The effects of individual, contextual and environmental factors on judgment and decision making of anti-money laundering compliance officers / 'Ainul Huda Jamil

Banking institutions and money service businesses (MSBs) are the most vulnerable financial sector to money laundering. Bank Negara Malaysia (BNM) stated the findings of minor to major gaps in the banking institutions' anti-money laundering (AML) compliance programme and risk management activities, emphasizing the quality of suspicious transaction reports in National Risk Assessment (NRA). The compliance officer has the sole discretion to report suspicious transactions to BNM's Financial Intelligence and Enforcement Department (FIED). It denotes that compliance officer's sound judgment and decision-making are critical in the battle against money laundering. This study addresses the above gaps by examining the effects of the compliance officers' individual, contextual and environmental factors at banking institutions and MSBs. Moreover, with the existing scarcity of money laundering related behavioural studies, this study is justified for narrowing the research gaps. This study examines the threecomponent factors that could influence the compliance officers' judgment and decisionmaking in money laundering risk according to behavioural decision theory, Bonner's judgment and decision-making framework, and Diagnostic Cognitive Modelling (DiaCoM) framework. This study utilizes two prongs, a survey, and a between-subject quasi-experimental research design, to present a holistic view of money laundering risk judgment and decision-making. Given the circumstances surrounding money laundering risk, combining these two sub-studies provides robust findings. This study intended to find the impact of individual, contextual and environmental factors on the judgment and decision-making of compliance officers. The data were analysed using Partial Least Squares of Structural Equation Modelling on 101 and 124 cleaned data for Study One and Study Two. In Study One, results of the study suggest that individual characteristic (knowledge sharing) is vital in influencing the performance of money laundering risk judgment directly or indirectly. Study One shows that some correlations between knowledge sharing, and money laundering risk judgment are mediated by contextual characteristics (risk-based approach). However, results show that the environmental component (ethical environment) moderates the link between knowledge sharing and money laundering risk judgment. Study Two, which experimentally employs the diagnostic cognitive modeling framework (DiaCom) in the case studies, confirms no direct effect of individual factors (technical competency) on money laundering decision-making without prior assessment and judgment. Study Two also provides further evidence that shows the direct effects of contextual factors (customer risk profiling) and moderation effects of environmental factors (law enforcement) on the relationship between customer risk profiling and money laundering risk decisionmaking. Study Two concludes by imposing stricter law enforcement on reporting institutions, their compliance officers will make tougher decision-making on customers with low-risk profiles than when law enforcement is lenient. This study contributes to the current body of knowledge on money laundering risk judgment and decision-making by validating the theoretical foundation's underlying behavioural judgment and decision-making. The originality of the research appears from the Money Laundering Diagnostic Thinking (MoLDiT) Model developed to combine all the three elements of individual, contextual and environmental characteristics towards money laundering risk judgment and decision-making. However, the study has several limitations that should be covered by future research in terms of the population, research techniques, methodology, scope of research and theory.