BION - Índice de Basilea 2020

Basel AML Index: 9th Public Edition Ranking money laundering and terrorist financing risks around the world2

BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020 1 INTRODUCTION 3 2 SCORES AND RANKING 4 3 REGIONAL FOCUS 6 4 GLOBAL PERSPECTIVE: FOCUS ON SUPERVISION 23 5 EXPERT EDITION 2 8 6 ABOUT AND CONTACT 3 0 7 ANNEX I: METHODOLOGY 3 1

8 ANNEX II: INDICATORS 36

July 2020 The Basel AML Index is developed and maintained by the International Centre for Asset Recovery at the Basel Institute on Governance.3 BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020 1 Introduction This report accompanies the 9th Public Edition of the Basel AML Index. Published annually since 2012, it remains the only independent, research-based index by a non-profit organisation ranking countries according to their risk of money laundering and terrorist financing (ML/TF). The Basel AML Index measures the risk of ML/TF in countries around the world. Risk is defined broadly as a country’s vulnerability to ML/TF and its capacities to counter it. It does not measure the actual amount of ML/TF activity in a country. Risk scores are based on data from publicly available sources such as the Financial Action Task Force (FATF), Transparency International, the World Bank and the World Economic Forum. They cover 16 indicators in five domains relevant to assessing ML/TF risk at the country level:

1. Quality of AML / CFT Framework

2. Bribery and Corruption

3. Financial Transparency and Standards

4. Public Transparency and Accountability

5. Legal and Political Risks The Basel AML Index ranks countries based on their overall scores, capturing the complex global nature of ML/TF risks and providing useful data for comparative purposes. However, the primary objective is

3. Financial Transparency and Standards

4. Public Transparency and Accountability

5. Legal and Political Risks The Basel AML Index ranks countries based on their overall scores, capturing the complex global nature of ML/TF risks and providing useful data for comparative purposes. However, the primary objective is not to rank countries superficially in comparison with each other, but to provide an overall picture of different countries’ and regions’ risk levels and their progress in addressing vulnerabilities over time.

The Expert Edition, which includes a customisable interactive ranking and world map, covers 203 countries. Companies and financial institutions use the Expert Edition for compliance and risk assessment purposes. In the public sector and academia, it supports AML/CFT research and policy-making. Expert Edition Plus subscribers benefit from an in-depth quantitative and written analysis of FATF reports. The Public Edition of the Basel AML Index 2020, and the analysis in this report, covers 141 countries with sufficient data to calculate a reliable ML/TF risk score.

The Basel Institute has conducted extensive research in calculating the risk scores following academic best practice. The methodology is reviewed every year by an independent panel of experts to ensure that the ranking is accurate, plausible and continues to capture the latest developments in ML/TF risks. To avoid misunderstanding or misrepresentation of the results, risk scores should be read in conjunction with the description of the methodology, along with its limitations and indicators, in Annexes I and II.4 BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020 2 Scores and ranking 1 Afghanistan 8.16 2 Haiti 8.15 3 Myanmar 7.86 4 Laos 7.82

5 Mozambique 7.81 6 Cayman Islands 7.64 7 Sierra Leone 7.51 8 Senegal 7.30 9 Kenya 7.18 10 Yemen 7.12 11 Cambodia 7.10 12 Vietnam 7.04 13 Angola 7.02 14 Nigeria 6.88 15 Benin 6.85 16 Nicaragua 6.78 17 Côte d'Ivoire 6.78 18 China 6.76 19 Algeria 6.74 20 Venezuela 6.56 21 Zimbabwe 6.54 22 Cape Verde 6.52 23 Sri Lanka 6.52 24 Paraguay 6.45 25 Bahamas 6.43 26 Tanzania 6.39 27 Kyrgyzstan 6.32 28 Pakistan 6.30 29 Liberia 6.25 30 Mongolia 6.24 31 Bolivia 6.20 32 Tajikistan 6.02 33 Thailand 6.01 34 Jamaica 5.99 35 Jordan 5.96 36 Panama 5.96 37 United Arab Emirates 5.89 38 Bangladesh 5.88 39 Qatar 5.87 40 Barbados 5.87 41 Turkey 5.76 42 Macao Sar, China 5.72 43 Uzbekistan 5.71 44 Albania 5.69 45 Philippines 5.67 46 Belize 5.64 47 Bosnia-Herzegovina 5.63 48 Seychelles 5.59 49 Marshall Islands 5.57 50 Honduras 5.54 51 Morocco 5.54 52 Russia 5.51 Ranking Country Score5

BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020

53 Malta 5.48 54 Serbia 5.47 55 Guyana 5.40 56 Tunisia 5.40 57 Turks and Caicos 5.35 58 Aruba 5.34 59 Mauritius 5.33 60 Saudi Arabia 5.33 61 Lebanon 5.33 62 Vanuatu 5.29 63 Gambia 5.29 64 Samoa 5.27 65 Malaysia 5.25 66 Azerbaijan 5.24 67 Ukraine 5.23 68 Mexico 5.20 69 Japan 5.16 70 India 5.15 71 Moldova 5.14 72 Guatemala 5.10 73 Kazakhstan 5.08 74 Argentina 5.08 75 Antigua and Barbuda 5.07 76 Botswana 5.06 77 Dominican Republic 5.05 78 Brazil 5.02 79 Armenia 5.00 80 Hong Kong Sar, China 4.99 81 Hungary 4.99 82 Egypt 4.96 83 Bermuda 4.91 84 Ecuador 4.89 85 Ghana 4.89 86 El Salvador 4.87 87 South Africa 4.83 88 Cyprus 4.81 89 Romania 4.79 90 Costa Rica 4.76 91 Trinidad and Tobago 4.75 92 Luxembourg 4.74 93 Switzerland 4.74 94 Canada 4.68 95 Colombia 4.62 96 Indonesia 4.62 97 Latvia 4.62 98 South Korea 4.61 99 Italy 4.61 100 United States 4.57 101 Netherlands 4.56 102 Singapore 4.56 103 Georgia 4.54 104 Peru 4.53 105 St. Vincent and the Grenadines 4.48

106 Ireland 4.46 107 Germany 4.42 108 Bahrain 4.41 109 Austria 4.38 110 Poland 4.36 111 Taiwan, China 4.31 112 Czech Republic 4.29 113 St. Lucia 4.25 114 Iceland 4.25 115 Grenada 4.12 116 United Kingdom 4.02 117 Macedonia 3.98 118 Belgium 3.986

BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020

The Basel AML Index follows the World Bank classification of countries, with an additional separation of Europe and Central Asia into two regions:

• European Union and Western Europe
• Europe and Central Asia
• East Asia and Pacific
• Latin America and Caribbean
• Middle East and North Africa
• North America
• South Asia • Sub-Saharan Africa While each country has different risks, we do see particular trends and problem zones in each region that help highlight weak links and areas to address. 3 Regional focus 131 Lithuania 3.51 132 Denmark 3.46 133 Slovenia 3.35 134 Sweden 3.32 135 New Zealand 3.24 136 Norway 3.19 137 Cook Islands 3.13 138 Bulgaria 3.12 139 Finland 2.97 140 Andorra 2.83 141 Estonia 2.36 119 Croatia 3.95 120 Slovakia 3.95 121 Uruguay 3.94 122 France 3.92 123 Dominica 3.88 124 Australia 3.84 125 Chile 3.82 126 Montenegro 3.75 127 Greece 3.73 128 Portugal 3.66 129 Spain 3.66 130 Israel 3.62 Countries not yet assessed with the fourth-round FATF methodology, limiting comparability. low risk high risk7

BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020 3. 1 European Union and Western Europe Despite having a generally lower risk than the global average, the region’s biggest deficiency is the quality

low risk high risk7 BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020 3. 1 European Union and Western Europe Despite having a generally lower risk than the global average, the region’s biggest deficiency is the quality of AML/CFT frameworks. This could indicate that AML/CFT does not enjoy the same level of priority in Europe than other accountability and transparency factors captured by the Index. Countries marked with a star haven’t yet undergone an FATF fourth-round evaluation. This may affect comparability between countries. Only countries with sufficient data to calculate a reliable risk score are included. Low risk High risk8

BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020 3 4 5 6 7 8

Belgium, Cyprus, Malta, the Netherlands, Spain and the UK listed by the US as major money laundering destinations High levels of financial secrecy undermine AML / CFT frameworks in Switzerland, Luxembourg, the Netherlands and the UK

Weakest area: Quality of AML / CFT frameworks Overall risk score Quality of AML / CFT framework Bribery and corruption Financial transparency and standards Public transparency and accountability Legal and political risk

4.01 Region Global average 5.22 4.6 5.57 3 .16 4.94 3.26 4.75 1.93 3.68 2.89 4.49 BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020 3.2 Europe and Central Asia The region’s overall risk score is close to the global average and faring slightly better with respect to the quality of the AML/CFT framework. Weaknesses are most apparent when it comes to corruption and bribery and legal and political risks, reflecting issues with political and civil rights, media freedom and the independence of the judiciary. This can result in a skewed perception of reality when it comes to the effectiveness of AML/CFT systems.

bribery and legal and political risks, reflecting issues with political and civil rights, media freedom and the independence of the judiciary. This can result in a skewed perception of reality when it comes to the effectiveness of AML/CFT systems. Countries marked with a star haven’t yet undergone an FATF fourth-round evaluation. This may affect comparability between countries. Only countries with sufficient data to calculate a reliable risk score are included. Low risk High risk10

BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020

Three quarters of the countries are listed by the US as major money laundering destinations The region faces high risks of human trafficking, with the highest exposure level in Russia Weakest areas: Corruption and issues with political and civil rights, media freedom and independence of the judiciary Region Global average 3 4 5 6 7 8 Overall risk score Quality of AML / CFT framework Bribery and corruption Financial transparency and standards Public transparency and accountability Legal and political risk 5.255.22 5.28 5.57 5.934.94

5. 164.75

2.85 3.68 5.734.411 BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020 3.3 East Asia and Pacific The East Asia and Pacific region has a slightly higher than average overall risk score. The most prominent weaknesses relate to the quality of the AML/CFT framework itself, and to underperformance with respect to public transparency and accountability. In both areas, technical and legal adjustments as well as effective implementation would need to be the focus of future reform. Countries marked with a star haven’t yet undergone an FATF fourth-round evaluation. This may affect comparability between countries. Only countries with sufficient data to calculate a reliable risk score are included. Low risk High risk12

BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020

Hong Kong, Japan, Singapore and Taiwan

between countries. Only countries with sufficient data to calculate a reliable risk score are included. Low risk High risk12

BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020

Hong Kong, Japan, Singapore and Taiwan face the largest issues with financial secrecy

Weakest area: Quality of AML / CFT frameworks Region Global average Nearly half of all countries are listed by the US as major money laundering destinations - China,

Hong Kong, Indonesia, Laos, Macao, Malaysia, Myanmar, Philippines, Thailand and Vietnam 3 4 5 6 7 8 Overall risk score Quality of AML / CFT framework Bribery and corruption Financial transparency and standards Public transparency and accountability Legal and political risk 5.465.22 6.085.57 4.41 4.94 4.68 4.083.68 3.91 4.75 4.413 BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020 3.4 Latin America and Caribbean Only around half of countries in this region have undergone an FATF fourth-round evaluation, limiting comparability and, if the general trend holds, making it likely that more countries will fall down the rankings as they undergo new FATF evaluations. At the moment, the main deficiencies lie in high levels of corruption and bribery, low levels of financial transparency and weak public transparency and accountability. Countries marked with a star haven’t yet undergone an FATF fourth-round evaluation. This may affect comparability between countries. Only countries with sufficient data to calculate a reliable risk score are included. Low risk High risk14

BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020

The Cayman Islands, Bahamas and Panama face the largest issues with financial secrecy Weakest area: Corruption and bribery Region Global average Almost 90% of countries are listed by the US as major money laundering destinations - exceptions are the

The Cayman Islands, Bahamas and Panama face the largest issues with financial secrecy Weakest area: Corruption and bribery Region Global average Almost 90% of countries are listed by the US as major money laundering destinations - exceptions are the Turks and Caicos, Grenada, Chile and Uruguay 3 4 5 6 7 8 Overall risk score Quality of AML / CFT framework Bribery and corruption Financial transparency and standards Public transparency and accountability Legal and political risk 5.365.22 5.39 5.57 5.774.94 5.59 4.413.68 4.7 4.75 4.415 BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020 3.5 Middle East and North Africa Risk levels in this region are higher than the global average across the board. Governments will need to work hard to improve their performance in all categories. The discrepancy to the global average in the category Public Transparency and Accountability is particularly striking and needs urgent attention. Countries marked with a star haven’t yet undergone an FATF fourth-round evaluation. This may affect comparability between countries. Only countries with sufficient data to calculate a reliable risk score are included. Low risk High risk16

BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020

Region Global average Algeria, Qatar and the UAE are rated as having the highest levels of financial secrecy Weakest area: Public transparency and accountability Region Global average The US lists Algeria, Morocco and the UAE as major money laundering jurisdictions 3 4 5 6 7 8 Overall risk score Quality of AML / CFT framework Bribery and corruption Financial transparency and standards Public transparency and accountability Legal and political risk 5.515.22 5.795.57 5.234.94 4.29 5.793.68 5.07 4.75

Overall risk score Quality of AML / CFT framework Bribery and corruption Financial transparency and standards Public transparency and accountability Legal and political risk 5.515.22 5.795.57 5.234.94 4.29 5.793.68 5.07 4.75 4.417 BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020 3.6 North America Though containing only three countries, this region plays a huge part in global financial markets. It scores better than the global average in all categories, but clearly the headstart over the rest of the world is very minimal when it comes to the actual AML/CFT framework. Similar to the European Union and Western Europe region, it appears not enough attention is paid to this matter. Yet the region's role as a financial centre cannot be overstated. Countries marked with a star haven’t yet undergone an FATF fourth-round evaluation. This may affect comparability between countries. Only countries with sufficient data to calculate a reliable risk score are included. Low risk High risk18

BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020

The US is rated as having the highest financial secrecy risks in the region and one of the highest risks globally

Weakest area: Quality of AML / CFT frameworks Region Global average Canada and the US are listed in the US INCSR as major money laundering jurisdictions 3 4 5 6 7 8

Overall risk score Quality of AML / CFT framework Bribery and corruption Financial transparency and standards Public transparency and accountability Legal and political risk 4.72 5.22 5.51 5.57 3.53 4.94 2.72 4.75 1.33 3.68 2.23 4.419

BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020

3.7 South Asia

5.51 5.57 3.53 4.94 2.72 4.75 1.33 3.68 2.23 4.419 BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020 3.7 South Asia This region has the highest overall risk score and exceeds the global average across all categories. Major deficiencies are the quality of AML/CFT frameworks and very high levels of corruption and bribery. But governments will need to take a coordinated and holistic approach across all categories in order to lower their ML/TF risks and improve their healthy access to financial markets and investments. Countries marked with a star haven’t yet undergone an FATF fourth-round evaluation. This may affect comparability between countries. Only countries with sufficient data to calculate a reliable risk score are included. Low risk High risk20

BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020

The region faces high risks of human trafficking, with the highest risk in Afghanistan

Weakest area: Quality of AML/CFT frameworks

Region Global average Afghanistan, India and Pakistan are listed by the US as major money laundering jurisdictions 3 4 5 6 7 8 Overall risk score Quality of AML / CFT framework Bribery and corruption Financial transparency and standards Public transparency and accountability Legal and political risk 6.45.22 6.745.57 6.714.94 5.794.75 4.353.68 5.564.421 BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020 3.8 Sub-Saharan Africa This region has the second-highest overall risk score and scores significantly below average across all categories, similar to South Asia. To add to this, the risk scores are likely to rise even higher after more countries are evaluated with the FATF fourth-round methodology, which evaluates the effectiveness of the systems and generally causes countries to fall down the ranking. A comprehensive and coordinated

categories, similar to South Asia. To add to this, the risk scores are likely to rise even higher after more countries are evaluated with the FATF fourth-round methodology, which evaluates the effectiveness of the systems and generally causes countries to fall down the ranking. A comprehensive and coordinated set of reforms is required to reduce the region’s risk levels and increase its attractiveness for investors. Countries marked with a star haven’t yet undergone an FATF fourth-round evaluation. This may affect comparability between countries. Only countries with sufficient data to calculate a reliable risk score are included. Low risk High risk22

BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020

The region suffers from a lack of data on AML / CFT and related risks

Weakest area: Quality of AML / CFT framework Region Global average Half of countries are listed by the US as major money laundering destinations 3 4 5 6 7 8

Overall risk score Quality of AML / CFT framework Bribery and corruption Financial transparency and standards Public transparency and accountability Legal and political risk 6.335.22 6.795.57 5.914.94 5.90 4.73.68 5.07 4.75 4.423 BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020 4 Global persective: Focus on supervision Global money laundering risks remain high, with an average in the 2020 Basel AML Index of 5.22 compared to 5.39 in 2019. Few countries are making dramatic progress in addressing these risks. In fact, only six countries improved their risk scores by more than one point. 35 countries went backwards. Of course, major shifts in global risk patterns cannot be expected from one year to another. What’s interesting, when a phenomenon is stagnant like this, is to really drill deeper into the underlying causes. One area in which countries score poorly across the board is the quality of AML/CFT supervision. 4. 1 Supervision: why so poor?

interesting, when a phenomenon is stagnant like this, is to really drill deeper into the underlying causes. One area in which countries score poorly across the board is the quality of AML/CFT supervision. 4. 1 Supervision: why so poor? Supervision by competent authorities of financial institutions, designated non-financial businesses and professions (DNFBPs) and virtual asset service providers (VASPs) is a major factor affecting AML/CFT risk and resilience. This poor performance is consistent with breaches of AML provisions in European banks over the last few years, as well as with the recent Wirecard scandal in Germany, which have raised alarm about the quality of banking and non-banking supervision related to AML/CFT. What is wrong, and what can be done to improve supervision generally? Supervision is very much at the intersection between regulation and implementation, i.e. technical compliance with AML/CFT standards and their enforcement. Looking at data from recent FATF reports, we see that while countries generally have low or mediocre scores for technical compliance, the most problematic issue is with the effectiveness of their measures. In terms of technical compliance, the average score for standards of regulation and supervision of financial institutions (R26) is only 57%. It is even lower for DNFBPs (R28), at 42%. The average effectiveness of these measures and their implementation (IO3), however, lies even lower at 26%. A full 32 countries score zero in this category, and not a single country gets full marks. Data check

This analysis is based on FATF data for 100 countries assessed with the fourth-round evaluation methodology, which covers both the technical compliance and effectiveness of countries’ AML /CFT systems. The research covers the following FATF indicators relevant to supervision: Recommendations (R) – technical compliance: • R26: Regulation and supervision of financial institutions • R27: Powers of supervisors • R28: Regulation and supervision of DNFBPs • R34: Guidance and

indicators relevant to supervision: Recommendations (R) – technical compliance: • R26: Regulation and supervision of financial institutions • R27: Powers of supervisors • R28: Regulation and supervision of DNFBPs • R34: Guidance and feedback • R35: Sanctions Immediate Outcome (IO) – effectiveness:

• IO3 Supervision24

BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020

Improving banking and non-banking supervision is therefore an obvious and clearly much needed way to strengthen AML/CFT systems worldwide. This may be through corrective measures and proportionate sanctions that help to change behaviours and deter non-compliance. Effectiveness of AML supervision across countries 4.2 What factors contribute to ineffective supervision? A content analysis of FATF Mutual Evaluation Reports from the 32 countries with an effectiveness rating of 0% for AML/CFT supervision identifies five general characteristics. Limited powers to sanction non-compliance by civil or administrative means. This leaves only criminal prosecution, for which the bar is typically high. 1 2 3 Limited resources including qualified staff, processes, IT systems and tools. Risk-based approach is not applied meaning supervision is not commensurate with the risks and the size of the financial centre and the number and intensity of reviews are not aligned with existing risks.25

BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020

Poor coordination between competent authorities on supervision, with individual agencies focused only on their sectors. 4 5 Insufficient guidance on ML/TF risks provided by supervisory body to reporting entities. 4.3 Effectiveness of AML supervision around the world26 BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020 4.4 Case studies Spain What we can learn from stronger (but still not perfect) supervision According to the FATF evaluation, Spain has a relatively strong system of AML/CFT supervision thanks to:

BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020 4.4 Case studies Spain What we can learn from stronger (but still not perfect) supervision According to the FATF evaluation, Spain has a relatively strong system of AML/CFT supervision thanks to: • Sufficient resources including a strong team of qualified staff, structured into groups responsible respectively for offsite and onsite supervision. • Risk-based approach well developed and followed by Spain’s Executive Service of the Commission for the Prevention of Money Laundering and Monetary Offences (SEPBLAC) and the Bank of Spain. • Adequate powers and sanctions for failure to comply with AML/CFT obligations, including fines of up to EUR 1.5 million plus the possibility of public reprimands, withdrawal of authorisation, and sanctions for directors or senior managers. • Cooperative approach: Supervisory authorities provide guidelines and feedback to assist financial institutions and DNFBPs to apply national AML/CFT measures, as well as detect and report suspicious transactions. While these positive factors should be lauded, Spain does not score 100% and will need to tackle the weaknesses identified in the FATF report for its system to be fully effective. Denmark How a low-risk country can be dragged down by weak supervision Denmark is rated as a low-risk country for ML/TF, scoring 3.46 in the Basel AML Index. Its technical compliance with the relevant FATF Recommendations on supervision is relatively high at 67%. Yet it scores 0% for effectiveness. Why? The country’s latest FATF Mutual Evaluation Report highlights the main issues: • Limited risk-based approach (RBA) to supervision , based mostly on the national risk assessment rather than a detailed understanding of the specific threats and vulnerabilities of the country’s financial sector. • Insufficient staff to supervise a relatively large number of reporting entities, as well as carry out responsibilities in the development and drafting of legislation. • Regional variations, with particular deficiencies in Greenland and the Faroe Islands. • Weak powers of enforcement and sanctioning without referral to the police, and relatively low monetary fines with no minimum amount.

development and drafting of legislation. • Regional variations, with particular deficiencies in Greenland and the Faroe Islands. • Weak powers of enforcement and sanctioning without referral to the police, and relatively low monetary fines with no minimum amount. • Reliance on “reputation risk”, despite this being an ineffective deterrent in the FATF’s assessment. For example, a major Danish bank in an EU country was accused of laundering EUR 1.1 billion in proceeds from Russian organised crime (see details of the “Russian Laundromat case” on pages 119-20 of Denmark’s Mutual Evaluation Report). Despite the seriousness of the allegations and a public statement by the Danish Financial Supervisory Authority (FSA) detailing the bank’s failings, it continued to be non-compliant for the next four years. In two follow-up reports in November 2018 and November 2019, Denmark has since improved its scores in two technical areas: R34 (guidance and feedback) and R35 (sanctions). It will be interesting to see whether this will be compounded by an improvement in its effectiveness rating (IO3), because strong laws and regulations around supervision are of little use if they are 0% effective.27 BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020 4.5 Looking beyond the raw numbers The example of analysing the quality of supervision and its role with respect to the overall effectiveness of AML/CFT systems is also very pertinent to demonstrate that numbers should never be taken at face value. Policymakers and analysts will need to consider features of the FATF methodology (including for effectiveness) before drawing conclusions. In addition, they need to look not only at the overall scores or at individual sub-indicator scores, but also at how the scores in different sub-indicators relate to each other and may mutually influence each other.

By way of example, the data shows that jurisdictions that are scoring well with respect to the effectiveness of supervision often score poorly in the category political and legal risks. What does that mean for the quality and manner in which the supervisory regimes operate and are executed?

other and may mutually influence each other.

By way of example, the data shows that jurisdictions that are scoring well with respect to the effectiveness of supervision often score poorly in the category political and legal risks. What does that mean for the quality and manner in which the supervisory regimes operate and are executed? Another comparison which could be looked at, again at the level of sub-indicators and their interrelation, is that countries that score poorly on political and legal risks often score quite strongly with respect to the effectiveness of their AML/CFT regimes, especially in terms of case numbers and sanctions. In other words, where countries score at highly opposite ends of the spectrum on certain sub-indicators, we need to look beyond the overall score in order to make sure we draw the right conclusions and, as a consequence, are promoting the right reforms to further advance that country's AML/CFT performance.28 BASEL INSTITUTE ON GOVERNANCE BA SEL AML INDEX 9TH PUBLIC EDITION 2020 5 Expert Edition This report refers to the Public Edition of the Basel AML Index, which covers 141 countries and is designed to give a general snapshot of money laundering trends around the world. For professional compliance or risk assessment purposes, as well as research and policy making, we recommend using the Basel AML Index Expert Edition . The Expert Edition is a comprehensive and interactive risk assessment tool that helps users to evaluate the risk of corruption, money laundering and terrorist financing in any country in the world. Unlike the Public Edition, it allows users to drill down into the reasons behind a country'