Anti-money laundering effectiveness: assessing outcomes or ticking boxes?
| DOI | https://doi.org/10.1108/JMLC-07-2017-0029 |
| Date | 08 May 2018 |
| Pages | 215-230 |
| Published date | 08 May 2018 |
| Author | Ronald F. Pol |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
Anti-money laundering
effectiveness: assessing outcomes
or ticking boxes?
Ronald F. Pol
AMLassurance.com, Wellington,
New Zealand and Griffith University Griffith Business School, Nathan, Australia
Abstract
Purpose –This article aims to constructively critique the new global methodology for evaluating the
effectivenessof anti-money laundering regimes againstdefined outcomes.
Design/methodology/approach –With surprisingly little discussion at the intersection of the money
laundering and policy effectivenessand outcomes scholarship and practice, this article combineselements of
these disciplinesand recent peer-review evaluations, to qualitatively assessthe Financial Action Task Force’s
(FATF’s)anti-money laundering “effectiveness”methodology.
Findings –FATF’s“effectiveness”methodology does not yet reflect an outcome-orientedframework as it
purports. Misapplication of outcome labels to outputs and activities miss an opportunity to evaluate
outcomes,as the impact and effect of anti-money laundering policies.
Practical implications –If the “outcomes”of the “effectiveness”framework do not match the crime and
terrorism preventionpolicy goals of nation states, the new “main”component for assessing the effectiveness
of anti-money laundering regimes potentially detracts focus and resources from, rather than towards,
intendedpolicy objectives.
Originality/value –There is a dearth of scholarship whether the global anti-money laundering
“effectiveness”framework is sufficiently robust to assess effectiveness as it purports. This article begins
addressingthat gap.
Keywords Outcomes, Financial Action Task Force, Anti-money laundering,
Counter-terrorism financing, Policy effectiveness, Profit-motivated crime
Paper type Research paper
1. Introduction
The Financial Action Task Force (FATF) is responsible for developing and promoting
global anti-money laundering/counter-financing of terrorism (AML/CFT) standards.FATF
says that its “40 recommendations”represent a “comprehensive and consistent framework
of measures which countries should implement to combat money laundering and terrorist
financing”(FATF,2013a,p.7).
Scholars, however, have questionedAML/CFT controls based on adherence to standards
not proven to be effective in preventing terrorism (Anand, 2011;Brzoska, 2016) or serious
crime (Chaikin, 2009;Ferwerda, 2009;Harvey, 2008;Levi,2002, 2012;Levi and Maguire,
2004;Levi and Reuter, 2006;Levi and Reuter,2009;Naylor, 2002;Reuter and Truman, 2004,
p. 9, Rider, 2002a,2002b,2004;Sharman, 2011;van Duyne, 2003,2011).
Seemingly responsive to such criticism, FATF introduced a new methodology to
evaluate the effectiveness of AML/CFT regimes against specified “outcome”measures
(FATF, 2013b). Formerly assessed against technical compliance with FATF
recommendations, “the main focus is now on effectiveness”(FATF, 2017b), determined by
Assessing
outcomes or
ticking boxes?
215
Journalof Money Laundering
Control
Vol.21 No. 2, 2018
pp. 215-230
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-07-2017-0029
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1368-5201.htm
“the extent to which the countryis achieving the defined set of outcomes”(FATF, 2013c,p.3,
emphasis added). Since December 2014, 49[1]“effectiveness”evaluations have been
published. With a dearth of scholarship whether the new methodologyis sufficiently robust
to assess effectiveness, this article begins addressing that gap. It finds that FATF’s
“effectiveness”methodology is not an outcome-oriented framework as it purports.
Misapplication of outcome labels to outputs and activities miss an opportunity properly to
evaluate outcomes,as the impact and effect of AML/CFT policies.
However, recognition that effectiveness matters, together with FATF’s tradition of
continuously adjusting standards and the ubiquity of its network and persuasive power,
suggest grounds for optimism. If the new methodology missesthe mark, that it exists at all
puts the prospect ofeffectiveness in closer reach than in other areas with lessinsight into the
impact and effect of policy interventions.
2. Anti-money laundering effectiveness disconnect?
Distinguishing between “law-in-the-books”and “law-in-action”compliance (Deleanu and
Ferwerda, 2014, p. 189), a line of enquiry looks beyond the presence of rules, whether they
meet defined standards or whether firmscomply with them. It asks whether the rules work.
In that context, scholars have addressed the impact of AML/CFT policies on laundering
(Chong and Lopez de Silanes, 2015), criminal financing (Cuéllar, 2003), terrorism (Anand,
2011;Brzoska, 2016) and crime detection and prevention (Alldridge, 2016;Chaikin, 2009;
Ferwerda, 2009;Fisher, 2014;Halliday et al.,2014;Harvey, 2008;Levi,2002, 2012;Levi and
Maguire, 2004;Levi and Reuter, 2006;Naylor, 2002;Reuter and Truman, 2004,p.9;
Sharman, 2017;Ungeret al.,2014).
Notwithstanding “significantgaps between what has been promised and what has been
actually achieved”(Tavares et al., 2010, p. 4), surprisingly few commentators expressly
connect AML/CFT scholarship with the policy effectiveness and outcomes discourse
(exceptions include Fisher, 2014;Halliday et al., 2014;Levi and Reuter, 2006;McConnell,
2015;Sharman,2011,2017).
In one such exception, Halliday, Levi and Reuter found that in the third round of AML/
CFT evaluations (before the fourth round “effectiveness”criteria), FATF failed to
demonstrate that objectives were “more likely to be reached by compliance with FATF
Standards”. The authors found that the AML/CFT system relies on an unproven
assumption; the “prima facieplausibility of the claim that adherence to the Standards would
help reduce money laundering andthe financing of terrorism, and collaterally the reduction
of serious crimes for gain and terrorism.”Theyconcluded that the “net result”of focusing on
compliance with standardswas that “extensive efforts were expended with no demonstrable
impact on money laundering or the financing of terrorism”and“very little emphasis, if any,
[...] [on] outcome effectiveness”(Halliday et al., 2014, pp. 5, 15).
This article joins the “does it work?”conversation and explicitly addresses the
contemporary fourthround of “effectiveness”evaluations based on defined “outcomes”.
3. Outcomes matter
This section draws briefly from the public administration narrative linking policy-making
with outcomes before applicationin the money laundering context.
3.1 New public management, precursor to ‘outcomes’
Widely adopted in Anglo-American jurisdictions (Kristensen et al.,2002;Pollitt, 2015;
Tiernan, 2012), “new public management”(NPM) “almost completely dominated”
(Dunleavy, 2013) public services administration between the 1980s and mid-2000s
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