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BRIEF

Risk Assessment Support for Money Laundering/Terrorist Financing

February 29, 2016

Why does a country need a national risk assessment for money laundering and terrorist financing?

A framework designed to prevent money laundering and combat terrorist financing is most effective when it targets resources there where they will have most effect. This can be done only through a good analysis and understanding of the money laundering/terrorist financing (ML/TF) risks in the country. 

This approach is in line with the recommendations of the Financial Action Task Force (FATF). FATF recommends that countries identify, assess, and understand the ML/TF risks within their jurisdiction and then take action and apply resources to mitigate such risks, based on a risk-based approach.

The World Bank’s risk assessment support

The World Bank has developed an advisory package to guide countries in conducting their ML/TF risk assessment. This advisory package consists of a risk assessment tool and a systematic and organized process, with the broad participation of public and private sector stakeholders. The development of the tool and the advisory package started in 2007 and incorporates the World Bank’s experience in assisting more than 40 countries in performing their national risk assessments.

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The World Bank facilitates a systematic and multidisciplinary participatory process to help countries perform their own assessment. This way, they can build capacity for the longer term and establish a process for regularly updating their understanding of the country’s risks.

Central to the Risk Assessment advisory package is a methodological tool, developed by the World Bank. It is an Excel-based model that enables countries to identify the main drivers of ML/TF risks. It provides a methodological process, based on the understanding of the causal relations among money laundering risk factors and variables relating to the regulatory, institutional, and economic environment.

The tool comprises several interrelated modules. These are built on “input variables”, which represent factors related to money laundering/terrorist financing threats and vulnerabilities. ‘Threats’ here refer to the scale and characteristics of the proceeds of crime or financing of terrorism in the country. ‘Vulnerabilities’ here refer to weaknesses or gaps in a country’s defenses against money laundering and terrorist financing. Threats or vulnerabilities may exist at national or sector level.

The model is applied as follows. For each theme or sector, a multidisciplinary working group is set up consisting of experienced practitioners from government and, as appropriate, the private sector. Each working group assigns ratings to input variables related to their area of expertise, and justifies those ratings with quantitative and qualitative data. Each input variable has an assigned weight and impact on the vulnerability level of the assessed sector, area or product. The tool generates an overall rating, based on the inputs from the modules. But more importantly, it provides a systematic approach to analyze the country’s ML/TF threats and vulnerabilities.

There is also a separate module for financial inclusion. This uses the outcomes from the national risk assessment to identify areas for appropriate simplification of AML/CFT controls in financial products to facilitate the greater access of underserved populations to financial services.

Figure 1. The structure of the World Bank’s Risk Assessment Tool

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QUICK FACTS 

  • A diagnostic and decision-making tool to inform the design of effective policies and prioritization of potential action.
  • Transparent and user-friendly. All the formulas and built-in calculations can be viewed and followed by users.  
  • Focuses on money laundering risks. There is an additional module for assessing terrorist financing risks.
  • Can be customized to a country’s economic context.  
  • Balances the use of quantitative (data and statistics) and qualitative information (experience, anecdotal evidence, public or academic information, etc.) 
  • Allows scenario analysis, to see the effects of various policy options. 

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The risk assessment is organized, led and owned by the country in question. This approach facilitates the development of the country’s own capacity to undertake future risk assessments with little or no external support. The World Bank provides a recommended process (which can be adapted to country circumstances), the risk assessment tool, training on how to use the tool, and guidance in making the assessment stronger and more reliable.

Working Group for the risk assessment

The World Bank recommends that countries establish a Working Group to carry out the risk assessment. Generally, this Working Group will comprise representatives of all relevant AML/CFT stakeholders (e.g., the Financial Intelligence Unit, the Central Bank and/or other regulatory and supervisory agencies, self-regulatory bodies, prosecutors, law enforcement, tax and customs authorities, and other relevant authorities). In addition, the involvement of representatives of the financial and other relevant sectors is strongly encouraged. Academics may also be invited to participate.

The Three Phases of the Risk Assessment Process

The risk assessment generally takes 8 to 12 months to complete. The World Bank recommends a three-phase process, as follows:

Phase 1 – Preparation

At Phase 1, the World Bank provides written guidance on how to set up a National Risk Assessment Working Group, collect pre-assessment data and information, and manage the logistics of the assessment process. Once the Working Group has been established, the World Bank team and the Working Group representatives come together in a video conference to ensure that the preparatory phase is well organized. Good preparation at this stage, especially in relation to data and information collection, will be essential for the effectiveness of the first workshop.

Phase 2 – Assessment

Phase 2 – the assessment itself – begins with a three-day workshop for all Working Group members. The purpose of this workshop is to introduce the assessment tool and launch the assessment process. The workshop includes a brainstorming session on the money laundering and terrorist financing risks in the country. Working Group members also get hands-on training on the Risk Assessment Tool. The assessment process starts during the workshop and usually continues for 5 to 10 months. During the workshop, the Working Group also draws up the roadmap for the completion of the assessment. The World Bank provides guidance throughout this phase, and reviews the draft risk assessment report to ensure the accurate use of the assessment methodology.

Phase 3 – Finalization

Phase 3 is the final stage of the process. During a final three-day workshop, the Working Group discusses the risk assessment and its results, with the managements of participating agencies, and policymakers. The workshop focuses on (i) a final review and discussion of risk assessment results, (ii) the design of risk-based action plans, and (iii) a discussion of implementation issues.

Outputs of the Risk Assessment Process

  1. Risk Assessment Results: The main output of the assessment process is the populated tool, which highlights the areas of higher, medium, or lower risk in various sectors, as well as at a general, national level. 
  2. Risk Assessment Report: A risk assessment report, which documents the assessment process, findings, and evidence, is strongly encouraged. We recommend publishing at least a summary of the assessment. However, the dissemination strategy of the assessment results is for the country itself to decide. 
  3. Risk-Based Action Plan: Based on the risk assessment results, a detailed action plan is developed for the implementation of a risk-based approach to prevent and mitigate the identified ML/TF risks.

QUICK FACTS

  • Managed and owned by the countries themselves. The World Bank’s role is limited to providing technical support. 
  • A capacity-building activity, which aims to enable countries undertaking future risk assessments without external support.
  • Aims to include all AML/CFT stakeholders from public and private sectors to bring in different perspectives and enhance their cooperation. 
  • Clear timetable set at the beginning of the process, ensuring completion of the NRA within a reasonable timeframe (generally 6-9 months). 
  • Helps authorities to identify data and information gaps, and to develop a framework for future data collection. 
  • Cost-effective. 

The World Bank support is also available for:

  • Implementation of risk based approach
  • Design of risk-based supervision
  • New recommendations and new FATF assessment methodology
  • Review and update of ML/TF laws, regulations, and supervision manuals
  • Tehcnical assistance for financial crime data collection

If you are interested in receiving the World Bank Group’s technical support in national risk assessment and wish to get more information please contact us at kcelik@worldbank.org.

To officially apply for technical support in undertaking a national risk assessment, a formal request letter is needed. This should be sent to the World Bank Country Office (Manager) where you are situated. If there is no country office in your location or you are not covered by any of the World Bank regional offices, a request letter can be sent to:

Mr. Jean Pesme
Practice Manager, Financial Market Integrity
Finance & Markets Global Practice
World Bank Group
1818 H Street NW
MSN I 9-906
Washington, DC 20433
United States of America

jpesme@worldbank.org

 

Depending on the country’s internal procedures, this letter can be sent by the governmental agency that runs the relations with the World Bank, the financial intelligence unit, or any other authorized government agency.

The request letter should address the points explained below, and elaborate any country-specific circumstances relevant to the request for technical assistance from the World Bank. The letter should:

  • Remark that this is a formal request for technical assistance for performing a self-assessment, using the World Bank’s National Money Laundering and Terrorist Financing Risk Assessment Tool.
  • Acknowledge that this is a self-assessment and will include some tasks for the country, including assigning a project coordinator, establishing a working group, and allocating the staff time that will be required to complete the assessment.
  • [If the technical assistance is to be based on a Reimbursable Advisory Services agreement] Remark that the country would like to sign a Reimbursable Advisory Services agreement and is ready to bear all direct and indirect costs of the project pursuant to the agreement to be signed.
  • Acknowledge that the National ML/TF Risk Assessment Tool will only be disseminated within the country among the relevant authorities who will be engaging in the National ML/TF Risk Assessment Process.

Additional points, which the country may wish to address in the formal request for assistance include:

  • Any exposure it has already had to the World Bank’s National ML/TF Risk Assessment Tool,
  • Any upcoming country assessment/scheduled Mutual Evaluation (MER), which may impact the timeframe by which the country would wish to conduct such a national risk assessment,
  • Any other country-specific reasons and factors why the country has decided to carry out a national risk assessment,
  • Any additional requests for guidance or further information on the World Bank’s National ML/TF Risk Assessment Tool and Process.

Pursuant to receipt and acceptance of a formal request by a country for NRA technical assistance, the World Bank will transmit an official response to the country.

Please note that this request letter aims to trigger the engagement between the country and World Bank Group and does not imply any commitment nor from the country neither from World Bank Group side. 

MEDIA CONTACTS
Washington, D.C.
EPrice@worldbankgroup.org
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