On the State of Anti-Money Laundering

Abstract

With Denmark’s Financial Services Industry having now caught up with the international level of anti-money laundering (AML) (and other) compliance standards, it is time to look at the system in a holistic manner and ask questions about efficiency, effectiveness and costs. Compliance is important, as it ensures a clean financial system and provides efficient support to the police in the fight against organised crime, amongst others.

The argument I am making in this short note is that the global AML compliance system does little to deter money laundering activity by professional actors. Currently, we are spending too much time on the ‘small’ fish, and not the ‘large’ ones. However, the system imposes substantial costs on banks, and hence society at large (a back-of-the-envelope calculation puts the annual costs for compliance in banks operating in Denmark at just under USD 1 billion pa).

As I have been arguing for some time, the system will need to be redesigned so that it is sufficiently risk-based, with large parts of it being automated. This will both bring down the costs and make better use of our compliance staff to focus on investigations.

We are making a number of recommendations on technical automation below, but one important pre-condition will be that both the law and financial regulators’ guidelines, are harmonised across the Nordic countries (and beyond).

Keywords: AML, Anti-money laundering legislation, Organised Crime.

JEL Classification: G32, H56, H89