What's behind the Basel AML Index?

The Basel AML Index measures the risk of money laundering and terrorist financing (ML / TF) in jurisdictions around the world. It is based on a composite methodology, with 18 indicators categorised into five domains in line with the five key factors considered to contribute to a high risk of ML/TF.
Shortfalls in the AML/CFT framework
Corruption and bribery
Poor financial transparency and standards
Poor public transparency and accountability
Weak political rights and rule of law

High risk

Data sources

The aim of the Basel AML Index is to provide a holistic picture of ML/TF risk. Risk, as measured by the Basel AML Index, is defined as a jurisdiction's vulnerability to ML / TF and its capacities to counter it. It is not intended as a measure of the actual amount of ML / TF activity in a given jurisdiction.

The 18 indicators differ in focus and scope. We choose indicators based on several criteria, including their relevance, methodology, jurisdiction coverage, public availability, and the availability of recent data. The indicators and weighting are reviewed annually by an independent expert group.

Click the indicators below to learn what they measure and why they are important for evaluating ML/TF risks.

Domain 1: Quality of AML/CFT Framework (65%)

FATF Mutual Evaluation Reports and Follow-up Reports (35%)

Tax Justice Network Financial Secrecy Index (15%)

US State Department: International Narcotics Control Strategy Report (5%)

US State Department: Trafficking in Persons Report (5%)

Global Organized Crime Index – Flora, fauna, non-renewable resources (5%)

Domain 2: Corruption and Bribery Risk (10%)

Transparency International: Corruption Perceptions Index (5%)

TRACE: Bribery Risk Matrix (5%)

Domain 3: Financial Transparency and Standards (10%)

World Bank: Extent of Corporate Transparency Index (2.5%)

WEF: Global Competitiveness Report – Strength of auditing and reporting standards (5%)

World Bank: IDA Resource Allocation Index – Financial sector regulations (2.5%)

Domain 4: Public Transparency and Accountability (5%)

International Budget Partnership: Open Budget Survey – Budget transparency score (1.66%)

International IDEA: Political Finance Database – Political disclosure (1.66%)

World Bank: IDA Resource Allocation Index – Transparency, accountability and corruption in the public sector (1.66%)

Domain 5: Political and Legal Risk (10%)

WEF: Global Competitiveness Report – Institutional pillar (2.5%)

World Justice Project: Rule of Law Index (2.5%)

Freedom House: - Freedom in the World – Political rights and civil liberties (1.67%)

WEF: Global Competitiveness Report – Judicial independence (2.5%)

Reporters Without Borders: World Press Freedom Index (0.83%)

Scaling and weighting

Most indicators chosen for the Basel AML Index have their own scoring system. To achieve a unified coding system, individual indicator scores (variables) are collected and normalised using the min-max method into a 0 - 10 system, where 10 indicates the highest risk level.

As with any composite index, each variable then receives a weight to aggregate all scores into one score. In this case, the variables used differ in quality, coverage and relevance, with some components being more applicable than others in assessing ML/TF risk.

The Basel AML Index therefore uses an expert weighting scheme (or so-called “participatory approach”), whereby experts assign a weight for a variable based on their in-depth knowledge and expertise in the matter.

Notes and limitations

Data availability and limitations

Data collection for the 2023 Public Edition of the Basel AML Index was finished on 27 September 2023 and does not reflect developments after that date. The Expert Edition is updated quarterly.

There is not always a complete set of 18 indicators available for all jurisdictions. A jurisdiction's overall score is calculated based on available data only.

In addition, only jurisdictions with sufficient data to calculate a reliable ML / TF risk score are included in the Public Edition of the Basel AML Index. In addition, at the 2023 annual expert review meeting it was decided to exclude Russia from the Basel AML Index Public Report in 2023. This is based on the FATF's suspension of Russian membership. The Expert Edition contains a more comprehensive over­view of all 203 jurisdictions with their risk scores and details of the available data.

Use for compliance or risk assessment purposes

Due to the above limitations, we recommend that the Basel AML Index Expert Edition, rather than the Public Edition, should be used for compliance or risk assessment purposes.

Use of the Expert Edition should also form part of a comprehensive, risk-based compliance programme along with additional indicators and procedures relevant to the organisation's specific needs.

Perception-based indicators

In contrast to financial risk models based purely on statistical calculations, the Basel AML Index evaluates structural factors by quantifying regulatory, legal, political and financial indicators that influence jurisdictions' vulnerability to ML/TF. The Index relies partially on perception-based indicators such as Transparency International's Corruption Perceptions Index.

Transforming qualitative data into quantitative data does not fully overcome the limitations of perception-based indicators. Unlike financial risk models, jurisdiction risk models cannot be used as a solid basis for prediction or for calculating potential loss connected to ML/TF.'

Comparability of results

The Basel AML Index methodology is reviewed each year to ensure that it continues to accurately capture ML/TF risks. This may affect the comparability of the results over the years.

Comparability between countries is also hampered by a lack of full coverage of countries by FATF fourth-round evaluations. Data from FATF Mutual Evaluation Reports (MERs) and Follow-up Reports, which assess the quality of countries' AML/CFT systems, makes up 35% of the total risk score in the Basel AML Index. The FATF methodology was revised in 2013 (fourth round of evaluations) in order to assess not only technical compliance with the FATF Recommendations but the effectiveness of AML/CFT systems according to 11 Immediate Outcomes

As of 27 September 2023, 161 jurisdictions had been evaluated with the FATF's fourth-round method­ology. Although coverage with fourth-round evaluations is increasing, several countries still have MERs based on older methodologies. To mitigate this issue, the Public Edition of the Basel AML Index only includes jurisdictions that have gone through a fourth-round evaluation, as well as meeting other min­imum data requirements.

Adjustment to reflect the progress of grey-listed jurisdictions

Following the 2023 expert annual review meeting, the Basel AML Index made a small methodological change to better reflect the progress of jurisdictions that have graduated from FATF's so-called grey list of jurisdictions subject to increased monitoring. The change is implemented from 3 October 2023 for the Expert Edition and from 8 November 2023 for the Public Edition.

Jurisdictions that graduate from the FATF's grey list have necessarily made efforts to improve their AML/CFT systems in line with an action plan agreed with the FATF. However, the FATF does not reassess the effectiveness of their AML/CFT systems. This makes it likely that the jurisdiction's risk score on paper does not fairly reflect their progress in reality.

To remedy this, the Basel AML Index methodology assumes that jurisdictions that have graduated from the grey list have improved the effectiveness of their AML/CFT systems to at least a moderate level.

For example, before being placed on the grey list, a Caribbean country was assessed as having the lowest score (0) in six of the FATF's 11 effectiveness criteria. After being removed from the grey list, the methodology assumes it has now achieved a moderate level (1) of effectiveness in those six criteria.

Use of discontinued data sources

The data sources for three minor indicators used in Basel AML Index have been discontinued and were last updated in 2019-2020:

  • Two indicators from the World Economic Forum's now discontinued Global Competitiveness Report: “Strength of Auditing and Reporting Standards” (Domain 3, 5% weighting) and “Institutional Pillar” (Domain 5, 2.5% weighting).
  • The World Bank's Extent of Corporate Transparency Index, part of its now discontinued Doing Business Report (Domain 3, 2.5% weighting).

New methodologies are currently under development to replace the previous indicators and are expected to be published in late 2023 and early 2024 respectively.

Since extensive searches did not identify a suitable replacement for these indicators, the decision was made to keep the 2019-2020 data until the new indicators are available.

The World Economic Forum has continued to make available data for the indicator on judicial independence (Domain 5, 2.5% weighting), which was also previously part of the Global Competitiveness Report. This data was obtained by request from the World Economic Forum.

Sanctions and other lists

Sanctions and other lists relevant to evaluating a jurisdiction’s ML/TF risk, including those issued by the FATF, UN Security Council, US Office of Foreign Assets Control and European Union, are included in the Expert Edition for information purposes. They are not indicators and do not affect a jurisdiction's overall score. This is because the underlying reasons for a jurisdiction's appearance on such a list are typically reflected in the Basel AML Index data indicators.