Money laundering control in Mexico

Abstract

Purpose This paper is aimed at developing a regression tree model useful to quantify the Money Laundering (ML) risk associated to a customer profile and his contracted products (customer’s inherent risk). ML is a risk to which different entities are exposed, but mainly the financial ones because of the nature of their activity, so that they are legally obliged to have an appropriate methodology to analyze and assess such a risk. Design/methodology/approach This paper uses the technique of regression trees to identify, measure and quantify the ML customer’s inherent risk. Findings After classifying customers as high- or low-risk based on a probability threshold of 0.5, this study finds that customers with 56 months or more of seniority are more risky than those with less seniority; the variables “contracted product” and “customer seniority” are statistically significant; the variables origin, legal entity and economic activity are not statistically significant for classifying customers; institution collection, business products and individual product are the most risky; and the percentage of effectiveness, suggested by the decision tree technique, is around 89.5 per cent. Practical implications In the daily practice of ML risk management, the two main issues to be considered are: 1) the knowledge of the customer, and 2) the detection of his inherent risk elements. Originality/value Information from the customer portfolio and his transaction profile is analyzed through BigData and data mining.

Money laundering risk management in multiple-purpose financial institutions in Mexico: a Bayesian network approach

“…Their findings provide a positive assessment of the risk-based mechanism of reporting suspicious operations to the financial intelligence unit, although congestion problems from overreporting are observed. Also, Martínez-S anchez et al (2020) propose a regression tree model useful to quantify the ML risk associated to a customer profile and his contracted products (customer's inherent risk). The authors find that ML is a risk to which different entities are exposed, but mainly the financial ones because of the nature of their activity, so that they are legally obliged to have an appropriate methodology to analyze and assess such a risk.…”