Implementing Anti-Money Laundering Regulations on an International Level

Why money laundering is still a growing problem in today´s economy

Term Paper, 2013
15 Pages



1 Introduction

2 Money Laundering: the Offenders, the Victims and the Measures that aim to defeat it.
2.1 Defining the Term and Scope
2.2 Anti-Money Laundering Measures
2.3 Effectiveness, reach and examples
2.4 The role of external auditor

3 Conclusion

4 Bibliography

5 Appendix

1 Introduction

As the IRS (2013) puts it, money laundering (ML) “creates an underground, untaxed economy that harms our country’s overall economic strength. It is a global threat that erodes our financial systems”. As the economies of the world move closer together through the much hailed and discussed process called globalization, so do the systems that undermine them (Buchanan, 2003). Accordingly, organized crime has been named “the dark side of globalization” (G8, 1999).

As criminals make use of the established frameworks for financial transactions on a truly global level, the lives and routines of uninvolved parties are affected from a very basic level of day-to-day activities in a local bank, over microeconomic effects to a grander scope such as the effects on the introduction of a new currency. Considering the introduction of the Euro, the possibility of profiting ML organization let some to question aspects like including a high-value bill, while others even argued against the introduction itself, fearing the benefits that ML could draw from it (McDowell, 2001, Tantam, 2001; Buchanan, 2003).

The following article introduces ML, followed by a critical discussion on international anti-money laundering (AML) efforts, their implementation and the problems they face. An evaluation of the involvement of external auditors will be made, followed by a conclusion to sum up the findings and enunciate a verdict.[1]

2 Money Laundering: the Offenders, the Victims and the Measures that aim to defeat it.

These sections aim to give a brief understanding of the core term of this discussion. Furthermore, a selection of AML measures will be described to give a basis for the following discussion on problems that such regulations face on an international and domestic level.

2.1 Defining the Term and Scope

Said to be originating from Al Capone`s operations of a laundry-chain, which were used to process the money that his illegal operations raised, the term money-laundering became common in the vernacular (Bridges, 1997) and was picked up as an official term in 1982 by a court in the United States (Buchanan, 2003). Gnutzmanna et al. (2010) define money laundering as follows: “Money laundering is the process by which criminals and criminal organisations attempt to ‘conceal or disguise the nature, location, source, ownership or control’ of their ill-gotten gains, so as to make it possible to invest or consume the proceeds of crime.” Furthermore, the process itself has been broken down to a three-step division of placement, layering and integration (Buchanan, 2003).

The true extent of global ML operations has never been determined. The most quoted number released by the World Bank and IMF in 2003 points to the annually laundered money amounting to at least US$ 1 trillion, higher than 2% of the global GDP (World Bank and IMF, 2003; Vaithilingam and Nair, 2008).

Despite the broad recognition of ML as criminal and threat to the stability of the legitimate economies of today`s world (Unger and Busuioc, 2007), the sheer scope of operations and its interconnectedness throughout different countries and institutions has made it difficult to establish truly effective countermeasures. According to Gnutzmanna et al. (2010), ML can be seen as a multiplier for things like corruption, bribery, terrorism and crime in general. Furthermore, European legislators have stated that ML threatens to “shake the very foundations of society” (EU, 2005, p.1). Concordantly, fighting ML has been a high-priority aim of law-enforcement agencies worldwide (Vaithilingam and Nair, 2008).

2.2 Anti-Money Laundering Measures

Following the first efforts of AML such as the Bank Secrecy Act (1970) and the ML Control Act (1986) and introduced as an international guideline on fighting the increasingly global thread of ML, 1989 saw the establishment of the Financial Action Task Force (FATF) by the G-7 nations (Quaye and Coombs, 2011). Last revised in 2012 and actively integrated by the EU, they have to be updated to adapt to ever-changing challenges that ML represents (FATF, 2013). As they spread to over 180 countries worldwide, FATF are considered the most effective AML measure to date. Studies have identified the four core strategies of FATF. First, the criminalization of ML and secondly the improvement of such methods as account-freezing and transaction tracing. The implementation of methods as tools in the financial system is third, followed by the aim to improve cooperation between nations and organizations[2] (Arnone and Borlini, 2010).

As an attempt of enforcement, a list of non-FATF-compliant countries in a “name and shame” manner was established. By putting a country on this list, the FATF aimed to increase public and political pressure on these countries, ideally bringing them to adopt the standards in order to get de-listed, which quickly showed results, as Lichtenstein and Russia gave in and adapted the principles in their regulations (Buchanan, 2003)[3]. However, it could be argued that the motivation for such lists is not purely a regulatory one and that the implementation of regulations is only motivated by the de-listing rather than a change of ways.

2.3 Effectiveness, reach and examples

Despite the efforts, the scope of ML is nowhere near decline as it is feeding from the growing connectedness of the world and utilizing numerous new channels such as loan or insurance-based models. To reflect its current nature, the following section is mainly based on recent publications and personal experience.

Examples such as the listing of Lichtenstein can be used to analyse an issue that the international efforts of AML face. As for the FATF, factors such as political relations or tension in the world might motivate the listing or de-listing of countries. A country such as Lichtenstein was removed from the NCCTs-List as it allegedly adopted the regulations. The enforcement and actual willingness to abide by them however are in question, as, for example, Lichtenstein appeared on the recently discovered list for dubious tax havens (WSJ, 2013). Further weakening the list´s reliability as a tool, it has been accused of being incomplete, as countries publically known for involvement in ML such as Cyprus are not listed at all (Unger and Ferweda, 2008). Such pressure-listing may work on reputation-reliant countries such as the service-centred Lichtenstein. If this was not the case however, the pressure of being on a list and being


[1] It should be noted that due to the limited scope of the given assignment, the extent to which this topic can be explored and covered is equally bounded and will focus on some aspects of this grander issue.

[2] Appendix: Table 1: Driving forces in establishing AML regulations
Table 2: A list of measures resulting from these collaborations

[3] Appendix: Table 3: An excerpt from the NCCTs-list showing de-listing

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Implementing Anti-Money Laundering Regulations on an International Level
Why money laundering is still a growing problem in today´s economy
University of Glamorgan  (Faculty of Business & Society)
International Accounting and Auditing
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ISBN (Book)
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Nils-Carlsson Reineke (Author), 2013, Implementing Anti-Money Laundering Regulations on an International Level, Munich, GRIN Verlag,


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