Getting to grips with AML: a risk-based approach
27 October: ICAEW has teamed up with IFAC to produce a series of six short guides for accountants to enhance their understanding of money laundering. The second guide sets out what is involved in a risk-based approach to AML.
This second instalment of ‘AML: The Basics’ explains that accountants need to understand the risks of money laundering across the countries they work with, the services they provide and the clients they serve. This instalment explores the key foundations of a risk-based approach to fighting money laundering for professional accountants.
The guide sets out that accountants must identify, assess and understand the money laundering risks to which they are exposed, and effectively mitigate them. The guide sets out the four steps an accountant should take as part of applying this risk-based approach.
“The thinking behind a risk-based approach is that the level of due diligence you perform on a client is proportionate to the risk that there could be some kind of money laundering involvement. This means that accountants can focus their efforts on the riskiest areas,” says Sophie Wales, ICAEW’s Head of Ethics and Economic Crime.
The three areas of risk the guides focus on – geographic risk, client risk and service risk – are fully explained. Briefly, geographic risk is the increased level of risk that a jurisdiction poses in relation to money laundering, client risk is the overall money-laundering risk posed by a client, and service risk is the risk that certain products or services are more likely to be used for money laundering.
“If accountants fail to identify the risks of money laundering, the consequences could be severe. Not only could an accountant get caught up in enabling criminal activity, but they could face questions from their professional body on the ethics and legality of their actions.”