1. Money Laundering Scale and Prevention: Facts and Myths
Dr Jackie Harvey

2. Money Laundering – The Alarmist Position
Money laundering is on a scale so vast as to threaten the very foundations of the financial system
“The vast majority of FATF members lack sufficient data to support any credible estimate” (FATF, 1997, p 3)
“Large numbers are frequently thrown around without serious support” (Reuter and Truman, 2005)
“Global estimates are informed guesses” (Harvey, 2004)

3. Money Laundering – Imagery
Larger estimates justify the approach
Lower figures would invalidate the logic of AML
Decision making appears to be based on rhetoric and ill-guided activism rather than fact
The social panic approach

4. Legislation and its Expansion
No real analysis of costs, benefits or effectiveness of existing regime
Failure to balance interests of LEAs calling for an ever widening arsenal of tools against private and public costs
Machinery of compliance has become self generating with increasing cost implications (Harvey 2005)
Sunk cost bias

5. The Effectiveness of Countermeasures
Unable to measure impact and anxious to provide evidence of value for money focus has been on ‘second best’ legitimacy seeking approach focused on compliance with systems and procedures
The ‘tick-box’ culture (Harvey 2005)
The measurement of SARs, prosecutions and asset recovery

6. Evidence of Effectiveness
1992
2005
Total SARs
11,289
195,702
ML Prosecutions 11
1327
ML Convictions 8
595
Conversion Rate
72.7%
44.8%
Prosecutions % SAR
0.10%
0.68%
Convictions % SAR
0.07%
0.30%
Crime Rate Indicator (per 1000)
6.75
6.83

7. Issues of Dual Standards
SARs have been driven by a culture of ‘sanction avoiding compliance’
Used as an internal performance measure
Since 2001, FSA dealt with 18 cases of AML compliance
“Having regard to the size of the UK’s financial sector, the number of FSA disciplinary sanctions seem relatively low” (FATF 2007)
Is this Risk Based?

8. Focus on Asset Recovery
Policy driven by fiscal targets
No proof sums exist to be recovered
estimates based on simple extrapolation
Home Office data on asset recovery tracked by remitting agency
2003/4
2004/5
2005/6
Largest single payment
£1.01m
£1.07m
£0.91m
Average payment size
£11,122
£1,050
£7,832
Median payment size
£491
£500
£300

9. Major Areas of Criminal Expenditure (ARA Data)
UK Property
471 houses
£75.02m
High value goods
Cars, paintings, jewellery
£ 7.05m
cash
£ 9.68m
Financial assets
Bank accounts, insurance, pensions shares
£11.02m

10. So what has been achieved?
Absence of an operational definition of money laundering has hampered empirical work
Impossible to measure impact of AML
There are issues over the integrity of data
It is not clear if funds are being ‘laundered’
Rather than asking how well it works, ask instead ‘does it make a difference’?
Should we not have seen the impact of over a decade of rigorous application of AML?

11. So what has been achieved?
Threat rhetoric lacks foundation
Evidence of a lack of financial sophistication by those chased through the courts
Legislation should be based on clear demonstration of its impact on underlying crime not on ‘ill-guided activism'
A risk based approach needs a proper debate over the magnitude of such risk

12. A Final Thought
When it cannot be demonstrated that benefits exceed costs; would the removal of regulation actually impact on the amount of ML activity?
Would the entire banking system collapse through failure to regulate against laundering ? (Alldridge, 2003)