Money laundering in a CBDC world: a game of cats and mice
| DOI | https://doi.org/10.1108/JFC-02-2021-0035 |
| Published date | 20 September 2021 |
| Date | 20 September 2021 |
| Pages | 171-184 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial crime |
| Author | Daniel Dupuis,Kimberly Gleason,Zhijie Wang |
Money laundering in a CBDC
world: a game of cats and mice
Daniel Dupuis and Kimberly Gleason
Department of Finance, School of Business Administration,
American University of Sharjah, Sharjah, United Arab Emirates, and
Zhijie Wang
Department of Computer Science, Grainger College of Engineering,
University of Illinois at Urbana-Champaign, Champaign, Illinois, USA
Abstract
Purpose –The purpose of this study is to describe the present taxonomy of money, summarize potential
central bank digital currency (CBDC) regimes that central banks worldwide could adopt and explore the
implications of the introductionof each of these CDBC regimes for money laundering throughthe lens of the
regulatorydialectic theory.
Design/methodology/approach –The methodology used in the analysis of significant recent events
regarding the progress of central banks in establishing a CBDC and the implications for money laundering
under a CBDC regime. This paper alsoreviews the literature regarding the Regulatory Dialectic to highlight
potential innovative responses of money launderers to circumvent the controls generated through the
implementationof a CBDC.
Findings –This study examines the impact of Kane’s regulatorydialectic paradigm on the feasibility of
money laundering under a CBDC regime and identifies potential avenuesthat would be available for those
seeking to laundermoney, based on the form a CBDC would take.
Research limitations/implications –This paper is unableas of yet to empirically evaluate anti-money
laundering(AML) tactics under a CBDC regime as it has not yet been fully implemented.
Practical implications –Many central banks worldwideare evaluating the structure of and introduction
of a CBDC. Thereare a number of forms that a CBDC could take, each of whichhas implications for individual
privacy and for entities involvedin AML efforts within financial institutions and the regulatorycommunity.
The paper has implicationsfor AML experts who are considering how AML procedureswould change under
a CBDC regime.
Social implications –The regulatory dialectic predicts that regulatory response reactive, rather than
proactive whenit comes to socially undesirable phenomena. As centralbanks and governments seek to divert
economic activityaway from the laundering of the proceeds of illicit activity, there are tradeoffsin terms of a
loss of privacy. The regulatory dialecticpredicts a corresponding innovative response of those who wishto
underminethe controls generated through the establishmentof a CBDC.
Originality/value –To the authors’knowledge, this is the firstpaper to explore the impact of a potential
CBDC on money laundering and the potential innovative circumventions within the paradigm of the
RegulatoryDialectic.
Keywords Money laundering, Regulatory dialectic, Internal controls, Secrecy, Privacy,
Central bank digital currency, Central bank, Digital coin
Paper type Conceptual paper
1. Introduction
According to the bank for international settlements (BIS), 70% of central banks have either
announced intentionsto create or made progress toward, the establishment of a central bank
digital currency (CBDC) (Barontiniand Holden, 2019). As of the end of 2020, 86% of central
Game of cats
and mice
171
Journalof Financial Crime
Vol.29 No. 1, 2022
pp. 171-184
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-02-2021-0035
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