An evaluation of money laundering policies
| Pages | 339-345 |
| Published date | 01 October 2005 |
| Date | 01 October 2005 |
| DOI | https://doi.org/10.1108/13685200510620876 |
| Author | Jackie Harvey |
| Subject Matter | Accounting & finance |
An Evaluation of Money Laundering Policies
Jackie Harvey
INTRODUCTION
Underlying any research in this ®eld is the fundamen-
tal lack of convincing empirical evidence on the extent
of money laundering that is actually occurring within
the economy (although it is assumed to be signi®cant)
and the associated problem of being able to determine
the eectiveness of countermeasures advocated by the
regulatory bodies to deal with the phenomenon. In
consequence, a second-best input approach has devel-
oped in which compliance with systems and pro-
cedures becomes pre-eminent. Firms seek to
demonstrate compliance with their domestic regula-
tors by increasing the number of suspicious activity
reports and national governments seek to demonstrate
compliance with international bodies by increasing
the scope of its laws and regulations. However, dem-
onstration of compliance provides no information
about the impact of regulation on the amount of
money laundering activity or about reducing predi-
cate crime.
The UK is assiduous in its money laundering com-
pliance activity but there is no evidence of a reduction
in money laundering activity, indeed, despite these
eorts, it remains on the list of identi®ed money laun-
dering countries.
1
In the light of this it is appropriate to
consider evidence of the costs and bene®ts of compli-
ance activity within the UK and to set this in the
context of available, albeit indirect, information con-
cerning its eectiveness.
The concern remains, however, that concentration
on compliance implies the fact that we continue to
look under the wrong stones in our search to reduce
money laundering activity, and at considerable cost.
It is argued that the machinery of compliance has
become self generating with increasing cost impli-
cations for the ®nancial sector.
THE GUESSWORK
There is very little empirical data on the overall mag-
nitude of money laundering activity; by its very
nature, money laundering occurs outside the normal
range of economic statistics and remains unobserva-
ble. In truth, the authorities can only guess at the
amount of laundering actually taking place, however
the important point to note is that it is assumed to be
signi®cant and a real problem for the ®nancial
sector. Indeed, van Duyne points to the tendency to
assume money laundering is of such a magnitude
and scale that it is a `global menace'.
2
A further dimension of this problem is that to be
convincing, the eectiveness of countermeasures
should be measured in terms of a reduction in
money laundering activity. This inability to quantify
the volume of money laundering activity and hence
the eectiveness of countermeasures has forced
reliance on a `second best input approach' that, instead,
is focused on the whole compliance activity. Thus
emphasis has been moved to a series of systems and
procedures that are expected to prevent money laun-
dering activity.
The justi®cation for money laundering regulation
stems from the fact that there is theoretical support
within the literature
3
for an assumed inverse relation-
ship between money laundering regulation and the
amount of money laundering taking place. The
assumption is that eective counter money laundering
regulation increases the costs to the launderer, redu-
cing their ability to carry out this activity. Further to
this, the authorities assume there to be a positive
causal relationship between the amount of money
being laundered and the volume of illegal activity.
Thus, by extrapolation, increased regulation is seen
to reduce predicate crime. The simplistic hypothesis
being: the more extensive the system of regulation
the more expensive it is to launder funds and the less
likely money laundering is to occur; with reduced
opportunity for laundering, the criminal will not be
able to pro®t from crime, hence underlying crime
will reduce. Indeed, Boorman and Ingves note that
`the main purpose of anti-money laundering laws is
to reduce the incidence of predicate crimes'.
4
Of
course, this assumed relationship does not take into
account the actions of money launderers as they
react to changes in legislation. They may evolve
new methods of laundering to circumvent legisl-
ation, increase the amount of activity in order to
restore underlying levels of pro®tability or become
entirely barter based, removing the need to `clean'
funds.
5
Page 339
Journal of Money Laundering Control Ð Vol. 8 No. 4
Journalof Money Laundering Control
Vol.8, No. 4, 2005, pp. 339± 345
#HenryStewart Publications
ISSN1368-5201
To continue reading
Request your trial