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International Internet Magazine. Baltic States news & analytics Thursday, 13.12.2018, 22:33

AML report ranks Estonia 2nd on list of low-risk countries for money laundering, Latvia – 117, Lithuania - 127

BC, Tallinn, 11.10.2018.Print version
Estonia is the country with the second lowest risk of money laundering and the financing of terrorism in the world, according to the Basel Anti-Money Laundering Index, an independent annual ranking that assesses the risk of money laundering and terrorist financing (ML/TF) around the world.

Latvia and Lithuania received 117 and 127th place in the ranking, respectively.


What can we learn from low-risk countries?

Despite a deterioration in risk scores for some of the lower-risk countries in 2018, the list of countries with the lowest assessed risk has not changed significantly in recent years.

"Between 2017 and 2018, Latvia, Iceland, Denmark and Poland left the list of top 10 low-risk countries and Lithuania, Macedonia, Bulgaria and Croatia joined it.", the report says. 


Country

Risk score 2017

Risk score 2018

Change in score 2017–2018

FINLAND

1.78

2.57

-0.80

ESTONIA

2.73

2.73

0.00

LITHUANIA

3.67

3.12

-0.55

NEW ZEALAND

3.03

3.20

+0.17

MACEDONIA

4.09

3.33

-0.76

BULGARIA

3.84

3.53

-0.31

SLOVENIA*

2.78

3.75

+0.97

SWEDEN*

3.40

3.75

+0.35

CROATIA

4.11

3.83

-0.28

ISRAEL

3.59

3.84

+0.24

*Countries assessed according to the new FATF methodology


Estonia ranks second after Finland, having improved its standing by one notch compared with the previous similar survey. Denmark, which is suffering from the scandal related to alleged money laundering at the Estonian branch of Danske Bank, dropped more than any other country in the fresh rankings.

 

Estonia ranked second with 2.73 points in the fresh index, keeping its point score unchanged from last year despite the Danske scandal. Mostly as a result of the same scandal, Denmark's score moved up 1.14 points to 4.11 and the country finished 16th among the 129 nations ranked.

 

Low-risk countries wishing to maintain their low risk ranking, and all countries wishing to improve their ranking, should take guidance in the following characteristics that low-risk countries typically share:


  • Strong AML/CFT legislation including on the freezing of terrorist funds
  • Competent authorities with the mandate and resources to investigate and prosecute ML/TF offences and issue sanctions for non-compliance
  • Comprehensive measures for domestic and international cooperation
  • High level of press freedom, with the media playing a central role in uncovering and reporting financial crime
  • Financial sector highly regulated with competent supervisory authorities and minimal, if any, cash-based transactions
  • High levels of transparency and integrity in public institutions and businesses
  • Low levels of corruption

While some countries have a lower risk of money laundering than others, no country was rated as having zero risk of ML/TF. In fact, the Basel AML Index shows an increase in the minimum risk score, from 1.78 in 2017 to 2.57 in 2018.

 

The increase may partly be due to improved detection mechanisms and more availability of data. Another factor is changes in the Financial Secrecy Index, which automatically assigns a raised level of risk to countries with a large share in the global financial sector.

 

The index for 2018 is the seventh edition of the Basel AML Index issued by the International Center for Asset Recovery, part of the Basel Institute on Governance. The index offers an overview of 129 countries according to their risk of money laundering and terrorist financing.

 

The 10 countries with the greatest improvements in risk score in the Basel AML Index 2018 are:

 

Country

Risk score 2017

Risk score 2018

Change in score 2017–2018

TRINIDAD AND TOBAGO*

6.75

5.25

-1.50

TANZANIA

7.86

6.71

-1.15

BOLIVIA

7.13

6.02

-1.11

GHANA*

6.33

5.32

-1.01

GRENADA

5.05

4.20

-0.85

MONTENEGRO

4.76

3.95

-0.81

BRAZIL

5.76

4.96

-0.80

MACEDONIA

4.09

3.33

-0.76

VENEZUELA

6.44

5.69

-0.75

ST. VINCENT AND THE GRENADINES

5.22

4.46

-0.75

*Countries assessed according to the new FATF methodology


The Basel AML Index demonstrates that there is no strong correlation between a country's region and its change in risk score. Significant changes in 2018 were instead primarily affected by the following two factors, which are partly related to methodology:


Obtaining a better Financial Secrecy Index rating


Some countries improved their risk score due to changes in the methodology underlying the Financial Secrecy Index (FSI). The FSI measures the level of bank secrecy, scale of a country’s offshore banking activity and size of its financial centre. A significant increase in the number of countries covered by the FSI led to the need to re-score FSI ratings for inclusion in the Basel AML Index (see Methodology).


For example, Trinidad and Tobago was assessed by the FSI for the first time in 2018 and obtained a low risk score. When combined with a lower risk of corruption and increased financial transparency, this allowed the country to achieve a significant improvement in risk score in the Basel AML Index.


Macedonia saw slight improvements in political and legal risks, financial transparency and public transparency, but the most substantial influence on the country’s overall score was also the improvement in its FSI. Positive changes for Ghana, Brazil, Paraguay and Tanzania are also mainly explained by improved FSI scores.


Leaving the Jurisdictions of Primary Concern blacklist


Another influential factor for major changes in some countries’ performance in the 2018 Basel AML Index was the inclusion or exclusion of the country on the list of Jurisdictions of Primary Concern in the US State Department International Narcotics Control Strategy Report (INCSR). Jurisdictions included in this list are considered to be “major money laundering countries” by the US Bureau of International Narcotics and Law Enforcement Affairs.


The improvement in Grenada’s score in the 2018 Basel AML Index, for example, was mainly driven by the country’s disappearance from the Jurisdictions of Primary 


Concern list.


Despite the positive improvements, most countries in the list of top improvers are still assessed as having middle or high risks of ML/TF and should continue to address the factors that are dragging them down.

 

Which countries have significantly worsened their scores and why

The top 10 decliners in 2018 are:


Country

Overall score 2017

Overall score 2018

Change in score 2017–2018

DENMARK*

2.98

4.11

+1.14

ICELAND*

3.52

4.59

+1.07

SLOVENIA*

2.78

3.75

+0.97

TAIWAN, CHINA

4.34

5.15

+0.81

FINLAND

1.78

2.57

+0.80

POLAND

3.62

4.38

+0.77

CYPRUS

4.26

5.01

+0.75

SOUTH AFRICA

4.59

5.34

+0.75

PORTUGAL*

3.95

4.66

+0.72

NETHERLANDS

4.30

4.90

+0.60


*Countries assessed according to the new FATF methodology

Iceland, Denmark and Slovenia recorded a significantly higher risk rating in 2018 due to having been assessed using the new FATF evaluation methodology, which measures not only technical compliance but importantly emphasises effectiveness.

The recent Danske Bank scandal seems to confirm the observation that there are big issues with the effectiveness of money laundering supervision in countries generally regarded as low-risk.


This phenomenon has been observed in previous years with other countries that underwent a FATF evaluation using the new evaluation methodology. The results illustrate that most countries are typically stronger on technical compliance and struggle with effective implementation of legal requirements. As more and more countries are assessed with the new methodology, the same phenomenon is likely to occur for a few years to come before it levels out.


The same two main factors behind improvements in ML/TF risk (see the previous section) caused some countries to fall down the rankings. For example:

  • Although still at the top of the list of low-risk countries, Finland saw a deterioration in its overall score due to changes in its Financial Secrecy Index rating, as well as other indicators of corruption and financial transparency.
  • Poland demonstrated higher risks in such indicators as financial secrecy, corruption, financial transparency and political and legal risks.
  • Cyprus saw increased financial secrecy scores and was also, crucially, included in the UN INCSR list of Jurisdictions of Primary Concern.






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