WIREDGOV

Following the crowd and maintaining the status quo is comfortable – and the kleptocrats, corrupt and criminals hope that does not change.

For over 35 years, global standards have required countries around the world to put in place laws, regulations and structures to prevent and detect money laundering (and, more recently, terrorist financing and proliferation financing). The internationals standard-setter, the Financial Action Task Force (FATF) provides a framework of measures for countries to implement; every ten years or so, countries are reviewed for both their technical compliance with the recommendations and the effectiveness of the measures that they have put in place.

Since the establishment of the FATF in 1989, the global financial system has become infinitely more complex and fragmented; and the abuse of that system by criminals, the corrupt and kleptocrats has become likewise more creative and expansive leaving the response of the good guys in the dust.

One response to the growth of this threat is for ever-greater spending on compliance by those in the private sector who are on the frontline. In 2023, it was estimated that over $200 billion was spent on financial crime compliance globally. And yet, there is a lack of empirical evidence that decades of doing the same thing has had much of an impact. That was the conclusion of a recent paper by Mirko Nazzari and Peter Reuter which found that the global anti-money laundering (AML) system’s ‘failure to reduce either the predicate crimes that generate large criminal revenues or the volume of money laundering is uncontested’ but, despite this, there has been limited discussion of fundamental structural reform. The private sector are similarly frustrated, feeling that a collective ‘fear of failure’ is stymying innovation, driving the dreaded ‘tick box’ approach to compliance and preventing anyone from doing anything ‘unthinkable’.

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