Ranking Money Laundering Risk, Country by Country
The publicly available index is a novel attempt to create “a world-wide standard for proper country risk assessment” that is specific to money laundering, says Selvan Lehmann, project manager for the Basel AML Index.
There was a strong need for the index, Lehmann says. Money laundering is both hard to trace and presents significant legal and reputational risks to financial institutions and businesses. “Country risk assessment, in general, is the cornerstone of every risk policy and is an essential regulatory requirement.”
The idea was to provide financial institutions, compliance officers, regulators, and other stakeholders with a source of independent, non-business-affiliated analysis.
That task came with its own set of challenges. For one, there’s “a lack of accepted best practices on identifying and rating specific country risk on money laundering,” says Lehmann. “There’s no uniform approach.”
For another, corruption and money laundering are secretive activities by nature, “so there’s always a huge challenge in finding out what the actual extent of the damage of money laundering is,” Lehmann says.
The resulting scores of each country were derived from 15 publicly available indicators, including assessments of a nation’s anti-money laundering regulatory framework, such as the monitoring reports issued by the Financial Action Task Force—a global consortium of government ministers that share in efforts to combat money laundering and terrorism financing.
Researchers also aimed to create a “holistic picture of country risk,” says Lehmann, and considered a country’s financial standards and transparency, along with political risk as well. They drew on assessments such as theEuromoney magazine’s political risk rankings and Freedom House surveys, among others.
Out of 144 countries on the list, 32 countries ranked in the “red zone,” meaning they were assessed by Basel as posing the highest risk levels. In addition to Iran, which ranked as having the highest risk level in the world, Kenya, Cambodia, Haiti, and Tajikistan led that pack.
Norway and Estonia were the only two countries that qualified as “low risk” in the Basel Institute ranking.
The majority of countries on the list earned a “medium risk” classification, the U.S. among them. The U.S. ranked as having the 98th-highest risk level—less risky than Switzerland (the 72nd highest), Hong Kong (87), and Italy (90), but posing a greater risk than Kazakhstan (106), Egypt (111), Colombia (122), and New Zealand (139).