What FATF Mutual Evaluation Reports reveal about money laundering in 2019
This brief analysis highlights major trends visible in recent Financial Action Task Force (FATF) Mutual Evaluation Reports (MERs). The analysis relates to the 8th edition of the Basel AML Index, released in August 2019.
FATF MERs provide a comprehensive assessment of a country’s legal framework and its implementation of AML/CFT measures. The assessment is based on compliance with the 40 FATF Recommendations and 11 key effectiveness goals, or “Immediate Outcomes”. FATF MERs are a key indicator in the Basel AML Index, affecting countries' risk scores significantly.
AML/CFT systems remain largely ineffective
Ratings in relation to the FATF's IOs reflect the extent to which a country's measures in AML are effective. The 11 IOs represent key goals that an effective AML/CFT system should achieve.
The annual results show that countries’ effectiveness within the 11 IOs is low. The average performance ranges between 23% (lowest) and 50% (highest). In contrast, countries’ performance in technical compliance is much better. The average distribution lies between 50% and 75%. Only two countries listed in the Public Edition of the Basel AML Index (Botswana and Mauritius) show a performance below 40%.
Six countries stand out with a particularly high performance (above 80%) when it comes to technical compliance. These are Spain, the United Kingdom, Belgium, Malaysia and Vanuatu. Spain and the United Kingdom also show a comparatively strong performance in relation to the IOs.
The situation of Vanuatu is an unusual exception: it has one of the highest performances in technical compliance, yet at the same time demonstrates 0% effectiveness based on the IOs.
Countries are making progress in international cooperation and use of financial intelligence
Countries demonstrate the best performance in relation to IO2 on international cooperation and facilitation (50% effectiveness). Altogether, countries achieve an effectiveness of 37% in IO1, which relates to the overall understanding of the risks of ML/TF and the domestic coordination of efforts to combat ML/TF.
They fare similarly well (also 37%) when it comes to the use of financial intelligence (IO6) and in relation to the investigation of terrorist finance offences (IO9). In contrast, performance relating to the prevention of terrorist organisations from raising or moving funds is slightly lower (only 30%).
Countries need to get better at supervising regulatory authorities and implementing preventive measures
FATF data show that all assessed countries have been facing significant issues when it comes to the supervision, monitoring and regulation of financial institutions (IO3), with an average performance of only 27%.
The situation is even worse for IO4, which relates to preventive measures in ML/TF –countries average only 24% in this indicator.
Transparency of beneficial ownership remains a sticking point
Analysis of FATF data shows that countries demonstrate their lowest performance in dealing with beneficial ownership information (IO5), with an average effectiveness score of only 23%. In terms of technical compliance, the average score for R24 (Transparency and beneficial ownership of legal persons) is 42%. For R25 (Transparency and beneficial ownership of legal arrangements) it is 44%.
Information on ownership structures is largely unavailable to competent authorities.
Reporting of suspicious transactions is quite effective but not followed by convictions
FATF data indicate that countries show a good performance in submitting suspicious transaction reports. Overall effectiveness for this R20 is around 80%. Out of those assessed with the fourth-round methodology (and included in the Public Edition of the Basel AML Index) only Panama and Botswana demonstrated low effectiveness regarding the reporting of suspicious transactions.
However, when it comes to ML investigations and prosecutions, the performance level is only 23%.
Expert Edition Plus: in-depth analysis of FATF data
The Basel AML Index Expert Edition Plus package offers an enhanced analysis of FATF data based on consolidated data from all published FATF Mutual Evaluation Reports (MERs).
This enhanced analysis converts the FATF rating (Compliant, Largely Compliant, Partially Compliant, Non-Compliant) into a numerical, colour-coded scale from 0 to 3.
As illustrated below, the data are presented in Excel format, accompanied by graphics and an analysis of main achievements and trends. The Excel sheet includes regional indexation and information about the review authority and the date of review to allow sorting by these criteria. The scores are presented in raw form as well as scaled from 0 to 3. Updates are provided on a quarterly basis.
The user can rank countries according to their results in the 11 Immediate Outcomes (IOs) and 40 Recommendations (R). IO and R scores are presented both separately and aggregated. The data are presented on two levels:
- Indicator level (separately for IOs and Rs) or horizontal comparison
- Total score per indicator
- Average score per indicator
- Performance (proportion of the potential achievements and real results)
- Country level (separately for IOs and Rs) or vertical comparison
- Total score per country
- Average score per country
- Performance per country (proportion of the potential achievements and real results)
An accompanying written analysis describes countries’ performance in terms of both FATF technical recommendations and effectiveness criteria. The analysis helps users to:
- identify weak spots and strong points;
- rank countries according to their technical compliance and effectiveness;
- identify top and low performing countries and understand the reasons behind the scores;
- identify trends.