This is the seventh edition of the Basel AML Index issued by the International Centre for Asset Recovery, part of the Basel Institute on Governance.

It focuses on anti-money laundering and countering the financing of terrorism (AML/CFT) frameworks, plus related factors that impact the risk of ML/TF, such as corruption, transparency and the rule of law. 

• Overview of 129 countries according to their risk of money laundering and terrorist financing
• Interactive ranking revealing trends and changes in risk over time
• Research-led, composite index based on public sources and third-party assessments
• AML risk assessment tool covering 203 countries for compliance purposes, policymaking and research (Expert Edition)

Contents of this page:

• Money laundering risks in context
• Key trends
  1. Little measurable progress in countering money laundering
  2. Effectiveness lags behind technical compliance
  3. No such thing as zero risk of money laundering
  4. ML/TF is not a standalone risk
  5. What can we learn from low-risk countries?
  6. Two main reasons behind improvements in ML/TF
  7. Which countries have significantly worsened their scores and why

Download the Basel AML Index Report 2018

Money laundering risks in context

Money laundering and terrorist financing continue to cripple economies, distort international finances and harm citizens around the globe. Estimates of the amount of money laundered worldwide range from US$500 billion to a staggering US$1 trillion.  

Most countries are making little or no progress towards ending corruption and public transparency is showing signs of decline, with governments making less information available about how they manage public funds. Despite the recent surge in reporting on high-profile corruption and money laundering schemes, such as the Panama Papers, Paradise Papers and Odebrecht scandal, indications are that global press freedom has declined to its lowest point in 13 years.

All these factors are known to impact negatively on the risk of ML/TF. Looking at them in conjunction with countries’ specific AML/CFT frameworks helps us to understand trends and developments in ML/TF risks.

The Basel AML Index brings all these factors together to gain a more comprehensive picture of drivers of ML/TF risk, with a view to guiding informed measures to counter these risks. 

Key trends

Money laundering and terrorist financing risks vary greatly from region to region, country to country, and even within countries. However, some key patterns and trends in ML/TF risk can be identified.

Little measurable progress in countering money laundering

Over the seven years since it was first calculated, the Basel AML Index has consistently indicated slow progress among most countries in improving their ML/TF risk scores.

64% of countries in the 2018 ranking (83/129) have a risk score of 5.0 or above and can be loosely classified as having a significant risk of money laundering and terrorist financing. The mean average level of risk remains above this (5.63 in 2018).

Less than 4% of countries in the ranking (4/129) have improved their scores by 1 point or more in the last year (Ghana, Bolivia, Tanzania, Trinidad and Tobago). Between 2012 and 2018, only 17% (21/129) have improved their score by 1 point or more.

The downward trend is more striking. 42% of countries have worsened their risk scores between 2017 and 2018. Almost 37% of countries now have a worse risk score than they did in 2012.

The highest risk score has also remained roughly the same, fluctuating between 8.55 and 8.6 between 2012 and 2018.

Clearly, still too little is being done to effectively counter ML/TF risks.

Effectiveness lags behind technical compliance

The most concerning aspect illustrated by the Basel AML Index is the apparent low level of effective enforcement of AML/CFT measures.

The FATF Mutual Evaluation Reports, a key indicator in the Basel AML Index, assess a country’s legal and institutional AML/CFT framework and its implementation of AML/CFT measures in line with the 40 FATF Recommendations. These are designed to improve relevant legislation, law enforcement, international cooperation and customer due diligence (see Methodology).

Clearly, the mere existence of laws and institutions is not enough to effectively combat ML/TF. As a consequence, the FATF methodology was revised in 2013 to emphasise the effectiveness of AML/CFT systems and not simply technical compliance with the Recommendations.

The overwhelming majority of countries assessed with the updated methodology so far – marked by an asterisk in the Basel AML Index – have received dramatically lower scores for effectiveness than for technical compliance.

This has also had a major impact on their performance in the Basel AML Index, which weighs countries’ results in effectiveness as twice as important as their results in technical compliance. For example:

• 77% of countries assessed using the new methodology have not achieved outcomes for investigating ML activities and prosecuting offenders.
• 47% have achieved a low level of effectiveness in investigating and prosecuting ML offences.
• 40% have not achieved outcomes in confiscating the proceeds of crime.

If this pattern continues, and especially when combined with the poor progress recorded in the Basel AML Index since 2012, one must fear that many governments worldwide are still not doing enough to sincerely prevent and combat ML/TF. Even worse, it will indicate that they are consciously neglecting efforts to boost implementation effectiveness by hiding behind formal compliance structures that merely give the appearance of AML/CFT commitment.

This observation is supported by a recent European Commission proposal to reinforce the role of the European Banking Authority in effectively supervising money laundering risks, because in the words of Commission Vice-President for the Euro and Social Dialogue, Valdis Dombrovskis, "[a]nti-money laundering supervision has failed all too often in the EU."

No such thing as zero risk of money laundering

While some countries have a lower risk of money laundering than others, no country was rated as having zero risk of ML/TF. In fact, the Basel AML Index shows an increase in the minimum risk score, from 1.78 in 2017 to 2.57 in 2018.

The increase may partly be due to improved detection mechanisms and more availability of data. Another factor is changes in the Financial Secrecy Index, which automatically assigns a raised level of risk to countries with a large share in the global financial sector (see Methodology).

Even beyond that, many low-risk countries have issues that need to be addressed, for example related to beneficial ownership or politically exposed persons. What’s more, criminals are ingenious at finding new ways to launder money, and governments need to be constantly on the lookout and adjust their legal, institutional and policy responses accordingly.

In other words, a low risk score in the Basel AML Index is not a ticket to taking a leave from AML/CFT vigilance, either for a country’s administration or for companies and financial institutions doing business in that country.

Recent money laundering scandals involving countries that are rated as low-risk countries on the 2018 Basel AML Index are a case in point. 

ML/TF is not a standalone risk

Our analysis over the last seven years has consistently shown that countries with a high risk of ML/TF share some or all of these features:

• Weak public institutions, political rights and rule of law
• Low levels of financial/political transparency
• Restrictions on press freedom
• Lack of resources to control the financial system
• Predominantly cash-based economies
• High levels of smuggling activity and illegal trafficking (in drugs, humans, wildlife products, etc.)

The interconnectedness of the factors used to calculate the Basel AML Index score of a country is also highlighted in this year’s edition, in which many countries saw improvements in one or two areas that were then wiped out by a deterioration in others.

For example, despite improvements in indicators relating to corruption, financial transparency and public transparency, Slovenia still deteriorated in its overall score due to a huge increase in its financial secrecy rating.

Taking a holistic approach to tackling money laundering issues is therefore essential. Economic development can only contribute to reducing the risk of money laundering if it is sustainable, in other words not based on corrupt practices or illegal trafficking. It must also be coupled with respect for basic human rights, effective control systems and an open political culture.

This complexity of factors behind a high ML/TF risk rating has implications for those considering doing business in a particular country.

Indiscriminate de-risking – avoiding rather than managing ML/TF risks by terminating relationships with entire regions or classes of customers – can have disastrous consequences as it cuts entire jurisdictions off from international financial flows, including legal ones. Rather than playing safe by de-risking, and thereby missing out on business opportunities and penalising innocent stakeholders, companies and financial institutions should drill down to the specific factors driving the high level of risk and implement measures to mitigate these.

A similar comprehensive approach must be taken by policymakers, who should seek to strengthen the comprehensive set of factors contributing to their country’s raised level of risk, and by regulators, who should be cautious of too simple a definition of risk.