AML-CFT Fraud Risk Indicators

The Financial Action Task Force (FATF) is an inter governmental body set up in 1989 by various countries' jurisdiction with the aim of setting up standards and to promote effective implementation of legal, regulatory and operational measures to combat money laundering, terrorism financing and other related threats to the integrity of international financial system. The FATF developed several recommendations that are recognized as the international standards to combat money laundering and terrorism financing.

For financial institutions for example, FATF put forward the following recommendations to isolate high risk customers and high risk transactions. They include: (1) Policy and/or procedures for customer due diligence (R.5); (2) Policy and/or procedures for enhanced due diligence for politically exposed persons (R.6); (3) Policy and/or procedures for non-face to face business relationships (R.8); (4) Policy and/or procedures for anti-money laundering & counter terrorist financing programs (R.15); (5) Policy and/or procedures for countries that do not apply or insufficiently apply the FATF Recommendations (R.21); (6) Identify unusual and report suspicious transactions (R. 11 & 13) and (7) Consider identifying and reporting large currency transactions (R.19). Failure to comply to these recommendations constitute AML-CFT fraud risk indicators. The FATF have issued various recoomendations that covers various sectors and industries. Future research could look at indicators for various sectors and assess their effectiveness.