Response to money laundering scandal: evidence-informed or perception-driven?
| Pages | 103-121 |
| DOI | https://doi.org/10.1108/JMLC-01-2019-0007 |
| Published date | 21 January 2020 |
| Date | 21 January 2020 |
| Author | Ronald F. Pol |
| Subject Matter | Financial risk/company failure,Financial crime |
Response to money laundering
scandal: evidence-informed or
perception-driven?
Ronald F. Pol
School of Law, La Trobe LawTech, La Trobe University, Melbourne, Australia,
and AMLassurance.com, Wellington, New Zealand
Abstract
Purpose –The purpose of this paper is to utilise underusedinformation in anti-money laundering rating
data to assist policymakingand research.
Design/methodology/approach –This paper explores whatevidence “hidden in plain sight”in official
anti-money laundering rating data reveals about claims justifying the expansion of money laundering
controlsin response to European bank scandals.
Findings –A perceived lack of international coordination influencing the policy response to a series of
alleged anti-money laundering breaches does not accord with the anti-money laundering industry’s own
evidencebase.
Practical implications –Responding to new crises with superficial solutions without addressing
fundamental questions with a multi-disciplinary perspective risks repeating and extending a decade-long
cycle of ineffectivenessin efforts to mitigate the social and economic harms from profit-motivatedcrime.
Originality/value –This paper draws fresh conclusions from the anti-money laundering industry’s
“main”dataset, underused in policymaking and research.
Keywords Evaluation, Anti-money laundering, Outcomes, FATF, Policy effectiveness,
Profit-motivated crime
Paper type Research paper
1. Introduction
Since its inception more than a quarter-century ago, the modern anti-money laundering
movement has been characterised by successfulglobal policy diffusion, tremendous growth
and constant change. It is also marked by inertia in two important areas. The “compliance
with rules based on standards”operating model remains unchanged since its hurried
development in 1990. Since that time also, the anti-money laundering movement has
remained persistently unable credibly to demonstrate effectiveness (Halliday et al., 2014;
Levi et al., 2018;Pol, 2018b, p. 294), yet its core model is still continually repeated and
extended. The extension of money laundering powers in Europe in response to a series of
bank scandals offers an illustrativeexample and policy conclusions.
2. Steadfast in the face of evidence of effectiveness gaps
For more than two decades, researchers identified significant gaps between the intentions and
results of the modern anti-money laundering effort, including its core capacity to detect and
prevent serious profit-motivated crime and terrorism (Anand, 2011;Brzoska, 2016;
Postscript: This paper was submitted on 23 January 2019 with rating data to 22 January. It was
updated to 1 August 2019 with new rating data and consequential/minor amendments.
Money
laundering
scandal
103
Journalof Money Laundering
Control
Vol.23 No. 1, 2020
pp. 103-121
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-01-2019-0007
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
Chaikin, 2009;Ferwerda, 2009;Findley et al., 2014;Harvey, 2008;Levi,2002, 2012;Levi and
Maguire, 2004;Levi and Reuter,2006, 2009;Naylor, 2005;Pol, 2018b;Reuter and Truman, 2004;
Rider, 2002a,2002b,2004;Sharman, 2011;Tsingou, 2010;van Duyne,2003, 2011;Verhage,
2017).
Assumptions or perceptions that the contemporary assessment and rating system
properly evaluate effectiveness are also contested. Researchersapplying a public policy lens
claim that the Financial Action Task Force (FATF) as global standard setter has
consistently failed to demonstrate credible evidence of the effectiveness of money
laundering controls (Halliday et al.,2014;Levi et al., 2018), and that a new “effectiveness”
methodology (operating since 2014) is, in its current form, inherently unable to assess
effectiveness as it purports (Pol, 2018a). Nor does the anti-money laundering mutual
evaluation processreflect an evaluation system in the sense “generally understood by public
policy and social science researchers,namely, how well an intervention does in achieving its
goals”(Levi et al.,2018, p. 310).
The result of an anti-moneylaundering sub-discipline enmeshed in its own idiosyncratic
“official”or “dominant”narrative (Alldridge, 2016;Benson, 2016;Pol, 2018b), poorly
connected with importantinterdisciplinary issues of finance and societysuch as advances in
policy effectiveness and outcomes science, is increasingly apparent. The United Nations’
“success rate”of anti-money laundering efforts is so low that the anti-money laundering
policy intervention has scarcely any effect on criminal finances (Europol, 2016;UNODC,
2011, pp. 7, 14, 119, 131) and, by implication, limited impact on the social and economic
harms caused by serious profit-motivatedcrime (Pol, 2018b, p. 296):
The proportion of criminal earnings seized by authorities does not even remotely approach tax
rates commonly applied to legitimate businesses. At less than one percent, the disruption of
criminal funds hardly constitutes a rounding error in the accounts of profit-motivated criminal
enterprises. In terms of the capacity materially and substantially to disrupt criminal finances and
the manifold harms caused by serious profit-motivated crime, current money laundering controls
appear almost completely ineffective.
On 2009 data, the United Nations estimated that “much less than 1 per cent (probably
around 0.2 per cent) of the proceeds of crime laundered via the financial system are seized
and frozen”(UNODC, 2011, p. 7). An updatedreview suggests that as little as 0.1 per cent of
criminal proceeds is successfullyconfiscated by authorities, with the proportion attributable
to money laundering regulations possibly as low as 0.02 per cent (author, forthcoming).
Nonetheless, the initial “compliance with rules based on standards”model which began
nearly three decades ago continues unabated, unaffected by mounting evidenceillustrating
policy ineffectiveness on a grand scale, measured by the tiny proportion of criminal
proceeds successfullyintercepted.
A companion article (Pol, 2019) examines effectiveness from a different perspective,
using the anti-money launderingindustry’s own data. This paper draws from those findings
to identify what the industry’s primary evidence base reveals about a core claim used to
justify the expansion of Europeanmoney laundering controls in response to a series of bank
scandals.
3. Evidence about international cooperation hidden in plain sight
As outlined in the following section, a perceived cause or major contributor to the scale
and scope of alleged anti-money laundering breaches in European banks was a claimed
lack of international cooperation. Fortuitously, cooperation between international
authorities has long been regarded as important and features in both components of
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