AML risk factors · sector risk
AML industry & sector risk — how it is assessed
One of the standard AML risk factors, explained · published by Ioannou & Sharpe LLC
Money-laundering risk is never a single number. Regulators expect obliged entities to weigh it across several factors — and the business sector or industry a client operates in is one of them, sitting alongside geography, customer type, product/service and delivery channel.
Where sector risk sits in the framework
Under the FATF risk-based approach (Recommendation 1), the EU Anti-Money Laundering Directives (Article 8) and Cyprus AML Law 188(I)/2007, a firm must run a documented risk assessment across the recognised risk-factor categories. Sector risk answers a specific question: how exposed to money laundering is the kind of business this client is in? A cash-intensive dealer, a company-formation agent and a salaried employee do not carry the same inherent risk.
How sector risk is “calculated”
In practice it is a two-step judgement, documented so a supervisor can follow it:
- Inherent risk — the sector’s baseline exposure, drawn from authoritative assessments: the EU Supranational Risk Assessment (which scores sectors and products by ML/TF risk), FATF typologies and sector guidance, and the national risk assessment.
- Residual risk — inherent risk reduced by the controls you apply (CDD depth, source-of-funds checks, monitoring, senior sign-off). What is left is what you manage and record.
That sector rating then feeds two places: your business-wide risk assessment (which sectors you serve and how you control them) and each client’s risk score (a higher-risk sector pushes a file toward enhanced due diligence, more source-of-funds scrutiny and more frequent review). Sector risk is never decisive on its own — it combines with geography, the customer’s profile and the product to produce the overall rating.
The ratings on these pages are therefore indicative, not prescriptive: they describe inherent exposure in the published frameworks, not how any given firm must treat a client. Specialist firms serve gambling operators or adult-entertainment businesses as business as usual — with controls calibrated to match. What a supervisor expects is not avoidance of a sector, but that the rating you apply is your own, documented, and backed by the controls it implies.
This is exactly what a supervisor asks to see:
why a client’s sector is rated as it is, and
what extra measures follow. FIRMCY writes the sanctions, PEP, adverse-media and jurisdiction findings for each client into an audit-ready report, so the screening half of that record is done for you.
New organisations get 100 free credits, no card required.Start screening freeGeographic-risk listsHigher-risk sectors, one by one
The sectors most consistently flagged in the EU and FATF assessments — what makes each risky, the typical red flags, and the obligations that follow:
Real estateHIGH risk — Real estate is repeatedly assessed as high-risk for money laundering: property absorbs lar…Crypto-assets & VASPsHIGH risk — Virtual assets move value across borders in minutes, can be held pseudonymously, and sit o…Trust & company service providers (TCSPs)HIGH risk — TCSPs create and administer the very companies, trusts and structures that can be used to …Gambling & betting operatorsHIGH risk — Gambling can layer and integrate illicit funds through wagering, cash-heavy play and payou…Dealers in precious metals & stonesELEVATED risk — High-value, portable and easily convertible, precious metals and stones can store and move…Money services businessesHIGH risk — Money remittance and currency exchange move funds quickly, often in cash and across border…Art & antiquitiesHIGH risk — High-value, subjectively priced and traded in a market with a long tradition of privacy, a…Arms & defenceHIGH risk — Few sectors sit under more layers of control: arms embargoes, dual-use export licensing an…Oil, gas & extractivesELEVATED risk — Concentrated wealth, state involvement and cross-border trading chains give oil, gas and m…TobaccoELEVATED risk — Illicit tobacco is cash-intensive, high-margin and historically low-risk for the criminal …Wildlife & protected speciesHIGH risk — The illegal wildlife trade generates proceeds estimated at up to USD 23 billion a year, an… Moderate-risk sectors
Elevated enough to note in the risk assessment, not enough for automatic enhanced measures — and several of them the backbone of the Cyprus economy:
Beyond the core list — channels & programmes the frameworks also flag
Sector risk does not stop at the classic list. The FATF and EU frameworks also flag specific channels, programmes and business models — several with particular Cyprus relevance:
Citizenship & residency by investmentHIGH risk — Golden passports and visas grant mobility, a fresh identity layer and banking access in ex…Cash-intensive businessesELEVATED risk — Restaurants, kiosks, car washes, salons — any business whose takings are mostly banknotes …High-value goods dealersELEVATED risk — Cars, yachts, watches and other luxury goods let illicit funds become assets that hold val…Adult entertainmentELEVATED risk — Cash-heavy venues, high-margin services and payment-industry deplatforming that pushes ope…Professional football & sportsELEVATED risk — Opaque transfer fees, cross-border ownership, image rights and betting flows — the FATF co…Free zones & free portsELEVATED risk — Zones designed to lighten customs oversight also lighten scrutiny: the FATF found free tra…E-money, payments & crowdfundingELEVATED risk — Instant onboarding, non-face-to-face customers and cross-border reach make new payment pro… Sources & further reading
