The Project IARM has two objectives:
- To produce a methodology that will enable identification of the areas (e.g. regions, business sectors, actors) most at risk of money laundering and terrorist financing in a country;
- To apply the methodology in Italy, the Netherlands and the UK in order to identify the areas at higher ML and TF risk.
Pivot of the international and EU AML regime is the Risk Based Approach (RBA). According to this principle, AML/CTF measures should be commensurate to ML and TF risks: situations at higher risk of ML should require stricter measures – for example, enhanced customer due diligence (CDD) – while situations at lower risk can allow simplified measures. But how is ML/TF risk assessed? And who assesses it? As suggested by the FATF 2012 Recommendations, and as requested by the forthcoming 4th EU AML Directive, “countries should identify, assess, and understand the money laundering and terrorist financing risks for the country, and should take action, including designating an authority or mechanism to coordinate actions to assess risks, and apply resources, aimed at ensuring the risks are mitigated effectively”. To respond to this requirement, numerous EU countries have been undertaking risk-assessment exercises partially based on guidelines issued by international organisations in this field (e.g. FATF and IMF). However, a gap still remains as regards how this risk could be measured, based on what criteria, and according to what risk factors. Different countries may apply different methodologies, giving rise to a lack of harmonization, comparability and transparency of risk assessment exercises.
How IARM addresses this gap
Project IARM addresses precisely this issue. Building on on-going national risk assessment exercises, and on previous studies in this field, it develops a methodology for the assessment of ML/TF risks in a country. It identifies the risk factors (threats, vulnerabilities, consequences) which should be taken into account, and explores how they can be measured.
It then applies this methodology to assess the risk of ML and TF in three European countries: Italy, the Netherlands and the United Kingdom. The result will be twofold:
- A transparent and solid risk assessment methodology, which could serve in the future as a basis for any country involved in ML/TF risk assessment;
- A preliminary map of the areas (e.g. territories, business sectors, actors) most exposed to ML and TF activities in Italy, the Netherlands and the UK.
Who can benefit from project IARM?
- Researchers and academics, who can improve their understanding of ML and TF dynamics;
- Public institutions, both within and outside the EU, involved in the assessment of the risk of ML and TF, which could improve their assessment methodologies with a solid and tested model;
- Policy makers, who can use IARM results to plan more effective policies in the AML/CFT field;
- LEAs and FIUs, which can identify the risky areas in which to strengthen investigation and monitoring;
- Obliged entities subject to AML obligations, in particular financial institutions and professionals, which can improve their risk-assessment models and make their CDD activity more effective.