155 Pages Posted: 3 Dec 2002 Last revised: 14 May 2016
The realities associated with criminal enforcement depend only in part on the content and interpretation of criminal statutes. Instead such enforcement –– and ultimately, criminal justice –– is also powerfully shaped by regulatory rules, civil penalties, and the detection strategies that investigators and prosecutors use to learn about offenses. Together these components can interact to produce a distribution of punishments starkly disconnected from the justifications given for the enactment of criminal statutes. This article examines the fight against money laundering as a case study illustrating this dynamic.
To launder money is to hide its illegal origin. The fight against money laundering is supposed to disrupt laundering in its various forms –– especially what is done by third party launderers and leaders of criminal organizations. In the process, the fight is supposed to interfere with the activities of people who finance and profit from crime. Yet this fight delivers less than what it promises. Like many other enforcement systems, the fight against money laundering involves three major components: statutes with criminal penalties charged by prosecutors, rules administered by regulators, and detection systems primarily run by investigators. A close analysis of its three components reveals the fight to have quite a limited scope, involving (1) the disproportionate imposition of severe penalties on predicate offenders who are easily detected; (2) lax and narrowly-focused regulatory authority; (3) limited capacity to detect a range of chargeable domestic and international offenses; and (4) global diffusion of a fight against money laundering that leaves implementing authorities plenty of room for discretion and lax enforcement.
These limitations probably arise not because of blindness or bad intentions, but because the major players involved in running and funding the system –– including legislators, prosecutors, investigators, and regulators –– face a tangle of incentives that enable dilutions in the intensity and scope of enforcement against some targets and cut in favor of accepting de facto enhancements in the sanctions faced by other targets. While there is some evidence that suspicious activity reporting may help identify the placement of illicit drug proceeds in banks, the system as a whole seems ill-suited to detecting and disrupting the larger universe of criminal financial activity that is so often vilified by the rhetoric justifying the fight against money laundering. All of this makes it hard to detect and target systems of terrorist financing, for example, using the anti-laundering system –– even as it remains easy to freeze assets allegedly linked to terrorism. Some changes in the system, such as enhancing audit trails and strengthening suspicious activity analysis, could be defended in the name of making the system work, though pressures affecting implementation would make their ultimate consequences hard to predict. In the meantime, any inequities in the detection of predicate crimes seem likely to continue being reproduced in money laundering prosecutions, and the system's most compelling objectives –– detecting crimes in a new way, and targeting third-party launderers and leaders of criminal networks –– seem mostly beside the point.
Keywords: money laundering, criminal finance, terrorist financing, political economy of regulation, enforcement discretion, transnational crime, regulatory policy, bureaucratic organizations
JEL Classification: K14, K2, K4, K42
Suggested Citation: Suggested Citation
Cuéllar, Mariano-Florentino, The Tenuous Relationship between the Fight Against Money Laundering and the Disruption of Criminal Finance. Journal of Criminal Law and Criminology, Vol. 93, p. 311, 2003; Stanford Public Law Working Paper No. 64. Available at SSRN: https://ssrn.com/abstract=354740 or http://dx.doi.org/10.2139/ssrn.354740