Latin America and the Caribbean face significant AML challenges due to widespread corruption, organised crime, and high levels of illicit financial flows. The region is a hub for drug trafficking, human smuggling, and financial fraud, generating billions in illegal proceeds that require laundering through various channels. Key vulnerabilities include weak regulatory enforcement, under-resourced financial intelligence units, and reliance on cash-based economies.
While many countries have made efforts to align with FATF standards, implementation remains inconsistent, and political will to enforce AML measures varies. Financial institutions, real estate markets, casinos, and free trade zones are commonly exploited for money laundering activities. Additionally, emerging risks like cryptocurrency misuse and trade-based money laundering further complicate enforcement efforts.
Despite these challenges, the region has shown signs of progress, with several nations strengthening their AML frameworks and adopting risk-based approaches. However, continued reforms, cross-border cooperation, and enhanced oversight remain essential to combating money laundering effectively. Firms must remain vigilant and ensure that effective due diligence is conducted where there are risks present.
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 Latin America and the Caribbean for money laundering
Haiti (Score: 7.92)
Haiti faces some of the highest AML risks in Latin America and the Caribbean, driven by political instability, weak governance, and pervasive corruption. The country’s financial infrastructure is poorly regulated, and its law enforcement and judicial systems lack the capacity to combat money laundering effectively. Haiti is a major transit point for drug trafficking, human smuggling, and arms trading, generating substantial illicit funds that are laundered through cash-based economies and informal networks. The absence of strong financial oversight makes it vulnerable to exploitation by criminal groups, while ongoing social and political unrest further hampers AML enforcement.
Venezuela (Score: 7.59)
Venezuela’s AML risks are deeply rooted in systemic corruption, a collapsed economy, and a weak legal framework. The country’s dependence on illicit activities such as drug trafficking, smuggling, and illegal gold mining creates significant vulnerabilities for money laundering. High-ranking officials have been implicated in corruption scandals, and the lack of judicial independence prevents effective enforcement of AML laws. Venezuela’s unstable financial system and reliance on informal markets also make it a hub for illicit financial flows, including sanctions evasion and trade-based money laundering. While international sanctions aim to address these risks, enforcement remains largely ineffective.
Nicaragua (Score: 6.40)
Nicaragua’s AML risks stem from political corruption, weak regulatory oversight, and limited financial transparency. The country’s financial system is vulnerable to money laundering through real estate, trade-based schemes, and cash-intensive businesses. Nicaragua has faced international criticism for its failure to implement FATF recommendations effectively, particularly in enforcing customer due diligence and monitoring suspicious transactions. Political instability and strained international relations further hinder efforts to combat financial crime. While some reforms have been introduced, enforcement remains inconsistent, and vulnerabilities persist in high-risk sectors such as casinos and free trade zones.
Suriname (Score: 6.09)
Suriname maintains significant AML risks, largely due to weaknesses in its financial oversight and enforcement capabilities. The country’s economy is highly dependent on natural resources like gold and oil, which are vulnerable to exploitation for money laundering activities. Suriname has made efforts to strengthen its AML framework, including aligning with FATF standards, but challenges persist in effectively monitoring high-risk sectors and enforcing compliance. Corruption within public institutions and the presence of informal financial networks further exacerbate risks, while the country’s geographic location makes it a transit point for drug trafficking and smuggling.
Panama (Score: 5.90)
Panama is considered a moderate AML risk jurisdiction, though it has faced ongoing scrutiny due to its role as a financial hub with extensive offshore banking and corporate services. The Panama Papers scandal exposed weaknesses in the country’s regulatory framework, highlighting its vulnerabilities to shell companies and tax evasion schemes. While Panama has taken steps to strengthen its AML regime, including enhanced transparency and beneficial ownership reporting, gaps remain in enforcement and oversight. High-risk sectors include real estate, free trade zones, and financial services, which are attractive targets for laundering illicit proceeds. Although Panama has been removed from the FATF grey list, it can still present a risk.
The lowest risk countries in Latin America and the Caribbean for money laundering
Trinidad and Tobago (Score: 4.19)
Trinidad and Tobago is considered relatively low-risk for money laundering compared to other countries in the region, but it still faces notable AML challenges. The country has a well-established financial system and has made progress in strengthening its AML framework to comply with FATF recommendations. However, vulnerabilities persist, particularly in the areas of drug trafficking, human trafficking, and corruption. Its strategic location makes it a transit point for narcotics, which generates illicit funds that are often laundered through cash-based businesses and real estate. While recent reforms have improved enforcement mechanisms, gaps in oversight and beneficial ownership transparency remain areas of concern.
Uruguay (Score: 4.11)
Uruguay is one of the lower-risk countries in Latin America, benefiting from a stable political environment and strong regulatory frameworks. The country has implemented robust AML legislation and has been proactive in addressing financial crime risks. However, despite these strengths, Uruguay’s open economy and reliance on international trade expose it to risks related to trade-based money laundering and tax evasion. The real estate and agricultural sectors are particularly vulnerable due to limited monitoring of high-value transactions. Uruguay has also faced challenges in combating cross-border illicit flows, making ongoing reforms and international cooperation essential to further reduce AML vulnerabilities.
Antigua and Barbuda (Score: 4.10)
Antigua and Barbuda has made significant strides in improving its AML regime in recent years, particularly after earlier concerns about weaknesses in oversight and enforcement. It has introduced reforms to align with FATF standards and has improved detection and reporting mechanisms within its financial sector. Despite this progress, the country remains exposed to AML risks associated with offshore banking, citizenship-by-investment programmes, and real estate transactions. Its reliance on tourism and international business services creates vulnerabilities that require close monitoring. Weaknesses in beneficial ownership transparency and the oversight of designated non-financial businesses continue to pose challenges.
Chile (Score: 4.08)
Chile is regarded as one of the most stable economies in Latin America, with a comparatively low AML risk profile. The country has a strong regulatory framework and established financial intelligence units, making it effective in detecting and preventing money laundering. However, Chile’s growing trade networks and reliance on international commerce leave it vulnerable to trade-based money laundering and financial crime. Real estate and cash-intensive businesses are particular areas of concern, as are gaps in beneficial ownership disclosure and enforcement against politically exposed persons (PEPs). Continued efforts to strengthen AML enforcement and regulatory compliance will be necessary to mitigate emerging threats.
St. Vincent and the Grenadines (Score: 4.07)
St. Vincent and the Grenadines is a lower-risk jurisdiction in the region, but it still faces AML challenges due to its offshore financial services sector and reliance on international trade. The country has taken steps to improve its AML framework, including strengthening customer due diligence requirements and aligning with FATF recommendations. However, vulnerabilities persist in the oversight of offshore banking, international trusts, and free trade zones, which are attractive for illicit financial activities. Weak enforcement mechanisms and limited resources for financial intelligence pose additional challenges, requiring further reforms to address these gaps.
