Corporate Counsel   June 14, 2013

http://www.law.com/corporatecounsel/PubArticleCC.jsp?id=1202604134912&Afghanistan_Tops_Index_for_MoneyLaundering_Risk&slreturn=20130514010557

In a new ranking of money-laundering risk by country, Afghanistan takes the top spot for highest level of risk, while the least-risky country is Norway, according to the Basel AML Index 2013.

The index, produced by Switzerland’s Basel Institute on Governance, measures risk on a scale of 0 to 10 for 149 countries. In addition to Afghanistan, with a score of 8.55, the top five countries posing the highest risk for money laundering and terrorism financing include Iran (8.48), which last year ranked number one for risk, Cambodia (8.35), Tajikistan (8.27), and Iraq (8.17).

Norway earned its spot at the lowest end of the risk spectrum for the second year in a row, with a score of 3.17. The other lowest-scoring countries are Slovenia (3.3), Estonia (3.31), Finland (3.74), and Sweden (3.75).

The U.S. scored 5.24, and ranked 102 on the list—an improvement from last year’s spot at 98.

When the Basel index debuted last year it was trying to tackle the tricky task of standardizing measures of risk in an area of secret activity and limited data; since then, the inter-governmental Financial Action Task Force has recommended it to banks and non-financial institutions when assessing geographic or country risk factors.

The index doesn’t measure actual money-laundering activity, but rather how vulnerable a country is to money-laundering and terrorism-financing risk, based on factors such as the jurisdiction’s anti-money laundering/counter-terrorist financing (AML/CTF) framework, rule of law, and overall financial standards.

The presence of monitoring mechanisms, along with government transparency and accountability, are strong influences on whether and where money laundering “thrives,” according to the institute.

“These two variables particularly illustrate the circumstances and structural contextual factor of a country and greatly influence the implementation of an AML/CTF framework, which is why particularly developing or low-income countries are positioned at the top of the Basel AML index,” a report accompanying the index explains.

Though even among developed countries the report notes risk patterns. For example, among members of the OECD, the countries that received the highest risk scores were Greece (6.39), Luxembourg (6.24), Turkey (6.11), Japan (6.03), Austria (5.79), Germany (5.79), and Switzerland (5.76).

“While some of these countries are actually known for sound financial stability, low rates of perceived corruption and strong political and judicial institutions, they still find themselves at an above-average high risk score (compared to other OECD countries) in some of the sub-indices,” the report says.