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Money Laundering: Facts vs Myths on Scale and Prevention

Explore the myths and realities of money laundering, from the scale of the issue to the effectiveness of current prevention measures. Delve into the complexities of legislation, countermeasures, evidence, and dual standards in combating this financial crime.

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Money Laundering: Facts vs Myths on Scale and Prevention

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  1. Money Laundering Scale and Prevention: Facts and Myths Dr Jackie Harvey

  2. Money Laundering – The Alarmist Position • Money laundering is on a scale so vast as to threaten the very foundations of the financial system • “The vast majority of FATF members lack sufficient data to support any credible estimate”(FATF, 1997, p 3) • “Large numbers are frequently thrown around without serious support” (Reuter and Truman, 2005) • “Global estimates are informed guesses” (Harvey, 2004)

  3. Money Laundering – Imagery • Larger estimates justify the approach • Lower figures would invalidate the logic of AML • Decision making appears to be based on rhetoric and ill-guided activism rather than fact • The social panic approach

  4. Legislation and its Expansion • No real analysis of costs, benefits or effectiveness of existing regime • Failure to balance interests of LEAs calling for an ever widening arsenal of tools against private and public costs • Machinery of compliance has become self generating with increasing cost implications (Harvey 2005) • Sunk cost bias

  5. The Effectiveness of Countermeasures • Unable to measure impact and anxious to provide evidence of value for money focus has been on ‘second best’ legitimacy seeking approach focused on compliance with systems and procedures • The ‘tick-box’ culture (Harvey 2005) • The measurement of SARs, prosecutions and asset recovery

  6. Evidence of Effectiveness

  7. Issues of Dual Standards • SARs have been driven by a culture of ‘sanction avoiding compliance’ • Used as an internal performance measure • Since 2001, FSA dealt with 18 cases of AML compliance • “Having regard to the size of the UK’s financial sector, the number of FSA disciplinary sanctions seem relatively low”(FATF 2007) • Is this Risk Based?

  8. Focus on Asset Recovery • Policy driven by fiscal targets • No proof sums exist to be recovered • estimates based on simple extrapolation • Home Office data on asset recovery tracked by remitting agency

  9. Major Areas of Criminal Expenditure (ARA Data)

  10. So what has been achieved? • Absence of an operational definition of money laundering has hampered empirical work • Impossible to measure impact of AML • There are issues over the integrity of data • It is not clear if funds are being ‘laundered’ • Rather than asking how well it works, ask instead ‘does it make a difference’? • Should we not have seen the impact of over a decade of rigorous application of AML?

  11. So what has been achieved? • Threat rhetoric lacks foundation • Evidence of a lack of financial sophistication by those chased through the courts • Legislation should be based on clear demonstration of its impact on underlying crime not on ‘ill-guided activism' • A risk based approach needs a proper debate over the magnitude of such risk

  12. A Final Thought • When it cannot be demonstrated that benefits exceed costs; would the removal of regulation actually impact on the amount of ML activity? • Would the entire banking system collapse through failure to regulate against laundering ? (Alldridge, 2003)

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