International anti‐money laundering regulation of alternative remittance systems. Why the current approach does not work in developing countries
| Published date | 05 October 2012 |
| DOI | https://doi.org/10.1108/13685201211265999 |
| Date | 05 October 2012 |
| Pages | 407-420 |
| Author | Joanna Trautsolt,Jesper Johnsøn |
| Subject Matter | Accounting & finance |
International anti-money
laundering regulation of
alternative remittance systems
Why the current approach does not work
in developing countries
Joanna Trautsolt
Development Studies, School of Oriental and African Studies, London, UK, and
Jesper Johnsøn
U4 Anti-Corruption Resource Centre, Chr. Michelsen Institute,
Bergen, Norway
Abstract
Purpose – The purpose of this paper is to examine the recommendations of an influential
international advisory body, the Financial Action Task Force (FATF), towards regulation of
Alternative Remittance Systems (ARSs).
Design/methodology/approach – The research design is a comparative analysis of Afghanistan
and the United Arab Emirates, using available FATF documentation and external sources.
Findings – The analysis shows that FATF is right in pointing out that ARSs are useful vehicles for
criminals to move operational expenses and launder the proceeds of their crimes. However, based on the
cases of Afghanistan and the United Arab Emirates (UAE), it is argued that FATF’s main approach of
seeking to integrate these informal, traditional systemsinto the s phere and regulations of the formal banking
system can be ineffective and even counterproductive in developing countries. Rather than taking a
genuinely risk-based approach, all ARS operators are required to be registered or licensed, conduct Customer
Due Diligence (CDD) and fill out Suspicious Transaction Reports (STRs), just like commercial banks.
Research limitations/implications – The impact of mandatory registration and requiring CDD
and STRs has been negligible in Afghanistan and the UAE. Therefore, the article calls for new
approaches to control money laundering in ARSs.
Originality/value – The paper is the first independent, comparative case study analysis of FATF
regulations and implementation. It illustrates the limited knowledge/research in the field, and the
inherent limitations of the current regulatory approach.
Keywords Money laundering,Alternative remittance systems,Hawala, FATF, Afghanistan,
United Arab Emirates,Developing countries
Paper type Case study
1. Introduction
Alternative remittance systems (ARSs) are believed to handle between US$ 100 and US$
300 billion every year (Che
ˆne, 2008, p. 3). Law enforcers know that ARSs are good
vehicles both for moving operational funds and laundering proceeds of crime, and
that it is the primary money and value movement method in some areas of the world
(US Department of Justice, 1994, pp. 1-28). However, why should one care about the
informal sector of ARSs, when much less than 1 percent of illicit financial flows are
currently being seized and frozen in the formal sector according to UN figures? (United
Nations Office on Drugs and Crime, 2011, p. 131).
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1368-5201.htm
International
anti-money
laundering
407
Journal of Money Laundering Control
Vol. 15 No. 4, 2012
pp. 407-420
qEmerald Group Publishing Limited
1368-5201
DOI 10.1108/13685201211265999
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