Implementing an Anti-Money Laundering System – is it worth it?
by Tim Shaw, Global Product Manager, IMX Software
Financial intelligence units around the world and the regulators responsible for implementing the new anti-money laundering (AML) regimes are quick to use statistics to prove the effectiveness of the new rules. However, some leading academics challenge these claims, and in fact say that there is no evidence to support the importance currently being attached to effective AML processes.
Compliance and reporting rules are now well and truly part of the everyday business landscape in every country. No matter whether you manage a one-person bureau de change or are the compliance officer for a global bank, you have the same obligation to satisfy the regulators that you have a robust anti-money laundering and counter-terrorism financing process in place within your business.
Unfortunately making these processes an intrinsic part of your business is costly and time-consuming, and not just during their implementation but as part of your on-going business. This applies to both the cost of buying and deploying an automated computer-based system, and the on-going labour costs of what is often to some extent a manual process. It is imperative, therefore, that financial institutions have a sound understanding of the in-country regulations they are required to follow, the processes that their business needs to put in place, and the most efficient method of implementing and enforcing these processes.
The Australian regulator and financial intelligence unit, Austrac, is regarded by many similar international organisations as a world leader – the ‘gold standard’ in the design and implementation of compliance and reporting procedures. The CEO of Austrac, Neil Jensen, claims that information from the Austrac FIU has been instrumental in many hundreds of successful prosecutions, and thus it follows that the collection of financial data can have a direct impact on the detection and apprehension of perpetrators of many types of crime, not just financial.
His opinion is backed up by Antonio Gustavo Rodrigues, the head of the Brazilian FIU and President of the Financial Action Task Force, which guides international government policy on AML/counter-terrorism financing (CTF) measures. Rodrigues says that making it more difficult for criminals to launder money has an effect on ‘predicate’ crimes, those crimes that generate the black money in the first place. The social value of this success should not be underestimated.
An academic bombshell
The majority of people would think that making it difficult to launder money sounds like common sense, and many would simply assume that there is no downside to doing this. However at the recent AML & CTF conference in Sydney, Australia, entitled ‘Managing Risk: Australian and International Perspectives’, some leading academics dropped an apparent bombshell when they claimed that there is scant if any evidence that the ever-increasing compliance requirements being imposed on business have any effect at all on the reduction of predicate crimes.
Professor Peter Reuter, from the University of Maryland, the author of several books on both money laundering and the economics of the drug business, suggested that far too much resource is being invested in attempting to quantify the size of the money laundering problem (perhaps to justify the size of the response), and that in fact this is impossible to determine. He went further and claimed that there is no meaningful evidence to support the premise that making money laundering difficult automatically causes a reduction in associated crime.
Professor Margaret Beare from York University in Canada, speaking on the relationship between organised crime and money laundering, put forward the results of her research quite bluntly when she claimed that criminals with a large amount of money burning a hole in their pocket, like most people, simply ‘fritter it away’ on expensive lifestyle items, reducing the demand for money laundering services. She claims that in Canada, in the few cases where criminals have been unearthed by financial intelligence, they were already under investigation anyway.
Leading criminologist, Russell Smith from the Australian Institute of Criminology spoke about the concept of ‘displacement’ – how making the laundering process more difficult can have the effect of moving crimes to other ‘locations’, being either financial channels or geographic locations. And Professor Rohan Gunaratna, head of the International Centre for Political Violence and Terrorism, and an acknowledged expert on terrorism financing, implored banks to continue to offer banking services to suspected terrorists, so that the possibility of following the money trail is not lost.