AML Geographic Risk

Some jurisdictions present a higher risk for money laundering, terrorist financing, and other financial crimes. Identifying high-risk countries helps better assess a customer’s risk based on their transactions or relationships with international counterparties. Such business relationships outside the customer’s country of residence often increase this overall AML risk. These include locations with high corruption rates,  including those with high organized crime or weak AML controls.

Information found during the AML risk assessment using geographic risk helps identify and address serious crimes like drug trafficking, human trafficking, and money laundering. For instance, a high-risk location in the US includes high-intensity financial crime areas (HIFCA), which can be used for investigation.

Customer risk assessment is a component of the company’s general AML risk assessment, which includes processes and measures enabling you to evaluate customer risk. It’s also sometimes referred to as the Know Your Customer or KYC risk assessment and happens during the onboarding process. So, that means the user undergoes the risk assessment process (to measure their money laundering risk) while the business is evaluated for the AML risk assessment. 

To assess risks and identify the country’s vulnerability rate, you should review different factors, such as:

• AML laws (the strength of the AML regulatory framework in the country)
• Bribery and corruption (the level of corrupt practices) 
• Sanctions (and different sanctioned activities, such as supporting war crimes, narcotics production, terrorism, etc.)
• Financial transparency (the standards of the country’s financial system)

There are many measures, such as evaluating geographic risks, including corruption indices and sanctions screening, or identifying gaps and opportunities in your internal AML policies, such as sanctions screening. For ongoing due diligence, it’s important to determine when enhanced due diligence (EDD) or stricter measures are needed for high-risk customers. This also includes corporate entities and related measures like identifying and verifying foreign beneficial owners.

The FATF, or the Financial Action Task Force, is a global regulatory watchdog responsible for providing guidelines on various aspects of AML compliance. FATF works on developing and promoting the effective implementation of legal, regulatory, and operational measures against fraud and money laundering. Since the FATF aims to eliminate loopholes in the financial infrastructure, it has created 40 Recommendations. Following these guidelines helps businesses identify and mitigate various risks, such as the AML geographic risk and other factors associated with financial crimes.