Country Risk Assessment

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The Proceeds of Crime Act (POCA) and Money Laundering Risks

The Proceeds of Crime Act (POCA) of 2002 requires professional firms to take appropriate steps to identify and equally assess the risk that they can be used for money laundering activities, including the financing of terrorist activities. Firms providing accountancy, banking, and trust or company services need to fully examine the services that they provide, their countries of operation, as well as the types of clients they serve to comprehend how criminals could take advantage of their systems to conceal proceeds of crime or utilize their services to establish arrangements that constitute money laundering. Identifying country locations that pose the highest level of risk is an essential component of any inherent risk assessment. Simply put, the jurisdictions with which a professional firm is connected and does business with can affect the risk-rating, and hence a number of factors should be taken into account when assessing such country risk.

Assessing Country Risks

When assessing country risks, professional firms should take into account risks related to the exact jurisdictions in which customers or clients are based, the jurisdictions to which clients have business operations, and finally the jurisdictions to which the customers have relevant personal links. Where the client is a financial or credit institution, firms should pay particular attention to the effectiveness of the country's regime and the adequacy of supervision, while where the client is a legal trust, professional firms should assess the extent to which the customer complies with international tax transparency standards. However, to make it easier, firms should consider whether the country of operation has been identified by United Kingdom authorities as having deficiencies in its anti-money laundering regime, and whether the jurisdiction is subject to embargoes, financial sanctions, and other measures relating to the financing of terrorism issued by international bodies such as the European Union and the United Nations. Other factors to take into account when assessing country risk comprise whether there is a perception of corruption in the jurisdiction and whether a country has a long history of criminal activity.

The Importance of Regular Country Risk Assessment

By regularly assessing country risk that can account for money laundering and terrorism financing, professional firms can protect and maintain their business both locally and abroad while also contributing to the integrity of the financial system in the United Kingdom and the world at large. However, not all professional firms have owned up to this task, as some have been reluctant to perform effective country risk analysis. The effect has been derailed reputation and costly charges. A good example of such firms that failed to do a proper risk assessment is Habib Bank. Habib Bank was slapped with a fine of US$ 225 million and ordered out of the United States market for its failure to comply with the laws aimed at combatting terrorist financing and money laundering. Investigations found weaknesses in the risk management structure of the Bank and such weaknesses were found to be providing safe havens for terrorist financing.

August 18, 2023

Business Crime



Subject area:

Money Laundering

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Expertise Money Laundering
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