The 10th Basel AML Index portrays a bleak image of the anti-money-laundering effort all around the world. Despite global anti-money laundering measures, the global mean money laundering risk score, described as a jurisdiction's susceptibility to money laundering/terrorist funding and its capacity to combat it, has risen from 5.22 to 5.3 out of 10.
Four Significant AML Risk Trends for 2021
The Basel AML Index's goal is to present a fuller view of money laundering risk, as well as a valuable geographical study of money laundering risks, and the most recent edition highlights four significant AML risk trends for 2021:
| Trends That Uplift Global Money Laundering Risks |
| Trend 1: Effectiveness of AML/CFT Systems |
| Trend 2: Virtual Assets and Money Laundering |
| Trend 3: Beneficial Ownership as a Pillar of Effective AML/CFT Systems |
| Trend 4: ML/TF Vulnerabilities Beyond the Financial Sector |
Trend 1: Effectiveness of AML/CFT Systems
Jurisdictions are generally largely compliant with the FATF Recommendations, but laws and institutions are in place that are ineffective in practice. Regarding money laundering, jurisdictions appear to be more effective in sanctions than prevention. It is a well-known fact that measuring effectiveness in prevention is much more complicated than measuring effectiveness in practice, where data and statistics can often be obtained from law enforcement and judicial proceedings. Nevertheless, if you look at regional prevention and enforcement averages, it is seen that jurisdictions should devote more resources to the prevention of ML/TF.
According to the most recent FATF statistics, the average score for efficacy across all reviewed countries is only 30%, although the average score for technical compliance with FATF recommendations is 64%. In addition, only the United Kingdom and Spain received 67 percent or higher ratings on both preventive and effectiveness categories.
Trend 2: Virtual Assets and Money Laundering
As the usage of virtual assets like cryptocurrencies spreads worldwide, countries are scrambling to address the money laundering risks they pose.
The review of the implementation of FATF's Recommendation 15 on virtual assets and virtual asset service providers (VASPs) shows progress in certain areas, including transmitting new requirements into local legislation, filing suspicious activity reports, and establishing audit regimes. Still, the weak implementation of the "Travel rule," slow action by the judicial authorities in implementing AML/CFT obligations in virtual assets, and lack of knowledge and expertise among supervisory/regulatory institutions continue.
According to FATF recommendation 15, to control and mitigate the risks arising from virtual assets, nations should ensure that virtual asset providers are controlled for AML/CFT reasons and subject to effective systems for monitoring and ensuring compliance with all relevant FATF Recommendations.
However, the Index discovers that the average compliance score for suggestion 15 across all countries analyzed fell from 70% to 60%. The Basel research warns of the possibility of "regulator shopping" in the virtual assets sector, in which states with lax regulatory frameworks serve as safe havens for unlawful behavior involving virtual assets.
Trend 3: Beneficial Ownership as a Pillar of Effective AML/CFT Systems
Despite frameworks and promises to strengthen beneficial ownership registers, poor performance is common, hurting all global money laundering attempts.
In creating beneficial property records, he discussed unacceptable compliance, not just with the FATF standards but even when the law requirements are considered. This is a significant issue that has reduced the performance of some jurisdictions in AML/CFT. Many of the available beneficial ownership records appear to be either mostly or entirely ineffective at doing even the minimum they are required to do. No country has an efficient, beneficial ownership registration system in place where legal persons and arrangements are barred from being used for money laundering or terrorism funding, and beneficial ownership data is easily accessible. In fact, over half of the jurisdictions evaluated received a 0 for effectiveness.
The press has highlighted the magnitude of these flaws multiple times, most recently in the Pandora Papers. The research suggests that the government makes serious efforts to strengthen beneficial ownership transparency.
Trend 4: ML/TF Vulnerabilities Beyond the Financial Sector
Although customer due diligence duties apply to both financial institutions and designated non-financial companies and professions (DNFBPs), the research indicates that DNFBPs continue to underperform in terms of AML/CFT compliance. As a result, DNFBPs are not only poorly safeguarded against ML/TF threats, but their AML/CFT efforts are also shallow, producing a severe vulnerability and serious loophole danger.
Lawyers, accountants, real estate agents, and other non-financial businesses and professions continue to underperform when it comes to compliance with AML/CFT standards. As a result, more oversight is urgently needed to address this performance degradation. Key issues to address to prevent DNFBPs from acting dangerously in AML/CFT systems include a limited understanding of ML/TF risks and AML/CFT obligations, inadequate implementation of AML/CFT measures, and poor monitoring and auditing.
The study specifically mentions DNFBPs' low grasp of risks and duties, poor AML/CFT procedures implementation, and inadequate monitoring and oversight. It advocates for increased monitoring in order to enhance effectiveness.
