In spite of a significant increase in both attention paid and resources committed to fighting illicit finance at the global scale, money laundering and terrorist financing activity remain on the rise as we embark upon a new year. Last week, the Basel Institute on Governance – an independent, non-profit organization whose global presence assists in strengthening initiatives working to counter corruption and various forms of financial crime – released the 12^th edition of their Basel Anti-Money Laundering (AML) Index. The report establishes an annual ranking of the risks of money laundering and terrorist financing (ML/TF) activity posed to individual countries around the world, while also evaluating the ability of these countries to counteract these risks. Altogether, the index provides risk scoring based on data collected and interpreted from a total of 18 independent sources, including the Financial Action Task Force (FATF), Transparency International, the World Bank and the World Economic Forum, with the risk scores covering five domains. These include:

1. Quality of AML/CFT Framework
2. Bribery and Corruption
3. Financial Transparency and Standards
4. Public Transparency and Accountability
5. Legal and Political Risks

Since its introduction in 2012, the Index that is made available to the public has grown to cover a total of 152 countries (up from 128 just one year ago). This growth in scope of jurisdictions covered however appears to have further highlighted just how widespread illicit financial activity has become – even across the far reaches of the world.

This year’s Basel AML Index reveals several key trends with the potential to impact the global financial sector for decades to come. Most importantly, the report uncovered that financial risk as a whole continues to grow exponentially, with these findings further lending to the interpretation that AML program effectiveness is weakening, particularly overseas. All told, the average global money laundering and terrorist financing risk level rose from 5.25 in 2022 to 5.31 in 2023, measured on a scale where 10 represents the maximum possible risk.¹ The Index also found that risk levels rose in four out of the five domains of illicit financial activity. These included the realms of corruption and bribery, financial transparency and standards, public transparency and accountability, and political/legal risks.¹

As has been chronicled by Global RADAR for much of 2023, the most dramatic money laundering risks posed have been brought forth by new technologies, particularly cryptocurrencies. The study confirms that various global terrorism organizations have evaded sanctions and financed their destabilizing operations using the crypto space, with many using non-profit organizations to launder their proceeds. The Financial Action Task Force added new recommendations/requirements related to virtual currency to their list of global standards on money laundering and terror financing back in 2018. However, the data reveals that compliance with their relevant recommendations in this regard have plunged by over 20% over the last two years alone, meaning that various countries have all but scoffed at the task of supplementing their responsibilities and resources allocated to both understanding and working against novel financial crime risks and leading to a trend that shows no signs of slowing in the years to come.

Analysis of data provided by the FATF in the report also confirmed that there was an additional drop in the effectiveness of AML/CFT systems utilized internationally for mitigating these crime risk. This comes as effectiveness scores dropped from a previous record low level of 30% to 28% as measured by the Task Force’s quantifiable indicators over just a two-year period. The areas deemed least effective include the management of non-profit organizations being used for terror financing activities, the lack of oversight of beneficial ownership structures for money laundering, and the lack of supervision and subsequent deterrence of the development and sales of weapons of mass destruction. The Basel Institute adds that these same areas remain problematic with respect to compliance, specifically with respect to the inability to mitigate the roles of “enabler” parties that include designated non-financial businesses and individuals who actively facilitate illicit activity without fear of repercussion given that they do not fall under the traditional branches of regulatory oversight. These revelations are particularly disheartening when one considers the massive increase in regulations brought forth to standardize and grossly augment AML compliance programs both domestically and abroad over the last decade. For global financial crime risks to continue to be trending upward in spite of these efforts is truly troubling.

All told, the findings of the 2023 Index underscore the need for ongoing global improvements and action to be taken against these growing threats. Any significant change to be brought forth will require a comprehensive regional approach focusing on regulation, supervision and enforcement.

The complete 2023 Basel AML Index can be read in its entirety here, followed by the list of global rankings.

Citations

1. Basel AML Index 2023: 12th Public Edition Ranking Money Laundering And …, Basel Institute on Governance, Dec. 2023.