Billions of dollars are wasted each year trying to prevent ‘dirty money’ entering a financial system that is already awash with it. The authors challenge the global approach, arguing that complacency, self-interest and misunderstanding have now created long-standing absurdities.
International and government policy makers inadvertently facilitate tax evasion, corruption, environmental and organised crime by separating crime from its root cause. The handful of crime-fighters that do exist are starved of resources whilst an army of compliance box-tickers are prevented from truly helping. The authors provide a toolbox of evidence-based solutions to help the frontline tackle financial crime.
The chapter begins with the war between good and evil. The ‘love of money as the root of all evil’ explains a world awash with dirty money from countless crimes. A global anti-money laundering (AML) regime is failing to prevent this evil, but the authors suggest realistic reforms which are explored in subsequent chapters, which are summarised, and their order explained.
A short history of the AML regime and the role of law enforcement in tackling money laundering is critiqued. The possibility that the regime was hobbled from the outset by short-term parochial interests is discussed.
The Financial Action Task Force (FATF) is applauded for establishing a global infrastructure but the concept of preventing money laundering through compliance with recommendations is questioned. The FATF New Methodology is welcomed but the authors question whether technical compliance equates to real prevention and whether the enforcement regime really reduces crime.
Basic terms and concepts have multiple meanings, leading to real-world failure to cooperate. Two alternative definitions of ‘money laundering’ are critiqued and it is argued that one – the concept of ‘placement, layering and integration’ – should be abolished.
Jargon is a significant problem in the global war because technical experts speak their own language but need to communicate with foreign experts. Basic terms such as ‘money laundering’, ‘asset recovery’ and ‘offshore’, are explained to support a call for a return to basic principles agreed over 30 years ago.
Routine problems of cross-border cooperation are multiplied by multiple agencies, incompatible laws and arcane procedures. The result is unchecked transnational crime.
Europe is cited as relatively good at cooperating, but the sixth European money laundering directive speaks to successive failure to even harmonise laws, let alone develop one law. International organisations try to help countries cooperate but lack a consistent systematic approach.
This chapter underscores the reasons why we know so little about money laundering. After several decades of ‘doing something’ to stop money laundering, what we have chosen to read, listen to and ultimately believe is no longer true about the problem. The commonly publicised three-stage process of money laundering is looked at before concluding that it is neither helpful nor is it now true. The chapter also questions the relevance of experts in the AML field. Are they really experts in money laundering or simply storytellers and compliance tick-box managers made to confuse the confused?
This chapter explains how money laundering is a buffet, not table d’hôte. A money launderer chooses what will work for them and their activities, rather than following a neatly defined money laundering typology. It is these same typologies which are being repeated that are leading to a distortion of understanding confined by shallow analysis and blue-sky thinking. Building upon the three-stage process of money laundering, the chapter explores the problems caused by ‘red flags’ for identifying and preventing money laundering. The chapter concludes by suggesting money laundering is a series of transfers and purchases that need to be identified if money laundering is to be understood.
We start with the glamorisation by the media which conflates criminal wealth with cleverness. This leaks into public policy with the attribution of sophistication to money laundering used by governments to explain law enforcement failure before they have even engaged with the enemy.
The public and the AML regime are distracted by new developments such as cryptocurrency and the Dark Web, which leads us away from addressing obvious weaknesses with developing simple and inexpensive solutions.
The authors focus on four development areas: to investigate cash, solve cross-border cooperation, abolish the double indemnity enjoyed by companies, and address the chronic weakness of law enforcement. Perhaps above all we need some meaningful statistics to judge the AML regime and assess whether it works.
In this chapter, watchlists are discussed. The formidable FATF grey list and black list are explored alongside other less critical watchlists. But are these watchlists based on true AML/CFT performance or are they a sharp political stick in which only some countries will feel the pain? Do they have horrible consequences which are seemingly ignored? Watchlist absenteeism is discussed alongside the idea that the Western-based ideology and rules-based system are clearly not transposable onto every country – hence why some countries will always teeter on the edge of such watchlists no matter how good they are.
This chapter questions whether Financial Intelligence Units are the biggest black hole of all black holes in the fight against dirty money. FIUs hold a tremendous amount of data and questions are asked as to whether the increasing amount of data is becoming problematic and whether we are still unsure as to what an FIU is. The chapter reviews how the data held by FIUs is rarely shared with those who need it and how the location of an FIU can influence the progress being made to prevent, detect and prosecute money laundering offences.
The most cynical person in a room would say that what now exists is a ‘prevention by fingers crossed’ approach to money laundering. This chapter explores this idea and finds it is now extremely difficult to prevent money laundering based on old fashioned ideas and perspectives. If we are to prevent money laundering, we must put aside our beliefs and find the truth behind the transfers and purchases which make up money laundering. No longer is it viable to believe AML compliance can be the main line of defence in preventing money laundering.
This chapter explores the idea that technology is the solution to all our AML/CFT problems. While technology may have some benefits, such as saving time and costs, the claims as to what today’s solutions can achieve are not always entirely correct. Claims may be more attuned to a cycle of fighting regulatory punishments than preventing money laundering. While AI and machine learning can raise interest in an AML technology solution, are such aspects actually based on the essential principles and understanding of today’s money laundering activities?