On the frontline against money-laundering: the regulatory minefield

Intelligence gathering plays a vital role in the 'war' against money laundering. Particularly important in this intelligence gathering process is the global network of Financial Intelligence Units (FIUs) fed by a host of auxiliary (primarily financial) institutions required to report suspicious transactions. This paper briefly reviews the history of the international system of anti-money laundering measures imposed on the financial industry and other regulated businesses, the development of the global network of FIUs and their system of information gathering. It will examine some of the issues that arise from the regulatory framework within which this information gathering takes place. It will also address the issue of instrumental clarity and whether existing and new directives, requirements and approaches are sufficiently clear to enable reporting institutions on the 'front-line' to operate effectively

The Critical Handbook of Money Laundering: Policy, analysis and myths

The overarching aim of this book is to bring order to the subjects of money laundering and of the anti-money laundering frameworks that have been written over the past thirty years. It provides scholars, practitioners and policy makers with a guide to what is known of the subject thus far. The book examines critically the underlying assumptions of research and of policy-making in the field and offers a systematic review of the most important policy and academic literature on the subject

A ‘Risky’ Risk Approach: Proportionality in ML/TF Regulation

Looking back over the past half century, industrialised countries have gone through an interesting transition: from welfare state to a risk control society. One form of risky conduct most worrying to the authorities was the recreational use of psychoactive substances, a concern with long historical roots.1 Correlated with this development was the stark increase of crime or, at least, deviant and risk-seeking conduct. To manage these risks requires action by the State, however, such intervention should be proportionate to the risks it aims to control. Proportionality matters in the relationship between the government and the public. Though it is not operationalised it evolves alongside political and legislative developments. However, in the field of money laundering it is questionable whether this principle is met. A review of the Regulatory Impact Assessments for UK Money Laundering Regulations in 1993 and 2001 showed costs to be significantly understated and benefits unquantified, merely promising sweeping protections for society.2 This way of dealing with proportionality to justify enhanced measures reduces it to an empty formula. We are of the opinion that the proportionality principle is too important to be ignored, especially in the (global) anti-money laundering (AML) policy which since 2001 additionally encompasses the financing of terrorism. This regime has now been made more targeted by the new risk-based approach. The question is whether this approach has achieved the right proportionality

Banks assessing corruption risk – a Risky undertaking

The authorities have increasingly imposed tasks on business to lend support in the fight against acquisitive crime, including corruption. Business is expected to risk-categorise partners and clients to know where to invest the most anti-corruption effort. Regulators’ focus on country risk as opposed to case-specific risk means business’ primary driver in risk-categorising partners and clients is their country rather than their conduct. This creates unhelpful bias. The situation is exacerbated by the lack of constructive guidance from legislators and regulators on risk assessment and mitigation. As a result, banks sitting on the frontline of the corruption-related anti-money laundering (AML) fight may choose to take a blanket approach by de-risking, i.e. deeming clients linked to a specific country as being outside risk appetite. This paper will examine: (i) how banks approach risk; and (ii) challenges banks face in the context of UK and US anti-corruption and related AML legislation; particularly the relativity of country risk and the intricacy of the Politically Exposed Person (PEP) definition, a category introduced to purportedly help the finance industry fight corruption. This paper argues that while country risk should be considered, the key deciding factor in risk-categorising should be client-specific risk, i.e. the client’s conduct in the context of the respective industry, combined with product risk