A critical analysis of the application of the risk-based approach to anti-money laundering

Abstract

As a topic, money laundering has been gaining traction since the 1980s in view of it’s ever-increasing impact on economics and societies worldwide. In essence, money laundering may be described as a technique to process proceeds of crime, by concealing the illegitimate origin of funds and integrating them within the financial system to render such proceeds appear legitimate. The United Nations Office on Drugs and Crime estimates that the amount of money being laundered worldwide ranges between 2%-5% of global gross domes*c product which amounts to circa $800 billion - $2 trillion. Since 2012, the regulatory framework towards combatting financial crime shifted from a rules based to a risk based approach. This shift meant that jurisdictions and institutions therein must undertake a self assessment to analyse the areas to which they are susceptible to money laundering and financing of terrorism. Subsequent to this assessment jurisdictions and institutions are required to devise and implement policies, procedures and controls in proportion to the risks they are exposed to. Through this research the author aims to asses the mechanics of the Risk Based Approach to AML/CFT by evaluating the perceptions of local industry practitioners and officers from the local supervisory authority which regulates and supervises Anti-Money Laundering by virtue of the Prevention of Money Laundering Act, the Financial Intelligence Analysis Unit. This research shall focus on assessing such actors’ perception the RBA in terms of it's efficacy and challenges, whilst also uncovering ways of improving the overall regulatory framework. Ultimately for nations to stifle the laundering of proceeds of crime and financing of terrorism, strong and clear regulation is necessary together with continuous communication between different actors to ensure there is a coherent understanding of the regulatory obligations whilst ensuring effective implementation and further detection of suspicious activity which may bring to justice those engaging in such illicit activities.