A risk‐based approach to AML. A controversy between financial institutions and regulators
| DOI | https://doi.org/10.1108/13581980710744048 |
| Date | 15 May 2007 |
| Published date | 15 May 2007 |
| Pages | 156-165 |
| Author | Jos de Wit |
| Subject Matter | Accounting & finance |
A risk-based approach to AML
A controversy between financial
institutions and regulators
Jos de Wit
Association of Certified Anti-Money Laundering Specialists,
Gameren, The Netherlands
Abstract
Purpose – The purpose of this paper is to present a risk-based approach to anti-money laundering
(AML) systems.
Design/methodology/approach – The paper covers the areas of: customer due diligence, customer
acceptance, risk management and implementation.
Findings – Regulators and financial institutions need to co-operate so that AML standards can be set
within a risk-based approach, thus enabling a country to protect itself in the best possible and
affordable way.
Originality/value – The paper outlines the controversy present between financial institutions and
regulators in the approach to AML.
Keywords Money laundering,Risk management, Financial institutions
Paper type Viewpoint
Introduction
In recent years, various events have caused the financial service industry to take
special notice of “knowing your activities.” After the September 11 attack we saw the
publication of the Basel Committee’s due diligence paper and the US Patriot Act,
followed by new local laws and regulations and several sanction and freeze lists.
The key words for the financial service industry are:
.KYC – know your customer. Understand who the customers are and what they
do throughout the relationship with them.
.KTYC – know the transactions of your customers. Beyond KYC, understand the
transactions of the customer and have systems in place to spot any irregularities
or suspicious activity.
.KCYC – know the customers of the customer. This extra level of understanding
of the customers activities allows for an extra level of the KYC process.
.KYPB – know your business partners. Understanding those the institution work
with to avoid that indirectly the institution will be involved in unwanted activities.
.KYE – know your employees. Criminal organizations need employees in the
financial service industry to support them with illegal activities.
Financial institutions all over the world struggle to know and understand their
stakeholders and to implement systems and procedures to satisfy their regulators and
to avoid that their operations will be misused for money laundering and other forms of
financial economic crime.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1358-1988.htm
JFRC
15,2
156
Journal of Financial Regulation and
Compliance
Vol. 15 No. 2, 2007
pp. 156-165
qEmerald Group Publishing Limited
1358-1988
DOI 10.1108/13581980710744048
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