The Financial Action Task Force is the organizational hub of the global anti-money laundering regime and the network of states and private actors that supports it. While some know the name in passing, relatively few scholars spend the time required to really understand how FATF on. This is unfortunate. FATF not only is important substantively, but it also is indicative of spreading trends within global governance, for better or worse.
With the encouragement of Steve Kay and support of the Federal Reserve Bank of Atlanta’s Americas Center, I organized a workshop on the topic. The aim was to reflect current scholarship and debates over FATF and to produce articles that were broadly accessible to scholars and practitioners alike. I believe the papers accomplish those goals.
They collectively will be published as a special issue of Crime, Law & Social Change. They have not yet been assigned to an issue, but are now available on-line. I’ve provided abstracts and links to the articles below. With money laundering ever more present in the headlines and with FATF members currently undertaking a review of the governance regime it has built, the special issue lands at an important time.
If you have any questions, please feel free to contact me (mtnance@ncsu.edu) or the authors directly. The links below include contact information for the corresponding authors. An asterisk (*) indicates that the articles are open-access and available to anyone. The others are gated beyond the abstract, but the authors will no doubt send you a copy, if you request it.
Special thanks to Steve Kay and the Americas Center staff; to Nikos Passas, editor of Crime, Law, and Social Change, who agreed to publish the project; to Peter Andreas, Tom Biersteker, Patrick Cottrell, Lori Crasnic, Sue Eckert, Chip Poncy, and Jason Sharman, who helped sharpen the articles included; and to NC State’s School of Public and International Affairs for support. Eleni Tsingou and Anja Jakobi received an ISA workshop grant to help kickstart the project, so my thanks to them and to the International Studies Association, as well.
The Regime that FATF Built
A special issue of Crime, Law, and Social Change
Guest editor: Mark T. Nance
Mark T. Nance
This article serves to introduce this special issue of Crime, Law, & Social Change on the Financial Action Task Force (FATF). It provides a primer on the history and purpose of FATF and lays out some of the central debates over FATF and the anti-money laundering (AML) regime. Finally, as a way of giving readers an overview of the articles in the special issue, it proposes a series of themes that academics and practitioners should consider in future research and work with FATF.
Mark T. Nance
Most explanations of the Financial Action Task Force argue that material coercion plays a key role in the consolidation and diffusion of the global anti-money laundering regime. This paper looks carefully at the decision-making within FATF and argues that, at its most impactful, FATF operates in line with the principles of “experimentalist governance.” Experimentalism emphasizes broad, participatory standard setting, contextualized implementation, intensive but diagnostic monitoring, and routinized updating in light of experience. The paper discusses the differences between the more common understandings of FATF before laying out the principles of experimentalist governance. It outlines the experimentalist form of FATF decision-making. It then provides evidence of experimentalist decision-making in three important aspects of FATF: the evolution of blacklisting; the role of monitoring; and the continuing implementation of the risk-based approach.
Ines Sofia de Oliveira
The international fight against money laundering illustrates changes in global governance as a result of the increasingly cross-border nature of crime and the need it creates for all involved to cooperate. The economic priorities and security concerns that surround it contributed to the strong evolution of global governance in this area and the status of anti-money laundering as a shared problem. The creation of the Financial Action Task Force (FATF), its expansion and cementation throughout the years, is a good example of the many forces working together to responding to the demands of emerging criminal threats and trends. It offers a good illustration of how relationships in global governance have influenced FATF’s priorities and action and ultimately the way in which illicit financial flows are tackled. This analysis offers an overview of FATF’s network across time taking into account the role of states, international organisations, and the private sector in the decision-making processes. It argues that Great Powers – a small, but aligned, group of states of global economic relevance – are responsible for FATF’s direction and the international efforts against illicit financial flows. It suggests, however, that unlike what could be expected, their power is declining following the rise of private sector influence through resourceful, organised and transnational actions e.g. on information sharing.
Anja P. Jakobi
This article analyzes the global anti-money laundering (AML) regime from the perspective of security governance, examining the creation of a transnational security space by the FATF. Security is often mentioned as relevant context for AML measures, and the Financial Action Taskforce (FATF) as its central institution. Yet, most analyses – implicitly or explicitly – present the FATF as an important banking regulator. Arguing that this perspective on the FATF is too limited, the article outlines the changing security context in which AML emerged as an important tool for governance. Unlike traditional ideas of international security, the idea of security governance emphasizes new forms of cooperation to ensure safety and security across multiple levels. Based on International Relations (IR) and criminological research, the article develops a framework with five dimensions of security governance: a comprehensive security concept, multi-purpose rationalization, public-private cooperation, multi-nodal governance, and transnational security spaces as a result. Unlike other efforts of global crime governance, the global AML regime provides a prime example of security governance in all of these dimensions. At the same time, the link to security also explains why the global AML regime expanded in some areas more than in others: AML is still a weak governance instrument for regulating financial crimes such as tax evasion or corruption, but it is a strong one for security-related crimes. While the FATF remains a special case in global governance, the creation of transnational security spaces in AML – caused by FATF activities – is likely to be a model for future security governance in other fields.
Eleni Tsingou
Anti-money laundering (AML) activities are part of an institutionalized, global, and increasingly prescriptive regime, covering a growing set of predicate offences. Yet with much of the responsibility for implementation and monitoring at the hands of private actors, compliance professionals within financial institutions have become foot soldiers in the fight against money laundering. This paper argues that AML professionals do not only implement and monitor, however, but, to protect their interests, also shape the content of governance. The process is two-fold. First, a professionalization process is underway inside banks and other financial institutions. Professionalization has strengthened the relative standing of compliance departments against a background of lower tolerance for illegal and irregular transactions and a growing reputational and financial cost for banks knowingly or accidentally enabling such activities. From that position, the compliance industry has consolidated its role through the development of systematic professional standards and through identifiable skills and expertise as defined by professional associations. Second, anti-money laundering professionals interpret rules and engage in regulatory creep. They meticulously implement different requirements by developing private compliance standards and risk assessments that are technically sophisticated and designed to earn regulatory kudos; they do not simply follow what is required. Further, they extend their mandate by including other compliance facets. Acting out of concern for professional security and advancement, AML compliance officers become governors on the output, but also on the input side.
Anthony Amicelle
How does a configuration of policing work regardless of the differences among its constituent members, who may relate to various social fields and range from for-profit organizations to law-enforcement and other state agencies? The article aims at providing some of the answers to this critical question in the light of financial policing, at the interface between the fields of finance and security. With the emphasis on money laundering and terrorist financing, financial policing resonates with other policing configurations that are ‘partly detached from the institutions of the police and start referring to a more general associative practice of assembling risk knowledge, technologies and agencies into networks that govern through rendering and distributing risks’ (Huysmans 2014). The paper argues that everyday financial policing is based on a misunderstanding, as both its current condition of possibility and the fundamental structure of communication between the involved parties. This focus on misunderstanding contributes to question traditional interpretations of (national and/or international) partnership against policing-related public problems. To help understand the paradoxical and controversial productivity of misunderstanding as a sine qua non condition of policing, the article draws on a transatlantic perspective with empirical research in the European Union Institutions, the United Kingdom and Canada.
Karin Svedberg Helgesson & Ulrika Mörth
Can, and will, lawyers police their clients? This article aims to shed light on the private front-line workers of the Financial Action Task Force on money laundering (FATF). The analysis is based on a study of how Swedish lawyers perceive and handle obligations to police clients within FATF style risk-based anti-money laundering/counter terrorism (AML/CTF) regulation. We find that the lawyers were reluctant to taking on the responsibility for AML/CTF, and that their front-line work was directed towards being compliant enough. Relatedly, we identify several practices of separation that serve to mediate between the conflicting aims and interests in the everyday of this form of private policing. Another finding is that the lawyers by and large position themselves as knowledgeable actors, and view risks of AML/CTF as knowable. Nevertheless, lawyers experienced a principle clash between being ‘not banks’, and being front-line workers for FATF. In particular, the lawyers perceived their role as front-line workers to be more complex due to their professional norms and ethics on client privilege, and what they saw as the proper role of lawyers, being in conflict with the obligation to report clients and their transactions. In concluding, we suggest that paying more attention to the everyday experience of front-line workers when devising regulatory tools may be a way to promote engagement in ‘true’ crime prevention on their part.
William Vlcek
The list of predicate crimes for the Recommendations of the Financial Action Task Force (FATF) has evolved and grown over its twenty-five year existence. The evolution of this list reflects shifting concerns among the central actors in the organisation, as well as representing a response to any ‘displacement’ activity undertaken by those seeking to avoid these forms of governance. When the scope for cooperation and compliance with the FATF Forty Recommendations was extended beyond the organisation’s membership this governance regime encountered business sectors and financial practices not readily amenable to its objectives. This paper considers the causes and consequences for the situation, as developing economy states attempt to comply with the global governance expectations of the FATF when a significant portion of the domestic economy operates ‘informally’. A frame of reference is provided, with a definition for the informal economy and the concept of displacement as used in research on criminal activity. The focus here is with the nature of the cash economy operating beyond the scope of financial surveillance with implications for the comprehensive effectiveness of the global financial governance regime. The context of informal financial practice and its separation from the regulatory structures of the state leads to a conclusion that global financial governance is limited in practice to the domain of the formal economy.
Peter Romaniuk & Tom Keatinge
What role has FATF played in the global effort to counter terrorist financing through the non-profit sector? How have advocates for the sector responded and what do these developments tell us about FATF’s operations and influence? This article reflects on the emergence and evolution of FATF Recommendation 8, initially introduced as Special Recommendation VIII after the terrorist attacks in the United States on 11 September 2001. We show how the breadth of that recommendation elicited a response in the form of a “transnational advocacy network” among those within the non-profit sector. The resulting process of dialogue and the recent change in the text of the recommendation provide important lessons for scholars and practitioners concerned about FATF’s accountability and authority.
Malcolm Campbell-Verduyn
Crypto-coins (CCs) like Bitcoin are digitally encrypted tokens traded in peer-to-peer networks whose money laundering potential has attracted the attention of regulators, firms and the wider public worldwide. This article assesses the effectiveness of the global anti-money laundering regime in balancing both the challenges and opportunities presented by these novel ‘altcoins’. Two main arguments are advanced. First, the implications that crypto-coins presently pose for global anti-money laundering efforts stem less from the threats of their illicit uses as digital currencies and more from the opportunities presented by their underlying blockchain technologies. Second, despite several shortcomings, the risk-based approach pursued by the Financial Action Task Force (FATF) strikes an effective balance between the existing threats and opportunities that crypto-coins currently present. Rather than a conclusive evaluation however this article stresses the need for continual monitoring and investigation of the wider ethical implications raised by CCs for global efforts to combat money laundering in an era of rapid technological change.
Michael Levi, Peter Reuter & Terence Halliday
The Anti-Money Laundering regime has been important in harmonizing laws and institutions, and has received global political support. Yet there has been minimal effort at evaluation of how well any AML intervention does in achieving its goals. There are no credible estimates either of the total amount laundered (globally or nationally) nor of most of the specific serious harms that AML aims to avert. Consequently, reduction of these is not a plausible outcome measure. There have been few efforts by country evaluators in the FATF Mutual Evaluation Reports (MERs) to acquire qualitative data or seriously analyze either quantitative or qualitative data. We find that data are relatively unimportant in policy development and implementation. Moreover, the long gaps of about 8 years between evaluations mean that widely used ‘country risk’ models for AML are forced still to rely largely on the 3rd Round evaluations whose use of data was minimal and inconsistent. While the 4th round MERs (2014–2022) have made an effort to be more systematic in the collection and analysis of data, FATF has still not established procedures that provide sufficiently informative evaluations. Our analysis of five recent National Risk Assessments (a major component of the new evaluations) in major countries shows little use of data, though the UK is notably better than the others. In the absence of more consistent and systematic data analysis, claims that countries have less or more effective systems will be open to allegations of ad hoc, impressionistic or politicized judgments. This reduces their perceived legitimacy, though this does not mean that the AML efforts and the evaluation processes themselves have no effects.
Mark T. Nance 