The problem of regulating the easy way out – EU money laundering regulation
Published date | 07 October 2019 |
Date | 07 October 2019 |
DOI | https://doi.org/10.1108/JMLC-03-2019-0022 |
Pages | 666-677 |
Author | Kalle Johannes Rose |
The problem of regulating the
easy way out –EU money
laundering regulation
Kalle Johannes Rose
CBS LAW, Copenhagen Business School, Frederiksberg, Denmark
Abstract
Purpose –Current research within law and economics focus on money laundering as an externality
problem causedby financial institutions. Thus, when existing researchand legislation place the responsibility
on financial institutions,it creates a void where it is neglected that clientsof financial institutions may, in fact,
play a vital role in the problem of externality. However, based on the definition of money laundering, this
paper aims to examine and analyze the need to focuson the clients as part of the externality problem with
regard to moneylaundering.
Design/methodology/approach –This paper examineshow a lack of regulatory focus on the clients of
financial institutions lead to inefficientanti-money laundering regulation. Through a functional approach of
law and economics,it analyzes the externality problem of money laundering based on both the legaldefinition
and the economicconditions of the problem.
Findings –Based on the fourth anti-money launderingdirective, the paper argues that present regulation
has a tendency to focus on financial institutions,thereby not considering the entire scope of the externality
problem in money laundering.For regulation to efficiently combat money laundering, it is necessary to place
some responsibility on the clients of financial institutions and not solely on the financial institutions.
Nevertheless,the inclusion of client responsibility might lead to some legal or economiccomplications, which
need to be subject to furtherresearch.
Originality/value –The paper identifies the need for a fundamental change in the perception of the
externality problem of money laundering, and thus, presents the required approach to reach an efficient solution.
Keywords Money laundering, Regulation, Externality problem, Law and economics, Anti-money,
Counter terrorist
Paper type Conceptual paper
1. Introduction
With the implementation of the fourth anti-money laundering and counter terrorist
financing directive (4AMLD), the EU highlighted the need to strengthen international
cooperation in combatting money laundering.Following the deadline for implementation in
2017, several big cases have revealed European banks’participation in significant money
laundering transactions (European Parliament, 2019). These cases have resulted in a
national, regional and international focus on the banks’involvement in money laundering
while less focus has been put on the clients using the banks for money laundering purposes.
One reason for this can be foundin the 4AMLD because the directive does not directly cover
the clients. Instead, the clients remain under the different national jurisdictions within the
national criminaljustice frameworks.
Recent research has followed the general perception of banks being the cause of most
money laundering as they provide money launderers with a gateway for placing funds
originating from illegal proceeds into the legitimate financial sector (Masciandaro, 1999;
Masciandaro and Filotto, 2001;Araújo, 2008;Araújo and Loureiro, 2015). Based on the
JMLC
22,4
666
Journalof Money Laundering
Control
Vol.22 No. 4, 2019
pp. 666-677
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-03-2019-0022
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