Countries in East Asia and the Pacific face a wide range of moderate to high money laundering risks—from New Zealand to Myanmar—primarily driven by large financial centres, extensive trade networks, and growing digital economies. While several countries in the region have made strides in aligning with international AML standards, challenges persist due to corruption, financial secrecy, and vulnerabilities in regulatory enforcement.
The region’s financial hubs, such as Singapore and Hong Kong, are attractive targets for illicit financial flows, including trade-based money laundering and fraud. Emerging markets in the region also struggle with weak oversight, inadequate enforcement, and gaps in transparency, particularly in high-risk sectors like real estate and virtual assets. Additionally, the rise of cyber-dependent crimes and the misuse of cryptocurrencies pose growing threats.
Efforts to address these vulnerabilities are ongoing, with several countries enhancing compliance frameworks and strengthening cooperation with international bodies. However, the region’s interconnected markets and proximity to jurisdictions with weaker controls mean that cross-border money laundering risks remain significant, requiring sustained vigilance.
Understanding national money laundering risks
Money laundering risks refer to the vulnerabilities within a country’s systems that criminals can exploit to integrate illicit financial gains into the legitimate economy. These risks stem from systemic weaknesses such as insufficient legal frameworks, corruption, lack of transparency, ineffective enforcement measures such as a weak police or judiciary, and political corruption.
At its core, money laundering enables crimes ranging from drug trafficking and fraud to terrorism financing. The interconnected nature of global financial systems means that these risks often transcend borders, impacting not just individual countries but the global economy at large.
Risks in one country can easily spill over into connected jurisdictions, as criminals exploit weaker systems to hide the profits of criminal enterprise into the legitimate economy. It is important for any firm which has the potential to be exploited for money laundering to understand the risks for each jurisdiction linked to transactions or clients they work with.
How should money laundering risks be categorised?
The Basel AML index provides a holistic view of country risks. It categorises risks based on five different areas, with different weighting given to each:
Quality of AML/CFT/CPF framework (50%): This includes compliance with international standards such as the Financial Action Task Force (FATF) Recommendations. Factors assessed include customer due diligence, reporting suspicious transactions, and the implementation of financial sanctions.
Corruption and fraud risks (17.5%): Transparency International’s Corruption Perceptions Index and indicators of financial crimes and cybercrimes provide a snapshot of the level of corruption and fraud in a jurisdiction.
Financial transparency and standards (17.5%): Indicators like the Financial Secrecy Index assess the openness of financial systems and the risk of financial institutions being exploited for illicit purposes.
Public transparency and accountability (5%): This domain evaluates public access to budget information, transparency of political financing, and accountability mechanisms in public institutions.
Political and legal risks (10%): Key indicators include judicial independence, the rule of law, media freedom, and political rights. Weaknesses in these areas can significantly exacerbate money laundering risks.
To measure a country’s risk level, the Basel AML Index uses a composite scoring methodology that integrates data from 17 publicly accessible indicators. These scores are summarised on a scale from 0 to 10, where 10 represents the highest risk.
The highest risk countries in East Asia and the Pacific for money laundering
Myanmar (Score: 8.17)
Myanmar faces one of the most significant AML risks of any country in the world, driven by weak governance, pervasive corruption, and widespread organised crime. It is blacklisted by the FATF, along with Iran and North Korea. The country’s political instability following the 2021 military coup has further eroded regulatory oversight and enforcement mechanisms, creating an environment ripe for illicit financial flows. Myanmar is a hub for drug trafficking, human smuggling, and illegal wildlife trade, which generate substantial illicit proceeds. Its limited financial transparency and inadequate AML frameworks make it particularly vulnerable to money laundering activities. Additionally, Myanmar’s informal economy and reliance on cash transactions exacerbate these risks, while international sanctions further isolate the country, pushing financial activities into unregulated channels.
Laos (Score: 7.53)
Laos faces high money laundering risks due to its weak regulatory framework, corruption, and porous borders that facilitate illicit trade. The country’s underdeveloped financial sector and reliance on cash-based transactions make it difficult to monitor and control suspicious financial activities. Laos is also a transit point for drug trafficking and illegal logging, both of which generate proceeds that are laundered through informal networks. While recent reforms have aimed to align AML regulations with international standards, enforcement remains inconsistent, and oversight of high-risk sectors like casinos and real estate is inadequate, allowing illicit funds to flow freely.
China (Score: 7.27)
China’s high AML risk stems from its large and complex economy, which includes significant financial flows, trade-based money laundering, and vulnerabilities in virtual asset transactions. While China has a robust regulatory framework and strong enforcement measures, it remains exposed to systemic risks associated with corruption, underground banking, and the misuse of shell companies. China’s strict capital controls have also given rise to informal value transfer systems like “hawala” networks, which are difficult to regulate. Additionally, the country’s growing role as a global financial hub makes it susceptible to transnational crime syndicates using its financial infrastructure for laundering proceeds from drug trafficking, cybercrime, and fraud.
Vietnam (Score: 6.90)
Vietnam faces significant AML risks due to its rapid economic growth, increasing integration into global markets, and vulnerabilities in governance. Corruption and weak enforcement mechanisms create opportunities for organised crime to exploit financial systems. The country’s real estate and banking sectors are particularly susceptible to money laundering, with gaps in customer due diligence and beneficial ownership transparency. While Vietnam has made progress in strengthening its AML framework, challenges remain in prosecuting financial crimes and implementing effective asset recovery mechanisms. The growing use of cryptocurrencies and digital payment systems also poses emerging risks that require stricter oversight.
Cambodia (Score: 6.75)
Cambodia’s AML risks are linked to its underdeveloped financial regulatory framework, high levels of corruption, and reliance on cash transactions. The country’s booming real estate and casino industries have been identified as key vulnerabilities, often serving as channels for laundering illicit funds. Cambodia is also a transit point for human trafficking and drug smuggling, generating proceeds that are integrated into its financial system. Although Cambodia has made efforts to strengthen its AML regime and has exited the FATF grey list, enforcement remains weak, and regulatory gaps persist in areas like beneficial ownership transparency and cross-border transaction monitoring.
The lowest risk countries in East Asia and the Pacific for money laundering
South Korea (Score: 4.42)
South Korea faces moderate money laundering (AML) risks, reflecting its status as a highly developed economy with a large financial sector and advanced technology infrastructure. While the country has a robust regulatory framework and is compliant with most FATF standards, challenges persist in effectively enforcing AML measures, particularly in areas such as virtual assets and cross-border transactions. South Korea’s rapidly expanding fintech sector and widespread use of cryptocurrencies pose emerging threats, as these technologies can be exploited for illicit financial activities. Despite recent enhancements in oversight, vulnerabilities remain in identifying beneficial ownership and monitoring high-risk sectors, such as real estate and online gaming.
Brunei (Score: 4.30)
Despite being an absolutist monarchy, Brunei demonstrates relatively low AML risks compared to its regional neighbours, supported by a well-regulated financial system and compliance with FATF recommendations. However, its reliance on offshore financial services and its status as a tax haven create vulnerabilities to illicit financial flows. Brunei’s small economy and strict regulatory environment have limited large-scale money laundering activities, but weaknesses remain in the enforcement of beneficial ownership transparency and monitoring of politically exposed persons (PEPs). Continued efforts to strengthen regulatory enforcement, coupled with enhanced international cooperation, are necessary to maintain its low-risk profile.
Taiwan (Score: 4.05)
Taiwan maintains a comparatively low risk of money laundering, thanks to its strong legal framework and adherence to international AML standards. The country has made substantial improvements in recent years, including stricter regulations for virtual assets and beneficial ownership transparency. However, Taiwan’s position as a global trade hub exposes it to risks associated with trade-based money laundering and cross-border illicit flows. Taiwan also faces challenges in monitoring transactions involving offshore accounts and combating financial crimes linked to organised crime networks. Ongoing reforms and international partnerships will be key to addressing these risks.
Australia (Score: 4.04)
Australia is one of the lowest-risk countries in the region, but it continues to strengthen its AML regime to address evolving threats. Recently, Australia introduced new AML laws to extend regulations to high-risk sectors, including real estate, legal, and accounting services, which were previously unregulated. These changes aim to close loopholes that criminals exploit to launder illicit funds and align Australia more closely with international standards. Despite its strong regulatory environment, Australia faces risks related to trade-based money laundering, fraud, and the misuse of corporate structures. The growing use of cryptocurrencies and offshore financial services also presents emerging challenges, requiring constant vigilance and adaptation of enforcement strategies
New Zealand (Score: 3.68)
New Zealand ranks among the lowest-risk jurisdictions in the region, reflecting its strong governance, low corruption levels, and effective AML framework. The country’s financial system is well-regulated, and it has implemented measures to address vulnerabilities in high-risk sectors such as trusts and real estate. However, New Zealand’s reliance on foreign investments and international trade means it remains exposed to risks of cross-border money laundering. Efforts to regulate virtual assets and strengthen enforcement mechanisms have enhanced its resilience, but ongoing monitoring is essential to address emerging threats, particularly in the digital economy.
