Basel Institute on Governance raises doubts on ML/TF fight

“What is holding jurisdictions back from effectively tackling their ML/TF risks and avoiding being the weak spot in regional and international financial systems?” monitoring organisation, the Basel Institute on Governance, asked.

The index is an independent annual ranking assessing ML/TF threats around the world and the capacity of jurisdictions’ AML/CFT measures to counter their risks.

The average global money laundering risk score increased to 5.3 out from 5.22 of 10 for the 110 jurisdictions assessed in the 2021 public edition of the Basel AML Index. That implies a worsening because the lower the index score, the lower risk of money laundering and terrorism financing.

“Even among jurisdictions whose risk scores improved this year, none managed to improve by even one point out of 10. Half of improvements were 0.3 of a point or less,” said the institute, which also identified four areas of AML/CFT policy it said urgently need more attention.

A stronger response to threats from virtual assets is required because use of virtual assets such as cryptocurrencies is exploding, for legitimate as well as illicit purposes. “Most jurisdictions assessed or re-assessed in the last year have worsened their scores for technical compliance with Financial Action Task Force Recommendation 15 on virtual assets and virtual asset service providers,” it said.

Jurisdictions score badly for effective implementation of FATF recommendations across the board, but especially on prevention.

“These findings should ring an alarm bell for policy makers. Jurisdictions should invest more resources in the prevention of ML/TF, without reducing resources for enforcement,” the Switzerland-based institute said.

It lambasted the “slow and ineffective implementation” of beneficial ownership transparency measures which continues to provide safe havens for dirty money.

“This is damaging for individual jurisdictions, but more importantly undermines all global efforts to combat money laundering,” it said.

Beyond the financial sector, the institute found generally weak application of AML/CFT preventive measures by lawyers, accountants, real estate agents and other designated non-financial businesses and professions (DNFBPs).

“This means that there is a significant risk that such businesses and professions remain open to abuse by criminals and corrupt individuals wishing to launder their money. “Moreover, there is increasing concern among regulators that some DNFBPs are advising and assisting criminal clients with hiding and laundering illicit funds [and,] as some high-profile cases have shown, accountants are used as intermediaries to avoid scrutiny,” the institute stated.

“At a minimum, more supervision over DNFBPs is urgently needed. Certain jurisdictions should also tighten their regulatory framework – and ensure that it is effectively enforced – over selected groups of DNFBPs in line with their risk exposure.”

Andorra tops the index with a score of 2.73, followed by Finland (3.06), Cook Island (3.13), Slovenia (3.30) and Norway (3.35).

Haiti is bottom with 8.49, then the DRC (8.35), Mauritania (8.13), Myanmar (7.93) and Mozambique (7.71)

Of the world’s major economies listed, the UK is 18th with 4.05, Italy 27th with 4.57, the US 28th with 4.60, Canada 34th with 4.67, Japan 47th with 4.99, Russia 67th with 5.49 and China 94th with 6.70.