Not really. That’s the answer Mirko Nazzari and Peter Reuter provide at the conclusion to their comprehensive review of the evidence on the impact of the global AML scheme.
Nazzari, a postdoctoral research fellow in Political Science at the Università degli Studi di Sassari, and Reuter, a Distinguished University Professor in the School of Public Policy and Department of Criminology, University of Maryland, find no evidence antimoney laundering laws have deterred the laundering of the proceeds of crime. For one reason, the U.S. and other wealthy countries, which pushed the poorer nations of the world to follow them in enacting complex, expensive AML controls, have failed to implement critical elements of the control system themselves (inclusion of lawyers and real estate professionals in the U.S. for example). Another reason: banks, especially large, multinational ones, have failed to comply (flouted?) the laws and national regulators done little to see they do.
The one redeeming factor is the help AML regimes provide law enforcement agencies when making cases against those whose crimes generate huge sums of money. They summarize findings from the U.S. that show that the suspicious transaction reports banks, casinos, and other institutions must file frequently support investigations of drug traffickers, human smugglers and other criminals who launder large sums, providing additional details of their activities or corroborating evidence.
The 86-page article (here) appears in the journal Crime and Justice but unfortunately behind a paywall. Let’s hope the journal’s editor will remove it given the importance of the article to so many around the globe. In the meantime, the abstract and a few notable highlights are below.
Abstract
The continued globalization of finances has generated an ever-larger array of methods for making criminal earnings appear legitimate. The global regime to control money laundering has become more sophisticated and comprehensive, (i.e., expensive and intrusive). There is no evidence that money laundering is declining or becoming more difficult or expensive. The system’s failure has many sources. Nations which pushed for its creation and development have been unwilling to implement critical elements. Major banks have repeatedly failed to meet their obligations, suggesting either insufficient commitment or a lack of the necessary skills and systems to comply. Regulatory oversight has been inadequate. There is, however, evidence that the system aids enforcement of laws against criminal enterprises. Despite the consensus that the system works poorly, there is almost no discussion of substantial reforms.
Third-party policing
The AML regime is the most prominent example of what scholars have dubbed third-party policing, the delegation of responsibility for enforcing a law to the private sector. What makes this especially problematic with money laundering is that those subject to the law face a conflict between profits and compliance, for handling money launderers’ business is often quite profitable. (See Major Banks Noncompliance below.)
No public debate on effectiveness
Despite the lack of evidence of success and, as the authors emphasize, the system’s expense, “surely in the hundreds of billions of dollars globally,” there is little discussion about reforming the system. (Query: could this be because it is to the advantage of large financial institutions by raising barriers to entry?)
Impact on the poorest nations
The drawbacks are especially acute in low-income countries where financial institutions commonly sever ties with certain nations to minimize risk, creating significant barriers to financial inclusion. Thanks to its inability to comply with the Financial Action Task Force’s recommendations, South Sudan faces obstacles to securing international finance and has seen its development assistance reduced.
Major Banks Noncompliance
Virtually every large U.S. and West European bank has been fined for money laundering violations, often paying in the billions of dollars. Binance, a virtual asset service provider, just paid $4.3 billion. As the authors say, “these fines have not been for isolated violations or mistakes made by poorly monitored low-level officials. In many cases, the violations have involved the bank’s board of directors.” The thought was that banks would pay particular attention to complying with AML laws given the importance of reputation to their business. Yet a literature review shows continued large fines for breaching AML rules have, if any effect on stock prices, a positive one.
