How effective are the current global standards in combating money laundering and terrorist financing?
| DOI | https://doi.org/10.1108/JMLC-05-2020-0047 |
| Published date | 15 July 2020 |
| Date | 15 July 2020 |
| Pages | 255-265 |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation,Financial crime |
| Author | Sisira Dharmasri Jayasekara |
How effective are the current
global standards in combating
money laundering and
terrorist financing?
Sisira Dharmasri Jayasekara
Financial Intelligence Unit, Central Bank of Sri Lanka, Colombo, Sri Lanka
Abstract
Purpose –The purpose of thispaper is to study the impact of global anti-money launderingand countering
the financing of terrorism (AML/CFT) standards on combating money laundering and terrorist financing
(ML/TF) efforts. This study will assess the impact of AML/CFT legal framework as well as the effective
implementationof the framework on combating crimes.
Design/methodology/approach –The author develops an AML/CFT effectiveness index using the
results of 11 immediateoutcomes in mutual evaluation reports to measure the overalleffectiveness of regimes
in combating ML/TF. In addition to this index, the AML/CFT compliance index is used to measure the
strength of the AML/CFT legal frameworkof countries. A model was developed and tested to measure the
impact of the AML/CFT legal frameworkand its effective implementation on corruption, bribery, terrorism
and crimes.
Findings –The results suggest that the effective implementation of the AML/CFT legal framework is
important to combat ML/TF.The existence of a sound AML/CFT legal framework alone will not be sufficient
to combat ML/TF. Therefore,countries are required to implement their legal frameworkeffectively to achieve
the AML/CFT goalsof the country as well as the global policymaker. The empirical resultsshow a significant
relationship between the AML/CFT effectiveness index with the proxies the author used to capture
corruption, bribes and crimes.Considering the wide range of implications of the crimes, which are relatedto
ML/TF, this study suggests the global policymakers to further strengthen the monitoring mechanism of
AML/CFTdeficient countries to protect the global financial systemsfrom criminals.
Practical implications –There is a dearth of studies on the impact of the effectivenessof the AML/CFT
regime on combatingML/TF. Therefore, this study will lay the foundationfor future studies on measuring the
effectiveness of an AML/CFT regime. More appropriate measures will be developed in the future based on
this foundation.
Originality/value –This paper is an original work done by the author, which discusses the impact of
Financial Action Task Force standards on combating ML/TF. The AML/CFT effectiveness index is the
original idea of the author, which canbe used as a quantitative measure to capture the effectiveness of the
AML/CFTregimes in future studies.
Keywords Money laundering, AML/CFT compliance index, Predicate offences, Terrorist financing,
AML/CFT effectiveness index
Paper type Research paper
1. Introduction
Global initiatives to combat money laundering and terroristfinancing (ML/TF) have begun
with the establishment of the Financial Action Task Force (FATF) in 1989. Since then, the
FATF has issued recommendations that are aimed at strengthening the legal framework
of jurisdictions to combat ML/TF. Gradually, the FATF has broadened the scope of
recommendations including preventive measures for financing proliferation as well. As of
Global standards
in combating
money laundering
255
Journalof Money Laundering
Control
Vol.24 No. 2, 2021
pp. 255-265
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-05-2020-0047
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