On October 9, the Basel Institute on Governance released the results of the seventh annual Basel Anti-Money Laundering Index. The Index Report stated that the Index “focuses on anti-money laundering and countering the financing of terrorism (AML/CFT) frameworks, plus related factors that impact the risk of [money laundering and terrorist financing (ML/TF)], such as corruption, transparency and the rule of law.” Key features of the Index include an overview of 129 countries, according to their respective risks of money laundering and terrorist financing; an interactive ranking that shows trends and changes in risk over time; a research-led, composite index based on public sources and third-party assessments; and an AML risk assessment tool “covering 203 countries for compliance purposes, policymaking and research (Expert Edition).”
Among the 129 countries in the Index, the 10 countries with the best (i.e., lowest) ML/TF risk scores were Finland (129/2.57), Estonia (128/2.73), Lithuania (127/3.12), New Zealand (126/3.20), Macedonia (125.3.33), Bulgaria (124.3.53), Slovenia (123/3.75), Sweden (122/3.75), Croatia (121/3.83), and Israel (120/3.84). The 10 countries with the worst (i.e., highest) ML/TF risk scores were Tajikistan (1/8.30), Mozambique (2/8.28), Afghanistan (3/8.28), Laos (4/8.25), Guinea-Bissau (5/8.16), Myanmar (6/7.50), Cambodia (7/7.48), Kenya (8/7.42), Liberia (9/7.40), and Vietnam (10/7.37). Among the G7 nations, France had the best risk score (113/4.12), followed by the United Kingdom (106/4.23), Germany (102/4.44), Canada (86/4.92), the United States (82/5.00), Italy (77/5.09), and Japan (75/5.11). The BRIC nations (Brazil, Russia, India, and China) ranked as follows: Brazil (83/4.96), Russia (47/5.83), India (68/5.28), and China (40/6.02).
Overall, the Index Report was highly critical of countries’ commitment to AML:
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, Odebrecht scandal and Global Laundromat investigation, indications are that global press freedom has declined to its lowest point in 13 years. [Footnotes omitted]
The Report added that “[t]hese factors are known to impact negatively on the risk of ML/TF.”
The Report also included a discussion of seven key trends:
- Little measurable progress in countering money laundering: The Report stated that 64 percent of countries in the 2018 ranking (i.e., 83 of 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.” Furthermore, 42 percent of countries “have worsened their risk scores between 2017 and 2018,” and nearly 37 percent of countries “now have a worse risk score than they did in 2012.”
- Effectiveness lags behind technical compliance: The Report stated that “[t]he overwhelming majority of countries assessed with the updated [Financial Action Task Force] methodology so far . . . have received dramatically lower scores for effectiveness than for technical compliance.”
- ML/TF is not a standalone risk: The Report noted that the Institute’s analysis over the last seven years “has consistently shown that countries with a high risk of ML/TF share some or all” of the following six features: (1) weak public institutions, political rights, and rule of law; (2) low levels of financial/political transparency; (3) restrictions on press freedom; (4) lack of resources to control the financial system; (5) predominantly cash-based economies; and (6) high levels of smuggling activity and illegal trafficking (in drugs, humans, wildlife products, etc.).
- No such thing as zero risk of money laundering: In the Index, no country was rated as having zero risk of ML/TF; in fact, the Index “shows an increase in the minimum risk score, from 1.78 in 2017 to 2.57 in 2018.”
- What can we learn from low-risk countries?: The Report stated that “the list of countries with the lowest assessed risk has not changed significantly in recent years,” and listed seven characteristics s that low-risk countries typically share: (1) strong AML/CFT legislation, including on the freezing of terrorist funds; (2) “[c]ompetent authorities with the mandate and resources to investigate and prosecute ML/TF offences and issue sanctions for non-compliance; (3) “[c]omprehensive measures for domestic and international cooperation; (4) “[h]igh level of press freedom, with the media playing a central role in uncovering and reporting financial crime; (5) “[f]inancial sector highly regulated with competent supervisory authorities and minimal, if any, cash-based transactions; (6) “[h]igh levels of transparency and integrity in public institutions and businesses”; and (7) “[l]ow levels of corruption.”
- The two main reasons behind improvements in ML/TF risk ratings: The Report noted that significant changes in the 2018 risk ratings were primarily affected by two factors: (1) countries obtaining better Financial Secrecy Index ratings due to methodology changes; and (2) exclusion of countries from the Jurisdictions of Primary Concern list in the annual U.S. Department of State’s International Narcotics Control Strategy Report.
- Which countries have significantly worsened their scores and why: The Report stated that “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 . . . .”
Note: The one Index result that appears truly anomalous at first glance, in light of recent events, is Estonia’s second-best ML/TF risk rating. Now that the Danske Bank investigation has brought to light the potential trillion-dollar scale of money laundering through Estonia over eight years, the Institute may need to examine its methodology and data on Estonia with care when it prepares the next edition of the Index.
Companies or firms wishing to analyze the Index results in greater detail should note that the Index can be filtered by region and Gross Domestic Product. In addition, the Institute offers a subscription-based Expert Edition of the Index that covers 203 countries. The Institute describes the Expert Edition as “a more comprehensive and customisable country risk assessment tool. It is used worldwide by financial institutions, researchers, policymakers, compliance officers and other stakeholders to fulfil their regulatory and compliance requirements.”