Expensive and Ineffective Regulation – Theoretical Problems of Preventive Regulation of Money Laundering

Abstract

Based on estimates, it can be assumed that proceeds from crime (‘dirty money’) that circulate in the global economy total annually approximately USD 1,900–4,800 billion. It is therefore understandable that significant investments have been made in combating money laundering. A key development target, also in the EU, has been the preventive regulation of money laundering, the first aim of which is to prevent money laundering and to promote revealing and investigating it. As a result of constant increase in preventive regulation, the costs incurred in combating money laundering have grown considerably. The volume of money laundering has not, however, been reported to have decreased. It does seem that the costs incurred from preventive regulation of money laundering do not correlate with the benefit received from the regulation. This article addresses the following research question: which theoretical factors could explain why preventive regulation does not seem to function as it should? The question is answered by analysing the operational logic of the expansion of preventive regulation, the objectives of the regulation and the game-theoretical problem involved in preventive regulation.