Assessing AML system effectiveness across jurisdictions using FATF compliance and risk-based metrics

Abstract

Purpose This paper aims to examine the gap between technical adherence to the Financial Action Task Force (FATF) recommendations and the actual effectiveness of anti-money laundering (AML) systems across jurisdictions. It specifically investigates how jurisdictions may bridge the gap between FATF technical compliance (TC) and actual AML effectiveness and evaluates the role of the risk-based approach (RBA) and national coordination mechanisms in improving performance. Design/methodology/approach The study uses secondary cross-sectional data covering 172 jurisdictions derived from FATF Mutual Evaluation Reports and the Basel AML Index (2024). Descriptive and regional analyses draw on the full jurisdictional coverage where data are available, while multivariate regression is estimated on a complete-case sample of 102 jurisdictions after merging external control variables and excluding missing observations. The analysis applies descriptive statistics, Pearson and Spearman correlations, a one-way analysis of variance and OLS regression with heteroskedasticity-robust standard errors, supported by standard diagnostic and robustness tests. Findings The results indicate that TC is positively associated with AML effectiveness, while the RBA also demonstrates a statistically significant positive relationship. In contrast, coordination mechanisms do not exhibit a significant effect after inclusion of structural controls. Economic and financial system characteristics, particularly GDP per capita and financial depth, are also significantly associated with AML outcomes. The extended model explains a substantial proportion of variation in AML effectiveness, and robustness checks confirm the stability of the core findings. Originality/value This study provides empirical evidence that effective AML systems require more than formal compliance with FATF standards. By examining the roles of risk-based implementation and institutional coordination across 172 jurisdictions, the paper adds new cross-jurisdictional evidence to the compliance–effectiveness debate and offers practical insights for regulators, especially in institutionally constrained environments.