Anti-Money Laundering Efforts - Failures, Fixes and the Future

Abstract

In this PhD thesis I address important topics in the debate on and the organisation of the Anti-Money Laundering efforts, which are related to the legitimacy and the effectiveness of the Anti-Money Laundering policies. First of all, this thesis provides a reflection on the assessments of concern that trigger policy makers in the field of crime fighting. Secondly, it provides an assessment of the effectiveness of the agencies entrusted with fighting money laundering at a national level and, of the country blacklisting practices of the Financial Action Task Force. This thesis adheres to the literature of law and economics, while trying to approach the analysis of money laundering from a concept of choice that reflects human behaviour as real as possible. Essentially, this thesis builds on the premises that Anti-Money Laundering policies are socially embedded, that a money launderer’s sentiment is socially founded and psychologically bounded and that our understanding of the effectiveness of Anti-Money Laundering efforts will benefit from an explicit consideration of these premises. Four independent studies compose this PhD thesis. The first study looks at one of the core methods to estimate the underground economy, and argues for a behavioural change in the theoretical micro-foundations of this method. The study contends that by recognizing the psychophysical limitations of tax payers we are in a better position to measure the cash based underground economy and explain why, in some cases, the seminal measurement method of Tanzi (1983) is not applicable. Subsequently, the second study explores how the value of information is modified when transmitted hierarchically among institutions that play a role in the fight against money laundering. The study argues that by recognizing the role of institutional distance in the framing of communication between law enforcement organizations, we can enhance our capacity to measure and address the issue of effective cooperation. The third study is built on the behavioural finding that individuals perform badly at generating random numbers and maintains that international evaluations on performance may trigger strategic tampering with national statistics on money laundering. The study reflects on the effectiveness and legitimacy of the naming and shaming strategy that countries are subject to, when statistics are not objective representations of the truth. Finally, the fourth study looks at what may be the future of money laundering in the age of anonymous digital currencies. This study argued that if we recognize that individuals address uncertainty by relying on the common pool of experiential knowledge, then, the dynamics of the wisdom of the crowds may help us better anticipate future social outcomes, among which the global usage of BITCOINs for criminal purposes.