The Money Laundry

The Money Laundry: Regulating Criminal Finance in the Global Economy

J. C. Sharman
Copyright Date: 2011
Edition: 1
Published by: Cornell University Press
Pages: 216
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  • Book Info
    The Money Laundry
    Book Description:

    A generation ago not a single country had laws to counter money laundering; now, more countries have standardized anti-money laundering (AML) policies than have armed forces. In The Money Laundry, J. C. Sharman investigates whether AML policy works, and why it has spread so rapidly to so many states with so little in common. Sharman asserts that there are few benefits to such policies but high costs, which fall especially heavily on poor countries. Sharman tests the effectiveness of AML laws by soliciting offers for just the kind of untraceable shell companies that are expressly forbidden by global standards. In practice these are readily available, and the author had no difficulty in buying the services of such companies. After dealing with providers in countries ranging from the Seychelles and Somalia to the United States and Britain, Sharman demonstrates that it is easier to form untraceable companies in large rich states than in small poor ones; the United States is the worst offender.

    Despite its ineffectiveness, AML policy has spread via three paths. The Financial Action Task Force, the key standard-setter and enforcer in this area, has successfully implemented a strategy of blacklisting to promote compliance. Publicly identified as noncompliant, targeted states suffered damage to their reputation. Subsequently, officials from poor countries became socialized within transnational policy networks. Finally, international banks began using the presence of AML policy as a proxy for general country risk. Developing states have responded by adopting this policy as a functionally useless but symbolically valuable way of reassuring powerful outsiders. Since the financial crisis of 2008, the G20 has used the successful methods of coercive policy diffusion pioneered in the AML realm as a model for other global governance initiatives.

    eISBN: 978-0-8014-6319-8
    Subjects: Political Science

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Acknowledgments
    (pp. ix-xiv)
  4. Introduction: Policy Diffusion and Anti-Money Laundering
    (pp. 1-13)

    The world’s sovereign states are characterized by their diversity. From continent-spanning federations to tiny islands, they range from fantastically rich to shockingly impoverished and encompass societies that may be incredibly variegated or relatively homogenous. Yet states increasingly adopt the same institutions and policies, seemingly regardless of their numerous and fundamental differences. This book examines a puzzle that exemplifies this coincidence of sameness and diversity: more than 180 states, large and small, rich and poor, have adopted a standard set of anti-money laundering policies, apparently without reference to local conditions. Why would so many countries that are so different adopt the...

  5. Chapter 1 Money Laundering and Anti-Money Laundering
    (pp. 14-34)

    In some facile, legalistic sense, the perfect and complete solution to money laundering is easily available to all governments: legalize it. Or rather, return to the not-too-distant past when no state had criminalized the practice of money laundering. After all, for a criminal offense to be committed, states must have gone to the trouble to specify that certain conduct constitutes an offense in the first place.¹ Given that money laundering is a derivative crime, depending on the proceeds of another crime, this point is less trivial than it might at first appear. In this legal sense, the history of money...

  6. Part One: Does Anti-Money Laundering Policy Work?

    • Chapter 2 An Indirect Test of Effectiveness
      (pp. 37-67)

      In 2003 Mark Pieth and Gemma Aiolfi asked: “Are AML rules really effective? After 15–20 years of setting standards it seems very hard to pose such a simple—and yet ‘subversive’—question. How could it become such a taboo?”¹ These authors declined to provide answers. But why is such a seemingly straightforward question “subversive”? Why the “taboo”? This chapter is the first of two devoted to breaking this taboo by asking whether AML policy works. Given the empirical problems discussed previously, this is a difficult question to answer. Beyond the problem of evidence, there is the previous question of...

    • Chapter 3 A Direct Test of Effectiveness
      (pp. 68-96)

      On November 5, 2009, U.S. Senator Carl Levin issued an impassioned plea on behalf of proposed legislation mandating that all corporations in the United States be able to be traced back to the real person or persons in control. Levin argued that until this measure was passed, drug traffickers, money launderers, and even terrorists could set up and use U.S. companies to pursue their criminal ends. He noted that “the corporate form is being corrupted into serving those who use the corporate veil to hide their identities while committing crimes.”¹

      Why would such a dry-sounding, technical matter of corporate accounting...

  7. Part Two: Why Has Anti-Money Laundering Policy Diffused?

    • Chapter 4 Blacklisting
      (pp. 99-130)

      As we have seen, AML policy has had at best uncertain effectiveness but definite cost, particularly in the developing world. The goal of this chapter is to provide a detailed explanation and evidence that shows how blacklisting, and the threat of being blacklisted, helped diffuse the AML regime. It is important to stress that in practice blacklisting has interacted with socialization and the actions of private firms in driving the spread of AML policy, but to keep the discussion manageable, I discuss these latter two processes in the next chapter.

      Of the three mechanisms, blacklisting has been the most straightforward...

    • Chapter 5 Socialization and Competition
      (pp. 131-164)

      Of those consulted, a large majority of the public officials and representatives from the financial sectors in the developing world maintain that adopting global AML standards is in their country’s best interest. This is just as well, as they also say adopting AML rules is unavoidable. But given the costs and benefits explored in chapter 2, what justifies such reasoning? One might expect that the answer would be couched in terms of some reduction in crime, or perhaps a more secure or competitive financial sector, or the utility of recovered criminal assets. But evidence from interviews, focus groups, observation at...

  8. Conclusions: Implications for Scholarship and Policy
    (pp. 165-184)

    Those studying the spread of uncannily similar policies and institutions in radically different contexts generally work from one of two complementary perspectives. First, looking from the top down (e.g., in global statistical studies), there is a suspicious amount of similarity between policies and institutions regardless of very different contexts. Second, despite much rhetoric about efficiency and rational design, looking from the bottom up (e.g., in local ethnographic studies), the design and operation of policies and institutions seems to have very little to do with a technical, functional logic. It is important to note that these insights are complementary. For, “if...

  9. Bibliography
    (pp. 185-196)
  10. Index
    (pp. 197-200)