Country Risk Analysis Framework: World Bank
The National Money Laundering/Terrorist Financing Risk Assessment (NRA) Toolkit has been developed by World Bank Group (WBG) staff members to support WBG client countries and jurisdictions in self-assessing their money laundering and terrorist financing risks. The NRA Toolkit contains guidance manuals; Excel worksheets and the formulas therein; PowerPoint presentations; and any other materials provided as part of the NRA Toolkit. Jurisdictions are advised to use the NRA Toolkit with technical assistance from the WBG to ensure proper application. They developed two national risk assessment tools (First Generation and Second Generation National Risk Assessment tools) as well as national risk assessment process, with a view to facilitate the risk assessment even in the countries where the data and statistics are limited. The World Bank tools are essentially, although not limited to, self-assessment tools in order to help the countries develop their capacity to collect and analyse the useful data, statistics and information and introduce a risk based approach
Establishing a NRA Working Group
In undertaking a national risk assessment,
countries are highly encouraged to establish a dedicated NRA working group or a
task force. In the Technical Assistance offered by the World Bank, this is a
pre[1]requirement
for the project. The NRA Working Group should be composed of all relevant
AML/CFT stakeholders. It is usually headed by a lead AML/CFT agency in the
country. The Working Group usually consists of the representatives from,
Financial Intelligence Unit, Central Bank, Financial Regulation and Supervision
Agency (if exists), Capital Markets Authority, Regulator of the Insurance
Market, Tax Authority, Intelligence Agency, Police (Units combating organised
crime, drugs, arms trafficking, smuggling etc.), Anti-Corruption Agency,
Anti-Drug Agency, Customs Authority, Office of Public Prosecutor, Ministry of
Finance, Regulators of other financial services, and authorities related to
DNFBPs. Private sector representatives may be invited to the NRA Working Group
as a full member or a partial member. For example, the private sector
representatives can play a key role in assessing the vulnerabilities of the
covered institutions in the preventive measures, but may not be ideally placed
if sensitive intelligence is shared. Given the heavy analytical work involved
in the exercise, NRA Working Group member are suggested to be senior technical
specialist and expected to stay as the members of the working group throughout
the NRA process to ensure the continuity
First Generation Tool
First Generation tool is an Excel-based template that was
developed initially by the World Bank and later integrated into the Strategic
Implementation Programming (SIP) framework, which is a joint initiative by the
World Bank and Asia Pacific Group on Money Laundering (APG). In this regard,
refinement of the first generation NRA tool has greatly benefited from participation
of APG members and partners.
Source: World Bank
The
first generation NRA tool utilises a matrix approach in assessing the ML and TF
risks. The risk assessment template focuses on the assessment of threat and
vulnerabilities as the main components of the ML/TF risk. SIP NRA Template is
an Excel file with 5 assessment areas (ML Prevailing Crime Type/TF Threat
Analysis, Legal/Judicial/Institutional Framework, Economic and Geographical
Environment, Financial Institutions and DNFBPs), accompanied by summary
findings. Each of the assessment areas contains carefully selected indicators
to assess threats and vulnerabilities. Two separate risk assessments are
undertaken on ML risk and TF risk, using the symmetric risk assessment
structure. The worksheets designed for the ML/TF assessment consists of
following templates:
The
main difference between ML and TF risk assessment templates is the threat
analysis. The objective of ML Threat Analysis is to understand what type of
predicate offenses pose a ML threat in jurisdiction based on data and other
information collected, and identify origins (both domestic and foreign) and
methods of ML. Outcome of such threat analysis would be useful for law enforcement
agencies (LEAs) to prioritise their actions. It is also useful for FIU and
covered institutions to understand the type of crimes that generate illicit
proceeds and different methods of money laundering. On the TF risk assessment
side, TF threat analysis also attempts to capture the statistics and any other
information but on TF cases and assesses the level and sources of TF threats.
Vulnerability analysis section consists of four assessment matrices, each of
which focuses on vulnerabilities arising from different areas. “Legal/Judicial/
Institutional Framework” and “Economic and Geographical Environment” assesses
the vulnerabilities arising from the factors at the national level, while
“Financial Institutions” and “DNFBPs” focuses on vulnerabilities posed by
financial institution and DNFBP categories that are present in assessed
jurisdiction. The structure of Financial Institutions and DNFBPs matrices are
different from the others, and they are designed to enable assessment and
comparison of the inherent vulnerabilities as well as net vulnerabilities
(after taking into account the control measures) arising from various sectors,
institutions or professions. Vulnerability assessment in ML and TF risk
assessment templates are very similar and differ in limited number of
indicators. This effort was intentionally made in order to allow comparison of
ML and TF risk faced by the country.
For
each of the indicators in the matrices, a threat, vulnerability or risk level
is assessed based on the information and statistics provided. Available
information and statistics are filled into designated boxes in the templates.
Most of these boxes are designed to capture a short summary of the
information/justification. A detailed write up that elaborates the grounds and
justification for each assessment, is required in order to ensure the quality
and credibility of the assessments.
The
template includes pre-identified and carefully selected indicators to assess
the ML/TF risks; however, the template can be customised by adding new
indicators or amending existing ones, to reflect each country’s unique
environment.
The Second Generation NRA Tool
The Second Generation NRA Tool has been developed by the World Bank with a view to enable more rigorous and sophisticated risk assessment. This NRA tool was modeled on the Bayesian Network which utilises the laws of probability at its core of the modeling and analyses the sources and causes of risk. Strong logical sequence of events and causal relations between variables affecting risk is carefully modeled. This enables capturing main drivers of the money laundering risk, formularising the complex environment of money laundering taking into account the interactions among various components of risk and vulnerability and generating a final measure of the risk/vulnerability level. In order to make the tool user friendly and easily accessible, this Second Generation tool has been remodeled based on excel and using weighted averages instead of probabilities, while keeping the logic and concept of ML risk assessment built from the initial Bayesian Network approach.
The
Second-Generation NRA tool is a knowledge-based diagnostics and decision making
tool that can assist decision-makers to assess and analyse money laundering
risk in a jurisdiction. The tool provides a means to understand sources of
vulnerability in a country and how various factors that influence the
vulnerability are inter-related. The tool can also be used to iteratively
observe and analyse the effects of various policy options based on scenarios.
For example, the impact of actions (individually or collectively) to reduce the
vulnerability can be determined.
Source: World Bank
The
model defines the ML Risk as a combination of national threat and national
vulnerability. The national threat module is the “Proceeds of Crime” exercise
that provides guidance to countries to assess the ML threat. In assessing
national vulnerability, a number of variables are evaluated as main drivers
(input variables) of vulnerability to ML. All these input variables constitute
the building blocks of a network which ultimately feeds into the national
vulnerability node.
Second
Generation NRA Tool consists of 8 modules. Two main modules, namely National
Threat Analysis and National Vulnerability Analysis modules that feed into the
National ML risk and determine the country’s position on the risk map.
Threat
and vulnerability modules are different in their nature. Threat module is not
based on modeling but provides guidance to countries to analyse the prevailing
predicate offences and proceeds derived from these offences in a particular
jurisdiction. A sample template provided to the countries is a starting point
to collect data and to trigger the threat analysis to have a better
understanding on the scale of the proceeds of crime and associated money
laundering. The National Vulnerability Module and the sectoral modules which
feed into the former are based on initial Bayesian network modeling. Assessment
methodology guides the assessment of “input variables.” Inputs variables are
identified as the main drivers of the vulnerability. Each assessment template
includes the definition of the variable, the criteria that should be used
during the assessment and a section designed to record the result of the
assessment. Using the criteria, the assessors (of the risk assessment) are
asked to assign a score that ranges from 0.0 to 1.0.
Source: World Bank
For each input variable assessment, assessors
are asked to provide a write up to explain the grounds and justification for
the assigned rating. This write up is a crucial part of the assessment and
needs to include reliable information and analysis, as well as the available
data and statistics supporting the assessment.
Scores assigned to each input variable are populated into the Excel model. The excel model combines these scores based on interactions between various factors, weighted averages, and defined prerequisites. The sectoral vulnerability ratings feed into the National Vulnerability Module. In addition to the vulnerabilities arising from the various sectors, National Vulnerability Module requires the assessment of 24 other input variables, which affect the country’s ability to combat money laundering.
Second Generation NRA Tool also includes a
module on Financial Inclusion Product Risk Assessment. This module aims to
assist authorities in evaluating money laundering and terrorist financing risks
arising from both existing and emerging/new financial inclusion products and
can be used as a basis for designing a risk-based approach in the preventive
measures. It can also be used by regulators to design low or lower ML/TF risk
financial products. This module is different from other modules and benefits
from the output of NRA, rather than feeding into it.
Second
Generation NRA tool provides a practical and transparent framework that assist
countries to better understand and analyse the complex web of ML risk.
Following items can be described as the main strengths of the tool:
1. Provides an idea on the overall risk and vulnerability in the country.
2. Allows diagnostic and scenario analysis.
3. Allows comparison of vulnerabilities arising from various products/services.
4. Allows comparison of vulnerabilities arising from various sectors.
5. Prioritisation and sequencing of potential AML actions.
6. Contributes to the cooperation and collaboration among AML/CFT stakeholders
The
World Bank attaches particular importance to the undertaking of risk assessment
at the national level, notwithstanding the potential benefit of more focused
sector risk assessment. This is because it is extremely important for each
country to gain a common understanding among all relevant authorities and
stakeholders on the level and nature of ML/TF risk faced by them. Further, the
outcome of the NRA should guide sectoral assessments and assessments undertaken
by the private sector.
Although
it can also be used for assessment by external parties, the World Bank NRA
tools are developed and are essentially being offered as self assessment tools.
It is an assessment organised, led and owned by the country, while the World
Bank provides the risk assessment tools, guidance, and review. One of the main
objectives of this self assessment approach is to facilitate the development of
the country’s own capacity to undertake risk assessments and to implement risk
based approach in AML/CFT area. Countries are encouraged to customise and
tailor the tools to fit to the specific needs and conditions of the country.
World Bank’s NRA Process is designed to facilitate the inclusion of all stake holders
in the national risk assessment, which will also enhance the cooperation and
coordination among various government agencies as well as the government
agencies and private sector, and ensure the completion of national risk
assessment in a reasonable time frame.
Happy Reading
Those who read this, also read
2. Country Risk Analysis: The Basel AML Index
3. National Risk Analysis(NRA) Framework
4. Framework for Country Risk Analysis : FATF
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