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Panel Data for Banking Sector Analysts

Today, 8th October, the FBF held the last class of the online course on Panel Data for Banking Sector Analysts.This was the third edition of a highly specialized training led by Prof. Jeffrey Wooldridge (Michigan State...

The least effective policy

Is anti-money laundering the world’s least effective policy? The answer would be in the affirmative if one considers its marginal impact on crime and terrorism prevention weighted against the regulatory costs and burden placed on private actors. In the absence of reliable data about the volumes of money laundering or underlying crimes, the focus of the policy framework and, eventually, enforcement of anti-money laundering is on penalising private actors for non-compliance. The recent ballooning of the fines imposed on banks in Europe and globally marks this path, as banks are penalised for insufficient transaction monitoring and AML management programmes, or for shortcomings in customer due diligence. However, the framework’s impact on reducing crime remains insignificant, with reportedly less than 1% of criminal proceeds recovered as a result of anti-money laundering enforcement.

Fines are not the answer. A clear objective is needed 

Indeed, setting the reduced crime rates as a benchmark for effectiveness may be misleading. Somewhat counterintuitively, a better framework for anti-money laundering may lead to the increase in rates, as more violations would be detected. However, shift of the framework’s focus entirely on the compliance is not the answer, and reliance on the ’moral duty’ of private parties to protect the financial system and society at large from criminal activities and illegal money flows is not sufficient to create an effective regulatory framework, even if underpinned by harsh penalties. Instead, an anti-money laundering policy needs to be built on a clear understanding of underlying criminal activities, and the authorities equipped with all the necessary tools to ensure swift enforcement.

AML Package: Towards a more effective European Anti-Money Laundering policy?

The new legislative initiative from the European Commission seems to address this challenge. The impact assessment accompanying the legislative package announced in July 2021 includes the general objective of the package, which is in creating a framework that

  • will protect the economic and financial system from “criminal infiltrations” (i.e. penetration of criminal proceeds into the European economy) and ensure “public security” (i.e. terrorism),
  • is capable of adapting to “the evolving nature of the threats, risks and vulnerabilities facing the EU” (i.e. flexible), and
  • approaches risk “in a smart manner” (i.e. risk-based) to “reduce negative effects on economic activity” (i.e. compliance burden) or “citizens’ right to privacy and protection of personal data”

The general objective is supplemented by the specific objectives, where effectiveness becomes prominent: the package aims at increasing the effectiveness of AML/CFT rules, consistent cross-border supervision and efficient information exchange between competent authorities to „reduce the quantity of illicit funds which are laundered or used to finance terrorism, either through greater detection or deterrence.” While the public and academic debate tends to focus on (undoubtedly important) issues of reducing the compliance burden by adopting new technologies, such as AI, protecting personal data and privacy, as well as the set-up of the new anti-money laundering agency (AMLA), the focus on individual rights and the efficiency of compliance and supervision should not obscure the need for the anti-money laundering regime to have impact on crime. The implementation of the package should ensure that data sets based on the implementation of the existing legislation (AMLD4 and AMLD5) continue to be improved, and the financial intelligence units (FIUs) – to date considered as the “bottleneck in AML effectiveness” – are not only better coordinated at the EU level, but are also granted swift cross-border access to bank account information and approaches to their organization and financing are further improved and harmonized. The Florence School of Banking and Finance is offering an Anti-Money Laundering Academy every year, to check out the program of our last edition, please visit: To be kept informed and join our Anti-Money Laundering Academy in the Fall 2022, subscribe to our newsletter.

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