Question Tag: Financial Regulations

i) Concept of Money Laundering

• Money laundering refers to the process of concealing the origins of illegally obtained money, typically by means of transfers involving foreign banks or legitimate businesses. The goal is to make the proceeds of criminal activities appear to have been derived from a legal source. It is often associated with activities such as drug trafficking, terrorism financing, and organized crime.
  (2 marks)

ii) Risk-Based Approaches to Combat Money Laundering

1. Identify Relevant Risks
   • Companies should assess the specific risks that are relevant to their business, such as customer behaviors, geographic areas of operation, and the nature of the business. Identifying risks at the onset allows for more targeted anti-money laundering (AML) measures.
     (1 mark)
2. Conduct Detailed Risk Assessments
   • Companies should carry out detailed risk assessments on customer activities and delivery channels. This involves scrutinizing high-risk areas, such as large cash transactions or dealings with politically exposed persons (PEPs). Risk assessments help in determining the areas where stricter controls are required.
     (1 mark)
3. Implement Effective Controls
   • After identifying and assessing risks, companies must design and implement robust internal controls. These controls should be aimed at managing and mitigating the identified risks. This could include customer due diligence (CDD) processes, ongoing monitoring of transactions, and reporting suspicious activities.
     (1 mark)
4. Monitor and Update Controls Regularly
   • Continuous monitoring and updating of risk management controls is essential to keep up with evolving risks. Companies must ensure that their AML processes are effective and adapt to new threats or changes in the regulatory environment.
     (1 mark)