Basel AML Index 2023

The Basel Institute on Governance published the 12th Basel AML Index, which measures the risks of ML/TF of countries this week for the year 2023. The report examines the risk values of the countries publicly on a country-by-country basis, with the highest risk score being 10, within the framework of the methodology determined by the institution. Looking at the whole report, it is seen that the average risk score of the countries included in the report was 5.31 (this average was 5.25 last year). 

The following criteria form the basis of the report in order to comprehend the context of the country evaluations produced by the Basel AML Index document and to make an accurate evaluation. Based on a composite methodology, the report has 18 indicators that are grouped into five sections, as shown below, based on the five main elements that are thought to contribute to a high risk of money laundering and terrorist funding. 

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 (Volume II) (5%)  
• US State Department: Trafficking in Persons Report (5%)  
• GITOC: Flora, fauna, non-renewable resources (5%) 

Domain 2: Corruption 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 IDEA: Political Finance Database – Political disclosure (1.66%)  
• International Budget Partnership: Open Budget Index – Budget transparency score (1.66%)  
• World Bank: IDA Resource Allocation Index – Transparency, accountability and corruption in the public sector (1.66%) 

Domain 5: Legal and Political Risk (10%)  

• Freedom House: Freedom in the World – Political rights and civil liberties (1.67%)  
• Reporters Without Borders: World Press Freedom Index (0.83%)  
• WEF: Global Competitiveness Report – Institutional pillar (2.5%)  
• WEF: Judicial independence data (2.5%)  
• World Justice Project: Rule of Law Index (2.5%) 

Although the country risk score is established by 18 factors, the FATF country risk assessment reports and lists play a significant determining role. If any of the 18 data sets mentioned above for any of the countries included in the ranking are not accessible, the corresponding country's overall score is determined using the data that is available. Only the "Quality of AML / CFT Framework" global average increased from the previous year, according to the examination of the main titles based on country averages; the global averages for the other 4 titles decreased. 

Highlights 

Some highlights from the Basel AML Index 2023 report are given below; 

• The average global ML/TF risk level increased from 5.25 in 2022 to 5.31 in 2023, where 10 is the maximum risk.

• Risks increased in four of the five domains measured by the Basel AML Index: corruption and bribery; financial transparency and standards; public transparency and accountability; and political/legal risks. Scores for the quality of AML/CFT frameworks remained static. 

• Analysis of data from the FATF shows a continued decline in the effectiveness of AML/CFT systems globally. Effectiveness scores dropped from the already low level of 30 percent to 28 percent over the last two years. Among the least effective areas are those that are key to AML/CFT: the misuse of non-profit organizations for terrorist financing, transparency of beneficial ownership, supervision, prosecution, confiscation, and measures to prevent the proliferation of weapons of mass destruction. Many of these areas are also problematic in terms of compliance, together with new technologies and the regulation and supervision of so-called “enablers” – designated non-financial businesses and professionals.

• Countries are getting better at tracing and seizing illicit assets domestically. But permanent confiscations are rare – and even more rare when assets are hidden in a foreign jurisdiction. Stronger laws will help, but won’t solve gaps in implementation and crossborder cooperation.

• We need to do better at preventing terrorist financing through bogus non-profit organisations. But for the sake of humanitarian assistance and human rights, it is essential to avoid collateral damage on legitimate organisations and the people they serve.

• Countries need to supercharge their efforts to understand the evolving financial crime risks of new technologies like cryptocurrencies. Getting regulation, supervision and enforcement right is the only way to foster a thriving FinTech industry while protecting financial integrity, crypto users and investors.
  

Average risk scores 

The Basel AML Index follows the World Bank classification of jurisdictions, with an additional separation of Europe and Central Asia into two regions: 

The 12th Basel AML Index sheds light on the diverse landscape of money laundering and terrorist financing risks across global regions. Sub-Saharan Africa emerges as the area facing the highest risk, boasting an average score of 6.54. This susceptibility could be attributed to factors such as weak regulatory frameworks, corruption, and economic instability. With an average score of 5.64, South Asia trails closely behind, indicating concerns with governance, financial transparency, and perhaps substantial informal economies. North America, on the other hand, has a comparatively lower total risk (average score of 4.29), indicating the existence of solid financial institutions, strong regulatory frameworks, and efficient law enforcement. 

Europe presents mixed results, with Western Europe and the European Union exhibiting a lower average risk (3.96), while Eastern Europe and Central Asia show a higher average score of 5.16. These variations may be influenced by differences in regulatory effectiveness, law enforcement capabilities, and economic conditions. East Asia and the Pacific, Latin America, and the Middle East, on the other hand, have risk scores that are in the middle of the range (5.47, 5.40, and 5.16), meaning that they are somewhat vulnerable to money laundering and the funding of terrorism. The results show how intricately governmental systems, legal frameworks, and economic situations interact.