In today’s globalized business and financial environment, the adherence to the Anti-Money Laundering and Countering Financing of Terrorism (AML / CFT) acts and directives are critical. Criminal elements and more specifically money launderers have invented a variety of resourceful approaches to cover their traces and therefore, created many challenges in overcoming them. The following article aims in highlighting the importance of implementation of a risk-based approach (RBA) to anti-money laundering through Customer Due Diligence (CDD) and Enhance Due Diligence (EDD) in creating a healthy ecosystem within Investment Firms and Funds.

Based on The Financial Action Task Force (FATF), risk-based approach is considered an effective way to combat terrorist financing and money laundering. More specifically, by adopting a successful risk-based approach, financial institutions and competent authorities can ensure that measures to mitigate AML/CFT are commensurate to the identified and assessed risks and that resources are allocated and directed in accordance with risk priorities. In this way, institutions can distribute their attention based on the level of risk carried and add value to the proportionate AML/CFT measures.

According to international standards, risk-based approach should be applied to the customer due diligence, which involves the collection of information from customers. This source of data can be utilized to perform assessments that will determine the level of risk exposure. As part of the customer due diligence, It is considered vital to meticulously follow the Know-Your-Customer (“KYC”) procedures for the following reasons:
– To comply with the requirements of the relevant regulation and legislation,
– To guard against fraud,
– To provide the appropriate products and services,
– To identify an extraordinary rationale in actions that may involve fraud, money laundering, handling terrorist or criminal activities.

Enhanced due diligence is required when customer and service combination expose the organisation in significant risk. The increased level of due diligence is required to mitigate the higher risk entailed. Enhanced due diligence could take the form of gathering a sophisticated collection and verification of customers identity along with information related to the source of income or even adverse media checks.

Both due diligence procedures should be relative and proportionate to the level of risk that has been identified and assessed. Further, provide confidence that the risks have been mitigated and no longer realised.

All the relevant information and evidence should be collected and appropriately recorded as part of risk assessment. Those records should prove that the institution has taken sufficient steps to combat anti-money laundering and the appropriate due diligence procedures are followed.

On a final note, do not dread the idea of supporting due diligence, embrace the process! Feel free to contact us at info@salvusfunds.com if you have any questions.

The information provided in this article is for general information purposes only. You should always seek for professional advice suitable to your needs.