The Geography of Risk

Posted on 09 July 2009 by Kate Binney

Knowing about where your client comes from is just as important as who they are. A well-heeled farmer from Britain would of course require more attention if instead he came from Colombia. The distinction between countries is not always that stark however – this is the challenge of assessing geographic risk.

There is no universally accepted method for calculating this type of risk but there is clear guidance on what to look out for.

A key consideration is whether the country or jurisdiction has appropriate anti-money laundering and counter terrorist financing systems. For some countries AML/CFT legislation and guidance can be difficult to find, meaning that country reports from global bodies such as the International Monetary Fund and the Financial Action Task Force (FATF) can provide useful insights into national set ups.

FATF plans to reconsider some of the recommendations on which their assessment methodology is based to coincide with the launch of their fourth round of country evaluations. In particular, further emphasis will be placed on the impact and effectiveness of national AML/CFT systems. This will allow us to not only understand the national mechanisms for combating money laundering and terrorism, but may also help us understand if these mechanisms actually work.

Another key factor is levels of corruption or other criminal activities. Financial sanctions issued against a country will be a good indication here, and surveys conducted annually by organisations like Transparency International, Global Integrity and Freedom House for example can highlight levels of specific factors such as transparency, bribe paying, integrity, civil liberties, political rights and economic freedom.

The problem is that a lack of ‘freedom’ in a country may imply that there is a corrupt regime in place but does not give the whole picture, and having a particularly high score on the Transparency International Corruption Perception Index does not imply that the country is completely low risk. With so many potentially conflicting factors involved, country risk assessment sounds daunting, but it needn't be. As in any decision, complete and concise information makes all the difference, and tools are now available for just this purpose. When presented with the right information, a sound risk assessment is easy to achieve.

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The Geography of Risk

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