Europe is one of the safest regions in the world for money laundering. Most countries in Europe score consistently higher than the global average and other countries in the world. However Europe is not immune to money laundering risks.
Despite robust frameworks, financial centres like Switzerland and the UK are increasingly targeted for fraud and cybercrimes, raising their risk scores. While corruption risks remain relatively low, financial transparency is a persistent weakness.
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 Europe for money laundering
Malta (Score: 5.18)
Malta’s elevated risk stems from its role as a hub for financial services and gaming industries, which exposes it to vulnerabilities in financial crime. Regulatory gaps, particularly in the oversight of virtual assets and beneficial ownership transparency, have drawn international scrutiny. While Malta has taken steps to address these issues, challenges remain in enforcing AML measures effectively, particularly in high-risk sectors.
Hungary (Score: 5.06)
Hungary’s AML risks are primarily linked to corruption and weak financial transparency. Issues such as political influence over regulatory bodies and gaps in judicial independence further exacerbate the risks. Despite improvements in technical compliance with FATF standards, the effectiveness of enforcement actions remains a significant concern.
Bulgaria (Score: 4.99)
Bulgaria struggles with systemic corruption and a lack of public accountability, contributing to its high AML risk. Challenges in enforcing financial crime regulations and addressing vulnerabilities in non-financial sectors, such as real estate and gaming, have also been highlighted. Efforts to align with EU directives are ongoing, but progress has been slow. Bulgaria was added to the FATF grey list in 2023.
Romania (Score: 4.99)
Romania faces challenges in financial crime enforcement and governance, with weaknesses in judicial independence and transparency mechanisms. While technical compliance with FATF recommendations has improved, the practical application of AML measures, particularly in detecting and prosecuting financial crimes, remains inadequate.
Cyprus (Score: 4.81)
As a financial hub, Cyprus is exposed to money laundering risks associated with cross-border transactions and corporate secrecy. The country has been criticised for weaknesses in beneficial ownership transparency and its handling of politically exposed persons. Efforts to strengthen its AML framework have been made, but vulnerabilities persist in high-risk sectors like real estate and investment services.
The lowest risk countries in Europe for money laundering
Andorra (Score: 3.29)
As a microstate, Andorra benefits from a smaller, highly regulated financial system that is closely monitored by authorities. The country has made significant progress in recent years to align with international AML standards, including increasing transparency in financial transactions and tightening controls on beneficial ownership. While Andorra’s risk profile is low, its reliance on financial services means it must remain vigilant against the risks of cross-border money laundering, particularly involving its neighbouring countries.
Estonia (Score: 3.16)
Estonia’s advanced digital infrastructure and transparent governance make it a model for anti-money laundering practices. The country has demonstrated resilience in addressing financial crime risks, including improving its oversight of virtual assets and strengthening beneficial ownership transparency. While its score reflects strong governance and accountability, Estonia must continuously monitor its financial technology (fintech) sector to mitigate risks associated with cybercrimes and fraudulent schemes targeting digital services.
Finland (Score: 3.07)
Finland consistently ranks as one of the least corrupt countries globally, supported by a transparent legal system and an effective AML framework. The country’s regulatory oversight is stringent, and institutions comply well with FATF standards. Its low risk score is attributed to strong public accountability, minimal corruption, and proactive measures to prevent financial crimes. However, as a member of the European Union, Finland still faces indirect risks from international financial flows and must remain attentive to developments in the global financial ecosystem.
Iceland (Score: 3.00)
Iceland maintains one of the strongest anti-money laundering frameworks in Europe, with robust enforcement mechanisms and high levels of transparency. Its financial sector is relatively small and well-regulated, reducing exposure to international financial crimes. Iceland’s high ranking reflects its effective implementation of FATF recommendations, strong judicial independence, and commitment to combating corruption. However, as with all nations, ongoing vigilance is required to adapt to emerging threats such as virtual asset misuse and complex cross-border crimes.
San Marino (Score: 2.96)
San Marino, the smallest member of the European Council, boasts one of the lowest money laundering risk scores in Europe, reflecting its efforts to maintain a strong AML framework. The country’s small and highly monitored financial sector benefits from close regulatory oversight, reducing opportunities for illicit financial activities. Recent reforms to align with FATF recommendations have strengthened San Marino’s beneficial ownership transparency and tightened controls on financial transactions.
However, as a microstate reliant on financial services, San Marino remains exposed to cross-border risks, particularly involving larger neighbouring economies. Ongoing challenges include ensuring that the effectiveness of AML measures matches their technical compliance and maintaining vigilance against emerging threats like virtual asset misuse and cybercrime.
Looking for more information on high risk countries for money laundering? Download our comprehensive guide to high risk jurisdictions for AML and understand the steps your firm should take.
