During 2018 and 2019, the world has faced serious money laundering scandals involving reputable institutions. Surprisingly, abuses of financial systems were uncovered in countries that have low risk scores in the Basel AML Index, like Estonia and Sweden.
These countries have correspondingly low risk scores in other indices that the Basel Institute uses to analyse the quality of anti-money laundering and counter financing of terrorism (AML/CFT) frameworks and quantify corruption, financial transparency and standards, public transparency and accountability, and legal and political risks.
Does this mean that systems for evaluating money laundering and terrorist financing (ML/TF) risks – including the Basel AML Index – are fundamentally flawed or biased?
No. It does mean, however, that when using a risk assessment tool such as the Basel AML Index Expert Edition it is important to understand the methodology behind the results, what it can and cannot measure, and which indicators it relies upon.
The Basel AML Index is a composite index based on 15 well-established indicators and is not anyone’s personal evaluation. If some overall scores and rankings look implausible – for example, because major money laundering scandals have occurred in supposedly low-risk countries – the key is to analyse both the indicators behind the scores and the reasons why these cases of money laundering occurred.
Tools are more powerful when users understand their limitations and not only their uses.
Tools are also more powerful when used in combination with other evidence-based tools and procedures.
An analysis of recent high-profile money laundering cases shows it is important for financial institutions and companies to check for the following red flags:
The 8th edition of the Basel AML Index, an independent annual ranking that assesses the risk of money laundering and terrorist financing (ML/TF) around the world, will be released on 19 August 2019.