Implementing AML/CFT measures that address the risks and not tick boxes
| Date | 15 May 2007 |
| Published date | 15 May 2007 |
| DOI | https://doi.org/10.1108/13581980710744093 |
| Pages | 210-216 |
| Author | Marcus Killick,David Parody |
| Subject Matter | Accounting & finance |
Implementing AML/CFT
measures that address the
risks and not tick boxes
Marcus Killick and David Parody
Financial Services Commission, Gibraltar
Abstract
Purpose – The purpose of this paper is to discuss the implementation of effective risk-based
anti-money laundering (AML)/combating the financing of terrorism (CFT) systems of control in order
to properly address the risks facing the financial services industry. It seeks to argue that most systems
of controls currently in place are ineffective and bureaucratic and do not address the real risks.
Design/methodology/approach – The paper outlines the recent history of AML/CFT measures
and the underlying reasons for their adoption. It then argues that if risk-based is to be adopted a
methodology to address the risks must first be designed. The paper outlines the pre-requisites for the
design of such a system and the factors that need to be considered for implementation. The paper
highlights the need for regulators to fall in line with the risk-based approach and to pass back to senior
management responsibility for the implementation of systems of control which are appropriate and
proportionate.
Findings – Most of the current systems of control in AML/CFT are driven by regulatory
requirements and not an understanding of the risk facing the firm.
Originality/value – The paper is original work of the Financial Services Commission in its entirety.
Keywords Money laundering,Terrorism, Financing, Seniormanagement, Responsibilities,
Risk assessment
Paper type Viewpoint
It is now nearly 18 years since the G7 created the Financial Action Task Force. Since,
that time the fight against money laundering has grown exponentially effectively
becoming an industry in its own right. It has expanded from the fight against terrorism
and drugs into combating the proceeds of “all crimes”. Focus has spread from banks to
other financial activities, and now into other areas including the company and trust
management arena.
With this growth in activity has come a growth in cost. Whilst there are no
definitive figures on how much financial burden the fight has imposed upon firms and
ultimately their consumers, even rough estimates are frightening. Yet it remains
unclear whether this cost has resulted in a truly effective system against laundering.
Certainly the amounts recovered, when compared to the estimates of global laundering
(2-5 per cent of global GDP) are extremely modest. In the UK, at present the amount of
money suspected of being used to fund terrorism that is frozen is only £500,000.
What is clear, however, is that a number of efforts have created a burdensome
bureaucracy for the innocent, whilst providing scant deterrent for the launderer. The
resultant systems and checklists made for cumbersome account opening processes,
and endless amounts of requests for documentation to be provided, irrespective of the
potential risk that the customer posed. In an age of identity fraud, tick box “know your
customer” checks, and other mechanisms that fail to identify the key risk areas, are at
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
JFRC
15,2
210
Journal of Financial Regulation and
Compliance
Vol. 15 No. 2, 2007
pp. 210-216
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581980710744093
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