Money laundering regulation and risk‐based decision‐making

Abstract

Purpose

The current emphasis in anti‐money laundering (AML)/ counter terrorist financing (CTF) regulation on “risk‐based” strategies means that regulatory, law enforcement and reporting agencies need to respond to money laundering and terrorist‐financing threats in ways that are proportionate to the risks involved. However, the way that risk is conceptualized remains vague, and the requirements on agencies imposed by the risk‐based approach involve a significant element of uncertainty. The paper addresses these issues.

Design/methodology/approach

This paper examines the attributes of risk as it applies to AML/CTF strategy in the context of regulatory risk and related forms of risk assessment, and argues that there are a number of conditions that must be met if risk‐based decision‐making for AML/CTF is to work effectively.

Findings

This paper argues that there are a number of conditions that must be met if risk‐based decision‐making is to work effectively. Three of the most important conditions are that there has to be agreement about what risk is being decided on; there must be explicit, quantifiable models of risk, and those responsible for developing and refining risk‐based decision models must have access to knowledge about the outcomes of assessments.

Originality/value

The paper identifies the need for fundamental changes in the relationship between the regulators and the regulated.

Citation

Ross, S. and Hannan, M. (2007), "Money laundering regulation and risk‐based decision‐making", Journal of Money Laundering Control, Vol. 10 No. 1, pp. 106-115. https://doi.org/10.1108/13685200710721890