May 15 2015

By Emile Van Der Does de Willebois

In general, specialists in any given area are prone to delving into the details and minutiae of their field. It establishes them as the expert and makes them credible. The risk is that they lose the wood for the trees and don’t ask about the bigger questions. That risk holds no less true for financial integrity- an area of rapidly increasing importance that concerns what information financial institutions and other service providers need to gather on their customers and their money; how that information is made available to government authorities and how financial sanctions are to be implemented.

For those of us who deal with this on a daily basis, be it as policy maker, law enforcement official or bank compliance officer, we relish the discussions on whom to identify when you’re dealing with a trust or under what conditions one may rely on a third party to identify a client. A whole industry of consultants and experts is mushrooming on the back of governmental regulations in jurisdictions in every corner of the world. Recent high profile penalties imposed for infringements of financial sanctions or anti-money laundering (AML) legislation and the debate about “de-risking” have only increased public attention. But amid all the excited chatter, few stop to ask: Why are we doing this?

Last week’s Convening Conference on Financial Integrity organized by the School of Professional studies at Brown University in Providence, Rhode Island, offered the chance to ask those bigger questions. Academics, law enforcement officers, supervisors, compliance professionals in financial institutions and international policy makers all gathered to take a step back and ask: Why? The conference had been billed as the opportunity to “identify barriers and challenges to implementing effective financial integrity programs” and “break out of silos” and it more than achieved those objectives.  It was exactly the sort of far reaching, high level academic debate about first principles and ultimate objectives the organizers had hoped for.

One question that kept raising its head, again and again, in various guises, was this: are we making, complying with, supervising and enforcing all these rules merely in fulfillment of international standards and to obey the law? Or are we genuinely interested in going after “the bad guys” - the criminals and terrorists who move money through the financial system - and putting them behind bars and confiscating their funds? If it is the latter, how successful have we really been? Are we making a difference?

Though all there agreed that ultimately these efforts should be about stopping illicit financial flows in their tracks and apprehending criminals, opinions varied on how to measure success. If it is to be a simple metric of amounts confiscated and money launderers behind bars, by all accounts success has been limited.  “We’re good at catching idiots” as one participant said.

If success is to be measured - more charitably - as being about instilling a culture of compliance within financial institutions, ensuring they are focused dirty funds, making information available to the proper authorities and increasing the cost and effort of moving funds for criminal organizations then possibly we are doing a bit better.

Throwing a hypothetical into the ring someone wondered: if we were to start from scratch would we come up with the same system and rules?  This sort of thought experiment allows one to question all the building blocks of the current AML system. Of course, considering the multiplicity of backgrounds (and many of them lawyers into the bargain) participants were bound to disagree. And that was exactly the point, because it demonstrated in the clearest way possible that there is a need for a neutral academic space within which to raise these questions. And everyone enjoyed delving into them.

After years of unbridled expansion of AML laws and sanctions regulations, particularly since 9/11, the world badly needs a voice of reflection, willing to question their rationale and measure their effectiveness. Most importantly we need to enrich the discussion and come up with new ideas on how to improve the system. The cause is sufficiently important to merit a big debate.

But one day is not enough - what Brown offered last week should be just an “amuse bouche” to a full course of serious academic study and learning. Like so many blogs elsewhere have noted, there is a dearth of serious research, courses, and training on AML and financial integrity. We need something more permanent and long-term. We hope that a world-class university like Brown is ready to step in and provide the necessary space and intellectual leadership to fill this gaping hole.

Emile Van Der Does de Willebois is a Senior Financial Specialist with the Stolen Asset Recovery Initiative (StAR) and with the Financial Market Integrity Unit of the World Bank


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