Country Risk Analysis Framework: IMF
IMF has designed programs to help member countries in their fight against money laundering & terrorism. These are implemented through its specific projects for individual member based on their overall requirement for finding the balance in balance of payments
1. Article
IV Consultations of IMF
Under Article IV of the IMF's Articles of Agreement, the IMF
holds bilateral discussions with members, usually every year. A staff team
visits the country, collects economic and financial information, and discusses
with officials the country's economic developments and policies. On return to
headquarters, the staff prepares a report, which forms the basis for discussion
by the Executive Board.
At the conclusion
of the discussion, the Managing Director, as Chairman of the Board, summarizes
the views of Executive Directors, and this summary is transmitted to the
country's authorities.
2. Financial Sector Assessment Programs of IMF
The Financial
Sector Assessment Program (FSAP) provides a comprehensive, in-depth
analysis of the resilience of a country’s financial sector. A crucial part of
the IMF’s financial surveillance, it includes “stress tests” of financial
institutions, an evaluation of the quality of supervision and regulation of the
sector, and an assessment of the crisis management framework. To date, more
than three-quarters of IMF’s member countries have undergone assessments.
Purpose of FSAP
The
purpose of an FSAP is to help countries minimize the occurrence and
severity of financial crises. The FSAP was launched in 1999 with two goals in
mind: to gauge the stability and
soundness of a country’s financial sector and assess the financial sector can contribute to
growth and development. FSAPs are done jointly by IMF and World Bank staff in
developing and emerging market countries and by the IMF alone in advanced
economies. The IMF specializes in the stability aspects while the World Bank
focuses on the developmental needs of the financial system.
The
Fund staffs’ methodology for conducting a national money laundering (ML) or
financing of terrorism (FT) risk assessment (NRA), follows closely principles
established in international standards on risk. The methodology seeks to help domestic
authorities focus on mitigating the risks that flow from substantial ML or FT
occurring. It is designed to be applied in varying degrees of detail depending
on country preferences.
THE
INTERNATIONAL MONETARY FUND STAFFS’ ML/FT NRA METHODOLOGY
ML
or FT risk is defined as “the effect of ML- or FT-related uncertainty on a
jurisdiction’s government objectives.” The level of national ML or FT risk is
formally defined as the likelihood of ML or FT events occurring successfully in
a jurisdiction multiplied by the consequence(s) of those events. Likelihood is
represented as a function (the coexistence) of ML or FT threat and ML or FT
vulnerability.
The
NRA methodology relies on a semi-qualitative risk scoring system that focuses
on the key risk events associated with the ML or FT process that are thought to
make a difference to risk profiles.
The
generic risks identified in the NRA methodology derive from three events that
co-exist to enable ML or FT.
a. ML or FT is
attempted:
i.
Due to a co-existence of substantial amounts of proceeds of crime (POC), or of
terrorist funds that need processing, and
ii. Due to the existence of products,
services, assets, or other circumstances that the launderer or terrorist
financier perceives can be abused to meet their needs; and
b.
The
perpetrator(s) of the ML or FT is not caught:
i.
if
it is attempted, ML or FT will not be detected by the authorities (either
directly or indirectly via the efforts of businesses that are required to make
suspicious reports); or
ii.
if
it is detected, ML or FT will not be investigated adequately by the authorities;
or
iii.
if
investigated, the perpetrator(s) will not be prosecuted; or iv. if prosecuted,
the perpetrator(s) will not be convicted, or
c.
The
perpetrator(s) of the ML or FT is not sanctioned adequately:
i. if convicted, the perpetrator(s) will not be punished adequately, or
ii. if punished, the perpetrator(s) will not be deprived of their
assets.
Likelihood
of these events occurring is derived from related risk analysis modules (RAMs)
containing factors, sub-factors and their indicators.
The
NRA methodology produces two proxy indicators of ML/FT consequences– short-term
and longer-term—derived largely from the perceptions of officials, using a
structured approach to make informed judgments.
The
overall level of risk for each event is derived by combining likelihood and
longer-term consequences scores, and to assess whether the result falls within
acceptable bounds
An
optional sub-component within the methodology produces risk profiles for
regulated entities and sectors.
The
NRA process of IMF Staff’s Methodology
The
fully fledged NRA process comprises seven phases and relies on the authorities’
ability to collect and submit statistics and perceptions using web-based data
collection tools. The overall process is iterative, relying on continued
feedback from the participating jurisdiction during on-site workshops. The
phases and tasks within each phase are:
a. Preliminary
phase and threat analysis preparation: The overall objectives of the exercise
are agreed, the jurisdiction establishes an NRA coordinating mechanism, fund
staff conduct research into the country’s POC environment and ML/FT threat
indicators, and the authorities complete four surveys (two on data availability
and two on domestic and transnational ML and FT threats);
b. ML/FT threat:
Fund staff conducts workshops with the authorities to agree final views on
domestic and transnational ML and FT threat, including estimates of the
magnitude and nature of domestic POC and cross-border flows of POC;
c. Vulnerability preparation: The authorities
complete four web-based statistics collection tools (Sectors and Firms
Profiles; International Cooperation and Border; Criminal Justice System; and
FIU and Reporting) and three perceptions surveys (Sectors and Firms; General
Jurisdiction and FIU, Law Enforcement Agency and Criminal Justice System), Fund
staff collects publicly available vulnerability information and compile all
vulnerability and threat information to generate preliminary likelihood
analysis including at the sector level;
d. ML/FT
vulnerability and likelihood analysis: Fund staff conducts workshops with the
authorities to agree final views on ML and FT vulnerabilities, including a list
of main factors that increase and reduce likelihood. The results are combined
with those for threat to reach preliminary views on the overall likelihood of
the different ML/FT risk events occurring, including within sectors.
e. Consequence and
overall risk preparation: The authorities complete two webbased perceptions
surveys on ML and FT consequences, Fund staff collects publicly available
information related to ML/FT consequence and compile all consequence
information to generate preliminary consequence analysis and combine this with
likelihood results to produce preliminary risk event heat maps including at the
sector and entity level;
f. ML/FT consequence
and risk analysis: Fund staff conducts workshops with the authorities to agree
final views on ML and FT consequences. Revised heat maps showing levels of risk
for each generic risk event and for sectors and entities are presented at
separate workshops, discussed, and overall levels of risk and priorities for
mitigation are agreed. g. Concluding phase. Fund staff produces a preliminary
draft national risk assessment which is sent to the authorities for review and
then finalized for publication.
Output
from NRA by IMF Staff’s Methodology
The
NRA methodology produces a range of standardized outputs to help the
authorities understand the country’s ML/FT risks.
a.
A
domestic proceeds of crime summary table shows for 25 crime categories the
estimated range of proceeds generated in each category, a range mid-point, and
totals the mid-points to provide an overall estimate of the magnitude of
proceeds generated in the country. The mid-points and the total are also
expressed as a percentage of the country’s GDP. This information may be
supplemented by estimates related to the nature and composition of the proceeds
in terms of the proportion generated in cash, financial and physical assets and
attributable to domestic and trans-national organized criminal groups and other
criminals.
b.
A
summary risk matrix sets out the likelihood scores for each RAM and its
associated risk events and the consequences scores for those events. The matrix
also sets out a list of the main factors that increase risk scores and those
that lower them (i.e., strengths and weaknesses), thus providing the
authorities with detailed guidance on which specific factors to address to
mitigate the main risks.
c.
Heat
maps plot the level of risk for all generic risk events and any additional
events identified by the authorities by reference to each event’s ML/FT
likelihood and consequence. Heat maps are also generated to show the level of
ML/FT risk for sectors and for entity types within sectors. An example of each
type based on actual results is shown in Figure 2 of this Annex.
d.
Summary
tables for sectors and entities show information such as the number of
entities, their total and average assets as well as scores for their inherent
ML/FT likelihood, adequacy of AML/CFT controls, and net ML/FT risk. The
entities summary can be filtered to generate specific outputs such as, for
example, the ten entities with the highest likelihood of being abused for
cross-border ML or FT.
e.
The
NRA document describes in sufficient detail for the intended audience the main
risks and their drivers and the process used to arrive at those conclusions.
Source: Annexure 3 of http://www.imf.org/external/np/pp/eng/2011/051111.pdf
Happy Reading,
Those who read this, also read
1. Global Measures on ML/FT : IMF
2.Country Risk Assessment Framework: World Bank4. National Risk Analysis (NRA) Framework
5. Framework for Country Risk Analysis : FATF
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