What do governments know about money laundering risks? An Assessment of 8 National Risk Assessments

• In Event: Perspectives on the Organisation, Control and Evaluation of Money Laundering

Abstract

Having embraced Risk-Based Analysis as the appropriate strategy for controlling money laundering, the Financial Action Task Force (FATF) has required that governments show that they understand the distribution of risks across different sectors of the financial system. The results of these exercises provide insight into how competently national authorities administer the very elaborate and expensive controls of money laundering mandated by FATF. This paper, part of a larger study, reviews the published National Risk Assessments (NRAs) of eight systemically important countries: Canada, Italy, Japan, the Netherlands, Singapore, Switzerland, the United Kingdom and the United States. It first provides a new conceptual framework for establishing what are relevant concepts for policy relevant risk assessments. It then summarizes the concepts, data sources, analytic methods and outputs of the eight NRAs. Each country has approached the task in a different way, reflecting both the uncertain guidance provided by FATF and the lack of a strong research literature. No NRA provides a clear statement of the underlying risks to be assessed; the data presented in no case provides more than slight insight into the relevant risks. Most NRAs rely on expert opinion but have not incorporated well-established guidelines for how to elicit expert opinion. The analyses of Suspicious Activity Reports fail to support the conclusions reached. There is considerable variation in how directly the NRAs inform policy decisions by financial regulators. The paper concludes with a discussion of the implications of these findings for the design of the AML system.

Authors

• Joras Ferwerda, Utrecht University

• Peter Reuter, University of Maryland