AML Controls Are Ineffective at Stopping Crime, Says Policy Expert

Policy effectiveness expert Dr Ronald F Pol says the current anti-money laundering system only results in 0.1% of the proceeds of crime actually being seized.

Money laundering controls are not an effective anti-crime measure, and AML compliance wastes good technology and kill startups, according to a new article by policy effectiveness expert Dr Ronald F Pol.

“Despite trillions of dollars, standardised laws spanning the globe, and three decades of prodigious effort”, the modern AML system has almost “no impact on crime” and also causes social and economic harm, he says.

According to Pol’s research, only 0.1 percent of the proceeds of crime are actually seized, a figure even lower than the United Nations Office of Drugs and Crime estimate of just 0.2 percent.

Yet, he argues, regulators force fintechs, startups and other challenger firms to drive cost and complexity into customers’ business models, and banks to build huge compliance departments, on threat of “ruinous penalties and punishing costs” for regulatory breaches.

However, Pol sees an opportunity for change:

“Rather than an endless cycle of more regulation, more compliance, and mounting costs — repeatedly targeting 0.1 percent of crime already tackled well — untapped possibility lies in the 99.9 percent zone uncharted by three decades of unwavering devotion to a compliance operating model hastily cobbled together over a few months in 1990.”

“That’s where the most serious profit-motivated criminal enterprise has always operated, visited from time to time by law enforcement agencies with a different mindset and better tools.”

In an earlier article, Pol traces the problems with today’s AML system back to the “rushed and flawed way it was set up” in 1989.

At a G7 summit in Paris, the seven big industrialised nations established the FATF (Financial Action Task Force) to help prevent drug trafficking – only for its role to be later expanded to target money laundering associated with other profit-motivated crimes and terrorism financing.

According to Pol, the FATF’s ratings and lists began to serve as proxies for risk, through which it pressured countries to comply to maintain their position in the global economy, else be locked out of the financial system.

“Risking exclusion from financial markets, 205 countries and jurisdictions ‘voluntarily’ joined the [AML] movement. The system depends on a set of self-declared ‘best-practice’ standards. This means each national [AML] regime reflects the flaws of the international standard.”

According to Pol, complicated laws, armies of regulators and costly compliance tasks give the comfort of activity and feeling of security, but they do not provide safety from serious crime and terrorism.

He urges for a frank confrontation of the current AML system and “the reality of its failure”.

The author of the above-referenced articles (here and here) is Dr Ronald F Pol, Principal at AMLassurance.com, a specialist global think tank.

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