The problem of regulating the easy way out – EU money laundering regulation

Published date07 October 2019
Date07 October 2019
DOIhttps://doi.org/10.1108/JMLC-03-2019-0022
Pages666-677
AuthorKalle 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 nancial institutions. Thus, when existing researchand legislation place the responsibility
on nancial institutions,it creates a void where it is neglected that clientsof nancial institutions may, in fact,
play a vital role in the problem of externality. However, based on the denition 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
nancial institutions lead to inefcientanti-money laundering regulation. Through a functional approach of
law and economics,it analyzes the externality problem of money laundering based on both the legaldenition
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 nancial institutions,thereby not considering the entire scope of the externality
problem in money laundering.For regulation to efciently combat money laundering, it is necessary to place
some responsibility on the clients of nancial institutions and not solely on the nancial 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 identies 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 efcient 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
nancing 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 banksparticipation in signicant money
laundering transactions (European Parliament, 2019). These cases have resulted in a
national, regional and international focus on the banksinvolvement 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 nancial 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
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1368-5201.htm

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