Global Money Laundering Risk Scores Increase Amid Concerns Over Effectiveness

According to a new report from the Basel Institute on Governance, the average global money laundering risk score has increased to 5.3 out of 10, up from 5.22 in the previous edition. The index assesses the risk of money laundering and terrorist financing across 110 jurisdictions.

Risk Scores Increase, But Improvements Are Limited

While some countries may have improved their scores, none managed to increase their risk score by more than one point out of 10. Furthermore, half of the improvements were less than 0.3 points.

Concerns Over Effectiveness of Anti-Money Laundering Measures

The report highlights concerns over the effectiveness of anti-money laundering (AML) measures. According to the latest Financial Action Task Force (FATF) data, the average score for effectiveness across all assessed jurisdictions is only 30 percent. This is significantly lower than the average score for technical compliance with FATF Recommendations, which stands at 64 percent.

Jurisdictions Failing to Prevent Money Laundering and Terrorist Financing

The report’s findings have sparked concerns over the ability of jurisdictions to prevent money laundering and terrorist financing. While some countries may be enforcing AML measures effectively, many are failing to prevent these crimes from occurring in the first place.

Case Studies: Andorra and Haiti

Andorra: A Checkered Past

One jurisdiction that has been criticized is Andorra, which topped the index’s rankings despite having a checkered past when it comes to money laundering scandals. In 2015, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) named Banca Privada d’Andorra S.A. (BPA), a now-defunct bank, a “primary money laundering concern.” The bank was accused of helping organized crime groups from Venezuela to China launder billions of dollars.

Haiti: A Lack of Capacity

On the other hand, Haiti has been struggling with a lack of capacity to prioritize and implement effective AML measures. The country is currently the poorest in the Western Hemisphere, with 80 percent of its population living under the poverty line. In June, the Financial Action Task Force (FATF) placed Haiti on its “grey list” due to concerns over its lack of progress in implementing AML measures.

Less Effective at Prevention

The report’s findings suggest that jurisdictions are less effective at preventing money laundering and terrorist financing than they are at enforcing AML measures. Globally, the average effectiveness for prevention was 27 percent, compared to 31 percent for enforcement. Nineteen jurisdictions scored zero for the effectiveness of their preventive measures, while nine jurisdictions demonstrated zero effectiveness in both prevention and enforcement criteria.

Recommendations

The report’s authors urge policymakers to invest more resources in preventing money laundering and terrorist financing, rather than just focusing on enforcement. “A fire contained is always better than an arsonist caught when the house has burnt down,” they say.