An exploratory examination of anti-money laundering risk assessment

Ogbeide, Henry (2023) An exploratory examination of anti-money laundering risk assessment. Doctoral thesis, Northumbria University.

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Abstract

This project aimed to provide an exploratory examination of anti-money laundering (AML) risk assessments in the contemporary context of the risk-based approach, in which financial professionals assess the risk to which they are exposed and adopt suitable modification actions in accordance with their levels of perceived risk. In this study, the purpose was to evaluate the quality of expert judgment and to identify factors that influence money laundering risk estimates. To proceed along these lines, three different exploratory methods were employed. First, an opinion poll was conducted on 1497 individuals who were directly or indirectly responsible for making AML risk assessments in the real world. This poll contained questions relevant to the research, such as the contexts and information that they thought were most useful to form a reasonable belief that particular transactions have potential for money laundering and the factors that were most likely to influence the quality of risk assessment decisions in this domain. This was followed by semi-structured interviews conducted on nine AML experts based on four themes: the effectiveness of risk assessments, the risk assessment process, the main factors that influence risk judgement and perceived process improvement opportunities. The interview responses were then subjected to thematic analysis. Finally, an experimental study using vignettes was designed to investigate the quality of probability judgment in this context. This measured overall accuracy of AML risk assessments along with performance on various important underlying components of judgement across level of expertise (experts v’s novices) and gender. Various interesting results emerged from these analyses. For example, it was found initially from the short polls that organizational response strategies (such as formulated policies, procedures) serve as the most common choices for AML practitioners to gauge their risk assessment judgment accuracy. Therefore, despite the much-promoted risk-based approach, in which financial professionals assess the risk to which they are exposed and adopt suitable modification actions following their levels of perceived risk, professionals most often depended either on their organization processes or domicile statutory requirement to build their reasonable judgment during AML risk assessment. Moreover, this finding also strongly emerged from the semi-structured interview analysis. Intriguing results also emerged from the experimental probability judgment accuracy study. For example, it was found that both experts and novices were overconfident about their distribution judgments and this effect was slightly more pronounced in the expert group. One manifestation of the overconfidence effect in both groups was the preference for false-positive over false-negative errors. Notably, novice participants slightly outperformed expert participants in the proportion of correct outcomes. These findings are discussed in terms of their main contributions to research and practice, potential limitations of the work are considered and directions for future research are offered.

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