An analysis of Financial Action Task Force (FATF) Mutual Evaluation Reports and country AML rankings shows a number of trends for 2019 in the fight against money laundering.
While some countries continue to show a high-risk score on the independent Basel AML Index, the US, Canada and the UK, remained virtually unchanged in the middle of the pack. The US ranks 72nd and Canada at 79th. The UK ranks even better at 106th with a lower risk score.
The least risky countries in the 125-nation list are Estonia, Finland, New Zealand, Macedonia and Sweden.
At the top end of the scale for the limited list, the riskiest country for money laundering is Mozambique with Laos, Myanmar, Afghanistan and Liberia rounding out the top five.
The analysis by the Basel Institute on Governance, an independent think tank that is part of the UN’s crime prevention network, shows some countries are making progress in their efforts to fight money crimes.
Source: Basel AML country map
The institute identified AML trends based on compliance with 40 FATF Recommendations and 11 key effectiveness goals.
Here is what the analysis found in five key areas:
- AML/CFT systems largely ineffective
Ratings on the FATF's key goals reflect whether a country's AML measures are working well. The annual results show that countries’ effectiveness within the key effectiveness goals is low with the average performance ranging between 23 and 50 percent.
However, Spain, the United Kingdom, Belgium, Malaysia and Vanuatu stand out with a particularly high performance (above 80 per cent) when it comes to technical compliance.
- Countries make progress in cooperation and financial intelligence
Countries showed their best performance on international cooperation and facilitation with 50 percent effectiveness. However, they ranked at 37 percent on understanding the risks of ML/TF and domestic efforts to combat ML/TF.
They also ranked at 37 percent on the use of financial intelligence and in the investigation of terrorist finance offences, the analysis said.
- Supervising regulatory authorities and implementing preventive measures
The Basel report said FATF data shows all assessed countries face significant issues on supervision, monitoring and regulation of financial institutions. They scored an average performance of only 27 percent. Countries averaged 24 percent on preventive measures in ML/TF.
- Reporting of STRs effective, Investigations and prosecutions need attention
FATF data indicate that countries show a good performance in submitting suspicious transaction reports (STR). Overall effectiveness is about 80 percent. However, when it comes to ML investigations and prosecutions, the performance level is only 23 percent.
- Beneficial ownership a sticking point
Analysis of FATF data shows countries demonstrated their lowest performance at only 23 percent when dealing with beneficial ownership information. The average score for technical compliance on Transparency and beneficial ownership of legal persons is 42 percent. For Transparency and beneficial ownership of legal arrangements, they scored 44 percent.
The analysis pointed out that “information on ownership structures is largely unavailable to competent authorities.” Some countries, particularly in Europe, are well ahead of the pack with beneficial ownership databases.
While the analysis shows beneficial ownership is still a sticking point for financial institutions, there has been recent guidance from FinCEN regarding the CDD rule on beneficial ownership data.
While the CDD rule provides a simple template for collecting data to comply with US regulations, many institutions want to do more.
Collecting beneficial ownership information in the US
For Financial Institutions looking to improve their compliance with AML laws, there is also guidance from a recent white paper by CaseWare RCM, makers of the AML solution Alessa. Here is the basic information to be collected as suggested by a senior compliance officer on beneficial ownership and the CDD Rule:
- Name, date of birth, residence address, and tax ID number of any individual who owns/controls, directly or indirectly, 25 percent or more of the legal entity customer—if any
- Name, date of birth, residence address, and tax ID number of one individual with significant responsibility to control, manage, or direct the legal entity customer
- Name and signature of the individual opening the account (who may or may not be a beneficial owner)
- Financial institutions have expanded on this basic information with their own customised beneficial ownership forms, requesting data such as:
- Each owner’s percentage owned or controlled
- Titles (especially for the individual named under the control prong)
- An organisation chart, when a complex structure is involved
Institutions do more than minimum
Some institutions have gone a step further by requiring that the legal entity self-identify its type/classification from a list of all the entity types identified in the CDD Rule, including those that are exempt from beneficial ownership reporting.
If the customer is an exempt entity type (such as a publicly traded company), the customer need only sign and return the form, with no further data provided. Although it results in a much longer form, this practice provides several significant advantages:
- It dramatically simplifies the onboarding process, by requiring that every new legal entity customer receive and return the beneficial ownership form. This provides a clear audit trail and removes “guesswork” as to which customers should or should not receive the form.
- It eliminates the risk of error by requiring the legal entity customer to “self-exempt.” There is no risk of a financial institution employee misidentifying a customer as an exempt entity and hence not obtaining the form.
- It provides expanded customer data for due diligence, transaction monitoring, and analytics.