Sources

Methodologies & Sources

Our Country Ratings tool is a composite index, meaning it provides a simplified comparison of countries’ risks of ML/TF based on a number of relevant data sources.  Each country's risk score is calculated from those data sources and does not represent any opinion of KnowYourCountry except where data is unavailable and we have take  a subjective view dependent upon the other levels of risk for that particular country.. .The scores summarise a complex and multi-dimensional issue, and It is meant to be used only as a guide when assessing Country ML/TF risk. For a more thorough understanding of where exactly the risks lie, or to verify overall scores, users should look at the Country AML reports provided in our website and membership area, or visit the data source websites for further information.Typologies and rationale relating to KnowYourCountry Country Risk Ratings scoring and assessment

 

We would confirm that the following risk factors/data sources are used to assess Country risk and determine a risk rating score: -                                                                                                                         

Indicator / Sub Indicator                                                  Weighting

 

1   Money laundering/terrorist financing risks               

    1.1. FATF Uncooperative / AML Deficient                 

    1.2. FATF Compliance with MER rec assessments                       

    1.3. US State ML Assessment                                      

    1.5. US Secretary of State terrorism                             

 

2   International sanctions                                               

3   Corruption risks                                                          

4   World Governance Indicators                                     

5   Narcotics Major List                                                     

6   Human Trafficking                                                        

7.  EU Tax Blacklist                                                             

8   Offshore Finance Centre                                             

     

Money Laundering / Terrorism Financing Risks

1.1         FATF Uncooperative / AML Deficient (Weighting x25)

The FATF Uncooperative / AML Deficient List is updated every 3 months at the FATF Plenary meetings, usually held in February, June and October each year. We score a 0 rating for uncooperative jurisdictions and 33.3 for jurisdictions identified by FATF as AML Deficient.

In this group we also include The EU Commission list of AML Deficient countries. Those which are not already included in the FATF AML Deficiency List are scored at 66.6. The reason for this higher score is that the EU Commission List is disputed by many non-EU countries, including the US.   

           

For countries that have not yet undergone a Mutual Evaluation, and therefore have not been assessed, we score 66.6.

All jurisdictions not included in the above lists are scored at 90 to reflect that money laundering happens in every country in the world.

These are updated in February, June and October.

1.2         FATF Compliance with 40 / 40+9 Recommendations (Weighting x10)

The scoring methodology for the FATF MER recommendations is dependent upon a number of criteria: -

 

a)  whether the jurisdiction has been evaluated in the old or new style evaluation methodology

b)  scoring on effectiveness & technical compliance ratings (new style MERs)

c)  scoring on recommendation compliance ratings  

With regard to those countries which have, to date, only been evaluated in the old style evaluation, in those cases where the country was recognised by the FATF Plenary to have made sufficient progress in addressing the deficiencies identified in their previous mutual evaluation report and, therefore, could be removed from the regular follow-up process, we have scored 50.

For those countries for which a Mutual Evaluation has not yet been undertaken, we have scored 20

 

With regard to the new style of Mutual Evaluation, the scoring for all Effectiveness Ratings is :  

               

HE (Highly Effective) = *3

SE (Substantially Effective) = *2 

ME ("Moderately Effective) = *1

With regard to the Technical Recommendations the scoring is: -     

                             

Compliant = *1.75 

Largely Compliant = *1.25          

Partially Compliant = *0.50   

N/A = *1

 

With regard to the old style of Mutual Evaluation, the scoring for all Effectiveness Ratings is: -  

Compliant = *2  

Largely Compliant = *1.25         

Partially Compliant = *0.50         

N/A = *1   

                                                                                                     

Thereafter the total score is reduced by 10% to reflect that latest MERs (40 recs) have not been conducted  

 

1.3         US State ML Assessment (Weighting x15)

Each year, usually in March, the US State Department publishes the International Narcotics Control Strategy Report (“INCSR”). This includes a report on global Money Laundering and maintains a list of countries identified as Primary Risk for money laundering. The determination of Primary Risk is derived from the list of countries proposed by U.S. government experts based on indicia of significant drug-related money laundering activities. Given money laundering activity trends, the activities of non-financial businesses and professions or other value transfer systems are given due consideration.  Inclusion in the list is not an indication that a jurisdiction is not making strong efforts to combat money laundering or that it has not fully met relevant international standards.  The INCSR is not a “black list” of jurisdictions, nor are there sanctions associated with it.

The report used to also determine those countries rated as being a ‘Concern’ or ‘Monitored’. Although those two categories have been removed, we continue to use the last ratings for our scoring as we believe them relevant (and historically there was very little change of countries from one rating to another.

Countries included on the Primary Risk list are scored 5.

Countries previously included on the ‘Concern’ list are scored 33.3.

Countries previously included on the ‘Monitored’ list are scored 75

These are updated on an annual basis. 

1.4         US Secretary of State Terrorism (Weighting x6)

Each year the US Department of State publishes a Terrorism report. This includes a list of countries that have been identified as being supporters of terrorism and also a list of countries that have been identified as being safe havens for terrorism.

Countries identified as being supporters of terrorism are scored 5

Countries identified as being safe havens of terrorism are scored 30

These are updated on an annual basis. 

2            International sanctions (Weighting x15)

There are three main imposers of international sanctions, the UN, the US (OFAC), and the EU. Where thought appropriate we also include other international sanctions in our scoring table, i.e. Arab League. Our usual scores for Sanctions are as follows: -

Where UN sanctions are in place these countries are scored 0

Where US(OFAC) or EU sanctions are in place these countries are scored 33.3     

        

From time to time, other scoring for individual countries will be subjective dependent upon possible relevant or extenuating circumstances. This may be seen in scoring related to sanctions where, for instance, sanctions may be in place but limited, and therefore the actual risk is reduced.  

These are updated as and when sanctions are imposed or revoked on any country.

3            Corruption risks (Weighting x10)

Scoring for corruption risk is calculated by averaging out the actual scores from Transparency International’s Corruption Perception Index and the World Bank’s Governance Indictor scores for control of corruption. These are updated on an annual basis, usually in January/February.

4            World Governance Indicators (Weighting x3)

Scoring for the World Bank’s Governance risks is calculated by averaging out the actual scores from five relevant areas of Governance risk, Voice and Accountability, Political Stability (no violence), Government Effectiveness, Regulatory Quality and Rule of Law.  

    

5            Narcotics Major List (Weighting x3)

Each year, usually in October/November, the US President issues a Presidential Determination on Major Drug Transit or Major Illicit Drug Producing Countries.

Countries named on the list are scored 20

Countries which are cited on the Narcotics Major List are scored 0

All other countries are scored 90     

      

6            Human Trafficking (Weighting x3)

Each year the US Department of State publishes a Human Trafficking report. This categorizes countries into four different risk bands: -

TIER 1  -  Countries whose governments fully meet the Trafficking Victims Protection Act’s (TVPA) minimum standards.

These countries are scored 90

TIER 2  -  Countries whose governments do not fully meet the TVPA’s minimum standards, but are making significant efforts to bring themselves into compliance with those standards.

These countries are scored 60

TIER 2 WATCH LIST  -  Countries whose governments do not fully meet the TVPA’s minimum standards, but are making significant efforts to bring themselves into compliance with those standards AND:

a) The absolute number of victims of severe forms of trafficking is very significant or is significantly increasing;

b) There is a failure to provide evidence of increasing efforts to combat severe forms of trafficking in persons from the previous year; or

c) The determination that a country is making significant efforts to bring itself into compliance with minimum standards was based on commitments by the country to take additional future steps over the next year.

These countries are scored 40

TIER 3  -  Countries whose governments do not fully meet the minimum standards and are not making significant efforts to do so.

These countries are scored 20

A number of countries are also determined as being ‘Special Cases’ and these are scored at 5

7            Offshore Finance Centre/Transparency (x10)

This is the aggregate scoring of countries that have been identified as being Offshore Finance Centres or conduits for Offshore Finance Centers, and countries that have been placed on the EU Tax Blacklist or ‘Greylist’.

Countries identified as Offshore Finance Centers are scored 5

Countries identified as Conduits for Offshore Finance Centers are scored 33.3

Countries on the EU Tax Blacklist are scored 5

Countries on the EU ‘Greylist’ are scored 33.3

Further information    

  

Rating scores are updated as soon as possible after any event that might cause a change to a Countries rating score i.e. if a country is placed on or removed from FATF's AML Deficiency list.

In order to fully assess actual risk we have weighted the various risk factors in accordance with the level of perceived risk. Therefore, for instance, the weightings relating to international sanctions and FAT F AML deficient countries are significantly higher than, for instance, World Governance Indicators relating to Political Security.

Higher, Medium and Lower band scoring, together with weightings, are occasionally changed to reflect updates or changes in perceived risk factors.

Where information is unavailable, for instance, some Corruption scores that have not been rated by Transparency International, our scoring is subjective and dependent upon the other levels of risk for that particular country.

From time to time, other scoring for individual countries will be subjective dependent upon possible relevant or extenuating circumstances. This may be seen in scoring related to sanctions where, for instance, sanctions may be in place but limited, and therefore the actual risk is reduced.

As most dependency's financial markets are very small, and those markets are usually regulated by those countries that they are a dependency of, we have defaulted scoring to those countries.

Source Data for Reports and Data Spreadsheet
UN / EU / US - Sanctions in force

FATF -  Non co-operative nations

EU White List equivalent (Repealed in 2015. EU AML equivalence now comprises only EU and EEA countries, and some UK dependencies)

Offshore Finance Centre - Original IMF List

US Sec of Treasury - Money Laundering Concern list

US Secretary of State - Supporter of International Terrorism

US Dept of State -  International Narcotics Control: Majors List

US State Dept Money Human Trafficking Tier list

US State Dept Money Laundering Assessment  -  INCSR

FATF - 49 Recs - % Compliant or Largely Compliant

Corruption:   Corruption Index (Transparency International) 
Control of Corruption (WGI) / Global Advice Network

World Governance indicators

Useful Links

CIA World Factbook

Egmont Group

FATF

GAN Integrity Business Anti-Corruption Portal

IMF

Interpol

OECD

Moneyval

Transparency International

US State Department

World Bank

56​

 

25

10

15

  6

15

10

 3

 3

 3

 5

 5

Information and data used in the Reports is gathered from the following government and institutional agency websites: -
 
CIA Factbook   |   FATF   |   Federal Bureau of Investigation   |   FinCEN   |   OECD   |   HM Treasury   |  
The Egmont Group of Financial Intelligence Units   |   Transparency International   |   US Department of State   |   US State Treasury    United Nations   |   World Bank Group   |   The Regulatory authorities of the Bahamas, Cayman Islands, Gibraltar, Guernsey, Isle of Man and Jersey
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