New research from the recently published Basel AML Index 2022 suggests that the criminals are winning.
Progress on anti-money laundering (AML) and counter-terrorist financing (CTF) has stalled in most countries over the last few years; and as a result, AML efforts are “taking one step forward and four back”.
This internationally recognised index independently ranks a country’s ML/TF risks and its ability to counter them, by drawing on 18 risk indicators developed by the Basel Institute on Governance (BIG) in Switzerland.
In this 11th edition, the global average for 2022 was 5.25 (where 10 is maximum risk) and showed little change from the 5.3 and 5.22 measured in 2021 and 2020 respectively. However, the global risk is still better than in 2017 when the average was 6.15.
European countries and New Zealand comprise the top 10 countries, while the bottom 10 are dominated by African countries along with Haiti, Myanmar, and Cambodia.
Finland tops the ratings with a score of 2.88, while the Democratic Republic of the Congo ranked bottom with a rating of 8.30 out of 10 for its money-laundering risk. (You can explore the full Basel Index map and ranking here).
The quality of a country’s AML/CTF framework represents 65% of the score, based on assessments from the Financial Action Task Force (FATF), Tax Justice Network, and other monitoring bodies.
The 2022 Index revealed that a tiny decrease in risks relating to these frameworks had been offset by increased dangers in the other four areas measured – corruption, financial transparency, public transparency, and political and legal risks.
In summary, when it comes to tackling dirty money, most countries are taking one stride forward and four back – and remaining too many steps behind criminals.
Worrying gaps in the overall AML/CFT landscape
But progress is too slow in complying with standards on international cooperation and other crucial areas of AML/CFT; fixing these weak spots in the global financial system is long overdue.
Average compliance levels are actually dropping in the field of cryptocurrency and other virtual assets. This is a worrying development, especially considering the speed at which criminals are adopting these technologies to launder illicit money.
Furthermore, the gap between technical compliance with standards and the practical effectiveness of measures is widening. This disconnect is especially concerning with regard to weak spots such as beneficial ownership transparency and the quality of supervision.
One positive was that the number of jurisdictions taking part has increased. This year’s index includes 128 jurisdictions with enough data to calculate an overall risk score, which is an increase of 18 over last year.
In addition, public and private organisations are getting better at applying a risk-based approach to ML/TF. This enables governments and financial institutions to more efficiently allocate resources to the biggest and most serious risks or cases.
The Basel Index 2022 summed up this year’s findings by stating that progress matters because AML/CFT weaknesses allow criminals to launder the proceeds of corrupt deals; fraud schemes; and drug, human, and wildlife trafficking.
It affects companies as failing to meet international AML/CFT standards can significantly impact business goals and investment opportunities. But ultimately, those who suffer most are ordinary people and our planet.
The complexity and the speed of regulatory change is a major concern
The Basel Index 2022 findings cast doubt on the effectiveness of current regulatory efforts.
Many believe the problem lies in the complexity of the existing regulatory frameworks that businesses and financial institutions must comply with, compounded by the speed and volume of ever evolving new regulations.
A solid and reliable AML/CFT framework requires huge investments in people and technology and there is still a reluctance for many businesses to invest fully in something that is time-consuming and doesn’t bring in any direct revenue.
Meanwhile, criminals and money launderers don’t have any regulatory requirements to comply with, so they take advantage of slow implementation by national and supranational bodies.
Global harmonisation on rules and regulations is ultimately what is required, but it’s still not the case.
Political stability is critical in the fight against money laundering, terrorist financing and corruption. Less stable countries usually have a higher risk of corruption and are less compliant.
However, even the European Union is struggling to keep AML/CFT frameworks in all its member states as compliant as possible – and gaps remain between them.
Technology has an increasingly important role to play
“The fight against money laundering is too important and too complex to tackle for governments alone.”
~ Executive summary, Basel AML Index 2022.
The hard truth is that governments and regulators cannot combat this threat on their own.
Businesses need to play their part by focusing on the risk appetite they want to see across their different business areas and jurisdictions, and then implement solid policies and processes around this.
Fabrizio Lorini, asset management director at Taleo Consulting commented, “We have reached a certain maturity and knowledge about the technology offered by a wide range of third-party service providers – including those that specialise in AML checks, transaction monitoring and other AML-related tasks. To save money and gain knowledge, companies should use these providers to facilitate their controls and keep up to date with the latest rules and regulations.”
It’s time to step up and implement a risk-based approach
Riskscreen offers a full range of solutions via a single intelligent platform that can deliver a truly risk-based approach to onboarding and ongoing screening.
To revolutionise your business’ compliance processes and procedures and help in the global fight against criminal activity, contact us today.