May 2016 Q4 c.
The growth of globalization has created more opportunities for free movement of capital/funds, which has resulted in a global canker called “money laundering”. There have been global efforts from governments and international institutions to combat the menace.
Required:
i) Describe in simple terms the concept of Money Laundering. (2 marks)
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Money Laundering constitutes an illegal act of concealing the identities of parties to financial transactions. It is a term used to describe the process by which criminals disguise the original ownership and control of the process of criminal conduct by making proceeds appear to have been derived from a legitimate source.
ii) Identify THREE risk-based approaches companies can adopt to combat the risk of money laundering. (4 marks)
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Risk-Based approach to anti money laundering – The risk-based approach is a means of allocating supervisory resources with the effect to targeting areas of higher risk of money laundering.
Steps of risk-based approach are as follows:
1. Identify the money laundering risk that are relevant to the business
2. Conduct detailed risk assessment on such areas as customer behavior and delivery channels.
3. Design and implement controls to manage and reduce any identified risks
4. Monitor the effectiveness of these controls and make improvements where necessary.
5. Maintain records of action taken and reasons for those action