By Yashoda Fezah, General Manager at Compliance Administration & Support Services (CASS)
Globally, significant resources are being invested in efforts to combat money laundering and related financial crimes. Indeed, private companies and governments alike are united in their efforts to fight this scourge. Financial institutions alone spent an estimated USD 206 billion globally on AML compliance in 2023.
It is becoming increasingly clear that a country’s vulnerability to money laundering – often seen as a technical issue – profoundly impacts people’s lives. Financial criminals target public resources, fund terrorism or the proliferation of weapons of mass destruction, evade sanctions and profit from organised crimes.
However, illicit assets continue to flow through and outside of regulated financial systems. Asset recovery rates are still very low, with a long way to go before asset recovery becomes an effective deterrence to financially motivated crimes.
Looking beyond the FATF: The Basel AML Index
The purpose of the Financial Action Task Force (FATF) has always been to “protect financial systems and the broader economy”. While this is a useful intermediate goal, effectively positioning each jurisdiction in the fight against money laundering and related financial crimes is key to achieving national and global security. This in turn requires a nuanced understanding of the key factors driving money laundering risk and their far-reaching consequences in a broad, global context.
Here, it is interesting to note that there is an index that helps financial institutions, financial intelligence units and policymakers to assess money laundering risks across countries and jurisdictions. Launched in 2012, the Basel AML Index is an independent, data-based ranking and risk assessment tool for money laundering and related financial crime risks around the world. The latest report, published in December 2024, surveyed 164 countries, with Myanmar (8.17), Haiti (7.92) and the Democratic Republic of the Congo (7.73) receiving the highest risk scores and Finland (3.07), Iceland (3) and San Marino (2.96) the lowest.
Overall, the index shows 12 percentage points progress among countries with available data towards technical compliance with FATF standards since the fourth round of evaluations in 2013. Much of that improvement comes from lower-performing countries catching up with the others. This shows more countries are at least meeting basic standards for AML legal and institutional infrastructure. In general, countries and regions with low scores in technical compliance with the FATF Recommendations are improving, including as a result of being grey listed. Most of the top 20 jurisdictions in terms of progress are in Sub-Saharan Africa, Latin America and the Caribbean, followed by East Asia and Pacific, regions with low average performance previously.
How Sub-Saharan Africa stacks up in the 2024 Basel AML Report
Within Sub-Saharan Africa, Botswana (4.30), Mauritius (4.61) and Seychelles (4.76) stand in the top three for lowest risk scores. On the other end of the spectrum are the DRC (also in the worst three countries globally), as well as Chad and the Central African Republic, with scores of 7.73, 7.60 and 7.49 respectively.
Overall, the Basel AML Index risk score for the region has decreased slightly to 6.28 from 6.54 in 2023. Scores in the new indicators of fraud are much lower than the global average, though corruption, lack of transparency of beneficial ownership, and the proliferation of weapons of mass destruction remain an issue. Indeed, according to UN estimates, illicit financial flows in Africa cost US$88.6 billion annually, hindering progress and impeding sustainable development goals. Commercial practices related to trade and tax abuse, criminal activities such as money laundering, trafficking and smuggling, and corruption are the main sources of such illegal flows in Africa.
With the Basel AML Index 2024 identifying the ineffectiveness of AML frameworks in various Sub-Saharan African economies as the key reason for illicit financial flows, such jurisdictions stand to learn much from global jurisdictions that have succeeded in putting best-in-class national AML frameworks in place.
Singapore: Setting global standards with a best-in-class National AML Strategy
Indeed, country level efforts, such as implementing an effective National AML framework, can mean all the difference between a robust AML strategy that actually works, or what amounts to a failed attempt to secure the jurisdiction from financial crimes. No wonder that countries are increasingly viewing a good AML framework as a key tool to ensure national and global security.
Most recently, Singapore published its National Anti-Money Laundering (AML) Strategy, as part of the pioneering jurisdiction’s continuing efforts to maintain the effectiveness of its AML framework. Significantly, it has not only fortified its own AML measures but has also taken a proactive stance in shaping the AML narratives across Southeast Asia. Indeed, Singapore’s National AML Strategy 2024 lays out a clear path for jurisdictions not just regionally but globally to strengthen their approach to fighting money laundering and financial crime, with the following far-sighted features:
Whole-of-society approach: A significant aspect of Singapore’s strategy, the whole-of-society approach encourages collaboration not just among financial entities but also across key sectors, including real estate and corporate services. Facilitated by initiatives like the AML/CFT Industry Partnership (ACIP) and the Anti-Scam Centre (ASC), such cross-sector collaboration helps synchronise efforts across different sectors and enhance the overall effectiveness of the AML framework.
Enhanced legal and regulatory framework: The enhancement of the legal and regulatory framework provides clear compliance directives across various high-risk sectors. By adhering to international standards, such as those set by the FATF, financial institutions can avoid sanctions and foster trust with global partners, benefiting from a fortified market position. Apart from the Monetary Authority of Singapore which issues guidelines for financial entities, the Casino Regulatory Authority and the Council for Estate Agencies ensure that AML compliance extends beyond the banking sector to cover diverse industries, from gaming to real estate.
Advancements in technology and data sharing: Cutting-edge technical platforms like NAVIGATE and COSMIC play crucial roles by enabling effective communication and risk detection across different agencies and financial institutions. These tools are essential for managing the complexities of modern financial threats and for harnessing the power of AI to identify and react to potential money laundering activities efficiently. The AML framework is supported by market developments, with about 75% of Singapore firms already using advanced analytics to help fight financial crime, and 65% employing analytics and artificial intelligence to enhance compliance procedures.
What African economies can learn from Singapore
This cutting-edge AML framework has ensured that the whole world is looking to Singapore as it positions itself as a secure, forward-thinking financial hub. The new AML framework, released in October 2024, equips Singapore to embrace the digital age fully, by combating economic crime, pioneering digital innovation, and nurturing global partnerships. African economies would greatly benefit from turning to Singapore to understand how to arrive at AML strategies of their own that allow them to unlock opportunities in the digital age, without compromising on their national security or putting their citizens’ data at risk.
Crucially, building an effective AML system is not merely a technical task for a single government department or a compliance team. It is a collective mission that requires collaboration across sectors, industries and borders. Only through a shared commitment and clear vision of our end goal can we create a world where financial systems are resilient to exploitation for criminal purposes and where AML measures support broader societal goals.
