Compliance, eﬀectiveness and the rise of the public private partnership
Money laundering and terrorist ﬁnancing target economic and ﬁnancial structures and
transactions to move, hide or disguise the proceeds of crime or the ﬁnancing of terrorists.
Countermeasures (sometimes knownas AML/CFT measures) focus on access to and use of
the ﬁnancial system and create a host of obligations for private sector ﬁnancial
institutions . These obligations are deﬁned and promulgated through international
standards which set out design principles that guide the shape of national AML/CFT laws
and regulatory measures.
The Financial Action Task Force (FATF), formed underdirection from the G7 in 1989, is
the international standard setter for ﬁnancial crime countermeasures. These standards,
implemented in over 190 countries, are frequently revised and amended with participating
nations subject to public evaluations of their technical compliance with the standards on a
periodic basis. Although the standards framework is more than 30years old, it is unclear
how effectively private sector ﬁnancial institutions have been engaged in these
countermeasures and the extentto which underlying predicate crimes or terrorism has been
reduced or contained. Signiﬁcant ﬁnes and other regulatory enforcement actions suggest
that institutional compliance levels may be poor. Compliance however is only part of the
issue. There are unansweredquestions regarding the soundness of the overall strategy.
Private sector entities are predominately engaged in the countermeasures strategy
through national legislationenforced via a regulatory model . This approach is supported
by a chain of logic as follows:
Criminals will seek to avoid detection through using the ﬁnancial system in
increasingly complex ways.
Detection and disruption by the private sector is therefore reliant on the application
of due diligence by the institutions on their customer and provision of ﬁnancial
intelligence which enables public sector intervention.
To ensure the private sector establishes appropriate practices, states shall be
required to issue regulation (and appoint adequate supervision measures).
Private sector compliance with this regulation, under supervision and guidance, will
enhance public sector capabilities and serve to reduce use of the ﬁnancial system by
A reduction in ﬁnancial crime shall lead (ultimately) to a reduction in the predicate
crimes in participating nations.
Important to this reasoning is that the global strategy is implemented locally, i.e. the
international standardsare converted into local legislation by each participatingstate, and it
is these local laws that create private sector compliance obligations. Equally critical to the
arc of logic is an understanding of the two principle obligations placed upon the private
sector institutions. Firstly, the ﬁnancial institutions provide a sentinel or gatekeeper
function. To achieve this, the institution must know enough about their customer through
performing adequate due diligence and assessing the risk of potential ﬁnancial crime.
Secondly, where this gatekeeping has failed, institutions must report on speciﬁc
“suspicious”transaction activity for customers or ensure adequateknowledge of customers
is retained to address queries directed from law enforcement in response to suspicions of
Journalof Money Laundering
Vol.23 No. 2, 2020
© Emerald Publishing Limited