Risk policy under the AMLD
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Institutions which are covered under the AMLD (Anti Money Laundering Directive) are obliged to implement a risk policy. Depending on the level of risk which is identified during the client investigation a more thorough investigation may be required. Risk factors may be related to multiple origins: the client, the product, the nature of the service, transactional risk, supply channel-related risk factors, and geographic risk factors. Some of these risk factors are deemed to be unacceptable, meaning that you may not engage in a business relationship with this client.
Risk policy consists of risk factors: client-related risk factors, product, service, transaction or delivery channel-related risk factors and geographic risk factors.
Client-related risk factors
Client-related risk factors are, as the name implies, risks associated with the client. Some examples are:
- Certain companies such as catering companies, call shops, painting companies and construction companies and companies dealing in products related to drugs;
- Clients with a lot of cash on hand;
- Clients who provide incorrect or incomplete information, or who provide a reason to doubt the accuracy and completeness of the provided information;
- Clients with an unclear or variable location address without an explanation;
- Clients who are part of an opaque, or complex, ownerships- structure or control structure.
Product, service, transactional, and supply channel risk factors
Product, service, transactional, and delivery channel risk factors are risks associated with the delivery of your product or service, OR with the work of your client. Certain transactions or supply channels may entail additional risks, elevating the risk assessment and requiring a more extensive investigation.
Some examples of product, service, transactional or supply channel-related risk factors are:
- Opening bank accounts in the name of an accountant or tax advisor with the intention of transferring or funneling funds to third parties, thereby concealing the link between the (illegal) origin and the destination of the money.
- Products or transactions that promote anonymity, for example, clients using cryptocurrencies (such as Bitcoins).
- Services setting up international structures to disguise the ultimate stakeholder.
- Drawing up private loan agreements or admissions of debt in which it is unclear what the origin of the financing is.
- Stock transactions where the value of the shares is difficult to determine.
Geographic risk factors
There are multiple sources that define geographic risk factors, such as the FATF lists, the European Sanctions Countries and the CPI.
The FATF publishes a list of countries with high risk of financial abuse regarding money laundering or the financing of terrorism multiple times a year. The EU sanctions map provides an overview of countries with the corresponding sanctions.
The CPI scores and ranks countries/territories based on how corrupt a country's public sector is deemed to be by experts and business leaders. It is a composite index, combining 13 separate investigations and reviews into corruption by various reputable institutions. The CPI is the most widely used indicator of corruption worldwide. Some examples of geographical risk factors are:
- Countries or geographical areas subject to sanctions, embargoes, and similar measures, adopted by, for example, the United Nations, the European Union or the United States.
- Countries or geographical areas identified by reliable sources (e.g. FATF, CPI, European Sanctions Countries) as countries or territories that have not adequately established a system for the prevention of money laundering and/or terrorist financing.
- Countries or geographical areas identified by reliable sources as funders of terrorist activities, or which otherwise support terrorism.
- Countries or geographical areas identified by reliable sources as having a high level of corruption or other criminal activity.
- Countries or geographical areas where there is political instability.
- Countries or geographical areas known as offshore financial havens.
In the event of unacceptable risks, it is prohibited to do business with a party.
If the client investigation shows that the client poses too high a risk, the institution may not enter a business relationship with this client. Even existing business relationships need to be terminated at the next possibility if intermediate assessments deem the risk beyond this level. If the WWFT-liable institution suspects money laundering or the financing of terrorism, the institution is obliged to report it to the Financial Intelligence Unit (FIU-NL). The institution must establish a client-exit policy to ensure that the business relationship is no longer retained in such a case. This policy should include, among other things, the circumstances, and procedures through which the business relationship with the client will be terminated. Some unacceptable risks may be:
- Clients who provide incorrect or no identifiable information.
- Clients who are on a sanction list.
- Clients who provide no or inexplicable information about the origin of funds.
- When the organizational structure is too complex or not transparent, so that the UBO (Ultimate Beneficial Owner) cannot be identified.
CDD On Demand
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