The study, by the influential House of Commons Public Accounts Committee, looked at Foreign Office activity in Britain's 14 overseas territories, including the two low-tax financial centres.
"Regulatory standards in most territories are not yet up to those in the crown dependencies" such as the Channel Island of Jersey, the report said.
"Limited capacity also reduces the ability of territories to investigate and prosecute money laundering."
It added that standards of governance and financial reporting are "variable" and can drop below levels in Britain.
"There is a serious risk of money laundering in the territories, particularly in the smaller territories which lack the critical mass of regulatory and investigative experience," it said.
In Bermuda, anti-money laundering measures were 22 percent materially non-compliant in 2005, while banking measures in the British Virgin Islands were 50 percent non-compliant or materially so in 2004, it said.
The report called on the Fore