CHAPTER II RESEARCH METHODOLOGY
2.3 Risk Forming Factors
Based on the predetermined scope, the next step is to determine the context of the risk that will be carried out in order to determine the scale of risk priorities. The forming factors in ML risk assessment include the following:
a. Domestic Money Laundering Risk
i. Domestic Money Laundering Risk Factors by Type of Predicate Crime
Table 2 Risk Factors for Domestic Money Laundering by Type of Predicate Crime
THREATS VULNERABILITY CONSEQUENCE
• Number of LTKT-TKM frequencies indicated TPA
• Number of LT-TKM frequencies indicated TPA
• Number of LTKM Frequency indicated TPA
• Number of HA ML frequencies indicated TPA
• Number of ML HP Frequency indicated TPA
• Number of ML
Investigation Frequency by TPA
• Number of Frequency of
Money Laundering
Prosecutions by TPA
• Characteristics of ML in Criminal Acts
• Ability to Detect TPA Indications by Reporting Parties
• Difficulty of Asset Tracing according to TPA by FIU
• Policies for Handling ML Cases (Guidelines for
Handling Cases,
Understanding NRA/SRA, Implementation of RBI (Risk Based Investigation)
• Self-Assessment (expert judgment)
• Nominal Amount of LTKT- TKM indicated TPA
• Nominal Amount of LT- TKM indicated TPA
• Nominal Amount of LTKM indicated TPA
• Nominal amount of HA ML indicated TPA
• Nominal Amount of ML HP indicated TPA
• Nominal Amount of Money Laundering Investigation by TPA
• Nominal Amount of Money Laundering Prosecution by TPA
THREATS VULNERABILITY CONSEQUENCE
• Number of ML Decisions Frequency by TPA
• Self-Assessment (expert judgment)
• Nominal Amount of ML Decisions by TPA
• Self-Assessment (expert judgment)
The characteristics of ML punishment based on the type of predicate crime are divided into 3 (three) including: extraordinary Crime, ordinary Crime without Alternative Dispute Resolution for handling criminal cases, and Ordinary Crime with Alternative Dispute Resolution for handling criminal cases. In the Ordinary condition with Alternative Dispute Resolution, if the criminal process is no longer running because the case is considered to have been completed through alternative settlements through administrative or civil settlements, then legally the predicate crime is considered completed without going through criminal justice.
ii. Risk Factors According to Profile
Table 3 Risk Factors for Domestic Money Laundering by Perpetrator Profile
THREATS VULNERABILITY CONSEQUENCE
• Number of LTKT-TKM frequencies according to the profile of the reported
• Number of LT-TKM Frequency according to the reported profile
• Number of LTKM Frequency according to the reported profile
• Capability of handling money laundering cases according to profile of
money laundering
perpetrators
• Nominal Amount of LTKT- TKM
• Nominal Amount of LT- TKM according to the reported profile
• Nominal Amount of LTKM according to the reported profile
• Nominal Amount of HA according to the profile of suspected money laundering
THREATS VULNERABILITY CONSEQUENCE
• Number of HA Frequency according to the profile of suspected ML
• Number of HP Frequency according to suspected ML profile
• Number of Investigation Frequency according to the profile of money laundering offencers
• Number of Prosecution Frequency according to the profile of ML perpetrators
• Number of Frequency of Decisions according to the profile of ML perpetrators
• Self-Assessment (expert judgment)
• Nominal amount of HP according to the profile of suspected money laundering
• Nominal Number of Investigation according to the profiles of ML perpetrators
• Amount of Prosecution according to the profile of ML perpetrators
• Nominal Number of Decisions according to the profile of ML perpetrators
• Self-Assessment (expert judgment)
iii. Domestic Money Laundering Risk Factors by Type of Occupation Profile of Individual Actors
Table 4 Risk Factors of Domestic Money Laundering by Occupation Profile of Individual Actors
THREATS VULNERABILITY CONSEQUENCE
• Number of LTKT-TKM frequencies according to the Occupation Profile of the individual reported
• Number of LT-TKM Frequency according to the
• Ability to handle money laundering cases according to the Occupation Profile of individual money laundering
• Nominal Amount of LTKT- TKM according to the Occupation Profile of the individual reported
• Nominal Amount of LT- TKM according to the
THREATS VULNERABILITY CONSEQUENCE Occupation Profile of the
individual reported
• Number of LTKM frequencies according to the Occupation Profile of the individual ML reported
• Number of HA Frequency according to the Occupation Profile of the individual ML reported
• Number of HP Frequency according to the Occupation Profile of the individual reported
• Number of Frequency of
Money Laundering
Investigation according to the Occupation Profile of individual money laundering
• Number of Frequency of
Money Laundering
Prosecutions according to the Occupation Profile of individual money laundering
• Number of Frequency of
Money Laundering
Decisions according to the Occupation Profile of individual money laundering
• Self-Assessment (expert judgment)
Occupation Profile of the individual reported
• Nominal Amount of LTKM according to the Occupation Profile of the individual reported
• Nominal amount of HA according to the Occupation Profile of the individual ML reported
• Nominal number of HP according to the Occupation Profile of the individual ML reported
• Nominal amount of money laundering investigation according to the Occupation Profile of individual money laundering
• Nominal Amount of Money Laundering Prosecution according to the Occupation Profile of individual money laundering
• Nominal amount of money laundering offences according to the Occupation Profile of individual money laundering offences
• Self-Assessment (expert judgment)
iv. Domestic Money Laundering Risk Factors by Type of Business Entity Perpetrators Table 5 Domestic Money Laundering Risk Factors by Type of Business Entity Perpetrators
THREATS VULNERABILITY CONSEQUENCE
• Self-Assessment (expert judgment)
• Self-Assessment (expert judgment)
• Self-Assessment (expert judgment)
v. Domestic Money Laundering Risk Factors by Industry Sector
Table 6 Domestic Money Laundering Risk Factors by Industry Sector
THREATS VULNERABILITY CONSEQUENCE
• Number of LTKT-TKM frequencies by reporting industry sector
• Number of LT-TKM Frequency by reporting industry sector
• Number of LTKM Frequency by reporting industry sector
• Total Vulnerability of Reporting Parties (Implementation of AML- CFT Program, LTKM detection capability, Board of Directors Supervision, Board of Commissioners Supervision, Policies and Procedures, Internal Control, Information Systems, Human Resources
• Total Vulnerability of Supervision and Regulation of Reporting Parties (Specific Unit for Supervision of AML-CFT,
KYC Guidelines,
Implementation of Risk Based Supervision (RBS), Scope of Guidance and Supervision, Imposition of Sanctions)
• Nominal Amount of LTKT- TKM by reporting industry sector
• Nominal Amount of LT- TKM by reporting industry sector
• Nominal Amount of LTKM by reporting industry sector
vi. Domestic Money Laundering Risk Factors by Geographic Region
Table 7 Domestic Money Laundering Risk Factors by Geographic Region
THREATS VULNERABILITY CONSEQUENCE
• Number of LTKT-TKM frequencies by geographic area of transaction occurrence
• Number of LTKM Frequency by geographic area of transaction occurrence
• Number of HA ML Frequency by geographical area
• Number of HP ML Frequency by geographic area
• Total Frequency of Money Laundering Investigation by geographic area
• Number of Frequency of
Money Laundering
Prosecutions by geographic area
• Number of ML Decisions by Geographical Area
• Self-Assessment (expert judgment)
• Capability of Handling Money Laundering Cases according to the geographical area of the jurisdiction
• Nominal Amount of LTKT- TKM according to geographic area of transaction occurrence
• Nominal Amount of LTKM by geographical area of transaction occurrence
• Nominal Amount of HA ML by geographical area
• Nominal Amount of ML HP by geographical area
• Nominal Amount of Money Laundering Investigation by geographic area
• Nominal Amount of Money Laundering Prosecution by geographical area
• Nominal amount of money laundering offences by geographical area
• Self-Assessment (expert judgment)
vii. Domestic Money Laundering Risk Factors By Typology
Table 8 Risk Factors for Domestic Money Laundering by Typology
THREATS VULNERABILITY CONSEQUENCE
• Self-Assessment (expert judgment)
• Self-Assessment (expert judgment)
• Self-Assessment (expert judgment)
b. ML Risk from Overseas (Inward Risk)
i. ML Threat Factors from Overseas (Inward Risk) by Type of Predicate Crime Table 9 Threat Factors for Money Laundering from Overseas (Inward Risk) By Type of
Predicate Crime THREATS
• Number of Frequency of Exchange of Financial Intelligence Information (Incoming) according to the indications of ML
• Number of Requests for Mutual Legal Assistance (MLA Incoming) according to TPA indications for ML
• Number of ML Cases Frequency from Overseas FIUs according to TPA indications
• PESTEL analysis
ii. ML Risk Factors from Overseas (Inward Risk) by Country of Origin TPA
Table 10 Risk Factors for Money Laundering from Overseas (Inward Risk) By Country of Origin TPA
THREATS VULNERABILITY CONSEQUENCE
• Number of Requests for the Exchange of Financial Intelligence Information (Incoming) by country
• Number of Requests for Mutual Legal Assistance (MLA Incoming) by country
• Basel AML Index by Country for 2020
• Nominal Amount of Financial Intelligence Information Exchange (Incoming) by country
• Nominal Amount of Mutual Legal Assistance (MLA) requests by country
THREATS VULNERABILITY CONSEQUENCE
• Number of IFTI Incoming- TKM Frequency by sending country
• Nominal Amount of IFTI Incoming-TKM by sending country
iii. ML Risk Factors from Overseas (Inward Risk) by Type of Occupation Profile of Individual Actors
Table 11 Threat Factors for Money Laundering from Overseas (Inward Risk) By Type of Occupation Profile of Individual Perpetrators
THREATS VULNERABILITY CONSEQUENCE
Number of IFTI Incoming Frequency-TKM by Type of Occupation Profile of Individual Perpetrators
• Ability to Handle Money Laundering Cases according to Type of Occupation Profile of Individual Perpetrators
• Nominal Amount IFTI Incoming-TKM according to Type of Occupation Profile of Individual Perpetrators
iv. ML Threat Factors from Overseas (Inward Risk) by Type of Business Sector Table 12 Threat Factors for Money Laundering from Overseas (Inward Risk) By Type of
Business Sector
THREATS CONSEQUENCE
• Number of IFTI Incoming-TKM Frequency by Type of Business Sector of Business Entity
• Nominal Amount of IFTI Incoming-TKM by Type of Business Sector of Business Entity
c. Money Laundering Risk to Overseas (Outward Risk)
i. Threat Factors to Overseas (Outward Risk) by Type of Predicate Crime
Table 13 Threat Factors for Money Laundering Overseas (Outward Risk) By Type of Predicate Crime
THREATS
• Number of Frequency of Exchange of Financial Intelligence Information (Outgoing) according to indications of TPA ML
• Number of Requests for Mutual Legal Assistance (MLA Outgoing) according to TPA indications for money laundering offences
• Number of Case Frequency from Overseas FIUs according to TPA indications for ML
• PESTEL analysis
ii. Risk Factors for Money Laundering Abroad (Outward Risk) by Country of Destination
Table 14 Risk Factors for Money Laundering to Overseas (Outward Risk) By Country of Destination
THREATS VULNERABILITY CONSEQUENCE
• Number of Requests for Financial Intelligence Information Exchange (Outgoing) by country
• Number of Requests for Mutual Legal Assistance (MLA Outgoing) by country
• Basel AML Index by country for period 2020
• Nominal Amount of Financial Intelligence Information Exchange (Outgoing) by country
• Nominal Amount of Mutual Legal Assistance (MLA) requests by country
THREATS VULNERABILITY CONSEQUENCE
• Number of IFTI Outgoing
Frequency-TKM by
recipient country
• Nominal Amount of IFTI Outgoing -TKM by recipient country
iii. Risk Factors for Money Laundering Abroad (Outward Risk) by Type of Occupation Profile of Individual Actors
Table 15 Risk Factors for Money Laundering Overseas (Outward Risk) By Type of Occupation Profile of Individual Perpetrators
THREATS VULNERABILITY CONSEQUENCE
• Number of IFTI Outgoing Frequency-LTKM
• Ability to Handle Money Laundering Cases
• Nominal Amount of IFTI Outgoing-LTKM
iv. Threat Factors for Money Laundering Overseas (Outward Risk) by Type of Business Sector
Table 16 Threat Factors for Money Laundering Overseas (Outward Risk) By Type of Business Sector
THREATS CONSEQUENCE
• Number of IFTI Outgoing-TKM Frequency by Type of Business Sector of Business EntityPerpetrators
• Nominal Amount of IFTI Outgoing-TKM by Type of Business Sector of Business EntityPerpetrators
d. Emerging Threat on Money Laundering Factors
Table 17 Emerging Threat on Money Laundering Factors THREATS
• Literature Review
• Self-Assessment (expert judgment)
• Focus Group Discussion
• PESTEL analysis
e. Risk Assessment Method
After the identification process of the risk-forming factors for each context or PoC (Point of Concern) of each identified variable, then in the next stage a weighting technique is carried out on these risk-forming factors. The following is the weighting that has been carried out based on process Hierarchy Analysis (AHP) approach.
Table 18 Weighting Factors Against Categories
CATEGORIES FACTOR WEIGHT
Transaction Based LT-TKM, LTKT-LTKM, LTKM 1
Intelligence Based HA, HP 2
Investigation Based Investigation Result 3
Prosecution Based Prosecution result 4
Conviction Based Decision result 5
Table 19 Comparison of Real and Potential Weights
CATEGORIES FACTOR WEIGHT
Riil Transaction, Intelligence, Investigation, Prosecution, Conviction
2
Potential Perception (Self-Assessment of Reporting Party, FIU, LPP, Law Enforcement Agencies)
1
As is known from table 18 above, this weighting is carried out by considering that decision has the largest weight, namely 5, while the basis for reporting transactions is the smallest, namely 1. The court's decision has been legally proven through the investigation process to the court.
The weighting on the real factor with a weight of two and the self-assessment factor that will be used in measuring the potential level with a weight of 1.
Furthermore, a quantification technique is carried out on each variable by transforming the volume of threats, vulnerabilities, and consequence into a scale of 3-9 which shows a low, medium and high risk scale. This quantitative transformation is carried out using the min-max method. The quantitative transformation is described in figure 3.
Figure 3 Quantitative Transformation
The smallest scale is three and the largest scale is 9, both for the threat, vulnerability and consequence variables. In accordance with the risk assessment formula, after obtaining the value of the quantity of threats and vulnerabilities, the two are then added together to obtain the likelihood value. In accordance with the risk formula, after obtaining the trend value that has been transformed into a scale of 3-9, then the trend scale is multiplied by the consequence scale to obtain the risk value. The risk value of each PoC is then divided into three levels, as follows:
Table 20 Formulation of Risk Level RISK
VALUE RANGE
RISK LEVEL
EXPLANATION
7 < x ≤ 9 High Significant amount and value related to money laundering; and requires urgent attention
5 ≤ x ≤ 7 Medium
Significant amount and value related to money laundering; and requires continuous monitoring to
determine the possibility of urgent and/or timely escalation of handling required
3 ≤ x < 5 Low
Low and/or limited amount and value related to money laundering; and requires a lower Action or
a response in the form of monitoring is needed
This evaluation stage contains process of taking the results found during analysis process to determine priorities in overcoming risks, considering the objectives of the risk assessment at the beginning of the assessment process. This stage also contributes to development of strategies for risk mitigation that leads to development of strategies to address risks.