Methodologies & Sources

Typologies and rationales relating to KnowYourCountry Country Risk Ratings scoring and assessment

Money Laundering / Terrorism Financing Risks

1.1 FATF Uncooperative / AML Deficient (Weighting x20)

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 20 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 35.

For countries that have not yet undergone a Mutual Evaluation, and therefore have not been assessed, we score 60.

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

1.2 FATF Compliance with 40 / 40+9 Recommendations (Weighting x15)

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 x7.5)

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 40.

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

These are updated on an annual basis.

1.4 Terrorism/Terrorism Financing (Weighting x10)

The score rating is a composite of the Global Terrorism Index, the assessments for FATF Recommendations I.O. 9,10 and 11, and those countries on the US State Department list of countries deemed to be Supporters of Terrorism.

Global Terrorism Index (GTI)

GTI is a report published annually by the Institute for Economics and Peace (IEP). The GTI is based on data from the Global Terrorism Database (GTD) which is collected and collated by the National Consortium for the Study of Terrorism and Responses to Terrorism (START) at the University of Maryland. The GTD has codified over 190,000 cases of terrorism, [1] it covers 163 countries, consisting 99.7% of the world’s population.

The GTI score for a country in a given year is based on a unique scoring system to account for the relative impact of incidents in the year. There are four indicators counted in each country’s yearly score:

•    Total number of terrorist incidents in a given year

•    Total number of fatalities caused by terrorism in a given year

•    Total number of injuries caused by terrorism in a given year

•    The approximate level of total property damage from terrorist incidents in a given year

Each of the indicators is weighted differently:

Dimension    Weight

Total number of incidents    1

Total number of fatalities    3

Total number of injuries    0.5

Sum of property damages measure    Between 0 and 3 depending on severity

Please note that in order for the scoring to fit into our Country Ratings model, we have revalued the original scores so that the higher the GTI score, the lower the risk score, eg, if a country scores 8.75 in the GTI ratings, then it will be scored at 1.75 in our model (as lower scores mean higher risk). Furthermore, those countries not covered are given a 0% score, as a significant number of the countries actually rated are also given a 0% score.

The GTI score makes up 25% of the overall Terrorism score, with FATF Recommendation assessments (see below) making up 75% of the total score.

FATF Recommendations I.O. 9, 10, and 11

FATF Recommendations I.O. 9, 10 and 11 assess the efficacy of AML systems in place to combat the Financing of Terrorism, and Proliferation of Weapons of Mass Destruction, on a country by country basis. Each of these factors is weighted at 25% (total 75%) with regard to the overall scoring for Terrorist financing, with scoring based on the actual assessment for each Recommendation, i.e. High Effectiveness = 4, Low Effectiveness = 1.

US State Department

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.

Any country being identified as a supporter of terrorism is automatically scored 0, notwithstanding their score in the GTI.”

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 20

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 countries are scored 50.

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

3. Corruption risks (Weighting x7.5)

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.

Global Organized Crime Index

The Global Organised Crime Index Is a composite index that measures three areas effecting criminality on a country-by-country basis; Criminal Markets, Criminal Actors and Resilience. It was launched in 2021.

The Global Organized Crime Index design and development was supported by the ENACT programme, which is funded by the European Union and implemented by the Institute for Security Studies and INTERPOL, in affiliation with the Global Initiative Against Transnational Organized Crime. It is funded by the US Government.

Criminal Markets and Actors (x10)

Definitions for all factors (as stated in the Global Organized Crime Index Report)
Criminal market definitions

HUMAN TRAFFICKING
Drawing from a range of sources, the Index covers human trafficking within a modern slavery context and includes the trafficking of organs. In line with common interpretations of human trafficking, this criminal market does not require the movement of individuals, and includes men, women and children. When movement is involved, it may include both cross-border and internal flows (such as from rural to urban locations). For the purposes of the Index, human trafficking includes activity, means and purpose, and reflects all stages of the illicit activity, from recruitment and transfer, to harbouring and receipt of persons. To distinguish this market from that of human smuggling, trafficking in persons involves a form of coercion, deception, abduction or fraud, and is carried out for the purpose of exploitation, regardless of the victim’s consent. In line with the Protocol to Prevent, Suppress and Punish Trafficking in Persons, Especially Women and Children, supplementing the UNTOC, exploitation shall include, at a minimum, the exploitation of the prostitution of others or other forms of sexual exploitation, forced labour or services, slavery or practices similar to slavery, servitude or the removal of organs.

HUMAN SMUGGLING
Under the Index, human smuggling requires the criminalization of the illegal entry, transit or residence of migrants (by land, sea or air) by an organized criminal group for the purposes of a financial or material benefit. Activity in this criminal economy reflects all stages of the illicit activity, including producing, procuring, providing or possessing fraudulent travel or identity documents when committed for the purpose of enabling the smuggling of migrants. Although distinct crimes, human smuggling may turn into trafficking when the element of exploitation is involved.

ARMS TRAFFICKING
The trafficking of arms involves the import, export, acquisition, sale, delivery, movement or transfer of arms, their parts and components and ammunition across national borders, as well as intentional diversion of firearms from legal to illegal commerce, without involving the movement of items across physical borders. ‘Firearms’ refers to any portable barrelled weapon that expels, is designed to expel or may be readily converted to expel a shot, bullet or projectile by the action of an explosive, excluding antique firearms or their replicas, as per the Protocol against the Illicit Manufacturing of and Trafficking in Firearms, Their Parts and Components and Ammunition, supplementing the UNTOC. ‘Small arms’ and ‘light weapons’ refer to a range of specific weapons, as outlined by the Small Arms Survey. Often the trafficking of arms facilitates the commission of other organized crime activities.

FLORA CRIMES
Crimes related to flora involve the illicit trade as well as possession of species covered by the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), as well as other species protected under national law.

FAUNA CRIMES
Like flora crimes, crimes involving fauna species reflect the poaching, illicit trade in and possession of species covered by CITES, as well as any other species protected by national law. The Index also considers protected marine species, and IUU fishing falls under this category.

NON-RENEWABLE RESOURCE CRIMES
The Index includes the illicit extraction, smuggling, mingling, bunkering or mining of natural resources.
It also covers any illicit activities related to the trade of such products, including price misinvoicing. The Index covers commodities including, but not limited to, oil, gold, gas, gemstones, diamonds and precious metals.

HEROIN TRADE
The Index covers the production, distribution and sale of heroin. Consumption of the drug, while not in itself a form of organized crime, was considered in determining the reach of the illicit drug market. Synthetic opioids are considered under the synthetic drugs category (see below).

COCAINE TRADE
Like heroin, the production, distribution and sale of cocaine and its derivatives are covered by the Index. Consumption of the drug, while not in itself a form of organized crime, was considered in determining the reach of the illicit drug market.

CANNABIS TRADE
The illicit cultivation, distribution and sale of cannabis oil, resin, herb or leaves are covered by the Index. Consumption of the drug, while not in itself a form of organized crime, was considered in determining the reach of the illicit drug market. Recognizing the growing legalization of cannabis production, sale and consumption across countries, the Index focused solely on areas where an activity was criminalized and/or where criminal groups were involved in the supply chain.

SYNTHETIC DRUG TRADE
As with other illicit drug markets, the production, distribution and sale of synthetic drugs are covered by the Index. Notably, synthetic opioids, such as Tramadol, as well as amphetamine-type stimulants, methamphetamines and Fentanyl are included in this criminal market, as well as any other narcotic included in the 1972 Protocol, Amending the Single Convention on Narcotic Drugs, the Convention on Psychotropic Substances of 1971 and the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 1988. Consumption of such drugs, while not in itself a form of organized crime, was considered in determining the reach of the illicit drug market. Notably, ‘substandard and falsified medical products’, as outlined by the World Health Organization, have been excluded.

Criminal actor definitions

MAFIA-STYLE GROUPS
Refers to clearly defined, organized criminal groups. This typology also includes militia and guerrilla groups that are primarily funded by illicit activities. There are four defining features of a mafia-style group: a known name, a defined leadership, territorial control and identifiable membership.

CRIMINAL NETWORKS
Refers to a loose network of criminal associates engaging in criminal activities. This also includes relatively small groups that do not control territory and are not widely known by a name or with a known leader. Criminal networks are involved in illicit trafficking of commodities but do not have territorial control or any of the other defining features of mafia-style groups. In essence, criminal networks and entrepreneurs are defined by their failure to meet the defining characteristics of mafia-style groups.

STATE-EMBEDDED ACTORS
Refers to criminal actors that are embedded in, and act from within, the state’s apparatus.

FOREIGN ACTORS
Refers to state and/or non-state criminal actors operating outside their home country. This can include not just foreign nationals, but also various diaspora groups that have created roots in the country over multiple generations.

5. Resilience (x5)

Resilience indicator definitions

POLITICAL LEADERSHIP AND GOVERNANCE
Refers to the role a state’s government plays in responding to organized crime and its effectiveness in doing so. Strong political leadership and governance indicate higher state resilience to organized crime. Governments orient citizens toward a state’s stance on organized crime, championing its role in combating the phenomenon by laying the foundation to implement action. The platform in which anti-organized crime rhetoric is made reflects to some degree the level of prioritization of organized crime on the national agenda. Governance serves as a function of the relationship between the state and its governed populations. Leaders send messages that are seen as legitimate, and in turn unify society. People’s confidence in those who govern them can be directly linked to conflict in a society. The presence of organized crime can tangibly reduce the capacity for governance and the legitimacy of the government in the eyes of the population. When there is no or little confidence in government, society can become unstable, creating (further) opportunities for organized crime to fill the void between the state and its populations.

GOVERNMENT TRANSPARENCY AND ACCOUNTABILITY
Refers to the degree to which states have put oversight mechanisms in place to ensure against state collusion in illicit activities – in other words, whether or not the state creates opportunities for the reduction of state corruption and to obscure the illegitimate control over power or resources, including resources linked to organized crime. As representatives of their citizens, governments are entrusted with powers to oversee and maintain the rule and order of societies. When this contract is abused, it both undermines citizens’ trust in state institutions (which may lead to vulnerabilities to organized crime) and can imply state collusion in organized crime. Efforts to increase transparency, such as adequately resourcing anti-corruption measures, work to close opportunities in which organized criminals may exert their influence. Thus, the more transparent governments are, the more resilient a state is to organized crime.

INTERNATIONAL COOPERATION
Refers to the structures and processes of interaction, policymaking and concrete implementation by countries beyond the national level in order to respond to organized crime. Strong international cooperation indicates high state resilience to organized crime. As organized crime is increasingly a transnational phenomenon, with actors and supply chains able to span national and continental boundaries, it is essential that states work together on a global scale to combat the threat.
The ratification and (timeliness of ratification) of relevant international organized crime treaties implies state willingness to effectuate responses to organized crime, in line with international standards. These treaties are:

The UNTOC and its three protocols

The UN Convention against Corruption

The UN Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, 1988

The Single Convention on Narcotic Drugs, 1961

The Convention on Psychotropic Substances, 1971

The Arms Trade Treaty

CITES

At the international level, for states parties, these instruments constitute sufficient legal grounds to carry out response measures to organized crime. Such responses include cooperation in criminal matters, particularly mutual legal assistance, extradition, the transfer of sentenced prisoners and transborder asset confiscation. The presence of such structures and policies, and evidence of their effective use, implies higher state resilience to organized crime.

NATIONAL POLICIES AND LAWS
International cooperation is an essential component to combating organized crime because it sets the basis for national responses. Thus, national policies and laws refers to state legal action and structures put in place to respond to organized crime. National organized crime strategies and legislation are adapted to the needs of the state, its legal tradition and social, economic cultural and geographic conditions. As such, the presence of these reflects higher state resilience to organized crime.

JUDICIAL SYSTEM AND DETENTION
Refers to a state’s judiciary’s power to effectively try to enforce judgments on organized crime related cases. The ability of a country’s judicial system to do so depends on whether it is adequately resourced and operates independently and effectively at all points along the juridical chain. Although passing judgment on cases is its primary function, the ability to enforce is also an essential component of a judiciary’s activities. Things such as evidence that key organized crime criminals are successfully prosecuted and, in particular, the degree of organized crime influence from within the prison system, are factors to consider in assessing a state’s judicial capacity. Where the prison system is notably captured by organized crime, this should significantly impact the score. Thus, while having more resources and independence to pass judgment on organized crime cases implies higher state resilience, high impunity implies lower state resilience.

LAW ENFORCEMENT
Refers to the state’s ability to investigate, gather intelligence, protect and enforce adherence to its rules and procedures regarding organized crime. As the front line of a state’s criminal justice system, law enforcement and intelligence are often in direct contact with organized criminal activities. In order to bring criminal perpetrators to justice, the capacity of a state’s law enforcement to combat organized crime rests on things such as whether it is adequately resourced, and whether the state has invested in law enforcement mechanisms that are specifically organized-crime-focused. It can therefore be said that higher law enforcement capacity makes a state more resilient to organized crime.

TERRITORIAL INTEGRITY
Refers to the degree to which states are able to control their territory and infrastructure against organized criminal activities, including border control personnel capacity. A country’s physical location and geography may increase the risk of exploitation by organized criminal groups. As lengthy borders are less likely to be regulated, criminals are more likely to take advantage of the vast expanse by smuggling illicit commodities and people unnoticed. Moreover, the level of a state’s economic engagement internationally, marked by things such as its port and airport infrastructure, can increase the feasibility with which to move goods and people (both legitimately and illegally) between countries. As such, the greater resources and structures put in place by states to manage their territorial integrity against organized crime, the higher its resilience.

ANTI-MONEY LAUNDERING
Refers to a state’s ability to implement legal, regulatory and operational measures for combating money laundering and other related threats to the integrity of its financial system. Profits that criminals make from organized crime are often concealed by being funnelled through legitimate businesses. Through the development of anti-money laundering mechanisms, states become more resilient to the threat of money laundering, which potentially underlies all forms of organized crime. The Financial Action Task Force is a policymaking body that has developed a series of recommendations that are recognized as the international standard for combating money laundering, the financing of terrorism and proliferation of weapons of mass destruction. They form the basis for a coordinated response to these threats to the financial system. States are assessed through mutual country evaluations to determine their level of compliance with these international standards. The higher compliance, the more resilient states are to organized crime.

ECONOMIC REGULATORY CAPACITY
Refers to the ability to control and manage the economy, and to regulate financial and economic transactions (both nationally and internationally) so that trade is able to flourish within the confines of the rule of law. In other words, whether an actor has put into place and can effectively oversee the mechanisms that ensure economic transactions and businesses operate in a predictable, fair way, free from distortion, including criminal activities such as extortion and illicit taxation. When actors are able to formulate and implement sound policies and regulations that permit and promote private sector development, it allows for options and opportunities for legitimate, regulated business to expand. This, in turn, reduces the incentive for informal, illegal business to arise, or for criminal groups to unduly influence economic forces, through alternative regulation, extortion or criminal practice. States under protracted sanctions by the international community have been shown to develop illicit means by which to circumvent or soften the impact of those sanctions. The larger the number of sound economic regulations that are in place and the lower number of (and duration of) sanctions placed on a state, the higher resilience a country has to organized crime.

VICTIM AND WITNESS SUPPORT
Refers to the existence of assistance provided to victims of various forms of organized crime (for example, human trafficking, drug trafficking, extortion or fraud). Support mechanisms, treatment programmes for victims, as well as resources allocated to these initiatives create an environment in which citizens are able to recover more quickly from the effects of organized criminal activities. Moreover, initiatives such as witness protection programmes are essential, and often the only way to successfully prosecute organized criminals. The more such support programmes are put in place, the more resilient states are to organized crime.

PREVENTION
Refers to the existence of strategies, measures, resource allocation, programmes and processes that are aimed to inhibit organized crime. While prevention considers mainly state initiatives, these frameworks often use a holistic approach to preventive measures through community outreach, recognizing that citizens that are engaged in prevention to organized crime help make the state more resilient. Through prevention, states can build safeguards to protect against organized crime by effecting behavioural change in vulnerable groups and reducing the demand for illicit activities. Thus, the more robust a state’s prevention scheme is, the more resilient it is to organized crime.

NON-STATE ACTORS
From a resilience perspective, non-state actors play a role in responding to organized crime to supplement government care and by ensuring ‘checks and balances’ against governments to ensure resilience to organized crime. The nonstate actors indicator is also a measure of the degree to which civil society organizations are able and allowed to play a role in responding to organized crime across the spectrum, from victim support to crime prevention. Civil society organizations are engaged in local communities, where ownership of initiatives against organized crime is formed, leading to more sustainable response measures. Similarly, the media is critical in the role it plays holding governments to account and provides a voice for communities by mobilizing civil society against the threat of organized crime among local populations. Thus, the more civil society capacity a state has, the more resilient it is to organized crime.

6. EU Tax Blacklist (x5) 

This is the scoring of countries that have been placed on the EU Tax Blacklist or ‘Greylist’.
Countries on the EU Tax Blacklist are scored 5

Countries on the EU ‘Greylist’ are scored 40

7. Offshore Finance Centre (x5)

The determination of an Offshore Finance Centre is made from the composite of three different data sources;

Eurostat, CORPNET research group, and the US State Department INCSR.

Countries identified as Offshore Finance Centres are scored 5

Countries identified as

Conduits for Offshore Finance Centres 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.