Countering illicit and unregulated money flows

Money laundering, tax evasion and financial regulation
TNI Crime & Globalisation Debate Paper
January 2010

crime3In this issue of Crime & Globalisation, Tom Blickman tracks the history of the international anti-money laundering (AML) regime. Since its origin in 1989 there is a growing awareness that the AML regime is not working as well as intended. After two decades of failed efforts, experts still ponder how to implement one that does work.

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During that time other illicit or unregulated money flows have appeared on the international agenda as well. Today, tax evasion and avoidance, flight capital, transfer pricing and mispricing, and the proceeds of grand corruption are seen as perhaps more detrimental obstacles to good governance and the stability and integrity of the financial system.

Tax havens and offshore financial centres (OFCs) were identified as facilitating these unregulated and illicit money flows. The 2007-2008 credit crisis made only too clear the major systemic risk for all global finance posed by the secrecy provided by tax havens and OFCs. They were used to circumvent prudential regulatory requirements for banks and other financial institutions and hide substantial risks from onshore regulators.

In 2009 the G20 has again pledged to bring illicit and harmful unregulated money flows under control. This briefing looks at previous attempts to do so and the difficulties encountered along the way. Can the G20 succeed or is it merely following the same path that led to inadequate measures? What are the lessons to be learned and are bolder initiatives required?

In brief, the paper concludes that current initiatives have reached their sale-by date and that a bolder initiative is required at the United Nations level, moving from recommendations to obligations, and fully engaging developing nations, at present left out in the current ‘club’-oriented process.

This paper is a follow-up to the seminar on Money Laundering, Tax Evasion and Financial Regulation organized by the Transnational Institute (TNI) in Amsterdam, June 12-13, 2007, which brought together experts on money laundering and tax justice and the Wilton Park Conference Curbing Money Laundering: International Challenges, September 10-12, 2007. Just after these meetings the ‘credit crisis’ came about, which added significantly to re-think the discourse on money laundering and financial regulation. The inputs of the seminars have con-tributed significantly to the development of this paper but responsibility regarding its content is the author’s alone.