This Week in AML

Basel: Money Laundering and Terrorist Financing Risk

This week the Basel Institute on Governance published its 10th AML Index. The Index looks at activities by 112 countries to effectively operate AML/CFT systems. John and Elliot share some insights into how the index is applied and the results.     




Basel: Money Laundering and Terrorist Financing Risk TRANSCRIPT


Elliot Berman: Hey John, how are you this week?


John Byrne: Hey, Elliot. Doing fine. How about yourself?


Elliot Berman: I'm okay, too. Thank you.


So this week, I saw that the Basel Institute for governance published its 10th AML index, and they, as you know, they have been doing this obviously for ten additions. They publish a public edition, and then they have several more sophisticated additions with lots and lots and lots and lots of data.


What they do is assess the effectiveness of anti-money laundering programs at the country level in four countries around the world. Did you see that?


John Byrne: Right. Yes, and, obviously, you know, everybody's very familiar with FATF and the mutual evaluation reports, which I think gets factored into this, but this is a broader view with more. I think they said that 17 indicators, [and] I know I've looked at this in the past, but yeah, I think it was 17, and it measures, as you said, the money laundering and terrorist financing, risk and jurisdictions, and they look at a number of factors, in addition to the indicators of what shortfalls in the framework.


So, it gets lots of regs (regulations), corruption, and bribery. And obviously, there are other organizations like Global Financial Integrity and Transparency International but look at that as well, whether there's poor financial transparency and standards, poor public transparency about the government and their accountability, weak, political rights of the rule of law.


So interesting elements here, you know, obviously you got to take it with a grain of salt, but I think you have to recognize that, rather than just look at the rankings and decide that, oh, clearly Finland is better than the United States. You know, you should look through some of the rationales for why they got the scores that they did.


So, I think it's actually a useful metric for AML officers, especially those that have global clients.


Elliot Berman: Yes. I think that's absolutely right.


The other thing they do, in addition to the effectiveness of AML CFT systems, [is] they also spend a little time talking about some of the, you know, what I'll call hot threats if you will. One of them that caught my eye, not surprisingly, something you and I have talked about before, is money laundering, threats from cryptocurrencies. They've got a call-out box in the report that says the latest data on how jurisdictions are responding to money laundering and threats related to virtual assets, and it says the answer is not well at all. So again, this has been a hot topic. The virtual assets [and] virtual currency space is growing in a lot of different directions. We're seeing a lot of traditional financial services companies getting very involved with virtual currencies and virtual assets.


We are seeing investment houses, include them as an asset class in balanced portfolios, all kinds of things. But, we're also seeing, and I think we've done a discussion about this. We've seen the fed, be concerned. We've seen treasury with Secretary Yellen expressing concern and other regulators in the US that, you know, there has to be a measured approach and yet here is an independent scoring process that says, this is, you know, this is something that needs attention. So, I thought it was interesting that they zeroed down [on] that.


John Byrne: Yeah, absolutely. Some of the other areas that we've also talked about before, when they look at the quality of the framework, besides FATF that we've already mentioned, they look at things like the state department's trafficking and person report.


So they give it a sort of a 5% weight, and they think that's important because that both shows the scope of problems within the country and potentially the lack of infrastructure. So, that's interesting. And, we've already mentioned Transparency International. They give their corruption, perceptions index a 5% weighting.


So corruption and bribery [are] obviously pretty essential. The one that I knew was there, but sort of happy to see it confirmed, there is in under political and legal risk they talk about, freedom of the press. So one of the elements there are, what's the judiciary and then what's the freedom, you know, in a jurisdiction for reporters to cover money laundering, corruption, and other abuse.


Elliot Berman: Yes. That is an area that you and I haven't spent a lot of time talking about. Still, clearly, there's a lot in the regular media about the challenges, with more authoritarian governments coming into power [and] immediately curtailing press rights in part to protect their own, [and] to decrease transparency to protect those regimes. So, [I'm] not surprised by that. I'm glad to see that they look at it as an important factor.


John Byrne: Right. So you can take a look at the list when you get a chance; it's 110 jurisdictions.


I thought I'd call out a couple that we work in and are very familiar with, and that is, the United Kingdom is 18th on the list. The states (United States of America) are 28th on the list. Switzerland surprisingly gets 43rd. So it's below the US and the UK, [and] Japan's 47th. You know, some of the other countries that we hear about frequently in the news, Turkey is 71, Cuba is 73rd, and UAE is 79th. I think that's pretty important to flag that because a lot of times, those in the middle east seem to suggest that their laws and regs are strong. This would suggest that that's potentially not the case. So, again, you know, you have to look at this with all the indicators, how they arrived at the scoring, but I think it's a pretty fair look, at least overview of where countries fit in, and maybe we're changes are necessary.


Elliot Berman: Yes, I agree. I want to echo your comment from earlier about the value of this report for organizations as one of many good resources if you are running a multinational program. Because this does look at it rather than at the institution level, it really looks at it at the country level, and that's a different look than we often get.


John Byrne: I agree.


Elliot Berman: So, I want to give our shameless plug. So, listen, if you like this [podcast], certainly tune in every week. We do this every Friday, and you can listen to us on Spotify, Apple Podcast, or wherever you get your podcasts, and we will be back next week. 


John, have a good weekend, and I'll talk to you next week.


John Byrne: Take care of Elliot. Be safe.


Elliot Berman: Yep, you too. Bye-bye.