Global Anti-Money Laundering Systems Improve on Paper but Fail in Practice, New Index Reveals

National anti-money laundering systems have shown gradual improvement in technical compliance over the past decade, yet their effectiveness in actually combating financial crime remains alarmingly low, according to the 13th Public Edition of the Basel AML Index. The independent assessment reveals a stark disconnect between regulatory frameworks and real-world outcomes, with global effectiveness stagnant at just 28 per cent despite significant investments in compliance systems.

The report, covering 177 jurisdictions worldwide, ranks 164 countries based on their vulnerability to money laundering and related financial crimes. Myanmar, Haiti, and the Democratic Republic of Congo emerged as the highest-risk jurisdictions, while San Marino, Iceland, and Finland demonstrated the strongest protections. The findings raise fundamental questions about the global approach to fighting financial crime, particularly as fraud and other sophisticated criminal activities continue to evolve.

Background and Context

Developed and maintained by the Basel Institute on Governance since 2012, the Basel AML Index serves as an independent, data-driven assessment tool for money laundering risks globally. This year's edition incorporates new fraud indicators, which have particularly increased risk scores for high-income countries and major financial centres. The inclusion of fraud reflects recognition that traditional AML frameworks have struggled to keep pace with rapidly evolving criminal methodologies.

Over the past decade, countries have demonstrated a 12 per cent improvement in technical compliance with Financial Action Task Force (FATF) standards. Gains have been most notable in targeted financial sanctions, measures to address higher-risk countries, politically exposed persons, and customer due diligence by designated non-financial businesses and professions (DNFBPs). However, these improvements have not translated into enhanced effectiveness in combating actual financial crimes.

Key Figures and Entities

According to Kateryna Boguslavska, who leads development of the Basel AML Index, "The stark gap between technical compliance and effectiveness with regard to FATF standards raises concerns about whether investments in anti-money laundering systems are leading to tangible results." Her analysis underscores how financial crime's multi-dimensional nature requires assessment beyond isolated technical measures.

The index reveals that countries previously placed on the FATF's grey list—jurisdictions subject to increased monitoring—have often made significant progress after being flagged. This suggests that international pressure and monitoring mechanisms can drive improvement, though the sustainability of these gains remains uncertain. The weakest performance areas globally are investigations and prosecutions (20 per cent effectiveness) and beneficial ownership transparency (21 per cent effectiveness), the latter having declined by one percentage point over three years.

Legal and Financial Mechanisms

Despite substantial investments by the private sector in compliance infrastructure, the average effectiveness of preventive measures and suspicious transaction reporting by financial institutions and DNFBPs has actually declined from 24 per cent to 22 per cent since 2021. This deterioration suggests that increased regulatory requirements have not necessarily enhanced institutions' ability to identify and report suspicious activities effectively.

The report highlights particular challenges in addressing fraud, noting the absence of clear global definitions, standardized assessment methodologies, and comprehensive data collection mechanisms. The constantly evolving nature of fraud typologies further complicates regulatory responses, creating what the index describes as "too many unknowns" in effectively measuring and combating these threats.

International Implications and Policy Response

The findings have significant implications for global efforts to achieve broader societal goals related to peace, justice, and sustainable development. The report calls for a fundamental reimagining of the fight against financial crime—one that looks beyond mere protection of financial systems to address the broader social, political, and economic impacts of illicit financial flows.

Boguslavska emphasizes that success in combating financial crime cannot be assessed by looking at systems in isolation: "It is important to consider broader contextual factors such as financial transparency, civil liberties, media freedom, and judicial independence." The index therefore incorporates data on these factors alongside indicators of emerging threats like environmental crime and fraud, providing a more holistic assessment of countries' vulnerability to financial crime.

The report argues that global coordination on standards, definitions, and data collection is urgently needed to address rising fraud threats and their impacts on people, businesses, and governments worldwide. Without such coordination, current efforts risk becoming increasingly ineffective against sophisticated transnational criminal networks.

Sources

This report draws on the 13th Public Edition of the Basel AML Index and related documentation from the Basel Institute on Governance, as well as public data from the Financial Action Task Force (FATF) and international assessment frameworks. The analysis also incorporates the Institute's official press release and statements from key researchers involved in the index development.