The FinCEN Files showcases how outdated some countries’ financial crime rankings are

Following the release of the FinCEN Files in September, RegTech Sigma Ratings shows how old risk ratings on financial crime are often static and out of date.

The FinCEN Files series of articles is arguably the biggest story on financial crimes since the release of the Panama Papers in 2016. Just like that leak, the new FinCEN Files were revealed by the International Consortium of Investigative Journalists (ICIJ), which collaborated with BuzzFeed.

The leak detailed 2,100 secret reports filed by banks to the U.S. Department of Treasury’s agency the Financial Crimes Enforcement Network, or FinCEN. FinCEN is tasked with fighting financial crime such as money laundering and terrorism financing.

The investigation included the work of more than 400 journalists across 88 countries.

The reports describe over 200,000 suspicious financial transactions valued at over $2trn that occurred between 1999 and 2017 across multiple global financial institutions.

“These documents, compiled by banks, shared with the government, but kept from public view, expose the hollowness of banking safeguards, and the ease with which criminals have exploited them,” BuzzFeed’s team of reporters wrote.

“Profits from deadly drug wars, fortunes embezzled from developing countries, and hard-earned savings stolen in a Ponzi scheme were all allowed to flow into and out of these financial institutions, despite warnings from the banks’ own employees.”

In a new blog, Hamad Alhelal, director of financial crime intelligence at Sigma, argues that the FinCEN Files have also exposed just how outdated some rankings about how likely countries are to being involved in financial crime are.

Alhelal made the argument after looking at the top ten originator and top ten bank beneficiary nations.

He named the top originator countries as Latvia, the Netherlands, Switzerland, the UK, Russia, Singapore, Hong Kong, the US, the Cayman Island and Belgium.

The top beneficiary bank countries were named as Russia, Latvia, Switzerland, Singapore, Hong Kong, the UK, the US, the Netherlands, the Cayman Islands and Cyprus.

“While some may express reservations at Latvia’s classification as ‘Low to Medium’ risk for financial crime, standard country risk ratings like the Basel AML Index lists Estonia, the epicentre of the Russian laundromat, as the lowest risk country in the world for financial crime,” he wrote.

Alhelal noted that the Basel rating of Estonia was based on the 2014 FATF Country Report. He wrote that the six-year old report was the latest report complied on the country by the Financial Action Task Force. Despite this, Alhelal noted that the report accounted “for more than one third of its risk score.”

“This is despite Estonia’s proximity to Russia, a high-risk jurisdiction, which Basel acknowledged as a shortcoming of their methodology,” he said.

Similar shortcomings can be noted with Malta, which had seen the nation “go from one of the lowest risk countries in the world to the highest risk jurisdiction within the EU.”

Essentially, with things moving so quickly in the financial world, he urged these rankings to be more continuously updated, like that provided by Sigma Ratings.

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