Basel Institute on Governance, an NGO think tank focused on corruption, published a ranking of countries based on AML risk. Iran, Afghanistan and Tajikistan topped the list. The top ten were all countries with low income and a weak rule of law.
Aside from New Zealand and Chile, the bottom of the list were all European, with Switzerland, the home country, placing near the middle of the 152 jurisdictions ranked. United States scored better, even better than Canada. Transparency International has a corruption map where Canada fairs better than the US. This is interesting to note since TI’s data was included in the BIoG’s sources. Effectively, BIoG AML Index is an aggregate assessment of other research.
This is a troubling way to look at these rankings. All of BIoG’s sources are also aggregated assessment of other research. This is to say, there are multiple layers of laziness going on here. There are a few true research going on where people are put on the ground or required review of laws on the books and effectiveness of enforcement, and then there are a few that are simply taking the conclusions of that research and repackaging it with their own ranking methodology.
Oddly, this is the same kind of trap compliance departments can fall prey to when trying to come up with risk ratings on qualitative jurisdictional attributes using these think tank assessments. What is hidden is that there are some that are getting weighed more heavily than is otherwise apparent. A good analogy would be a patient recovering from surgery who is taking Vicodin and Tylenol, not realizing that Vicodin includes the the active ingredients of Tylenol within it – that’s why Vicodin labels warn people not to take Tylenol or acetaminophen, the active ingredient in Tylenol. The patient is accidentally taking a large dose of Tylenol than intended.
Taking a closer look at weighting of the source assessments, BIoG mentions issues regarding weighting but does not actually describe how the assessments were weighted. This makes it impossible for a compliance officer to undo undesirable aspects of this index.
Missing data section reveals that there was a minimum amount of data that was required to be ranked. This is helpful, but when I downloaded the spreadsheet, I expected the data. Instead what I found was a historical rankings on the BIoG AML Index. This is not helpful, since, a compliance officer is likely going to have to score the AML risk of jurisdictions not in the rankings.
The conclusion is this: BIoG’s AML Index can only be used to make a compliance department look better, but it doesn’t actually help compliance departments to be better because it does not add any value. No compliance officer should being using this index alone or in combination of other sources because this index will distort the actual research done by the other sources. While BIoG’s index is worthless, the index provides one thing of great value: its sources. It has curated a very good list of sources, which an compliance officer can use to educate himself on risks in various jurisdictions.
- FATF – Mutual Evaluation Reports: http://www.fatf-gafi.org/ N/a
- Freedom House – Freedom in the World & Press Freedom Index: http://www.freedomhouse.org/ 2014 – 2015
- International IDEA Political Finance Database – selected questions: http://www.idea.int/political-finance 2014
- International Budget Partnership – Open Budget Index: http://internationalbudget.org/what-we-do/open-budget-survey/ 2012
- Tax Justice Network – Financial Secrecy Index: http://www.financialsecrecyindec.com/introduction/fsi-2013-results 2013
- Transparency International – Corruption Perception Index (CPI): http://www.transparency.org 2014
- US State Department – International Narcotics Control Strategy Report (INCSR): Volume II Money Laundering and Financial Crimes: http://www.state.gov/j/inl/rls/nrcrpt/2015/vol2/index.htm 2015
- World Bank Doing Business Ranking – Business Extent of Disclosure Index: http://data.worldbank.org/indicator/IC.BUS.DISC.XQ 2014
- World Bank IDA Resource Allocation Index – Selected categories: http://www.worldbank.org/ida/IRAI-2013.html 2013
World Economic Forum – Global Competitiveness Report 2014 – 2015 – selected scores from the Executive Opinion Survey: http://www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2014-15.pdf 2014 – 2015
- World Justice Project – Rule of Law: http://worldjusticeproject.org/rule-of-law-index 2015
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Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses. He is a member of ACAMS and ACFE.