International Money Laundering: Basel Index

What is the Basel AML index?

The Basel Anti-Money Laundering Index is an independent annual ranking that assesses the risk of money laundering and terrorist financing (ML/TF) around the world, as well as related factors that impact the risk of ML/TF such as corruption, transparency and the rule of law.

The Basel AML index is issued by the International Centre for Asset Recovery, part of the Basel Institute on Governance. The Basel institute on Governance is an independent not-for-profit competence centre specialised in corruption prevention and public governance, corporate governance and compliance, collective action, anti-money laundering, criminal law enforcement and the recovery of stolen assets.

 

The 2018 index identified a number of key global trends in ML/TF risk:

 

Little measurable progress in countering money laundering

Progress in improving ML/TF risk scores has been consistently slow across the majority of countries, signalling that not enough is being done to effectively counter these risks. Key statistics include:

  • 64% of countries have a significant ML/TF risk
  • Less than 4% of countries significantly improved their scores
  • 42% of countries worsened their risk scores

 

Effectiveness lags behind technical compliance

Many countries maintain the appearance of compliance, however exhibit ineffective enforcement of AML/CFT measures.

The FATF Mutual Evaluation Reports, a key indicator in the Basel AML Index, assesses the implementation of AML/CFT measures such as legislation, law enforcement and international cooperation.

The FATF methodology was revised in 2013 to emphasise the effectiveness of AML/CFT systems and not simply technical compliance with the Recommendations. This has had a major impact on performance in the Basel AML Index, which weighs countries’ results in effectiveness as twice as important as their results in technical compliance.

 

No such thing as zero risk of money laundering

No country was rated as having zero ML/TF risk, and the minimum risk score increased from 1.78 in 2017 to 2.57 in 2018. Reasons for this increase may include:

  • Improved detection mechanisms and more availability of data
  • Changes in the Financial Secrecy Index, which automatically assigns a higher level of risk to countries with a larger share in the global financial sector
  • Criminals finding new and innovative ways to launder money

 

What are the typical characteristics of high and low-risk countries?

Analysis conducted by the International Centre for Asset Recovery over the past seven years has shown that countries exhibit a number of common features depending on the associated level of risk for ML/TF.

 

High-risk country characteristics

  • 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 (e.g. drug and human trafficking)

 

Low-risk country characteristics

  • 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 cash-based transactions
  • High levels of transparency and integrity in public institutions and businesses
  • Low levels of corruption

 

Which factors have the greatest influence on improving risk scores?

The 2018 Basel AML Index demonstrated that significant changes were primarily affected by the following two factors:

 

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.

 

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.

Nyman Gibson Miralis provide expert defence in complex international money laundering investigations. Contact us if you require assistance.