National Assessments of Money Laundering Risks : Learning from Eight Advanced Countries’ NRAs

Abstract

The Financial Action Task Force (FATF) requires national governments to demonstrate an understanding of the money laundering risks in the country. Such an understanding is the foundation for effective control of money laundering under the risk-based approach the FATF calls for. The authors analyzed the National Risk Assessments (NRAs) published by eight systemically important countries to test whether they demonstrate that basic understanding and to draw lessons for national governments from those NRAs. The eight show very different conceptualizations, analytic approaches, and products. Each raises serious issues regarding the risk assessment methodology. For example, most relied largely on expert opinion, which they solicited in ways that are inconsistent with the well-developed methodology for making use of expert opinion. They misinterpreted data from suspicious activity reports and failed to provide risk assessments relevant for policy makers. Only one described the methodology employed. Although the challenge of conducting strong risk assessments is great, given the difficulty of estimating the extent of money laundering in any sector, the findings based on this limited sample point to ways to improve substantially on existing practices. The report concludes with a set of suggestions for (international) policy makers and those conducting NRAs for improving risk assessments. Suggestions include increased clarity about the conceptualization of risk, transparency about data and methods so that each country can learn from others, and the adoption of more formal and standardized methods of eliciting expert opinion.