Estonia Approves Money Laundering Risk Assessment Methodology

; posted on
May 7th, 2019

The Estonian AML/CFT Committee (the Anti-Money Laundering Government Committee), and the Countering the Financing of Terrorism Committee) approved a broad national risk assessment methodology to be introduced by summer 2020.

Background

Last year, the AML/CFT Committee submitted a thorough analysis and a number of proposals on enhancing the prevention of money laundering. The proposals mostly concerned both the institutional and legal frameworks, and were further developed by two expert working groups.

The proposal was released after the big case of Danske Bank, as the cases of money laundering that have recently been reported in the media are old cases and the current situation has now changed, the proposals are mainly based on the current perspective and future risks.

In response to the proposals, a strategic monitoring and analysis centre on money laundering and terrorist financing prevention will be established at the Financial Intelligence Unit. This will be complemented by significantly increased fine rates in the financial sector, tougher regulations on virtual currency service providers, and the adoption of money laundering risk assessment methodology.

The risk assessment methodology

The national risk assessment on money laundering and terrorist financing prevention aims to identify and understand the future risks and to contribute to their prevention. The risk assessment methodology was developed by PricewaterhouseCoopers and is based on World Bank methodology, but tailored to fit Estonia’s conditions and particularities.

The Methodology comprises these following components:

  • Know your client (KYC) and due diligence measures: KYC requirements to identify and undertake certain verification measures regarding each client, its representatives and ultimate beneficial owners where applicable. These steps should be taken at the start of the relationship with the client or of the transaction for or on behalf of the client. The relationship with the client should be subject to ongoing monitoring. Clients and their ultimate beneficial owners should be checked to determine whether they are a Politically Exposed Person, entrusted with a prominent public function.
  • Banks or the financial institutions are obliged to make sure that they understand true nature of their customers, and update such information through communication between customer and the bank, so the bank can be sure that the data is correct and current.
  • Referring to the world bank methodology, it comprises 3 processes: the main output of the assessment process which highlights the areas of higher, medium, or lower risk in various sectors, as well as at a general, national level; Risk Assessment Report which laid out the assessment process, findings, and evidence; and Risk-Based Action Plan that includes a detailed action plan for the implementation of a risk-based approach to prevent and mitigate the identified ML/TF risks.

This national risk assessment methodology will be introduced by summer 2020.

Source: Estonian Government

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