A draft framework for money laundering/terrorist financing risk assessment of a remittance corridor
This IMF-World Bank report proposes a draft framework and methodology for risk assessment in remittance corridors having the potential of being identified as “safe remittance corridors”.
This draft framework by IMF and World Bank staff provides a contribution to the FSB’s Roadmap for Enhancing Cross-Border Payments that was endorsed by G20 Leaders in 2020 and that aims to achieve faster, cheaper, more transparent, and more inclusive cross-border payment services. Specifically, the draft framework for remittance corridors’ risk assessments is the first action under Building Block 7, the goal of which is to promote “safe payment corridors”, and which has two phases:
The development of a framework and methodology for the assessment of the money laundering and terrorist financing (ML/TF) risks in remittance corridors and the identification of potential “lower risk corridors,” as part of or consistent with a country’s national ML/TF risk assessment.
The proposed framework is expected to be piloted in some corridors with a view to testing and further refining the assessment methodology.
This assessment framework can be applied jointly or separately by the sender and the recipient corridor countries.
Correspondent Banking Relationship Pressures on Remittances
Remittances are the financial lifeblood for the families of migrant workers and the economies of many emerging markets and developing economies, but they may pose ML/TF risks. Though remittances may pose ML/TF risks, all remittance corridors and all the transaction categories in a remittance corridor should not be treated as inherently higher risk and lower risk situations can be identified. Effective ML/TF risk assessments are a critical underpinning for having a risk-based regulatory framework for a remittance corridor.
In recent years, global correspondent banks have been terminating or restricting business relationships with certain client categories. A number of key drivers have been behind this decline. In some cases it has involved so-called “de-risking”, where financial institutions terminate or restrict business relationships with clients or categories of clients to avoid, rather than manage, ML/TF risk in line with a risk-based approach.
Withdrawal of correspondent banking relationships has affected remittance service providers and created new challenges in the provision of remittance services in some countries. In some countries and regions, smaller remittance players have been forced to close, to become agents of larger businesses, or to continue remittance transactions through unregulated channels or alternative arrangements such as nested correspondent relationships and cash couriers.
Objective of a Remittance Corridor Risk Assessment
The objective of a corridor risk assessment is assessing and understanding the ML/TF risks of remittances in a corridor, with the aim of simplifying AML/CFT measures in lower risk remittance transactions. If the corridor risk assessment assesses that the overall ML/TF risk level in the corridor is lower, the corridor can be treated as a “safe remittance corridor” and subject to simplified customer due diligence (CDD) measures by regulatory authorities, which can be implemented by the private sector.
The identification of safe remittance corridors based on a robust corridor risk assessment CRA can reconcile two important policy goals in relation to remittances: first, to support poverty alleviation and economic growth in low-income countries by safeguarding cost-effective transfer mechanisms; and second, to minimize the risk that these mechanisms will be used for criminal or terrorist purposes.
To reflect the scope more accurately, this report uses the term “safe remittance corridor” rather than “safe payment corridor”. The term “safe remittance corridor” does not imply an absence of ML/TF risks in a corridor, but rather a lower risk level.