Firm Risk Assessments

Anti- Money Laundering/ Counter Terrorism & Proliferation Financing (AML/CTPF) Institutional Risk Assessment

The Financial Intelligence Act No.11 of 2019 and Regulations requires entities to conduct risk assessments on the following risk factors;

  1. a) Business relationships (Customer Types) and Transactions

A vital step in a risk assessment is the analysis of the users of the products and services that the specified party offers. Customer types can include individuals (e.g. Prominent Influential Persons), listed companies, private companies, joint ventures, partnerships, and financial institutions (e.g. Banks) — basically anyone who wants to establish a relationship with the regulated entity.

  1. b) New & Pre-existing products, practices, procedures, new technologies and delivery mechanisms

An important element of assessing AML/CTPF risk is to review new and existing products and services that the institution or business offers, prior to their launch or use, to determine how they may be used to launder money or finance terrorism.

In addition to the risk factors stated in the Financial Intelligence Act 2019, a specified party/regulated entity should also consider the following risk factors;

  1. c) Geographic Location

A specified party should consider the following when devising their risk scoring model involving jurisdictional risk; In what countries or jurisdictions do their individual customers reside and what are the customers’ countries of citizen-ship? Where their corporate customers are headquartered and where they conduct the majority of their business?

Specified parties as defined by the Financial Intelligence Act, 2019 include Accountants as regulated and supervised by the Botswana Institute of Chartered Accountants (BICA). Accounting Firms have an obligation to conduct institutional risk assessment as part of their risk management system for the purposes of understanding the firm’s money laundering, terrorism and proliferation financing risks in order to implement appropriate controls.

Firms are advised to use a Risk Based Approach when conducting their institutional risk assessments. A risk-based approach requires specified parties to have systems and controls that are commensurate with the specific risks of money laundering and terrorism & proliferation financing facing them. Assessing this risk is, therefore, one of the most important steps in creating a good AML/CTFP compliance program. As Money Laundering/ Terrorism Financing/ Proliferation Financing (ML/TF/PF) risks increase, stronger controls are necessary. However, all categories of risk—whether low, medium or high—must be identified and mitigated by the application of controls, such as verification of customer identity, customer due diligence policies, suspicious activity monitoring and economic sanctions screening.

ML/TF/PF Risk Rating Categories Explained

ML/TF/PF risks can be broken down into the following categories;

Prohibited Risk: The regulated entity will not tolerate any dealings of any kind given the risk. This category could include transactions with countries or individuals subject to economic sanctions or designated as state sponsors of terrorism such as those on the United Nations Lists.

High Risk: The risks in this category are significant, but are not necessarily prohibited. To mitigate the heightened risk presented, the regulated entity should apply more stringent controls to reduce the ML/TF/PF risk, such as conducting enhanced due diligence. Countries with deficiencies in their anti-money laundering/ counter terrorism and proliferation financing regime and that maintain a reputation for corruption or drug trafficking are generally considered high-risk. High-risk customers may include prominent & influential persons or cash intensive businesses; high-risk products and services may include virtual currencies and electronic wallets/payment methods.

Medium Risk: Medium risks merit additional scrutiny, but do not rise to the level of high-risk. For example, a retail business that accepts low to moderate levels of cash, but is not considered cash-intensive.

Low Risk: This represents the baseline risk of money laundering. Typically, low risk indicates normal, expected activity.

For further enquiries relating to AML/CFTP, please contact the BICA AML/CFTP Supervisory Unit at;

Botswana Institute of Chartered Accountants
Plot 50374, Block 3, 2nd & 3rd Floor,
Fairgrounds Financial Centre,
Private Bag 0021, Gaborone, Botswana
Tel: +267 397 2992
Fax: +267 397 2982
E-mail: [email protected]