Utkina O. Money laundering risk-management in banks

The vision of the concept of «money laundering risks in bank» is proposed. The basic theoretical approaches to the definition of the concept of «banking risk» are analyzed. The signs and principles of classification of banking risk are considered and the causal link between the money laundering risks and other types of risks is discussed. A number of factors, which form the money laundering risk in banks, are analyzed. The vulnerabilities of banking institutions to the laundering of criminal proceeds are systematized. A number of external (political, socio-economic, geographic) and internal (organizational, financial, informational, technological) risk factors of legalization (laundering) of illegally obtained income are considered. The impact of operational and compliance risk on the money laundering risk are influenced and proved. The features of classification of money laundering risks have been improved. The basic principles of management of money laundering risks in bank are considered. The main stages of management of money laundering risks in bank are investigated. The method of identifying and analyzing the money laundering risks in bank are improved. The main methods for assessing the money laundering risks in bank have been investigated, and a number of their advantages and disadvantages are given. An own vision of the essence of management of money laundering risks in bank is formulated, where the main components of the organization of management of money laundering risks in bank are a complex of organizational, economic, methodological, analytical, regulatory and financial procedures and measures. The measures of influence on banks for violation of the legislation on financial monitoring issues by the National Bank of Ukraine are highlighted. The total number of measures applied by the National Bank of Ukraine for violating the legislation in the field of financial monitoring in the context of banking institutions is given. According to the results of the first National Assessment of ML/FT, the main threats and vulnerabilities of the domestic financial monitoring system, that directly affect the likelihood of the banking institutions being involved in unlawful activities, are identified. The level of the shadow economy and the perception of corruption in Ukraine is estimated. The negative impact of the volume of cash on increasing the risks of money laundering of shadow incomes, which constitutes a threat to banking institutions to be involved in illegal acts, is revealed. The dynamics of reporting suspicious financial transactions by banking and non-banking institutions has been investigated. It was revealed that among the subjects of primary financial monitoring, the largest number of messages on suspicious financial transactions that are subject to financial monitoring are sent to the LPSFU by the banks. The author has analyzed the experience of foreign countries in applying the risk-based AML approach in the banking sector. The list of countries with the highest and lowest risk of money laundering and terrorist financing has been reviewed. Based on the basis of our comparative analysis we have explored the peculiarities of introducing a risk-oriented approach in the banking sector of Ukraine and foreign countries to counteract the legalization of proceeds from crime. The risk-management of legalization of proceeds from crime in domestic banks has been improved and developed. The model of organization of management of money laundering risks in bank is developed. The components and stages risk-management of money laundering risks in bank are improved. The main tasks of the Bank’s Supervisory Board in the context of overseeing the risk management process in the area of money laundering and terrorist financing are proposed. The organizational structure of the risk-management process (the three line of protection model) is analyzed. The levels of functioning of the Bank's internal control system on anti-money laundering and terrorist financing are presented. A mechanism for detecting and monitoring suspicious financial transactions is proposed. Algorithm for detecting suspicious financial transactions based on cluster analysis of customer groups or transactions has been improved. The necessity of introduction of relatively new procedures of internal control of the bank on combating the money laundering and terrorist financing - the function of compliance, is emphasized. The basic directions of bank’s compliance control in the sphere of combating money laundering and terrorist financing are considered. Responsibilities of the Bank’s compliance department and its functions have been analyzed.