in the customer relationship.”(BOG Supervision Guideline 13, 2013)

According to BOG Supervision Guideline 13, “the risk rating framework should include at a minimum:

a)    segregation of client relationships by risk categories (such as high, moderate or low);

b)   differentiation of client relationships by risk factors ( such as products, client type/profession, country of domicile, complexity of ownership and legal structure, source of business, type of assets, size, type and volume of transactions, and conformity to client activity profile);

c)    the Know Your Customer (KYC) documentation and due diligence information requirements appropriate for each risk category and risk factor; and

d)   a process for the approval of the downgrading/upgrading of customer risk rating.”(BOG Supervision Guideline 13)

Such framework has to be built to enable adjustment of the customer’s risk rating when reviewed by financial institutions. Emphasis has to be placed on high risk customers to have their relationship reviewed frequently unlike other customers, and when the need arises to have Senior Management or Board of Directors decide if such relationship be discontinued. The decision to discontinue a relationship should be documented. For instance, customer A walks into the bank. The customer has to provide the necessary documents needed. At the same time the risk assessment will be carried out after which customer A will be risk rated.

In conclusion, all financial institutions should have a risk- based framework. In addition, the risk-based framework has to be approved by the Board of Directors. The Supervisory Authority will examine the framework.

Sharmini Rampersaud, AICA hopes to enlighten readers about money laundering especially in Guyana.  Feel free to send her feedback at [email protected] gmail.com

  • rs dasai

    Elementary but relevant. Collusion trumps all