Risk factors for clients in assessing money laundering and terrorist financing

Following the terrorist attacks of September 11, 2001, the finance ministers of the Group of Seven industrialized nations met in Washington on October 7, 2001, calling on all nations to freeze the assets of known terrorists. The G-7 nations called on the FATF to hold an "extraordinary plenary session" on October 29, 2001, in Washington to address the TF. The FATF is an intergovernmental organization set up in 1989 by the Group of Seven industrialized nations to promote national and global measures to combat money laundering.

Recognizing the vital importance of taking action to combat the financing of terrorism, the FATF agreed to issue specific recommendations, which, in conjunction with the FATF's forty recommendations on money laundering, set the basic framework for detection, the prevention and suppression of terrorist financing and terrorist acts.

In this regard, all clients operating in transactions and investments must recognize that a financial firm as a Obliged Entity must take appropriate action to identify and assess the risks of money laundering and terrorist financing that deals with.

An Obliged Entity assesses and measures the risk level ML and TF based on multiple risk factor indicators:

• Customer risk factors

• Countries and geographical areas of risk factors

• Product, service and transaction risk factors

• Risk factors in delivery channels

When it comes to customer risk factors, the company, for example, should consider whether the background of its customers is consistent with what they declare about their current professional or business activity, their source of money, and their source of wealth.

Also, the obligated entity needs to investigate if:

- the customer has links to sectors (industries) that are commonly associated with higher corruption risk.

- the customer has dealings with business dealing in cash transactions.

- the customer or a person closely associated with him has or had assets frozen due to administrative or criminal proceedings or allegations of terrorism or Terrorist Financing.

- the customer has been the subject of a suspicious transaction report in the past.

These are only a few examples of how to assess Money Laundering and Terrorism Financing. The crucial point for traders and investors and all market participants is to realize that when they participate in market activities around the world, they become part of a team of hundreds of thousands of participants. However, the more participants in a market, the greater the risk of some people disrupting the smooth functioning of the market.

The efforts of the authorities and Obliged Entities are to recognize these risks not only for the protection of the market but mainly for the protection of the people and entities that act as market participants.

Obliged Entities are now introducing sophisticated risk identification systems that also ensure the security of personal and corporate data.

All that is needed is a good understanding of the importance of Money Laundering and Terrorist Financing risk assessment, as it is a critical variable that leads to good cooperation and good operation for all market participants.