Stay Secure in AML High-Risk Countries: Lists & Solution

The battle against money laundering is on, and the challenge against identifying anti-money laundering high-risk countries remains at the forefront of the efforts of AML entities.

While some countries work hard to strengthen their regulations and fight money laundering, others don’t. In this article, we will delve into the AML high-risk countries list, exploring the high-risk jurisdictions, along with an effective solution that helps financial institutions in their AML compliance.

Money Laundering: Overview & How It Works

What is money laundering?

Money laundering is an illegal process that involves converting money produced from illegal and criminal activities to clean money (money with an apparently legal source).

High-risk countries  for money laundering (AML high-risk countries) usually face regulatory and economic challenges, making them attractive to criminals who seek to launder illicit funds or conceal their sources. 

How does money laundering work?

Generally, money laundering goes through three main stages:

1. Placement:
   Simply, placement is when “dirty” money is placed into some legitimate financial institution or network, which can be done directly or indirectly.
   
   Popular methods in this stage are:
   - Smurfing
   - Buying foreign currency
   - Gambling and betting
   
   
2. Layering:
   This is the most complex stage, when money launderers create multiple layers of transactions. These transactions are often made in small chunks to confuse auditors and hide the illegal source or origin of money.
   
   Popular methods at this stage are:
   - Real estate investments
   - International money transfers
   - Cryptocurrency
   
   
3. Integration:
   This stage is often referred to as the ‘return stage’ because money launderers get their money back in a legitimately and legally
   
   This can be done by purchasing luxury cars, jewelry or expensive art pieces. 

In AML high-risk  countries, the following example that explains the aforementioned stages can be done easily.

Let’s say a criminal has a running restaurant. When money is produced from illegal activities, he or she gradually deposits small chunks of this illegitimate fund into the restaurant’s bank account. Meanwhile, the restaurant reports higher sales than what they actually make.

For further disguise and tax evasion, the restaurant invests in another legitimate activity such as investing in real estate, so the laundered money funnels through multiple transactions, accounts, and companies.

Lastly, the money launderer can use this money to get personal items legally, such as buying high-end brands or luxury goods. 

AML High-Risk Countries: Top 10 High and Low-Risk Jurisdictions

What are AML high-risk countries?

High-risk countries or jurisdictions are those with significant deficiencies or shortcomings in their regulations to counter money laundering and terrorist financing.

The Basel AML Index is a leading independent ranking of money laundering and terrorist financing (ML/TF) risks worldwide. The Basel Institution Governance provides scores based on different sources such as the World Bank, FATF, and the World Economic Forum.

The risk scores include five domains or areas that contribute to a high-risk of ML/TF:

• Quality of AML/CFT framework
• Bribery and corruption
• Financial transparency and standards
• Public transparency and accountability
• Legal and political risks

The 2022 global ranking done by the Basel Institution Governance

Below are the AML high-risk countries and low-risk countries with their scores (according to Basel Institution Governance).

From the table, we can see that Finland is the worst country for money laundering because it does not facilitate money laundering or terrorism financing. The Democratic Republic Of The Congo on the other hand, is the “best” country for money laundering due to the weak AML regulations and procedures. 

What are the common challenges faced in high-risk countries?

1. Regulatory Hurdles:

One major challenge revolves around navigating the intricate web of regulatory frameworks. High-risk countries often grapple with the task of harmonizing domestic regulations with international standards set by bodies like the Financial Action Task Force (FATF). The mismatch can create loopholes that money launderers exploit.

2. Resource Constraints:

Picture this: a country with limited resources trying to combat a financial crime with global ramifications. Resource constraints pose a significant hurdle in establishing and maintaining effective AML measures. From personnel shortages to technological gaps, these constraints can undermine the best-intentioned efforts.

3. Evolving Tactics of Money Launderers:

Money launderers are no one-trick ponies. They adapt. They innovate. And high-risk countries must keep up. The dynamic nature of money laundering tactics requires constant vigilance and an ability to evolve AML strategies accordingly. Staying one step ahead is the challenge.

4. Collaboration Barriers:

Effective AML efforts often require seamless collaboration between various stakeholders—government bodies, law enforcement, and financial institutions. High-risk countries may face barriers to such collaboration, ranging from bureaucratic hurdles to communication gaps. Breaking down these barriers is essential for a united front against money laundering.

5. Public Awareness:

In the fight against money laundering, an informed public is a powerful ally. However, high-risk countries may struggle with low levels of public awareness. Building awareness and encouraging a culture of reporting suspicious activities are ongoing challenges that impact the effectiveness of AML measures.

What are Common Money Laundering Places?

Small businesses such as restaurants, bars, and retail shops seem attractive to money launderers, especially if they were established in high-risk money laundering countries. One of the reasons is that these businesses are cash-intensive and make it easy to mix dirty money with clean income.

On a larger scale, shell companies, charities and insurance companies are also considered cash-rich businesses and can be effective front businesses. 

Examples of the Biggest Money Laundering Cases in the World

1. Malaysia Development Berhad: US$4.5 billion
   This was supposed to help Malaysia’s economy but the fund was misappropriated and laundered through numerous financial systems.
   
   
2. Wirecard: US$2.1 billion
   Almost two billion euros were missing from Wirecard accounts. Later, investigations found that there were forged contracts, inflated earnings and falsified client lists.
   
   
3. Mexican drug cartels and Wachovia Bank: US$380 billion
   Despite the fact that the USA is not one of the AML high-risk countries, Wachovia, one of the biggest banks in the United States, helped in laundering billions of money for the Mexican cartels and drug trafficking. 

How do Financial Institutions Prevent and Detect Money Laundering?

Nowadays, technology allows for financial transactions to happen at the speed of light, which makes it relatively easy to transfer money from and to AML high-risk countries. Therefore, financial institutions must take precautions to detect and prevent money laundering attempts and activities.

Advanced AI solutions such as FOCAL, help financial institutions of all types to stay compliant,  gain control and visibility, save time with automation, and improve accuracy. Below are the methods that should be employed:

1. Customer Onboarding and Verification: A thorough background check must be done to collect valuable information about the customer’s identity, financial activities, and the purpose of the account. Creating a customer profile makes it easy to detect or spot any unusual or suspicious transactions.
Screening potential and existing customers can be done in seconds with AI tools such as FOCAL.

2. Know Your Customers (KYC) Procedures: Verifying customers’ identities is crucial in preventing money laundering.
FOCAL enables you to improve your business operations by thoroughly understanding your customers (KYC), assuring compliance, and preventing fraud. Increase trust, eliminate financial risks, and cultivate long-term partnerships while conforming to legal requirements.

FOCAL streamlines your onboarding process with continuous global affiliation monitoring for compliance beyond initial checks. FOCAL lets you tailor onboarding pathways to fit unique needs, integrate with trusted providers, and minimize manual effort while elevating the experience for your team and customers.

3. Transaction Screening: Using cutting-edge software, such as FOCAL, is essential for transaction screening. It helps  financial institutions to screen transactions and detect potential suspicious activity in real time by checking sender and recipient information against global watchlists.

4. Transaction Monitoring: FOCAL empowers you with a holistic and contextual view of each customer, including their transactions, risk score, sanctions alerts, and triggered rules and scenarios.

FOCAL helps financial institutions use tailored rules and historical behavior to monitor transactions and flag potentially suspicious activity, preventing financial crime.

In wrapping up our exploration of Anti Money Laundering (AML) and high-risk countries, it's crucial to reflect on the real-life impact, the need for vigilance, and the solutions at our disposal.

So, you might be wondering, "What's the big deal with AML high-risk countries?" Well, it's not just a matter of regulatory checkboxes; it's about safeguarding the global financial ecosystem from the claws of illicit activities. The list of these countries isn't arbitrary; it's a collective effort to identify areas where money laundering risks are heightened.

Think about it—you, me, and everyone else—we're all part of this interconnected financial web. When money laundering proliferates in high-risk countries, it sends shockwaves that can echo across borders, affecting economies and individual lives. Real-life cases vividly illustrate the consequences: funds diverted from essential services, economic instability, and a breeding ground for organized crime.

As mentioned in the article above, in many cases lax and insufficient AML measures led to significant financial losses and tarnished the reputation of the involved countries. It's a wake-up call, a reminder that the battle against money laundering is not just a bureaucratic exercise but a real, tangible effort to protect our financial systems.

Thanks to technology, innovative tools and algorithms can be our allies in identifying suspicious transactions and patterns.

Education is key. Understanding the implications of money laundering, recognizing the signs, and reporting suspicious activities empower us all to be proactive contributors to a safer financial world. And this is where FOCAL comes into play. 

Stay compliant and protect your business with FOCAL. Request your free demo now.