In the world of Anti-Money Laundering (AML), the Financial Secrecy Index (FSI) is an essential tool that helps AML professionals assess and measure the levels of financial secrecy in different jurisdictions. In addition, the FSI provides valuable insights into countries’ transparency and regulatory environment, enabling AML practitioners to identify potential risks and challenges associated with illicit financial activities. This article aims to comprehensively understand the Financial Secrecy Index, its methodology, and its significance in the fight against money laundering and illicit financial flows.

The Concept of Financial Secrecy

Financial secrecy refers to the extent to which a jurisdiction allows individuals or entities to hide their financial affairs from the prying eyes of regulators, tax authorities, and law enforcement agencies. It involves practices such as bank secrecy, anonymous shell companies, trusts, and other mechanisms that provide a veil of confidentiality and impede transparency. As a result, financial secrecy can facilitate money laundering, tax evasion, corruption, and other illicit activities, posing significant challenges to global efforts in combating financial crimes.

What is the Financial Secrecy Index (FSI)?

The Financial Secrecy Index (FSI) is an effective ranking system that assesses and compares the levels of financial secrecy across different countries and jurisdictions. It is compiled and published by the Tax Justice Network (TJN), an independent organization that advocates for transparency and fairness in the global financial system. The FSI ranks jurisdictions based on their secrecy and transparency levels, shedding light on the potential risks they pose for facilitating illicit economic activities.

Methodology of the Financial Secrecy Index

The FSI employs a rigorous methodology to evaluate jurisdictions and assign them a secrecy score. The index considers various factors and indicators related to financial secrecy, including banking secrecy, transparency of ownership and control, tax evasion facilitation, anti-money laundering regulations, and cooperation with international standards. The methodology combines qualitative and quantitative data from reputable sources to comprehensively assess each jurisdiction’s secrecy practices.

Key Indicators Considered in the Financial Secrecy IndexProfessor with charts teaching students from laptop screen and globe. Distance education, off-campus learning, distance learning degree concept. Pinkish coral bluevector isolated illustration.Financial Secrecy Index (FSI) in AML.

The Financial Secrecy Index considers several key indicators to evaluate a jurisdiction’s financial secrecy level. These indicators include:

Banking Secrecy

Examines how a jurisdiction’s laws and regulations protect the privacy of banking and financial transactions.

Transparency of Ownership and Control

Assesses the ease with which the beneficial owners and controllers of companies, trusts, and other legal entities can be identified and verified.

Anti-Money Laundering (AML) Regulations

Considers the strength and effectiveness of a jurisdiction’s AML framework, including implementing preventive measures, customer due diligence, and reporting obligations.

Tax Evasion Facilitation

Evaluates the extent to which a jurisdiction facilitates tax evasion through practices such as tax loopholes, preferential tax regimes, and lack of cooperation in exchanging tax information.

International Cooperation

Assesses a jurisdiction’s commitment to international cooperation in combating financial crimes, including its participation in global initiatives such as the Financial Action Task Force (FATF) and its willingness to exchange information with other jurisdictions.

Significance of the Financial Secrecy Index in AML

The Financial Secrecy Index plays a crucial role in AML efforts by providing valuable insights and assessments of the secrecy levels in different jurisdictions. AML professionals can leverage the FSI to:

Identify High-Risk Jurisdictions

The FSI enables AML practitioners to identify jurisdictions with high levels of financial secrecy, which are more likely to be vulnerable to money laundering, tax evasion, and other illicit economic activities. By understanding the risk profile of a jurisdiction, AML professionals can allocate resources and implement targeted measures to mitigate these risks.

You can learn more about  High-Risk Customers in our article.

Inform Risk-Based Approach

The FSI supports the adoption of a risk-based approach in AML strategies. By considering the secrecy score of a jurisdiction, AML professionals can tailor their due diligence procedures, customer onboarding processes, and transaction monitoring activities to address the specific risks associated with operating in that jurisdiction.

Enhance International Cooperation

The FSI promotes international cooperation among jurisdictions in the fight against money laundering and financial crimes. It catalyzes dialogue and collaboration, encouraging countries to strengthen their regulatory frameworks, share information, and work together to combat illicit financial flows.

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Seamlessly Connect the Dots with Kyros AML Data Suite

With Kyros AML Data Suite, you can bridge the gap between the Financial Secrecy Index (FSI) and your AML efforts. Our advanced technology and robust features enable you to identify high-risk jurisdictions, assess transparency levels, and align your compliance strategies accordingly. By leveraging the insights provided by the FSI and harnessing the power of Kyros AML Data Suite, you can strengthen your organization’s ability to combat money laundering and illicit financial activities.

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How often is the Financial Secrecy Index updated?

The Financial Secrecy Index is typically updated every two years by the Tax Justice Network. However, you must consult the official source to ensure you have the most up-to-date information.

Are jurisdictions with high secrecy scores always considered high risk for money laundering?

While jurisdictions with high secrecy scores are more likely to pose higher risks for money laundering and illicit financial activities, it is also crucial to consider other factors. A comprehensive risk assessment should consider a range of indicators, including the country’s legal and regulatory framework, international cooperation, and the effectiveness of AML measures in place.

How can AML professionals utilize the Financial Secrecy Index in their day-to-day operations?

AML professionals can use the Financial Secrecy Index to inform their risk assessments, customer due diligence processes, and transaction monitoring activities. By considering the secrecy scores of jurisdictions, AML practitioners can prioritize their efforts, allocate resources effectively, and implement targeted measures to combat money laundering and other financial crimes.

Can Kyros AML Data Suite integrates with our existing systems and data sources?

Absolutely! Kyros AML Data Suite is designed to seamlessly integrate with your organization’s existing systems and data sources. Our flexible and adaptable software ensures a smooth integration process and enables you to leverage your current infrastructure while enhancing your AML capabilities.

How can Kyros AML Data Suite help us meet the challenges of evolving AML regulations?

With Kyros AML Data Suite, you can stay ahead of evolving AML regulations. Our software offers advanced data analytics, monitoring capabilities, and customizable workflows, enabling you to adapt to changing regulatory requirements. By leveraging our comprehensive solution, you can effectively address the challenges of evolving AML regulations and easily ensure compliance.