Implementation Issues

National Money Laundering and Terrorist Financing Risk Assessments

FATF recommendation 1 provides as follows:

Countries should identify, assess, and understand the money laundering and terrorist financing risks for the country, and should take action, including designating an authority or mechanism to coordinate actions to assess risks, and apply resources, aimed at ensuring the risks are mitigated effectively. Based on that assessment, countries should apply a risk-based approach (RBA) to ensure that measures to prevent or mitigate money laundering and terrorist financing are commensurate with the risks identified. This approach should be an essential foundation to efficient allocation of resources across the anti-money laundering and countering the financing of terrorism (AML/CFT) regime and the implementation of risk-based measures throughout the FATF Recommendations. Where countries identify higher risks, they should ensure that their AML/CFT regime adequately addresses such risks. Where countries identify lower risks, they may decide to allow simplified measures for some of the FATF Recommendations under certain conditions. Countries should require financial institutions and designated non-financial businesses and professions (DNFBPs) to identify, assess and take effective action to mitigate their money laundering and terrorist financing risks.

Identifying, assessing, and understanding ML/TF risks is an essential part of the implementation and development of a national AML/CFT system, which includes laws, regulations, enforcement and other measures to mitigate ML/TF risks. It assists in the prioritisation and efficient allocation of resources by authorities.

The results of a national risk assessment, whatever its scope, can also provide useful information to financial institutions and designated non-financial businesses and professions (DNFBPs) to support the conduct of their own risk assessments. Once ML/TF risks are properly understood, country authorities may apply AML/CFT measures in a way that ensures they are commensurate with those risks –i.e,.the risk-based approach (RBA)–which is central to the FATF standards as is set out in Recommendation 1, its interpretive note (INR 1), as well as in other Recommendations (e.g., Recommendations 10, 26 and 28).