&With results on more than 70 Countries published and updated relating to technical compliance with the FATF 40 Recommendations as well as on effectiveness based on 11 so called “immediate outcomes,” some interesting findings emerge. (Based on a simple scoring model (3,2,1 & 0 for each Recommendation and Objective).
According to FATF, “The extent to which a country implements the technical requirements…..of each of the [40] recommendations is important….but this is not sufficient” as “each country must enforce those measures and ensure that the operational law-enforcement and legal components of an AML/CFT System works together effectively …to deliver results.” With that in mind here are some observations.
- whilst FATF do not publicly aggregate results, and no longer identify Recommendations as more important than others, it is likely, not least in the listing of Countries with material discrepancies that some are indeed more important. Nevertheless the following results are based on parity value for each Recommendation and Objective.
- Countries that reported earliest and have yet to have follow up reports generally have not done as well as those where reports have been issued more recently. As Countries report results, throughout the next few years the number of Countries that can be compared will increase. China and Finland reports and ratings are expected to be published in April 2019 and findings still likely in 2019 are Hong Kong, Taiwan, Pakistan and Greece amongst others. Recent follow up reports published in March 2019 for both Italy and Norway have seen their technical compliance scores improve. Based on these results (and now scored):
- Spain tops the list for technical compliance (88%) whereas the United Kingdom tops the list for effectiveness (70%).
- The top 5 in each category are: for technical compliance: Spain (88%), UK (84%), Belgium (82%), Malaysia (82%) & Macau (82%), and for effectiveness: UK (70%), Israel (67%), US (67%), Spain (61%) & Italy (57%).
- The United States is only placed 42nd on technical compliance (62%) but equal 2nd for effectiveness (67%). The United States is only placed 42nd on technical compliance (62%) but equal 2nd for effectiveness (67%) and the only Country to have a higher score for effectiveness than technical compliance.
- The worst European Country rated was Iceland (51% compliant /18% effective) and overall Botswana on technical compliance (15%), and on effectiveness, Vanuatu, Uganda & Mauritania (0%).
- The overall average score for Technical Compliance is approx 64% and for effectiveness approx 31% (average results from more than 70 Countries with published data.
- Botswana has the worst results for technical compliance (15%), with the bottom 5 including Mauritania (27%), Mauritius (37%), Madagascar (38%), Uganda (47%) & Myanmar & Palau (48%). On effectiveness, the lowest rated Countries are Barbados & Mauritius (12%), Sri Lanka (9%), Zimbabwe, Botswana & Mongolia (6%), Seychelles & Madagascar (3%), Uganda, Mauritania and Vanuatu (0%).
- Malaysia is perhaps surprisingly rated ahead of Singapore on both counts. Malaysia is 4th overall for technical compliance (82%) and equal 13th for effectiveness (45%), ahead of Singapore rated 77% technical compliance and 42% for effectiveness.
- Cuba stands out as placed 13th highest for technical compliance (77%) and 9th equal highest for effectiveness (48%), with Ireland. Whilst Vanuatu is placed 6th on technical compliance (81%) it is equal last on effectiveness (0% effective).
- Whilst Saudi Arabia made the recently announced provisional EU list of Countries of concern, (since rejected by EU governments) it nevertheless is placed 9th for technical compliance (79%) and equal 22nd for effectiveness (39%). So did Panama which placed 22nd for technical compliance (72%) and equal 44th for effectiveness (30%).
- Regional results placed Western Europe (WEUR) as first on technical compliance (73), and 2nd on effectiveness (42). North America (NAM) came first overall on effectiveness (49) but was 7th on technical compliance (60). On technical Compliance after WEUR are; Central, Eastern & Former CIS (C&EEUR) (70), LATAM, (70): APAC, 63, Middle East North Africa (MENA) (63): Pacific, Indian Caribbean & Other Islands (Islands) (62); NAM (60) & Sub Saharan Africa (Africa) (39). On Effectiveness, after NAM & WEUR, comes LATAM & C&EEUR (37) MENA (32), APAC (28), Islands (21) & Africa (6)
- Whilst these results make for interesting reading, for a deep dive into any particular Country they are no substitute for reading the individual reports. Nevertheless based on this basic scoring model results can be compared and a few conclusions reached. Clearly more needs to be done across the board, but particularly to improve results against the effectiveness objectives. This can be achieved by improving technical compliance results (as these are intended as the building blocks upon which effectiveness should improve), but may be achieved instead by focussing on what works and makes a difference, with what a Country already has in place.
Final Thoughts
The approach to focus on effectiveness as the priority beyond technical compliance is a model that could shape how others are assessed too, for example financial institutions, and other regulated industries or sectors. Using the FATF effectiveness objectives and applying these industry by industry or sector by sector could be a way to move beyond the current model which has focussed only on technical compliance and in so doing modernises the assessment process. This is likely to incentivise all Country contributors, and create the right conditions to see future improvements in Country effectiveness ratings, which after all is the purpose of this exercise.
For more details, with updates from more recent Country assessments see FATF Country Evaluation Results – Part 2.
