25/02/25
What Does Success Look Like In The Fight Against Financial Crime?
When a financial centre like Singapore announces a multi-billion-dollar money laundering case affecting multiple banks – as it did in August 2023 – an intriguing question arises: is this a success for anti-money laundering (AML) systems, or a sign of failure since the scheme wasn’t prevented in the first place? Assessing the effectiveness of AML systems is a complex task. Not only is it difficult to estimate the true scale of money laundering activities, it is also impossible to know the counterfactual – what would have happened if these systems had been absent or different.
This is far from a theoretical issue. Financial institutions and governments in financial centres invest heavily in AML systems to meet global standards and expectations, especially those set by the Financial Action Task Force (FATF). But how do we measure if these investments are translating into success on the ground?
The first step towards a meaningful answer to this question is clarifying what we mean by "success." As explored further in this article, some experts argue that AML systems shouldn’t just safeguard financial markets or institutions. A truly successful system would contribute to broader goals, such as reducing criminality and corruption, safeguarding citizens’ rights, and contributing to a conducive and fair environment for financial innovation.
This article highlights three relevant areas for international financial centres to consider when seeking to better gauge success in AML efforts. It is based on the latest findings of the Basel AML Index (index.baselgovernance.org), a data-based ranking and risk assessment tool for money laundering and related financial crime risks around the world. The Basel Institute on Governance, a non-profit organisation that works internationally to fight corruption and improve standards of governance, released the 13th annual Basel AML Index Public Edition and Report on 2 December 2024.
Quality Over Quantity
The understandable desire for quantitative metrics of success – including to measure the return on investment of AML compliance systems and staff – is not always helpful. A case in point is the practically universal system for suspicious transaction reporting (STR), whereby financial institutions are obliged to monitor transactions for suspicious activity and submit reports to financial intelligence units. The ever-increasing number of STRs submitted is not a sign of success, since financial institutions frequently submit STRs defensively to protect themselves from regulatory penalties. These simply end up overwhelming financial intelligence units, which may have few tools to prioritise reports and provide feedback to the reporting entities.
To truly enhance the effectiveness of suspicious transaction reporting, the emphasis must shift from quantity to quality. One promising way to achieve this is through improved public-private information sharing. Platforms like the UK's Joint Money Laundering Intelligence Taskforce (JMLIT) bring together financial institutions, law enforcement agencies, financial intelligence units, and other relevant public bodies such as supervisors. Financial institutions benefit from the ability to proactively identify high-risk customers and accounts, conduct internal investigations and improve their AML controls. Meanwhile, law enforcement agencies can access valuable intelligence on high-priority cases from across the financial system, rather than requesting information from individual firms. Financial intelligence units are better able to prioritise reports and provide feedback to improve the quality of STRs and the usefulness of the system as a whole.
Similar public-private partnerships are increasingly emerging, including at the international level with the Europol Financial Intelligence Public Private Partnership. Engaging in such collaborative efforts represents a significant opportunity for financial centres to improve the effectiveness, efficiency, and ultimately success of this major component of AML systems.
Innovation In Technology And Regulations
Financial centres are uniquely positioned to spearhead advancements in high-tech solutions for AML efforts. Leveraging their resources and culture of innovation, these hubs can lead the way in developing cutting-edge tools to improve the accuracy and efficiency of transaction monitoring. For instance, artificial intelligence (AI) holds significant potential for real-time threat detection, helping to identify suspicious patterns quickly and accurately.
Beyond transaction monitoring, new technologies like machine learning and big data analysis offer the promise of a deeper, strategic understanding of AML threats, as well as more effective implementation of sanctions and export controls. By analysing vast amounts of data quickly, the technologies can uncover trends, loopholes and anomalies that may otherwise go unnoticed.
At the same time, regulations must keep pace with technological evolution in the financial services sector and ensure that new forms of payment methods are not able to bypass AML controls. The FATF, for example, is mulling changes to its Recommendation 16 on payment transparency to ensure that the standards remain ‘technology-neutral’ and align with the principle of ‘same activity, same risk, same rules’. The aim is to enable innovations that make cross-border payments faster, cheaper and more transparent, without sacrificing security.
Financial centres could take a similar approach, ensuring that their AML regulations create a safe, thriving environment and a level playing field for both established and innovative financial services.
What Data Is Available?
Data plays a vital role in shaping our understanding of financial crime and guiding AML policies and their evaluation. The FATF remains the primary source of data on the strength of AML systems worldwide. The FATF, along with its regional bodies, assesses countries and jurisdictions based on their technical compliance with 40 Recommendations, and the effectiveness of their systems as measured by 11 ‘Immediate Outcomes’. Over time, the FATF has increasingly prioritised effectiveness, recognising that a technically compliant system does little good if it fails to function in practice.
However, finding quantitative data on effectiveness is a major challenge, given the scarcity of reliable proxies and the frequent under-reporting of significant financial crimes like fraud. Issues such as inconsistent data formats, methodology discrepancies, and limited public access to data, complicate efforts to generate accurate and comparable measurements.
Difficulties in assessing effectiveness are compounded by the FATF’s system of follow-up reports, which look only at a jurisdiction’s technical compliance with its Recommendations, and do not typically re-assess effectiveness values. That means we can only analyse progress in the technical compliance of AML systems and not improvements in their effectiveness. Still, we have to work with the data we have. What does FATF data reveal about progress in AML systems worldwide and within international financial centres?
The Global Picture: Low Performers Are Catching Up
To evaluate progress in technical compliance with the FATF Recommendations, we compared mutual evaluation reports from 113 countries and jurisdictions with their most recent follow-up reports. The overall trend is rather positive: since the start of the FATF’s fourth round of mutual evaluations in 2013, global technical compliance has improved by an average of 12 percentage points – from 50 percent to 62 percent.
The most significant progress is in the area of prevention. A standout example is Recommendation 22 on customer due diligence (CDD) requirements for designated non-financial businesses and professions (DNFBPs). Compliance with this Recommendation has seen an improvement of 19 per cent globally. In practice, this means that countries have taken measures like:
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Introduced stricter CDD requirements for both physical and online casinos.
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Strengthened record-keeping standards for CDD.
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Expanded CDD requirements for DNFBPs, such as adding property developers and lowering the cash transaction threshold for precious metal dealers.
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Increased responsibilities and obligations for the legal profession.
However, note that average compliance with Recommendation 22 started at a low base of only 40 per cent. This raises a critical question: is this catch-up growth truly a ‘success,’ or merely an overdue alignment with basic standards? The same question applies to several other areas that show the most significant improvements.
Figure 1: Compliance with Recommendation 22 has improved faster than average compliance across all 40 Recommendations.
Progress In Financial Centres
Using data from 19 international financial centres, the same analysis shows an average 16 percentage point improvement in technical compliance, above the global average. Again, much of the progress is catch-up growth. Jurisdictions with more significant initial deficiencies in their AML systems have made strides to close the gap, while those with stronger initial performance are making less progress.
Figure 2: Progress in technical compliance with FATF Recommendations from initial mutual evaluation to latest follow-up report for 19 financial centres.
Figure 3: Initial performance in technical compliance with FATF Recommendations across the same jurisdictions, showing that those with initially lower scores have been catching up fast.
Grey List: An Incentive To Improve?
For some financial centres, being added to the FATF's so-called grey list for jurisdictions with ‘strategic deficiencies’ in their AML regimes may have provided an added incentive to improve. Three of the top five performers in terms of progress (see Figure 2) – Mauritius, the Bahamas, and the Cayman Islands – have graduated from the list in recent years.
Changes to the FATF’s prioritisation criteria for grey-listing in October 2024 could further impact financial centres. Under the revised criteria, jurisdictions with substantial financial sectors (over USD 10 billion in broad money terms) may now face an increased risk of being grey-listed. The Basel AML Index Expert Edition Plus offers a tool to assess jurisdictions’ risk of being grey-listed based on both their mutual evaluation performance and the FATF’s prioritisation criteria.
The Fundamental Question: What Is Success?
True success depends on defining the ultimate objective. The FATF’s stated aim has always been to “protect financial systems and the broader economy”. But some experts are now calling for a shift in focus, arguing that the goal should instead be to reduce the societal harm caused by financial crime.
At the Basel Institute, we believe that the ultimate goal of countering financial crime is to achieve a more peaceful, just, and sustainable world. This ambition requires balancing the fight against financial crime with other priorities, such as economic growth, innovation, and safeguarding political and civil liberties. That is why, for example, the Basel AML Index methodology includes an entire category of indicators measuring judicial independence, political and civil rights, rule of law, and media freedom.
This broader perspective highlights why building a successful AML system is not merely a technical exercise for a small government department. A strong legal and regulatory framework aligned with global standards is fundamental, which is why the FATF evaluations remain important. But truly effective systems require much more than that: collaboration across the public and private sectors, the protection of citizens’ rights, openness to technological innovation, and ultimately a clear and holistic vision of why we fight financial crime and what the system is supposed to achieve.
Learn More
Learn more about the Basel AML Index on the website (index.baselgovernance.org).
Kateryna Boguslavska
Dr Kateryna Boguslavska is Senior Specialist, AML/CFT at the Basel Institute on Governance and leads the development of the Basel AML Index. She is a certified anti-money laundering specialist focused on identifying and analysing geographic AML/CFT risks. Kateryna holds a PhD in Political Science from the National Academy of Science in Ukraine and a Master in Comparative and International Studies from ETH Zurich.
https://baselgovernance.org/about-us/people/kateryna-boguslavska
