Methodological approach

The Basel AML Index uses a composite methodology, meaning that the Basel Institute draws its components by aggregating various publicly available sources. In the first stage, the Basel Institute conducted extensive research in measuring money laundering and its challenges before carefully selecting the applied indicators. Only relevant indicators, sub-indicators and assessments that examine AML/CFT framework and other factors related to money laundering risk were considered. This was followed by the weighing of indicators according to their importance, based on expert opinions with academic, financial and senior AML experts. The review process entails an annual review meeting with external experts verifying the quality of data, the date, country coverage and methodology. 

AML methodological Overview

There is no universally accepted list of indicators in assessing a country’s money laundering risk, but some guidance exists on what to look out for. A key consideration is whether a jurisdiction has an adequate AML/CFT framework in place. Other factors include the level of corruption and sanctions. Additional factors such as financial and public transparency as well as a country’s global role in the financial system should be considered to assess the whole picture.

Changes in 2018

The seventh edition of the Basel AML Index has seen two significant changes. To keep the comparability, the results of the 2017 Index have been recalculated using the 2018 methodology.

Approach to missing data

A country’s overall score is calculated based on available data only. Missing values are not replaced.

In previous Public Editions of the Basel AML Index, only countries for which data were available for a minimum of 8 out of 14 indicators were included in the ranking. However, such an approach has led to biases in assigning country scores. This can happen when, for example, only one indicator from the ML/TF risk category is available, so this indicator has a disproportionate impact on the country’s overall score.

To deal more effectively with this challenge in future, it was decided that from now on, only countries with data for two out of the three indicators in the ML/TF category will be included in the ranking. This has resulted in 17 more countries being removed from the ranking.

Adjusting the Financial Secrecy Index impact

In 2016, the FSI underwent sweeping methodological changes to reflect evolutions in several aspects of financial secrecy. In 2018, the FSI also increased its country coverage to 112 jurisdictions from a previous shortlist of 60 in 2009.

The original procedure to normalise the FSI score for the Basel AML Index involved giving each country on the list an automatic score of 5 out of 10, based on the assumption that every country on the list was considered a “secrecy jurisdiction”. Due to the FSI’s methodological changes, in 2018 it was decided to rescale the FSI in the same way as the other indicators in the Basel AML Index – from 0 to 10 – and to decrease the weight of the FSI from 25% to 20% in order to reduce the impact of the changes on the overall score. In turn, the weight of the FATF indicator increased from 30% to 35%.

Factors that impact a country's risk score in the Basel AML Index

Sources

Basel AML Index scores are based on 14 indicators from publicly available sources. These indicators, and their weighting in the composite index, are:

  • Quality of AML/CFT framework (65%)
    • FATF Mutual Evaluation Reports
    • Financial Secrecy Index
    • US State Department International Narcotics Control Strategy Report (INCSR)
  • Corruption risk (10%)
    • Corruption Perception Index
  • Financial transparency and standards (15%)
    • Extent of Corporate Transparency Index
    • WEF Global Competitiveness Report – Strength of auditing and reporting standards
    • WEF Global Competitiveness Report – Regulation of securities exchanges
    • World Bank IDA Resource Allocation Index – Financial sector regulations
  • Public transparency and accountability (5%)
    • Political Finance Database – Political disclosure
    • Open Budget Index – Budget transparency score   
    • World Bank IDA Resource Allocation Index – Transparency, accountability and corruption in the public sector
  • Political and legal risk (5%)
    • Freedom House: Freedom in the World and Freedom of the Press
    • WEF Global Competitiveness Report – Institutional pillar
    • Rule of Law Index

For full details of all 14 indicators used, and why, see Indicators.

Weighting

The expert weighting system used places greater emphasis on indicators reflecting AML/CTF assessments and financial standards.

The FATF Mutual Evaluation Reports, Financial Secrecy Index and US INCSR therefore have a significant effect on the country’s final risk score.