Facing up to ineffectiveness in fight against money-laundering

Less than one percent of criminally-accrued wealth ever gets clawed back by law enforcement, according to United Nations estimates. Effectively, in the vast amount of cases, crime pays.

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In an academic paper published earlier this year, WikiTribune Community member Ron Pol, a political scientist and legal business consultant, wrote that “the current anti-money laundering/counter-financing of terrorism (AML/CFT) model is almost completely ineffective in disrupting criminal finances and profit-motivated crime.”

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The first step to preventing serious profit-motivated crime, and reducing the harms from serious crimes such as drugs-, arms-, and people-trafficking, corruption and tax evasion is to acknowledge that the ‘success’ narrative in the AML industry may be inaccurate, Pol argued.

Increasing numbers of arrests and criminal asset forfeitures resulting from investigations triggered by money laundering obligations requiring firms to report suspicious activities remain valid ‘activity’ and ‘output’ measures, he says. But focusing too strongly on these intermediate metrics risks obscuring uncomfortable truths about the real effectiveness of money laundering controls and their associated provisions.

Although it is difficult to measure true ‘outcome’ measures (such as less harm from crime), the UN uses a proxy measure to determine the ‘success rate‘ of money laundering and confiscation provisions. When authorities globally intercept just 0.2 percent of estimated criminal proceeds up to 99.8 percent of the proceeds of serious crime remains in criminal hands; protecting and supporting the continuation and expansion of illicit activities.

In other words, the impact of money laundering controls on individual criminals and criminal groups identified by them is often profound (removing their liberty and stripping ill-gotten gains), but the impact on criminal enterprises and crime appears “little more than a rounding error” says Pol.

In a second academic paper (“Anti-money laundering effectiveness: Assessing outcomes or ticking boxes?”), Pol explains that a new global methodology intended to assess the ‘effectiveness’ of AML/CFT regimes against 11 specified ‘outcome’ measures is a good first step, but not yet capable of assessing effectiveness as it purports.

These papers says that the “urgent need for decisive action” and effective solutions to combat the scourge of serious profit-motivated crime, which in 1989 prompted the G7 nations to establish a global anti-money laundering regime, remains unmet.

How are different countries tackling, or failing to address, money laundering?

How can the global AML industry and international bodies stop the flow of “dirty money”?

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        The effective futility of AML/CTF laws in Australia was highlighted in June, when the Commonwealth Bank (CBA) – Australia’s largest bank – was fined by Australia’s corporate regulator over money laundering over a period of several years via its ATM network.

        According to a statement of agreed facts regarding the case, both parties agreed that the CBA’s contraventions of AML legislation were not deliberate.

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