Losing the War Against Dirty Money: Rethinking Global Standards on Preventing Money Laundering and Terrorism Financing

Following a brief overview in Part I.A of the overall system to prevent money laundering, Part I.B describes the role of the private sector, which is to identify customers, create a profile of their legitimate activities, keep detailed records of clients and their transactions, monitor their transactions to see if they conform to their profile, examine further any unusual transactions, and report to the government any suspicious transactions. Part I.C continues the description of the preventive measures system by describing the government\u27s role, which is to assist the private sector in identifying suspicious transactions, ensure compliance with the preventive measures requirements, and analyze suspicious transaction reports to determine those that should be investigated. Parts I.D and I.E examine the effectiveness of this system. Part I.D discusses successes and failures in the private sector\u27s role. Borrowing from theory concerning the effectiveness of private sector unfunded mandates, this Part reviews why many aspects of the system are failing, focusing on the subjectivity of the mandate, the disincentives to comply, and the lack of comprehensive data on client identification and transactions. It notes that the system includes an inherent contradiction: the public sector is tasked with informing the private sector how best to detect launderers and terrorists, but to do so could act as a road map on how to avoid detection should such information fall into the wrong hands. Part I.D discusses how financial institutions do not and cannot use scientifically tested statistical means to determine if a particular client or set of transactions is more likely than others to indicate criminal activity. Part I.D then turns to a discussion of a few issues regarding the impact the system has but that are not related to effectiveness, followed by a summary and analysis of how flaws might be addressed. Part I.E continues by discussing the successes and failures in the public sector\u27s role. It reviews why the system is failing, focusing on the lack of assistance to the private sector in and the lack of necessary data on client identification and transactions. It also discusses how financial intelligence units, like financial institutions, do not and cannot use scientifically tested statistical means to determine probabilities of criminal activity. Part I concludes with a summary and analysis tying both private and public roles together. Part II then turns to a review of certain current techniques for selecting income tax returns for audit. After an overview of the system, Part II first discusses the limited role of the private sector in providing tax administrators with information, comparing this to the far greater role the private sector plays in implementing preventive measures. Next, this Part turns to consider how tax administrators, particularly the U.S. Internal Revenue Service, select taxpayers for audit, comparing this to the role of both the private and public sectors in implementing preventive measures. It focuses on how some tax administrations use scientifically tested statistical means to determine probabilities of tax evasion. Part II then suggests how flaws in both private and public roles of implementing money laundering and terrorism financing preventive measures might be theoretically addressed by borrowing from the experience of tax administration. Part II concludes with a short summary and analysis that relates these conclusions to the preventive measures system. Referring to the analyses in Parts I and II, Part III suggests changes to the current preventive measures standard. It suggests that financial intelligence units should be uniquely tasked with analyzing and selecting clients and transactions for further investigation for money laundering and terrorism financing. The private sector\u27s role should be restricted to identifying customers, creating an initial profile of their legitimate activities, and reporting such information and all client transactions to financial intelligence units

Aligning anti-money laundering, combating of financing of terror and financial inclusion : Questions to consider when FATF standards are clarified

Purpose &ndash; The purpose of this paper is to identify key questions that should be addressed to enable the Financial Action Task Force (FATF) to provide guidance regarding the alignment of anti-money laundering, combating of financing of terror and financial inclusion objectives.Design/methodology/approach &ndash; The paper draws on relevant research and documents of the FATF to identify questions that are relevant to consider when it formulates guidance regarding the alignment between financial integrity and financial inclusion objectives.Findings &ndash; The FATF advises that its risk-based approach enables countries and institutions to further financial inclusion. It is, however, not clear what the FATF means when its uses the terms &ldquo;risk&rdquo; and &ldquo;low risk&rdquo;. It is also unclear whether current proposals for financial inclusion regulatory models will necessarily limit money laundering (ML) aswell as terror financing risks to levels that can be described as &ldquo;low&rdquo;. The FATF will need to clarify its own thinking regarding low money laundering and low terror financing risk before it will be able to provide clear guidance to national regulators and financial institutions.Originality/value &ndash; This paper was drafted to inform current FATF discussions regarding guidance on financial inclusion. The questions are relevant to all stakeholders in financial regulation.<br /

Identification of segments of European banks with a latent class frontier model

This paper analyses technical efficiency of European banks over the period 1996-2003 with unbalanced panel data techniques. A latent class frontier model is used which allows the identification of different segments in the production frontier. We find that there are three statistically significant segments in the sample. Therefore, we conclude that no common banking policy can be effective for all the banks included in the sample, and that banking policies by segments are required instead

Profiling for profit : a report on target marketing and profiling practices in the credit industry

This report examines how many businesses make significant investments to purchase and develop customer relationship management systems. Given such investments, information about these systems is not widely available, but some publicly available information gives indication of the extent, and purpose, of the use. Recognising that lenders use customer information and highly sophisticated systems to target their marketing strategies, is the first step towards ensuring that these practices are taken into account in the development of consumer policy and law reform. This research was funded by the consumer advisory panel of the Australian Securities and Investment Commission (ASIC)

Alter ego, state of the art on user profiling: an overview of the most relevant organisational and behavioural aspects regarding User Profiling.

This report gives an overview of the most relevant organisational and\ud behavioural aspects regarding user profiling. It discusses not only the\ud most important aims of user profiling from both an organisation’s as\ud well as a user’s perspective, it will also discuss organisational motives\ud and barriers for user profiling and the most important conditions for\ud the success of user profiling. Finally recommendations are made and\ud suggestions for further research are given

Homo Datumicus : correcting the market for identity data

Effective digital identity systems offer great economic and civic potential. However, unlocking this potential requires dealing with social, behavioural, and structural challenges to efficient market formation. We propose that a marketplace for identity data can be more efficiently formed with an infrastructure that provides a more adequate representation of individuals online. This paper therefore introduces the ontological concept of Homo Datumicus: individuals as data subjects transformed by HAT Microservers, with the axiomatic computational capabilities to transact with their own data at scale. Adoption of this paradigm would lower the social risks of identity orientation, enable privacy preserving transactions by default and mitigate the risks of power imbalances in digital identity systems and markets