Fraudulent activity is on the rise globally and criminals are continually developing new ways to attack businesses and customers.
2020 had a massive impact on the way we live our daily lives with an accelerated adoption and use of digital technology, but it’s also had an impact on how exposed we can be to fraudsters.
In this shifting landscape, organisations need to keep on top of the risk of financial crimes such as fraud, money laundering and terrorist financing, and deal with breaches accordingly.
Below is a list of all the topics we will cover in this article. Go ahead and click on any of these links, and you’ll be taken to that specific section.
Money Laundering Around the World
Today, money laundering has permeated almost every regulated market; we explored this and exactly how criminals launder money in a recent blog post. The scale of the pandemic is difficult to assess, but the United Nations Office on Drugs and Crime (UNODC) estimates that the amount of money laundered globally is “between 2–5% of global GDP, or $800billion – $2trillion per year.”
The global anti-money laundering landscape is diverse and financial institutions must keep pace with developing rules in order to remain compliant. Most regulated markets and countries in the world have strict AML laws and regulations with severe penalties.
Anti-Money Laundering regulations are in place to mitigate the risk of money laundering and terrorism financing. Financial institutions are required to monitor their clients to prevent money laundering and report any financial crime they detect to relevant regulators; where a business is functioning determines the local and international regulations they need to comply with in order to continue operating.
AML laws were brought to a global forefront after the creation of the Financial Action Task Force. The FATF is the global money laundering and terrorist financing watchdog. Its list of 97 Recommendations are the internationally endorsed global standards against money laundering and terrorist financing. They provide the framework for countries to build an effective system to combat money laundering and terrorist financing, and implement necessary measures. The FATF currently comprises 37 member jurisdictions and 2 regional organisations, representing most major financial centres in all parts of the globe.
The FATF produces a ‘blacklist’ every year which contains high-risk jurisdictions which have significant deficiencies in their regimes to counter money laundering, terrorist financing, and financing of proliferation. The two countries currently on that list are Iran and Democratic Republic of Korea. These countries are considered very high risk and are not members of any anti-money laundering (AML) organisations, meaning no laws are in place to help combat money laundering.
The Basel AML Index
Published annually by the Basel Institute on Governance since 2012, the Basel AML Index is an independent annual ranking that assesses the risk of money laundering and terrorist financing (ML/TF) around the world.
According to the index, the top 10 countries currently facing the greatest risk of money laundering are as follows:
Based on risk scores based on data from 16 publicly available sources such as the FATF, Transparency International, the World Bank and the World Economic Forum, Afghanistan is listed as a major money laundering jurisdiction and a high-risk country.
The risk scores cover five domains:
- Quality of AML/CFT Framework
- Bribery and Corruption
- Financial Transparency and Standards
- Public Transparency and Accountability
- Legal and Political Risks
By comparison, the countries least at risk of money laundering, according to the index, are:
The Basel AML Index measures the risk of money laundering, not the amount of money laundering in that country. The money laundering/terrorist financing risk is understood as a country’s vulnerability to those crimes and its capacities to counter it.
Estonia achieved the lowest risk score of the countries ranked in the index after receiving good scores in dealing with corruption and financial, legal and political risks. But no country escapes the risk; Estonia’s score of 2.68 out of 10 – where 10 is the highest risk of money laundering – still presents a risk of money laundering.
In countries with low risks of ML/TF thanks to strong legislation, high levels of media freedom and sufficient transparency – like Estonia – money laundering offences are more likely to be uncovered. This can lead to the flawed perception that the country has more ML/TF offences simply because they have been brought to light.
The UK ranked 116th, demonstrating a relatively low risk of money laundering and an improvement on last year’s ranking of 106th. This suggests the UK is making progress in combating money laundering and complying with global regulations, though high-profile scandals such as the FinCen files leak show that high volumes of criminal money continue to flow through the country.
How We Can Help
Wherever your business is operating you need to comply with local and international regulations, but keeping on top of jurisdiction while retaining efficient business practice is no mean feat. This is where Hello Soda can help.
Our global suite of AML solutions satisfy and comply with all of the above regulatory bodies while helping onboard your customers faster and more efficiently with more accurate results. Using our single universal API, Sodium you can onboard up to 68% more customers compared with traditional identity verification methods. One simple integration; a flexible 360° solution which is scalable and secure.
Book a demo today and see for yourself how powerful our suite of solutions are.