Finally there is some reporting about the dirty little secret of global AML enforcement - it might not work. The following was reported in the Wall Street Journal today and we recommend you read the full article:
The Morning Risk Report: The Potemkin Village of Anti-Money Laundering
Anti-money laundering efforts by the International Monetary Fund and the Financial Action Task Force have built a “Potemkin village” and a “paper reality” based on “a plausible folk theory” rather than data and evidence of what works, co-authors of a new, independent report said in interviews with Risk & Compliance Journal. The report had the cooperation of IMF and FATF officials and examined the third round of country assessments for anti-money laundering, conducted in the 2003-2012 period. “We find that the current system is pervasive and highly intrusive but without any evidence as to tangible effect,” said Terence C. Halliday, co-director of the Center on Law and Globalization, a partnership of the American Bar Foundation and the University of Illinois College of Law, and sponsor of the report.
Couched in the report’s bland bureaucratic language is the surprising observation that there is no compelling reason even to expect the anti-money laundering regime should work. “The theoretical foundations of this are poorly articulated and don’t stand up to scrutiny,” said Peter Reuter, a professor of criminology at the University of Maryland and senior economist at the RAND Corp. There is also considerable anecdotal evidence that the system doesn’t work. Corrupt countries with vast flows of illegal money score as well as clean countries under the criteria. Assessments did not raise warning flags about the flows of illegal money implicated in the financial crisis in Cyprus even though they had “apparently been an open secret for many years”, according to the report, which also noted prominent banks have been caught in “flagrant and enormous repeat violations” in countries where anti-money laundering regimes were thought effective.
Michael Levi, professor of criminology at the U.K.’s Cardiff University, acknowledged that the money laundering regime includes stiff penalties for violating rules, demands enormous amounts of technical detail from countries, and can lead to tough discussions about whether countries are following the rules. “But actually what was the point of all of this seemed to have gotten lost somewhere along the line,” he said. No one even seems to know how much money is being laundered, for example, or whether the measures required by the many rules make a difference one way or another.