The national risk assessment: What does it entail?

By the Financial Intelligence Unit

The Financial Action Task Force (FATF) in 2012 revised its Forty (40) Recommendations of 2012. The revision saw the inclusion of Recommendation One (1), which requires all countries to conduct a National Risk Assessment (NRA). The recommendation stipulates that countries should identify, assess and understand their money laundering and terrorist financing risks, take action and apply resources to mitigate the said risks, based on a Risk-Based Approach (RBA). Furthermore, the FATF extended the effect of Recommendation One (1) in such a manner that it touches and concerns the other thirty-nine (39) recommendations. The underlying theme in all of the recommendations is a requirement that they are applied on a risk-based approach.

In compliance with its obligation under the FATF Forty (40) Recommendations, the Government of Saint Vincent and the Grenadines hopes to embark on its NRA project in 2017. The primary aim of the NRA is to prevent money laundering and combat terrorist financing in the most efficient and effective way. Any effective Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) Regime aims to utilize and allocate resources where they will have the most effect. Conducting an NRA allows the State to allocate limited resources based on a good understanding and analysis of the country’s money laundering/terrorist financing risk. This approach is consistent with the FATF requirements, as outlined in Recommendation One (1).

Under the revised recommendations, compliance with the FATF Recommendations is based on the country’s risk and circumstances and not an application of the ‘broad-brush approach’. The country is called upon to implement policy measures based on its corresponding risk level, allowing the country to prioritize its resources and apportion them efficiently.

The methodology used to conduct the NRA is designed to assess the domestic risks of money laundering and terrorist financing within the regulated and non-regulated sectors, including financial institutions and other regulated and non-regulated professionals, law enforcement agencies, competent authorities and supervisory bodies, and legal entities and arrangements in the State. It also covers the international risks to the State of Saint Vincent and the Grenadines from money flowing into and out of the country.

The assessment undertaken looks at the threats and vulnerabilities of the State and then assigns a rating which represents the level of risk posed by a sector and the State as a whole. Threats refer to the characteristics of the proceeds of crime or financing of terrorism in the country, while vulnerabilities refer to the weaknesses or gaps in a country’s defences against money laundering and terrorist financing. These threats and vulnerabilities may exist at the national or sectoral level.

In embarking on the NRA, the relevant bodies and institutions are divided into teams or sectors. For each team or sector, a multidisciplinary working group is set up, consisting of experienced practitioners from government and as appropriate, the private sector. Each working group assigns ratings to input variables related to their area of expertise and justifies those ratings with quantitative and qualitative data. A rating and impact on the vulnerability level of the assessed sector, area or product is assigned by each sector, after which an overall rating, based on the input from the various sectors, is generated.

The assessment done is based on data sources such as statistics and reports from various agencies, surveys conducted among law enforcement agencies and reporting institutions and credible external reports. It is therefore important that relevant statistics are kept by all government departments and financial institutions involved in the process.

The last stage of the NRA process involves the results being published and communicated to all reporting institutions, supervisors, regulators and law enforcement agencies to assist in prioritizing the deployment of resources to tackle high-impact risks in a more effective and targeted manner.