Money laundering risk from emerging markets: the case of Vietnam
| Date | 02 July 2018 |
| Pages | 385-401 |
| DOI | https://doi.org/10.1108/JMLC-09-2017-0050 |
| Published date | 02 July 2018 |
| Author | Hung Ba,Tran Huynh |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
Money laundering risk from
emerging markets: the case
of Vietnam
Hung Ba
School of Knowledge Science, Japan Advanced Institute of Science and Technology,
Ishikawa, Japan, and
Tran Huynh
Faculty of Economics and Management, Hoa Sen University,
ho Chi Minh, Vietnam
Abstract
Purpose –The purpose of this paper is to apply theframework Price (2008) and HSBC Money Laundering
Risk Procedures2016 for estimating the risk contribution of each individual customerin Vietnamese banking
system using the informationfrom the survey in South East region in Vietnam in general and Ho Chi Minh
city in specific.
Design/methodology/approach –Based on the collected data from the survey,the Money Laundering
Risk Score (MLRS) is calculated for each customer who is using the services and products of Vietnamese
commercial banks by the enhancedmeasurement model of Christopher Price, the ordinary least squaresand
three variationsof logistic regression model.
Findings –This paper proposesan appropriate estimation of the money laundering risk(MLR) for personal
customer using the most significant factors that affects MLR and suggests practical recommendations for
commercialbanking system.
Practical implications –This paper suggests an intuitive method to estimatethe contribution of each
customerfactor on their MLRS.
Originality/value –The higher respondent’sgroup of age lead to the higher MLR occurred in the financial
market. Follow the works of Wolfsberg et al. (2006), Sathan and Mahendhiran (2007), Usman Kemal (2014)
and Reganati and Oliva (2017), this paper also confirms negative relationship between MLR with the
respondent’s group of salary and the academic level. This indicated that the lower amount of money the
respondentsearn and lower academic level they were,the higher degree of MLR.
Keywords Emerging market, Logistic regression, Christopher price’s framework,
Money laundering risk
Paper type Research paper
1. Introduction
One of the risks in the financial-banking industry, especially in the field of banking
business, is money laundering risk (MLR). It is always considered as an important issue,
which has to be closely managed and controlled strictly. Moreover, the opportunities of
participating in the Trans-Pacific Partnership (TPP), the free-trade agreement (FTA) and
especially becoming a member of APEC will bring many great benefits for Vietnam.
Vietnam will have a better chance to approach the modern developing models and to
infiltrate powerful financial markets to liberalize trade in the areas of service industry,
develop the national economy,step up more export and create more advantage conditionsto
expand and attract foreign investments.However, in comparison with other members in the
Money
laundering
risk
385
Journalof Money Laundering
Control
Vol.21 No. 3, 2018
pp. 385-401
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-09-2017-0050
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1368-5201.htm
same area, in specific, and in the world, in general, there are still many limitations in
Vietnamese banking system. According to Vietnam Banking Survey (2013) –KPMG, the
capital ratio is quite low; cash flow is not logical and there are many inadequacies in the
process of dealing with bad debt and the capability for risk management is not really
effective. Therefore, Vietnam will be able to become a country and a place wherethe latent
risk of money launderingis likely to emerge as an international crime.
The detrimental effects of money laundering on developing countries are increasing in
crime and corruption, underminingthe financial system and reducing foreign investment, so
it is necessary to enhance the effectivenessof anti-money laundering so as to improve anti-
crime and corruption, strengthen a consolidation of financial institutions and contribute to
stimulate economic development (Bartlett, 2002). Recently, the global data of the tendency
for financial crime is internationally wider with the attempt of generating an accurate
estimation; however, even though a number of largely varied measurements have been
sacrificed, none of them can be thoroughly demonstrated. Moreover, the quantitative
consequences that havebeen corrected and developed by anti-money laundering regulations
have yet to be absolutely answered (Biagioli, 2008) and also no extensively approved
estimate methodology has yet been completed(Fleming, 2013). In the modern industrial and
developing financial economic times, identifying and establishing compatible procedures
and techniques are promptly and easily described or classified to share with the
international anti-money laundering community. But the standard measurement and
management of MLR is so dedicated to accomplish and utilize, especially when the
platforms and methods used by financial criminals are changing so rapidly and becoming
more complicated(Nardo, 2009).
The finance banking sector of Vietnam is now working harder to implement and
complete the plan on prevention of money laundering organized by FATF. In addition,
Vietnam was also promulgatedby the National Assembly to pass on June 18, 2012 a number
of anti-money launderinglaws that officially took effect from January 01, 2013 to protect the
country’s political securityand socio-economic situation. This study will attempt to provide
an overview of MLR and the causes leadingto that risk and to measure MLR among clients
in the commercial banking system of Vietnam. With the purpose of giving
recommendations for the Vietnamese banks to choose appropriate methods to ensure that
the Bank’s operating system is taking place in a much safer way, this study supports
Vietnamese banks to find and monitorimportant indicators affecting their MLR. This study
also suggests MLR-specific solutions for Vietnamese commercial banks to choose
approaches to manage the MLR for eachgroup of customers. The remaining of this study is
organized as follow: Section 2 summarizes literature of MLR; Methodology and data
description are mentionedin Section 3; Section 4 shows the estimation results of theMLR for
customers of Vietnamese commercial banks. Conclusion and further research will be
discussed in Section 5.
2. Literature review
2.1 The framework for money laundering risk estimation
Price (2008) estimated the MLR through the table of score contribution with three main
types of customer profiles composed of geography, customers and products and services.
Consequently, the customer risk assessment study was taken to give the researcher an
overview of the process of measuringthe risk from customer with an assumed example and
illustration, especially in individual customers that mainly based on the identification,
verification techniques and also the assessments from customers against globally
suspicious payments and transactions, financial criminals and a necessary database of
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