BION - Índice de Basilea 2018

Steinenring 60 | 4051 Basel, Switzerland | +41 61 205 55 11 info@baselgovernance.org | www.baselgovernance.org Basel AML Index 2018 Report Basel Institute on Governance | 9 October 2018BASEL INSTITUTE ON GOVERNANCE 1 Basel AML Index 2018 Table of contents 1 Basel AML Index 2018 2 1.1 Money laundering risks in context 2 2 Scores & rankings 3 3 Key trends 5 3.1 Little measurable progress in countering money laundering 5 3.2 Effectiveness lags behind technical compliance 6 3.3 ML/TF is not a standalone risk 6 3.4 No such thing as zero risk of money laundering 7 3.5 What can we learn from low-risk countries? 8 3.6 The two main reasons behind improvements in ML/TF risk ratings 9 3.7 Which countries have significantly worsened their scores and why 10 4 Methodology 11 4.1 What factors impact a country’s risk score in the Basel AML Index? 11 4.2 Sources 12 4.3 Weighting 12 4.4 Changes in 2018 12 5 Expert Edition & Expert Edition Plus 13 6 About us 15 7 Annex 1: Key indicators 16 7.1 Quality of AML/CFT framework 16 7.2 Corruption 17 7.3 Financial transparency and standards 18 7.4 Public transparency and accountability 20 7.5 Political risk 22BASEL INSTITUTE ON GOVERNANCE 2

2 1 Basel AML Index 2018 The Basel Anti-Money Laundering Index is an independent annual ranking that assesses the risk of money laundering and terrorist financing (ML/TF) around the world. This is the seventh edition of the Basel AML Index issued by the International Centre for Asset Recovery, part of the Basel Institute on Governance. It focuses on anti-money laundering and countering the financing of terrorism (AML/CFT) frameworks, plus related factors that impact the risk of ML/TF, such as corruption, transparency and the rule of law. Key features: ● Overview of 129 countries according to their risk of money laundering and terrorist financing ● Interactive ranking revealing trends and changes in risk over time ● Research-led, composite index based on public sources and third-party assessments ● AML risk assessment tool covering 203 countries for compliance purposes, policymaking and research (Expert Edition) 1.1 Money laundering risks in context Money laundering and terrorist financing continue to cripple economies, distort international finances and harm citizens around the globe. Estimates of the amount of money laundered worldwide range from US$500 billion to a staggering US$1 trillion1. Most countries are making little or no progress towards ending corruption2 and public transparency is showing signs of decline, with governments making less information available about how they manage public funds3. Despite the recent surge in reporting on high-profile corruption and money laundering schemes, such as the Panama Papers, Odebrecht scandal and Global Laundromat investigation, indications are that global press freedom has declined to its lowest point in 13 years4. These factors are known to impact negatively on the risk of ML/TF. Looking at them in conjunction with countries’ specific AML/CFT frameworks helps us to understand trends and developments in ML/TF risks. The Basel AML Index brings data on all these factors together to gain a more comprehensive picture of drivers of ML/TF risks, with a view to guiding informed measures to counter them. 1 MONEYVAL 2017 Annual Report 2 Transparency International 2017 Corruption Perceptions Index 3 International Budget Partnership 2017 Open Budget Index 4 Freedom House report: Attacks on the Record: The State of Global Press Freedom 2017–2018BASEL INSTITUTE ON GOVERNANCE 3

1 MONEYVAL 2017 Annual Report 2 Transparency International 2017 Corruption Perceptions Index 3 International Budget Partnership 2017 Open Budget Index 4 Freedom House report: Attacks on the Record: The State of Global Press Freedom 2017–2018BASEL INSTITUTE ON GOVERNANCE 3 2 Scores & rankings Only countries with sufficient data to calculate a reliable ML/TF risk score are included in the Public Edition of the Basel AML Index. Sufficient data means there is data available for at least 8 out of the 14 indicators, including at least two out of the three indicators in the ML/TF category (see Methodology > Changes in 2018). The Expert Edition, which is free for academic, public and supervisory institutions and non-profit organisations, contains a more detailed overview of all 203 countries and their risk scores based on the available data.

1 TAJIKISTAN 8.30 +0.03 24 ANGOLA 6.49 -0.09 2 MOZAMBIQUE 8.28 +0.21 25 PAKISTAN 6.49 -0.08 3 AFGHANISTAN 8.28 -0.07 26 JAMAICA 6.48 -0.07 4 LAOS 8.25 0.00 27 VANUATU 6.37 -0.17 5 GUINEA-BISSAU 8.16 -0.16 28 KAZAKHSTAN 6.36 0.00 6 MYANMAR 7.50 -0.02 29 ALGERIA 6.35 -0.05 7 CAMBODIA 7.48 -0.43 30 TIMOR-LESTE (East Timor) 6.31 -0.04 8 LIBERIA 7.42 +0.13 31 THAILAND 6.30 -0.29 9 KENYA 7.40 -0.29 32 ECUADOR 6.30 0.00 10 VIETNAM 7.37 -0.04 33 MOROCCO 6.22 -0.09 11 HAITI 7.33 -0.12 34 PANAMA 6.21 -0.58 12 BENIN 7.25 -0.09 35 SENEGAL 6.20 -0.04 13 SIERRA LEONE 7.24 +0.04 36 KYRGYZSTAN 6.19 -0.06 14 CAPE VERDE 7.02 +0.06 37 GUYANA 6.12 -0.04 15 ZIMBABWE 6.86 +0.01 38 TURKEY 6.11 -0.17 16 NIGERIA 6.86

+0.01 39 UKRAINE 6.06 -0.39 17 YEMEN 6.81 -0.02 40 CHINA 6.02 -0.09 18 PARAGUAY 6.79 -0.71 41 BOLIVIA 6.02 -1.11 19 NICARAGUA 6.72 +0.15 42 LEBANON 5.99 +0.01 20 TANZANIA 6.71 -1.15 43 PHILIPPINES 5.94 +0.31 21 MONGOLIA 6.65 +0.51 44 MARSHALL ISLANDS 5.92 -0.41 22 COTE D'IVOIRE 6.59 +0.03 45 HONDURAS 5.85 -0.04 23 ARGENTINA 6.55 -0.08 46 BOSNIA-HERZEGOVINA 5.84 +0.02BASEL INSTITUTE ON GOVERNANCE

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47 RUSSIA 5.83 +0.13 80 CYPRUS 5.01 +0.75 48 UZBEKISTAN 5.82 -0.17 81 SAUDI ARABIA 5.01 +0.22 49 DOMINICAN REPUBLIC 5.80 -0.41 82 UNITED STATES 5.00 +0.50 50 SERBIA 5.80 +0.01 83 BRAZIL 4.96 -0.80 51 BANGLADESH 5.78 - 0.03 84 GUATEMALA 4.95 -0.64 52 INDONESIA 5.73 -0.53 85 MAURITIUS 4.94 -0.49 53 UNITED ARAB EMIRATES 5.70 -0.01 86 CANADA 4.92 +0.26 54 VENEZUELA 5.69 -0.75 87 HUNGARY 4.92 +0.36 55 ALBANIA 5.57 -0.08 88 NETHERLANDS 4.90 +0.60 56 KUWAIT 5.54 -0.01 89 JORDAN 4.84 -0.06 57 MALAYSIA 5.49 -0.20 90 ROMANIA 4.75 +0.26 58 COSTA RICA 5.47 +0.25 91 AZERBAIJAN 4.70 -0.07 59 EL SALVADOR 5.43 +0.06 92 SOUTH KOREA 4.69 +0.48 60 BOTSWANA 5.40 +0.10 93 PORTUGAL 4.66 +0.72 61 MOLDOVA 5.37 -0.06 94 ICELAND 4.59 +1.06 62 EGYPT 5.35

-0.21 95 IRELAND 4.58 +0.56 63 SOUTH AFRICA 5.34 +0.75 96 GREECE 4.56 +0.35 64 SWITZERLAND 5.33 +0.48 97 SINGAPORE 4.51 -0.03 65 BAHRAIN 5.33 -0.10 98 ST. LUCIA 4.48 -0.38 66 GHANA 5.32 -1.01 99 ST. VINCENT AND THE GRENADINES 4.46 -0.75 67 GEORGIA 5.31 +0.03 100 BELGIUM 4.46 +0.37 68 INDIA 5.28 +0.38 101 SPAIN 4.45 +0.45 69 TRINIDAD AND TOBAGO 5.25 -1.50 102 GERMANY 4.44 +0.05 70 ARMENIA 5.23 +0.79 103 COLOMBIA 4.42 -0.02 71 HONG KONG SAR, CHINA 5.18 -0.04 104 POLAND 4.38 +0.77 72 MEXICO 5.17 +0.11 105 AUSTRIA 4.34 -0.31 73 TAIWAN, CHINA 5.15 +0.81 106 UNITED KINGDOM 4.23 -0.09 74 PERU 5.14 -0.01 107 GRENADA 4.20 -0.85 75 JAPAN 5.11 +0.07 108 DOMINICA 4.17 +0.09 76 LUXEMBOURG 5.11 -0.03 109 CHILE 4.16 -0.18 77 ITALY 5.09 +0.44 110 SLOVAKIA 4.13 +0.19 78 GAMBIA 5.08 -1.62 111 CZECH REPUBLIC 4.12 +0.47 79 QATAR 5.08 -0.03 112 NORWAY 4.12 +0.32BASEL INSTITUTE ON GOVERNANCE

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113 FRANCE 4.12 +0.17 122 SWEDEN 3.75 +0.35 114 DENMARK 4.11 +1.14 123 SLOVENIA 3.75 +0.97 115 AUSTRALIA 4.06 +0.19 124 BULGARIA 3.53 -0.31 116 URUGUAY 4.05 -0.57 125 MACEDONIA 3.33 -0.76 117 LATVIA 3.98 +0.34 126 NEW ZEALAND 3.20 +0.17 118 MALTA 3.96 +0.30 127 LITHUANIA 3.12 -0.55 119 MONTENEGRO 3.95 -0.81 128 ESTONIA 2.73 0.00 120 ISRAEL 3.84 +0.24 129 FINLAND 2.57 +0.80 121 CROATIA 3.83 -0.28

3 Key trends Money laundering and terrorist financing risks vary greatly from region to region, country to country, and even within countries. However, some key patterns and trends in ML/TF risk can be identified. 3.1 Little measurable progress in countering money laundering Over the seven years since it was first calculated, the Basel AML Index has consistently indicated slow progress among most countries in improving their ML/TF risk scores. 64% of countries in the 2018 ranking (83/129) have a risk score of 5.0 or above and can be loosely classified as having a significant risk of money laundering and terrorist financing. The mean average level of risk remains above this (5.63 in 2018). Less than 4% of countries in the ranking (4/129) have improved their scores by 1 point or more in the last year (Ghana, Bolivia, Tanzania, Trinidad and Tobago). Between 2012 and 2018, only 17% (21/129) have improved their score by 1 point or more. The downward trend is more striking. 42% of countries have worsened their risk scores between 2017 and 2018. Almost 37% of countries now have a worse risk score than they did in 2012. The highest risk score has also remained roughly the same, fluctuating between 8.55 and 8.6 between 2012 and 2018. Clearly, still too little is being done to effectively counter ML/TF risks.BASEL INSTITUTE ON GOVERNANCE 6

3.2 Effectiveness lags behind technical compliance The most concerning aspect illustrated by the Basel AML Index is the apparent low level of effective enforcement of AML/CFT measures. The FATF Mutual Evaluation Reports, a key indicator in the Basel AML Index, assess a country’s legal and institutional AML/CFT framework and its implementation of AML/CFT measures in line with the 40 FATF Recommendations. These are designed to improve relevant legislation, law enforcement, international cooperation and customer due diligence (see Methodology). Clearly, the mere existence of laws and institutions is not enough to effectively combat ML/TF. As a consequence, the FATF methodology was revised in 2013 to emphasise the effectiveness of AML/CFT systems and not simply technical compliance with the Recommendations5. The overwhelming majority of countries assessed with the updated methodology so far – marked by an asterisk in the Basel AML Index – have received dramatically lower scores for effectiveness than for technical compliance. This has also had a major impact on their performance in the Basel AML Index, which weighs countries’ results in effectiveness as twice as important as their results in technical compliance. For example: ● 77% of countries assessed using the new methodology have not achieved outcomes for investigating ML activities and prosecuting offenders. ● 47% have achieved a low level of effectiveness in investigating and prosecuting ML offences. ● 40% have not achieved outcomes in confiscating the proceeds of crime. If this pattern continues, and especially when combined with the poor progress recorded in the Basel AML Index since 2012, one must fear that many governments worldwide are still not doing enough to sincerely prevent and combat ML/TF. Even worse, it will indicate that they are consciously neglecting efforts to boost implementation effectiveness by hiding behind formal compliance structures that merely give the appearance of AML/CFT commitment. This observation is supported by a recent European Commission proposal to reinforce the role of the European Banking Authority in effectively supervising money laundering risks, because in the words of Commission Vice-President for the Euro and Social Dialogue, Valdis Dombrovskis,

"[a]nti-money laundering supervision has failed all too often in the EU."6 3.3 ML/TF is not a standalone risk Our analysis over the last seven years has consistently shown that countries with a high risk of ML/TF share some or all of these features: 5 https://www.fatf-gafi.org/media/fatf/documents/methodology/FATF Methodology 22 Feb 2013.pdf 6 EC State of the Union 2018 press release, 12 September 2018. http://europa.eu/rapid/press-release_IP-18-5724_en.htmBASEL INSTITUTE ON GOVERNANCE

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● Weak public institutions, political rights and rule of law ● Low levels of financial/political transparency ● Restrictions on press freedom ● Lack of resources to control the financial system ● Predominantly cash-based economies ● High levels of smuggling activity and illegal trafficking (in drugs, humans, wildlife products, etc.) The interconnectedness of the factors used to calculate the Basel AML Index score of a country is also highlighted in this year’s edition, in which many countries saw improvements in one or two areas that were then wiped out by a deterioration in others. For example, despite improvements in indicators relating to corruption, financial transparency and public transparency, Slovenia still deteriorated in its overall score due to a huge increase in its financial secrecy rating. Taking a holistic approach to tackling money laundering issues is therefore essential. Economic development can only contribute to reducing the risk of money laundering if it is sustainable, in other words not based on corrupt practices or illegal trafficking. It must also be coupled with respect for basic human rights, effective control systems and an open political culture. This complexity of factors behind a high ML/TF risk rating has implications for those considering doing business in a particular country. Indiscriminate de-risking – avoiding rather than managing ML/TF risks by terminating relationships with entire regions or classes of customers – can have disastrous consequences as it cuts entire jurisdictions off from international financial flows, including legal ones. Rather than playing safe by de-risking, and thereby missing out on business opportunities and penalising innocent stakeholders, companies and financial institutions should drill down to the specific factors driving the high level of risk and implement measures to mitigate these. A similar comprehensive approach must be taken by policymakers, who should seek to strengthen the comprehensive set of factors contributing to their country’s raised level of risk, and by regulators, who should be cautious of too simple a definition of risk. 3.4 No such thing as zero risk of money laundering 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

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 (see Methodology). Even beyond that, many low-risk countries have issues that need to be addressed, for example related to beneficial ownership or politically exposed persons. What’s more, criminals are ingenious at findingBASEL INSTITUTE ON GOVERNANCE

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new ways to launder money, and governments need to be constantly on the lookout and adjust their legal, institutional and policy responses accordingly. In other words, a low risk score in the Basel AML Index is not a ticket to taking a leave from AML/CFT vigilance, either for a country’s administration or for companies and financial institutions doing business in that country. Recent money laundering scandals involving countries that are rated as low-risk countries on the 2018 Basel AML Index are a case in point. 3.5 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. Country Risk score 2017 Risk score 2018 Change 17/18 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 accessed according to the new FATF methodology 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 ●

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 transactionsBASEL INSTITUTE ON GOVERNANCE

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● High levels of transparency and integrity in public institutions and businesses ● Low levels of corruption 3.6 The two main reasons behind improvements in ML/TF risk ratings 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 17/18 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 accessed 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: 3.6.1 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

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.BASEL INSTITUTE ON GOVERNANCE

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3.6.2 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. 3.7 Which countries have significantly worsened their scores and why The top 10 decliners in 2018 are: Country Overall score 2017 Overall score 2018 Change 17/18 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 NETHERLANS 4.30 4.90 +0.60 Countries accessed 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 (see Key trends/Effectiveness lags behind technical compliance). 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

using the new FATF evaluation methodology, which measures not only technical compliance but importantly emphasises effectiveness (see Key trends/Effectiveness lags behind technical compliance). 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 an 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.BASEL INSTITUTE ON GOVERNANCE

11 The same two main factors behind improvements in ML/TF risk (see 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. 4 Methodology Here is an overview of the methodological process behind the Basel AML Index: 4.1 What factors impact a country’s risk score in the Basel AML Index? Complex factors contribute to a high risk of money laundering and terrorist financing (see Key trends > ML/TF is not a standalone risk). However, the main areas are summarised below:BASEL INSTITUTE ON GOVERNANCE 12 4.2 Sources Basel AML Index scores are based on 14 indicators from publicly available sources. These indicators, and their weighting in the composite index, are: ● Quality of AML/CFT framework (65%) o FATF Mutual Evaluation Reports o Financial Secrecy Index o US State Department International Narcotics Control Strategy Report (INCSR) ● Corruption risk (10%) o Corruption Perception Index ● Financial transparency and standards (15%) o Extent of Corporate Transparency Index o WEF Global Competitiveness Report – Strength of auditing and reporting standards o WEF Global Competitiveness Report – Regulation of securities exchanges o World Bank IDA Resource Allocation Index – Financial sector regulations ● Public transparency and accountability (5%) o Political Finance Database – Political disclosure o Open Budget Index – Budget transparency score o World Bank IDA Resource Allocation Index – Transparency, accountability and corruption in the public sector ● Political and legal risk (5%) o Freedom House: Freedom in the World and Freedom of the Press o WEF Global Competitiveness Report – Institutional pillar o Rule of Law Index For full details of all 14 indicators used, and why, see Annex 1.

4.3 Weighting The expert weighting system used places greater emphasis on indicators reflecting AML/CTF assessments and financial standards. The FATF Mutual Evaluation Reports, Financial Secrecy Index and US INCSR therefore have a significant effect on the country’s final risk score. 4.4 Changes in 2018 The seventh edition of the Basel AML Index has seen two significant changes. To keep the comparability, the results of the 2017 Index have been recalculated using the 2018 methodology and are listed in the Annex. 4.4.1 Approach to missing data A country’s overall score is calculated based on available data only. Missing values are not replaced.BASEL INSTITUTE ON GOVERNANCE 13

13 In previous Public Editions of the Basel AML Index, only countries for which data were available for a minimum of 8 out of 14 indicators were included in the ranking. However, such an approach has led to biases in assigning country scores. This can happen when, for example, only one indicator from the ML/TF risk category is available, so this indicator has a disproportionate impact on the country’s overall score. To deal more effectively with this challenge in future, it was decided that from now on, only countries with data for two out of the three indicators in the ML/TF category will be included in the ranking. This has resulted in 17 more countries being removed from the ranking. 4.4.2 Adjusting the Financial Secrecy Index impact In 2016, the FSI underwent sweeping methodological changes to reflect evolutions in several aspects of financial secrecy.7 In 2018, the FSI also increased its country coverage to 112 jurisdictions from a previous shortlist of 60 in 2009. The original procedure to normalise the FSI score for the Basel AML Index involved giving each country on the list an automatic score of 5 out of 10, based on the assumption that every country on the list was considered a “secrecy jurisdiction”. Due to the FSI’s methodological changes, in 2018 it was decided to rescale the FSI in the same way as the other indicators in the Basel AML Index – from 0 to 10 – and to decrease the weight of the FSI from 25% to 20% in order to reduce the impact of the changes on the overall score. In turn, the weight of the FATF indicator increased from 30% to 35%.

5 Expert Edition & Expert Edition Plus The Basel AML Index offers a subscription-based Expert Edition, which is a more comprehensive and customisable country risk assessment tool. It is used worldwide by financial institutions, researchers, policymakers, compliance officers and other stakeholders to fulfil their regulatory and compliance requirements. The tools can be used as a standalone solution to satisfy regulatory requirements or as an independent benchmarking tool to validate in-house risk assessments. Expert Edition Plus also contains a detailed comparative analysis of the FATF Mutual Evaluation Reports. This allows users to assess each FATF recommendation individually by focusing on specific compliance needs, for example due diligence or terrorist financing regulations. A demo account provides partial access to the Expert Edition with a sample of countries to test all the functions. Visit index.baselgovernance.org/expert-edition-intro for full information and to request a demo account. 7 https://www.financialsecrecyindex.com/faq/why-did-we-changeBASEL INSTITUTE ON GOVERNANCE 14 Compare Editions Public Edition Expert Edition Expert Edition Plus Countries covered 129 203 203 Updated annually Regular updates 14 sub-indicators and sanctions list Downloadable data set Expert advice and tailor-made solutions upon request Complete FATF data set, including small jurisdictions Annual subscription Free Free for academics, public/supervisory institutions and non-profits; CHF 2,000 for businesses Free for academics, public/supervisory institutions and non-profits; CHF 4,000 for businesses The Basel AML Index is increasingly used as a data source for other indices. For example, The Wolfsberg Group highlights it as one of the indices to be considered for country risk factors. The Economist Intelligence Unit uses the numerical FATF data and analysis available in the Expert Edition Plus as a data source for the new Global Illicit Trade Environment Index.BASEL INSTITUTE ON GOVERNANCE 15

15 6 About us The Basel Institute on Governance is an independent not-for-profit competence centre specialised in corruption prevention and public governance, corporate governance and compliance, Collective Action, anti-money laundering, criminal law enforcement and the recovery of stolen assets. Based in Switzerland, the Basel Institute is an Associated Institute of the University of Basel and regularly works with international organisations and other institutions, including the World Bank, United Nations Office for Drugs and Crime (UNODC), Organisation for Economic Cooperation and Development (OECD), Council of Europe, International Monetary Fund, the Egmont Group and Interpol. Experts at the Basel Institute work constantly to improve the accuracy of ML/TF risk ratings and facilitate their use for research and compliance purp