What does the Basel AML Index measure?
The Basel AML Index measures the risk of money laundering and terrorist financing (ML/TF) in countries using data from publicly available sources such as the Financial Action Task Force (FATF), Transparency International, the World Bank and the World Economic Forum.
A total of 15 indicators of countries’ adherence to anti-money laundering and countering the financing of terrorism (AML/CFT) regulations, levels of corruption, financial standards, political disclosure and the rule of law are aggregated into one overall risk score. By combining these data sources, the overall risk score represents a holistic assessment addressing structural as well as functional elements of the country’s resilience against ML/TF.
The scores are aggregated as a composite index using a qualitative and expert-based assessment in order to form the final country ranking. They should be read in conjunction with the analysis and descriptions of the methodology and indicators in the rest of the report. Without this background, the results may easily be misunderstood or misrepresented, and this may have unwanted consequences for any policy or compliance decision that is taken as a result.
The Basel AML Index does not measure the actual amount of money laundering or terrorist financing activity, but rather is designed to assess the risk of such activity. ML/TF risk is understood as a broad risk area in relation to a country’s vulnerability to ML/TF and its capacities to counter it.
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’ risk levels and serve as a solid basis for examining progress over time.
Notes and limitations
Simplifying a complex issue
The Basel AML Index Public Edition is a composite index, meaning it provides a simplified comparison of countries’ risks of ML/TF. Each country's risk score is calculated from available data and does not represent an opinion or subjective assessment by the Basel Institute.
The scores summarise a complex and multidimensional issue, and should not be viewed as a factual or quantitative measurement of ML/TF activity or as a specific policy recommendation for countries or institutions. For a more thorough understanding of where exactly the risks lie, or to verify overall scores that look implausible, users should look at the individual results of underlying indicators available in the Expert Edition.
There is no objective standard in creating a composite index, which is why choices and judgments on indicators and their weight have to be made when developing and evolving the Basel AML Index. See the methodology description for more information.
The Index relies heavily on perception-based indicators such as the Transparency International Corruption Perceptions Index (TI CPI). In contrast to financial risk models based purely on statistical calculations, the Basel AML Index evaluates structural factors by quantifying regulatory, legal, political and financial indicators that influence countries’ vulnerability to ML/TF.
Transforming qualitative data into quantitative data does not fully overcome the limitations of perception-based indicators. Unlike financial risk models, country risk models cannot be used as a solid basis for prediction or for calculating potential loss connected to ML/TF.
FATF fourth round evaluations
The Financial Action Task Force (FATF) Mutual Evaluation Reports (MERs), 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 (see methodology and indicators).
The FATF methodology was revised in 2013 (fourth round of evaluations) in order to emphasise not only technical compliance with the Recommendations but the effectiveness of AML/CFT systems according to 11 Immediate Outcomes. The overwhelming majority of countries assessed in the fourth round of evaluations so far 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.
Data collection for the 2019 Public Edition of the Basel AML Index was finished in June 2019. The results of Cape Verde, Haiti, Senegal, Trinidad and Tobago, and Zimbabwe do not include the latest FATF reports, published in late July and August 2019. The Expert Edition is updated throughout the year.
Insufficient data for some countries
Only countries with sufficient data to calculate a reliable ML/TF risk score are included in the Public Edition of the Basel AML Index. See the methodology section for the definition of "sufficient data". The Expert Edition contains a more comprehensive overview of all 203 countries with their risk scores and details of the available data.
Comparability of results
The Basel AML Index methodology evolves each year to more accurately capture ML/TF risks. The addition this year of one extra indicator with a 5% weighting, the TRACE Bribery Risk Matrix, may slightly influence comparability of the results between 2018 and 2019, but not more than 5%.
Separating ML vs. TF risks
The Index does not disaggregate data on ML- and TF-related risks. This is due to a shortage of separate, consistent and regularly updated data related to TF risks. Current FATF MERs are still the most solid basis for evaluating both ML and TF, though as aggregated scores.
Trade-based money laundering
The FATF identifies three main methods by which criminal organisations and terrorist financiers move money for the purpose of disguising its origins and integrating it into the formal economy: use of the financial system; physical movement of money (e.g. cash couriers); physical movement of goods through the trade system. The Basel AML Index focuses mostly on the first two ways, with less coverage of financial crime facilitated by international trade.
Use for compliance or risk assessment purposes
Due to these limitations, we recommend that the Basel AML Index Expert Edition, rather than the Public Edition, should be used for compliance or risk assessment purposes. The Expert Edition should also form part of a comprehensive, risk-based compliance programme along with additional indicators and procedures relevant to the organisation’s specific needs.