Money Laundering and Terrorism Trafficking: Risk Assessment Methodology and Vulnerabilities in Online Trade Financing and Leasing Products

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MONEY LAUNDERING AND TERRORISM TRAFICKING
Module Name
Assessment Title
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The Date

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MONEY LAUNDERING AND TERRORISM TRAFICKING
Task 1
Part 1
Question (a)
i. There are several risk assessment methodologies utilized under different
standards, to determine the vulnerability of financial products and facilities
offered by different institutions. The key business risk highlighted include data,
system and people capacity. Therefore, coming up with a risk plan, it is important
to access the vulnerabilities that data is exposed to and the points of weakness in
the system. For this risk plan, guidelines outlined by AUSTRAC and Australian
standards will be used to formulate the risk assessment methodology required for
the proposed acquisition (Bryans,2014, 441). The document used is the AS/NZS
4360:2004: Standards for risk management (Australian Standards). This
document combines the important aspects from Australian standards partisan to
ML/TF and regulations highlighted by AUSTRAC to produce a comprehensive
methodology for risk assessment and management (Bajada,2006, 12).The risk
categories as identified in ML/TF are four namely customer type ie PEPs,
designated services provided, methods by which delivers designated services and
foreign jurisdiction.
ii. To provide a comprehensive and efficient risk assessment framework, there are
various tools and AUTRAC topologies that will be used in the assessment

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methodology such as identification, assessment, treatment and monitoring and
review (Bryans, 2014, 441). The most relevant of the typologies and case studies
is from 2014.example is Case 6 – Accountant jailed for laundering money via
Hong Kong and New Zealand and Case 1 – Suspect used black market website
and digital currencies for drug trafficking 2014 AUSTRAC report. This report
highlights the Australian businesses that have been exploited for criminal
activities such as drug smuggling, tax evasion and even human trafficking.
a. Risk identification. As a reference from, Ferweda & Reuter
(2018), 7, this tool aims at determining the ML/TF risks that are
associated with the business and the products that it offers. Under
this tool, there are two types of risks that are taken into account,
namely: Business and regulatory risks. The business risk refers to
the main ML/TF risks associated with the business operations such
as :
 Product and services provided such as credit cards, private banking
and wealth management and retail banking.
 Customer types for example PEPs(Politically Exposed Persons),
natural persons (individuals) or Legal persons(personal representation created by
law)
 Countries of operation such as transactions to countries known to
have sanctions on trade or regarded as a source of narcotics or/ and reputable
criminal activity are considered high risk.

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 Methods of delivery for various services such as the online
services, emailing or third-party brokers.
Regulatory risks refer to risks that are as a result of not adhering to the AML/CTF act, which
is an Anti-Money Laundering and Counter-Terrorism Financing Act of
2006(Choo.2008,363). Such risks include failure to carry out customer verification
accurately, lack of an AML/CTF program in an institution or failure to submit AML/CFT
compliance reports.
b. Risk Assessment. This tool allows for the measure of the quantity
and effect of the risk to be stated. The assessment is done in two
measures: likelihood, which defines probability of the risk
occurring and impact, the damage that the risk would cause. A
product of the two measures provide a risk score or level which
can be low, medium , high or extreme depending on contributive
factors.
c. Risk Treatment. This tool allows for the identification and
enforcement of remedying measures to manage the risk that has
already being identified using previously mentioned tools. Such
measures could include introducing transactional limits or putting
in place processes to deal with high risk costumers or those that
choose to transact with high risk countries among other viable
strategies and policies.
d. Risk Monitoring and Review. This tool is used to keep track of the

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risk plan and how it is holding up in the face of changing products,
services and targets customers.
iii.
Industry typologies dictate in a lot of ways the manner in which an institution provides its
services (Freeman,2016, 25). Therefore, the level of risk between for example a retail bank and a
private bank will not be similar because they employ varied policies of engagement for their
customers, provide different services, probably operate in different jurisdictions and use varied
modes of transactions. Therefore, when it comes to using the risk assessment methodology to
produce risk plans for either of these institutions certain vulnerabilities will be high-risk for the
retail banks than the private banks and vice versa (Favarel 2011, 179). In the case of this
particular situation, BSL usually provides face to face transactions while FF uses their online
platform to sell their products. Therefore, a vulnerability such as anonymity will be more
prevalent for FF because online transactions do not demand much background or personal
information from the customer while for BSL the risk will be much less because the face to face
interaction lead to collection of customer information as well as the identification of the account
owner (Gardner, 2007, 337). Examples are Case 6 – Accountant jailed for laundering money
via Hong Kong and New Zealand and Case 1 – Suspect used black market website and digital
currencies for drug trafficking 2014 AUSTRAC report.
iv.
A company's risk appetite refers to a specific amount of risk that the company is
willing to endure as they target certain business goals, as referenced by Harvey, (2015).
In this case, BSL's risk appetite will help to provide the guidance in coming up with

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remedy strategies for the risks anticipated. Understanding the risk appetite of the
company will help determine the types of risk that the company is not willing to take, the
risks that will be treated on individual levels as well as the risks that will be delegated to
higher management (Hopton, D. 2016).
v.
In reviewing the ML/TF risk assessment, it is important to understand that risks change
over time due to increase or changes in products and customer types (Sadiq, &Governatori,
and,2009, 165). It is therefore important that a monitoring and review procedure of the risk
assessment methodology be developed to ensure that it can be adjusted accordingly in case it is
not working correctly. It is important that a system for keeping records is determined. Using the
records that are provided, analysis and review of the risk plan will be backed up with
performance data that can be used to adjust areas of weakness in the plan. It is important or the
top management to not that ML/TF risk mitigating cheque account is fact that a fully auditable
trail exists between the payer and the payeee.as a resolution there is no negotiation of each
cheque. ADIs are subject to AML/CTF customers, it has also been noted that the use of bank
accounts introduces illigal money in the currency circulation .
It is also very important to carry out internal audits of the company which allow for the
company to provide AML/CTF compliance reports (Hamin, Kamaruddin and Rosil, 2018, 3)
Question (b).
i.
Vulnerabilities of running a business that offers online trade financing and leasing
products include (Tahiri, 2018):