AML/CFT: ‘Technical’ compliance vs. effective AML compliance


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Study knocks focus on ‘technical’ AML Compliance rather than genuinely effective AML Compliance

Having good AML laws and regulations doesn’t mean much if you don’t enforce them. That is the message of a new study by the Basel Institute on Governance.

In its annual research report on the risks of money laundering and terror financing around the globe, the Basel Institute describes how regulations and laws for AML Compliance mean little when countries turn a blind or lazy eye toward enforcement.

Gretta Fenner, managing director of the institute, said, “Governments may be ticking the right boxes in terms of formal compliance, but in reality neglecting enforcement of laws and measures to prevent and combat money laundering and related financial crimes. This year’s Basel AML Index shows that there is no such thing as a country with no money laundering risk.”

The study results note that countries long considered low risk for money laundering and terror financing—countries like Denmark—have seen major AML Compliance lapses even though their laws and regulations meet international standards for good-quality AML/CFT.

Top Traits in AML Compliance Effectiveness

The 2018 Basel AML Index lists Finland, Estonia, Lithuania, New Zealand, and Macedonia as the countries with the lowest risk of money laundering and terror financing. Characteristics of the best performers in AML Compliance include the following, according to the Basel Institute:

  • Strong AML/CFT legislation including on the freezing of terrorist funds
  • Competent authorities with the mandate and resources to investigate and prosecute ML/TF offenses and issue sanctions for non-compliance
  • Comprehensive measures for domestic and international cooperation
  • High level of press freedom, with the media playing a central role in uncovering and reporting financial crime
  • Financial sector highly regulated with competent supervisory authorities and minimal, if any, cash-based transactions
  • High levels of transparency and integrity in public institutions and businesses
  • Low levels of corruption

The report noted that globally, press freedom is at its lowest levels in years. And it noted too that many nations have lowered their transparency levels related to government dealings, corruption, finances, and so on. A major transparency issue relates to secrecy over beneficial ownership and politically exposed persons—both groups that tend to wield considerable political and economic influence.

The study concludes that the longstanding emphasis on “technical compliance”—the laws and regulations rather than on effectiveness of enforcement—masks major deficiencies in AML Compliance and facilitates financial crime: “If this pattern continues, and especially when combined with the poor progress recorded in the Basel AML Index since 2012, one must fear that many governments worldwide are still not doing enough to sincerely prevent and combat ML/TF. Even worse, it will indicate that they are consciously neglecting efforts to boost implementation effectiveness by hiding behind formal compliance structures that merely give the appearance of AML/CFT commitment.”


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