š¹ Definition
AML Geographic Risk refers to the level of anti-money laundering (AML) risk associated with the countries or regions connected to a customer, transaction, or business activity. This risk is evaluated based on the strength of a jurisdictionās AML/CFT (Counter Financing of Terrorism) regulations, political stability, corruption levels, and whether the jurisdiction is subject to international sanctions or watchlists.
High-risk jurisdictions typically include those identified by the Financial Action Task Force (FATF) as having strategic deficiencies, as well as countries with high levels of organized crime, terrorism financing, or weak enforcement of financial regulations. Understanding geographic risk is a critical component of a risk-based approach to AML compliance.
š¹ Frequently Asked Questions (FAQs)
Q1: How does geographic risk affect AML compliance?
Geographic risk helps determine the appropriate level of due diligence. Customers or transactions involving high-risk jurisdictions usually require enhanced due diligence (EDD) and more frequent monitoring.
Q2: What sources are used to evaluate geographic risk?
Organizations often refer to FATFās high-risk and monitored jurisdiction lists, Transparency Internationalās Corruption Perceptions Index, OFAC and UN sanctions lists, and country-specific AML assessments to assess geographic risk.
Q3: Is geographic risk relevant for all companies?
Yes. All regulated entitiesāincluding banks, corporate service providers, fintech platforms, law firms, and othersāmust consider geographic risk when onboarding clients or assessing ongoing risk exposure.
Q4: What are some common geographic red flags?
- Clients based in or transacting with sanctioned countries
- Transactions routed through offshore financial centers with weak AML controls
- Funds originating from countries with high levels of corruption or criminal activity
