Quick guide on assessing the Money Laundering risks of corruption

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Language

English

Country

France

Topic

Corruption statistics at a glance

Considerations when assessing Money Laundering risks of corruption

Corruption features in most countries’ NRAs in some form (e.g., as a threat, or contextual factor). However, some jurisdictions may need to complete more in-depth analysis on corruption and ML risks derived from corruption, as seen from countries’ MER results, key findings and recommended actions.

To assess the ML risks of corruption, countries could consider the following [5]:

Regarding the risk of corruption in the country:
  • Relevant legal and regulatory contextual issues specific to the country. 
  • International corruption threats and regime vulnerabilities that the country faces, including United Nations Convention Against Corruption (UNCAC) [6] implementation review mechanism reports [7] and country profiles [8], where available, and analysis of the effectiveness of anti-corruption laws and AML responses in law enforcement agencies (LEAs) and supervisory agencies. 
  • Wealth from extraction of natural resources, such as oil and timber in absence of good governance may make some countries more vulnerable to corruption at the highest levels of government [9]. 
  • Prevalence of the informal economy in the country [10] [11]. 
  • Consider the different ways corruption manifests itself, e.g., as a predicate offence or as a contextual factor that can increase a threat because of its role in facilitating other types of crime. Corruption can be facilitated and enabled by certain conditions in a country, e.g., poor working conditions of public officials.
  • Examine the extent of digitisation in procurement, work processes and documentation, including online systems that enhance efficiency, accountability, transparency, and create an audit trail; the public availability and accessibility of citizen charters detailing government commitments; and the population's literacy level along with public awareness and participation in governmental policies and their execution. 
  • Countries should consider the extent of corruption in both public and private sectors which may be relevant to ML risks. In some cases, public and private sector corruption may be linked, and be facilitated or exacerbated by similar factors.
  • Rule of law, independence of judiciary and freedom of the press, particularly in coverage of new stories related to corruption. 
  • Examine role of state capture, which is broader than other forms of corruption. It may involve activities that are not illegal, such as shaping laws to benefit those in power and undermining the activities of key AML agencies. Recognising that assessing the level of state capture in their own jurisdiction may be challenging, countries could build contextual understanding by looking at countries with similar profile or other countries in the region [12].
 Regarding Politically Exposed Persons (PEPs):
  • Identify PEPs (foreign and domestic).
  • Examine the effectiveness of oversight of PEPs.
  • Examine PEP use of legal persons and arrangements.
  • High-value transactions and unexplained wealth.
Regarding proceeds and types of corruption:
  • Identify proceeds generating offences that involve corrupt activity e.g., embezzlement and extortion.
  • Identify enablers and funding channels i.e., where does the money go once it has been obtained?
  • Explore typologies used for laundering proceeds of corruption. The FATF’s 2011 Report on Laundering the Proceeds of Corruption, [13] which considered the work of anti-corruption bodies, provides explanations, definitions and typologies that explain the uniqueness of corruption vs. other offences, e.g., crimes where the offender may be in a privileged position or position of power that allows them to launder funds more easily.
  • Some common typologies include large unexplained cash deposits or withdrawals by PEPs; and the use of corporate vehicles and trust or nominees, trusted associates or family members which in itself may be legitimate but can still have an impact on customer due diligence (CDD) controls [14].
  • Consider all types of corruption present in the country (e.g., small scale, grand corruption, public sector, private sector, is it widespread, which sectors/populations are vulnerable to corruption, and do they understand the risks? Does this contribute to state capture?).
  • Pay particular attention to proceeds of grand corruption in government procurements, such as large infrastructure projects, as the total loss can be significant.
Regarding foreign corruption:
  • Consider the risk and context of the wider region, as well as that of countries with similar risk profiles, and those in the same regional economic integration organisation.
  • Consider the nexus between international cooperation and corruption. Countries that are more exposed to domestic corruption may also be more at risk from exposure to proceeds of foreign corruption. On the other hand, even countries with low risks of domestic corruption may have high risks of the proceeds of foreign corruption entering the country for laundering, e.g., in cases where neighbouring countries are known to have high rates of corruption.
  • Endeavor to understand the risks of financial flows either entering or leaving their financial system from and/or to countries perceived as high-risk with regards to corruption and of foreign PEPs.

Once inherent risk is assessed, the effectiveness of mitigation measures, including administrative controls that are more aimed at increasing transparency, can be considered to assess residual risk. It is important to empower and protect stakeholders working on the risk assessment to help ensure the accuracy and reliability of the assessment and there are no consequences to those working on the assessment for negative findings. Countries could consider including the following stakeholders:
 
  • Public sector: anti-corruption agencies, Financial Intelligence Units (FIUs), LEAs, public procurement authorities
  • Private sector: banks, auditors, anti-corruption non-profit organisations (NPOs) and civil society organisation

Countries could consider the following data sources to support their risk assessment. This list is non-exhaustive: 

Related to corruption as a predicate offence or contextual factor:

  • Types of PEPs present in the country where available (e.g., for example, where countries have a list of position/functions that constitute PEPs) [15] and beneficial ownership (BO) registries showing the interests of PEPs.
  • National, regional and international studies on corruption produced by governments and the public sector. Reports by international organisations, e.g., FATF, FATF-Style Regional Bodies (FSRBs), Organisation for Economic Cooperation and Development (OECD), UN Office on Drugs and Crime (UNODC).
  • National and international corruption perception indexes, e.g., World Bank’s corruption perceptions index [16], World Bank’s Enterprise Surveys – Corruption Perceptions [17],the International Development Association (IDA) Resource Allocation Index which provides ratings on transparency, accountability and corruption in the public sector [18], the International Institute for Democracy and Electoral Assistance (IDEA): Political Finance Database which measures “absence of corruption” [19], and other such tools which can be used to understand and mitigate corruption risk. These sources should not be taken at face value but can be useful in providing background context and ideas for further research.
  • Reports and investigations undertaken by national anti-corruption bodies, NPOs or civil society concerning campaign financing disclosures and conflicts of interest declarations by public officials.
  • Data from LEAs on investigations, prosecutions and convictions for corruption and related offences, including violations of PEP regulations. Redacted reports received via whistleblower hotlines.
  • Academic research and objective press reports [20]. Interviews with subject matter experts. These can help countries identify blind spots but should not be taken at face value and instead can support a country in developing its own understanding and conclusions.
  • Aggregate public procurement data (combined with tax information and financial intelligence) can be analysed for red flag indicators, e.g., the percentage of tenders awarded to legal persons created in the period just before tender announcements (a high percentage could suggest that tenders were prearranged), links between procurement data with suspicious transaction reports (STRs) filed and tax discrepancies - a red flag indicator could be companies that have not declared any revenue to the tax authorities being awarded contracts. Misuse of legal persons may be more common in certain sectors than others, so countries can consider whether there are differences in sectoral vulnerabilities.
  • Cases of abuse of regional assistance programmes (such as the Recovery and Resilience Plans [21] funded by the European Union, or the UN development group resilient recovery support to Latin American countries) [22].
  • Objective press reports and independent, investigative journalism can provide useful background information and context [23].
  • Interviews with academics, interviews with subject matter experts and NPOs conducting evidence-based research into corruption or ML from corruption.

Related to ML from corruption:

  • STRs and cases from LEA and prosecutors, including any involving PEPs and their associates and unexplained wealth.
  • Mutual Legal Assistance (MLA) requests from foreign jurisdictions related to corruption and the laundering of the proceeds. STRs related to corruption and ML in foreign jurisdictions obtained from counterpart FIUs.
  • National, regional and international studies on corruption and ML. Reports by international organisations (e.g., FATF, FSRBs, OECD, UNODC).
  • Data from LEAs on investigations, prosecutions and convictions for ML related to proceeds of corruption and related offences, including those involving shell companies. Confiscation data related to corruption.
  • World Bank’s “Control of Corruption” [24] statistics provide an objective assessment and cross-comparison of state of corruption in a country. The World Bank’s other governance indicators such as on “Rule of Law,” “Governance Effectiveness,” and “Regulatory Quality” can also provide valuable and objective insights also during the ML risk assessments.
  • Consider the possibility of undetected cases which may impact the country’s risk ratings, especially when there is little data available. Detected cases are sometimes only the tip of the iceberg. Countries can leverage other sources such as international reports, data obtained from other countries, corruption perception indexes to supplement the data they collect domestically to give a broader picture of the possible risks.

Corruption risk assessment case studies

Footnotes

[2] FATF (2022), Report on the State of Effectiveness Compliance with FATF Standards, p.14.

[3] Unpublished World Bank research, 2024.

[4] UN (2018), retrieved from https://news.un.org/en/story/2018/12/1027971 (accessed 17 January 2025).

[5] The suggested sources listed for data are non-exhaustive and should not replace data collection and analysis on a national level. Rather, the goal is to provide a variety of sources for background information that can support jurisdictions in the initial stages of research on their risks. It is recommended that countries assess the reliability of all sources used and do not take external data sources at face value, rather use them to supplement their national level data and risk understanding, especially where there are data gaps.  

[6] UNODC, UNCAC – United Nations Convention Against Corruption, www.unodc.org/corruption/en/uncac/index.html  (accessed 2 April 2025).

[7] UNODC, UNCAC Implementation Review Mechanism, www.unodc.org/corruption/en/uncac/implementation-review-mechanism.html  (accessed 2 April 2025).

[8] UNODC, Country Profiles, www.unodc.org/corruption/en/country-profiles/view/search.html (accessed 2 April 2025).

[9] FATF (2012), Specific Risk Factors in the Laundering of Proceeds of Corruption

[10] See also Table A A.5 in annex A.iv on the informal economy.

[11] The relationship between corruption and the informal economy is debated by academics. Some argue they are substitutes—informal activity arising to avoid corruption and overregulation (Schneider & Enste, 2000; Djankov et al., 2002; Choi & Thum, 2005; Dreher & Schneider, 2006). Others see them as complementary, especially in contexts with weak institutions, where both tend to reinforce each other (Johnson et al., 1997; Buehn & Schneider, 2009; Dreher & Schneider, 2010; Ouédraogo, 2017; Bayar et al., 2018). The consensus suggests the nature of this relationship is context-dependent, in countries with weak institutions and governance, corruption and the informal economy often reinforce each other, whereas in countries with stronger regulations and lower tax rates, they may serve as substitutes.

[12] Results for Development (2024), State Capture Matters: A research article and associated dataset and index, https://r4d.org/resources/state-capture-index/ (accessed 20 May 2025)

[13] FATF (2011), Laundering the Proceeds of Corruption

[14] Ibid, pages 17 -25 in the PDF document to download. 

[15] See FATF’s definition of PEPs in the Glossary to the FATF Recommendations and the FATF Guidance on Politically Exposed Persons (2013). As indicated in the Guidance, compiling and maintaining a list of domestic positions/functions may not be overly onerous for individual countries. In fact, many countries already have a list of public functions that are required to file asset disclosures, which are likely to remain consistent for a period of time and where occasional updating would be sufficient.

[16] World Bank, Corruption perceptions Index, available at:         https://data.worldbank.org/indicator/IQ.CPA.TRAN.XQ (accessed 2 April 2025).

[17] World Bank, Enterprise Surveys – Corruption Perceptions, available at:       www.enterprisesurveys.org/en/data/exploretopics/corruption (accessed 19 May 2025).

[18] IDA, Resource Allocation Index, available at : https://ida.worldbank.org/en/financing/resource-management/ida-resource-allocation-index (accessed 2 April 2025).

[19] IDEA, Political Finance Database, available at: www.idea.int/democracytracker/about-the-gsod-indices (accessed 2 April 2025).

[20] For example, the Organised Crime and Corruption Reporting Project, available at: www.occrp.org/en (accessed 3 April 2025)

[21] European Commission, Recovery and Resilience Plans, https://reform-support.ec.europa.eu/what-we-do/recovery-and-resilience-plans_en  (accessed 2 April 2025)

[22] UN Development Group, Resilient Recovery, www.undp.org/latin-america/resilient-recovery (accessed 2 April 2025)

[23] Countries are encouraged to have multiple independent sources, ensure not to use media funded by special interest groups or biased reports from nationally controlled media.

[24] World Bank, Control of Corruption Statistics, http://info.worldbank.org/governance/wgi/ (accessed 14 April 2025)  

[25] Countries included: Australia, Brunei Darussalam, Cambodia, Indonesia, Lao People’s Democratic Republic, Malaysia, Myanmar, New Zealand, Philippines, Singapore, Thailand and Vietnam.

[26] Agence Française Anti-corruption (2024), Note d’analyse 2024, Note_Analyse_Decisionsdejustice_ObservatoireAFA_09122024.pdf