Scoping the regulatory environment for harnessing normative anti-money laundering laws in LDCs
| Date | 07 October 2013 |
| Pages | 333-352 |
| DOI | https://doi.org/10.1108/JMLC-04-2013-0009 |
| Published date | 07 October 2013 |
| Author | Norman Mugarura |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation |
Scoping the regulatory
environment for harnessing
normative anti-money
laundering laws in LDCs
Norman Mugarura
Global Action Research and Development Initiative Limited, London, UK
Abstract
Purpose – The paper aims to explore the regulatory environment in less developed countries
(LDCs) to evaluate their preparedness to harness normative anti-money laundering (AML) regimes.
The global AML/CFT regimes are evolved at a global level but implemented within sovereign
states – different regulatory environments and the possibility of regulatory disparities. The
fundamental question this paper seeks to answer is whether the global AML framework can be as
carefully designed as to afford a level playing field to all participating countries? Is this a possible
prospect and if not what should be the way forward? The paper articulates the regulatory
environment in LDCs to evaluate its implications on individual state’s ability to harness normative
AML regimes.
Design/methodology/approach – This paper was partly written by an empirical study based
on the author’s familiar experience in relation to financial markets regulation and the challenges
in LDCs. The paper was also partly written drawing on the author’s PhD thesis entitled: the
Global The thrust of th e thesis was to examine t he intricacies of the g lobal AML/CFT fram ework
focusing largely on t hree jurisdiction s – UK, Uganda and South Africa. The paper has b een
written based on these three jurisdictions. The contention of the paper is that whi le it is necessary
for states or oversight institutions to adopt interstate regulatory initiatives on overlapping
challenges such as money laundering, the flipside side is that global prohibition regimes often
tend to overlook the practical realities in member countries where they are implemented. Finally,
this paper proposes the need for a hybrid approach designed to accommodate both the needs of
oversight institutions and respective individual countries where envisaged regimes are
introduced.
Findings – The research findings of the study are that the global market system is fraught with
dualities with the potential to resonate differently in each jurisdiction in harnessing desired AML/CFT
regimes. The dynamics of development in DCs and LDCs are different and this has different
implications for each country in harnessing the envisaged AML/CFT regimes.
Originality/value – The paper was written by internalising the practical experiences of LDCs in
harnessing global AML/CFT regimes. While the author has benefited from the scholarly work of
others, he has done it in a distinctive way to foster the objectives for writing this paper. This paper is
original because it proffers approach that could potentially enhance the study of global prohibition
regimes and how they are harnessed in individual jurisdictions.
Keywords LDCs and DCs, Slidingscale, The ease and challenges, AML/CFT regimes
Paper type Research paper
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1368-5201.htm
This paper has substantially benefited from part of the work produced for the completion of his
PhD thesis at the School of Law and Social Sciences at University of London, entitled “The global
anti-money laundering framework and its jurisdictional limits (2012)”.
Journal of Money Laundering Control
Vol. 16 No. 4, 2013
pp. 333-352
qEmerald Group Publishing Limited
1368-5201
DOI 10.1108/JMLC-04-2013-0009
Scoping the
regulatory
environment
333
1. Introduction
In my view (presumably shared by the majority) the success or failure of a country to
assimilate normative international regimes would depend on the local regulatory
environment wherethey are implemented. Thus, this paperproffers an exposition of the
regulatoryenvironment across less developedcountries (LDCs) with the view to tease out
their capacityto harness normative AML regimes.The majority of LDCs are saddled by a
multiplicityof challenges,not least the absence of robustlocal institutions, lackof requisite
skills, poverty and its constraining social-economic effects and the new typological
challenge of HIV/AIDS. These economies are also saddled with wide spread corruption,
lack of robust education systems, the absence of robust oversight institutions and weak
political leadership, for instance in someAfrican countries. I use the acronym “LDCs” to
denote a group of countries which are characterised by generalsystemic failure, lack of a
requisite infrastructure and capacity to harness a robust global AML/CFT framework.
2. The importance of a requisite infrastructure
The majority of LDCs are deficient in requisite infrastructure – a prerequisite to harness
normative AML/CFT regimes based on global standards. For instance, things which in
developed countries are taken for granted such as the electricity, water, the internet,
telephones, TVs, cars, access to social provisions such as roads, hospitals, schools,
universities are limited, if not non-existent in the majority of LDCs. This challenge has
translated into regulatory arbitrage and inability of some countries to harnes s
normative global AML/CFT regimes. The FATF requires international financial
institutions to continuously monitor customers’ accounts to counter money laundering
and its predicate crimes[1]. A corollary of the duty to report suspicious transactions is
the obligation of credit and financial institutions to apply due diligence in their
transactions with customers. Credit and financial institutions are under a duty to
examine with special attention any transactions which they regard as particularly likely,
by their nature to be related to money laundering. This duty extends the scope of
cooperation beyond suspicious transaction reporting. According to EU Commission,
co-operation is a necessary condition of reporting – to be demonstrated by banks
even when there is not yet specific suspicion of money laundering[2]. Banks are under a
duty to foster an environment in which it is possible to execute their obligations
such as customer due diligence (CDD). The bank’s CDD mandate is highlighted by
recommendations 15 (now 14) and 21 of the FATF (2001). Recommendation 14 of FATF
requires financial institutions to pay special attention to all complex or unusually large
transactions, or unusual pattern of transactions, which have no apparent economic or
visible lawful purpose. Recommendation 21, on the other hand, requires special attention
to be paid to business relations and transactions involving countries which do not or
sufficiently apply the FATF AML/CFT standards (Gilmore, 1990). The wording of these
recommendations was reiterated in Article 4 of the directive[3], placing credit and
financial institutions under a duty to “examine with special attention any unusual
transactions not having an apparent economic or visible lawful purpose”[4]. In this
respect, an attempt was made to establish the objective model of due diligence through
the introduction of the concept of “an unusual transaction”[4]. However, what
constitutes unusual transactions prompted a series of reactions related to the absence of
legal certainty and the potential of the provision to impose a heavy burd en on the
institutions concerned[5].
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16,4
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