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)

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.

 

What can we learn from low-risk countries?

Despite a deterioration in risk scores for some of the lower-risk countries in 2018, the list of countries with the lowest assessed risk has not changed significantly in recent years.

Between 2017 and 2018, Latvia, Iceland, Denmark and Poland left the list of top 10 low-risk countries and Lithuania, Macedonia, Bulgaria and Croatia joined it.

CountryRisk score 2017Risk score 2018Change in score 2017–2018
FINLAND
1.782.57+0.80
ESTONIA2.732.730.00
LITHUANIA3.673.12-0.55
NEW ZEALAND3.033.20+0.17
MACEDONIA4.093.33-0.76
BULGARIA3.843.53-0.31
SLOVENIA*2.783.75+0.97
SWEDEN*3.403.75+0.35
CROATIA4.113.83-0.28
ISRAEL3.593.84+0.24

*Countries assessed according to the new FATF methodology

Low-risk countries wishing to maintain their low risk ranking, and all countries wishing to improve their ranking, should take guidance in the following characteristics that low-risk countries typically share:

  • Strong AML/CFT legislation including on the freezing of terrorist funds
  • Competent authorities with the mandate and resources to investigate and prosecute ML/TF offences and issue sanctions for non-compliance
  • Comprehensive measures for domestic and international cooperation
  • High level of press freedom, with the media playing a central role in uncovering and reporting financial crime
  • Financial sector highly regulated with competent supervisory authorities and minimal, if any, cash-based transactions
  • High levels of transparency and integrity in public institutions and businesses
  • Low levels of corruption

Two main reasons behind improvements in ML/TF

The 10 countries with the greatest improvements in risk score in the Basel AML Index 2018 are:

CountryRisk score 2017Risk score 2018Change in score 2017–2018
TRINIDAD AND TOBAGO*6.755.25-1.50
TANZANIA7.866.71-1.15
BOLIVIA7.136.02-1.11
GHANA*6.335.32-1.01
GRENADA5.054.20-0.85
MONTENEGRO4.763.95-0.81
BRAZIL5.764.96-0.80
MACEDONIA4.093.33-0.76
VENEZUELA6.445.69-0.75
ST. VINCENT AND THE GRENADINES5.224.46-0.75

*Countries assessed according to the new FATF methodology

The Basel AML Index demonstrates that there is no strong correlation between a country's region and its change in risk score. Significant changes in 2018 were instead primarily affected by the following two factors, which are partly related to methodology:

Obtaining a better Financial Secrecy Index rating

Some countries improved their risk score due to changes in the methodology underlying the Financial Secrecy Index (FSI). The FSI measures the level of bank secrecy, scale of a country’s offshore banking activity and size of its financial centre. A significant increase in the number of countries covered by the FSI led to the need to re-score FSI ratings for inclusion in the Basel AML Index (see Methodology).

For example, Trinidad and Tobago was assessed by the FSI for the first time in 2018 and obtained a low risk score. When combined with a lower risk of corruption and increased financial transparency, this allowed the country to achieve a significant improvement in risk score in the Basel AML Index.

Macedonia saw slight improvements in political and legal risks, financial transparency and public transparency, but the most substantial influence on the country’s overall score was also the improvement in its FSI. Positive changes for Ghana, Brazil, Paraguay and Tanzania are also mainly explained by improved FSI scores.

Leaving the Jurisdictions of Primary Concern blacklist

Another influential factor for major changes in some countries’ performance in the 2018 Basel AML Index was the inclusion or exclusion of the country on the list of Jurisdictions of Primary Concern in the US State Department International Narcotics Control Strategy Report (INCSR). Jurisdictions included in this list are considered to be “major money laundering countries” by the US Bureau of International Narcotics and Law Enforcement Affairs.

The improvement in Grenada’s score in the 2018 Basel AML Index, for example, was mainly driven by the country’s disappearance from the Jurisdictions of Primary Concern list.

Despite the positive improvements, most countries in the list of top improvers are still assessed as having middle or high risks of ML/TF and should continue to address the factors that are dragging them down.

Which countries have significantly worsened their scores and why

The top 10 decliners in 2018 are:

CountryOverall score 2017Overall score 2018Change in score 2017–2018
DENMARK*2.984.11+1.14
ICELAND*3.524.59+1.07
SLOVENIA*2.783.75+0.97
TAIWAN, CHINA4.345.15+0.81
FINLAND1.782.57+0.80
POLAND3.624.38+0.77
CYPRUS4.265.01+0.75
SOUTH AFRICA4.595.34+0.75
PORTUGAL*3.954.66+0.72
NETHERLANDS4.304.90+0.60

*Countries assessed according to the new FATF methodology

Iceland, Denmark and Slovenia recorded a significantly higher risk rating in 2018 due to having been assessed using the new FATF evaluation methodology, which measures not only technical compliance but importantly emphasises effectiveness.

The recent Danske Bank scandal seems to confirm the observation that there are big issues with the effectiveness of money laundering supervision in countries generally regarded as low-risk.

This phenomenon has been observed in previous years with other countries that underwent a FATF evaluation using the new evaluation methodology. The results illustrate that most countries are typically stronger on technical compliance and struggle with effective implementation of legal requirements. As more and more countries are assessed with the new methodology, the same phenomenon is likely to occur for a few years to come before it levels out.

The same two main factors behind improvements in ML/TF risk (see the previous section) caused some countries to fall down the rankings. For example:

  • Although still at the top of the list of low-risk countries, Finland saw a deterioration in its overall score due to changes in its Financial Secrecy Index rating, as well as other indicators of corruption and financial transparency.
  • Poland demonstrated higher risks in such indicators as financial secrecy, corruption, financial transparency and political and legal risks.
  • Cyprus saw increased financial secrecy scores and was also, crucially, included in the UN INCSR list of Jurisdictions of Primary Concern.