Anti-money Laundering Regulation Research Articles

Antecedents of Compliance with Anti-Money Laundering Regulations in the Banking Sector of Ghana

This study examines factors influencing Ghanaian banks’ compliance with anti-money laundering (AML) legislation. Drawing upon institutional, compliance, and dynamic capability theories, the study identifies the interplay of organisational, regulatory, and employee factors influencing compliance outcomes. A mixed methods approach was used to collect data from 23 universal banks, 9 local and 14 foreign, in Ghana, focusing on experienced managers and employees in risk, legal, operations, compliance, and business development departments. The findings show that employee characteristics like due diligence and moral involvement have a positive relationship with compliance with AML regulations; however, contrary to expectations, effective AML/CFT programs did not significantly impact banks’ adherence to these regulations. The association between moral engagement, an innovative culture, and AML compliance is weakened by normative power and an innovative culture acting as negative moderators. This study contributes empirical evidence to the literature on AML compliance in emerging markets and offers practical implications for policymakers, regulators, and banking professionals seeking to boost regulatory effectiveness and mitigate financial crime risks. This study provides a foundation for targeted interventions and strategic initiatives aimed at strengthening the AML regulatory landscape in Ghana and other countries.

Enforcement of international sanctions as the third pillar of the anti-money laundering framework. An unannounced effect of the AML reform and the Sanctions Directive

The recently adopted Sanctions Directive harmonises definitions and penalties for violations of restrictive measures with the aim of ensuring that criminal law can be used to enforce international sanctions in the European Union. It has also made violations of restrictive measures a predicate offence of money laundering. In parallel, the anti-money laundering (AML) framework is undergoing a significant reform, which includes the adoption of the first AML Regulation (previous legal acts being directives) containing AML duties of obliged entities as well as the establishment of an EU AML Authority. Also, for the first time, due diligence obligations as regards international sanctions will be included among these duties. The combined reading of the Sanctions Directive and the AML Regulation indicates that those duties will be even greater, which will have an outstanding impact on obliged entities, in particular of the financial sector. In fact, the extent of those obligations would justify calling enforcement of sanctions the third pillar of the AML framework. Yet, this aspect – and its consequences – remained fully under the radar of the legislative process. The objective of this article is, first, to examine the role of the AML framework in the enforcement of international sanctions, especially after the Sanctions Directive and the AML Regulation start to be applied and, second, to analyse the impact of including enforcement of international sanctions in the AML framework, on the entities subject to its duties and other actors affected by this framework.

Banks’ internal governance obligations vis-à-vis money laundering risks emerging from the new technology-enabled means to transfer funds or value (“crypto assets”)

PurposeThe new technology-enabled means to transfer funds or value via crypto assets have prompted regulators and supervisors to question the effectiveness of the anti-money laundering (AML) regulatory framework. This paper aims to examine the recent developments of the EU AML legislation – leading up to the 2021 AML package – focusing in particular on the banks’ internal governance obligations.Design/methodology/approachThe analysis is based on the legal dogmatic methodology and is therefore conducted thanks to a critical exam of the current and upcoming EU policy and legislation, taking into account the relevant literature and case-law.FindingsThe recent regulatory developments, culminating in the AML regulation, are strengthening the causal links between ML risk assessment–ML risk exposure–ML risk management, via internal governance procedures. One of the major AML regulatory strategies to react to the new challenges brought up by crypto assets amounts to a stricter and more demanding AML risk management regime imposed on banks.Originality/valueThe originality of this article lies in the analysis of the causal connection between money laundering risk identification and internal governance obligations. In particular, this article examines how the risk assessment will be shaping the organizational procedures, processes and internal functions necessary to manage the money laundering risks.

The role of freight forwarding companies in detecting and investigating trade-based money laundering

PurposeThis study aims to investigate the role of freight forwarding companies in detecting and reporting trade-based money laundering. The proximity of freight forwarding companies to shipping-related trade-based money laundering red flags places them in an ideal position to detect suspicious transactions.Design/methodology/approachThe study used semi-structured interviews with expert participants in freight forwarding shipping and compliance aspects around freight forwarding. This study focuses on the South African context.FindingsFreight forwarding companies are well-positioned to detect, investigate and report on trade-based money laundering schemes. However, the companies are not always aware of the guidelines designed to assist in identifying trade-based money laundering schemes. Thus, freight forwarding companies develop internal processes to identify trade anomalies but are often unable to link trade anomalies to illegal financial flows and trade-based money laundering schemes.Research limitations/implicationsThe current regulations on money laundering can be extended to freight forwarding companies by the respective regulators for enhanced anti-money laundering protection. This study is limited to freight forwarding companies in a South African context.Practical implicationsIncreased awareness among staff in freight forwarding companies can assist them in identifying trade-based money laundering red flags to detect and prevent trade-based money laundering schemes.Social implicationsThis paper assists other role players and policymakers in the trade process to create a better awareness of trade-based money laundering. The limited obligations on freight forwarding companies to comply with anti-money laundering regulations lead to a more volunteer-like compliance practice.Originality/valueTo the best of the authors’ knowledge, this is the first paper that offers insight into the role of freight forwarding companies in detecting trade-based money laundering in South Africa.

Anti-Money Laundering Compliance and Financial Inclusion: A Technical Analysis of Sub-Saharan Africa

This review paper examines the intersection of Anti-Money Laundering (AML) compliance and financial inclusion in Sub-Saharan Africa. It analyzes the impact of AML regulations on access to financial services, the financial burden on institutions, and the effectiveness of risk-based approaches. Policy recommendations focus on balancing AML requirements and inclusion objectives, enhancing regulatory and institutional capacities, and fostering innovation and collaboration. The future outlook considers technological advancements and regulatory trends shaping the region's AML regulation and financial inclusion dynamics.

Transaction Monitoring Effect on Profitability of Commercial Banks in Kenya

Commercial banks' performance is fundamental to the economy as providers of financial services. In offering this service, commercial banks are exposed to a range of risks that negatively affect financial position and ultimately influence profitability. Profitability is indicative of a bank's stability and potential for growth. Enhancing commercial banks' profitability contributes to shareholder return on investment. In June 2018, five banks were fined a total of Kshs. 392 million by the Central Bank of Kenya for breaching anti-money laundering regulations. Consequently, banks had to invest resources to improve their anti-money laundering measures. Consequently, raising operational and compliance overheads. This study sought to determine the effect of transaction monitoring on profitability of commercial banks in Kenya. The research employed an explanatory research design. The targeted population comprised all the thirty-nine regulated commercial banks as of December 31, 2021. The study period was eight (8) years (2014 to 2021). Respondents were chosen through purposive sampling. Primary data was gathered using structured questionnaires, while secondary data was derived from audited financial reports of commercial banks and the annual banking supervision report from the Central Bank of Kenya. Subsequently, the collected data underwent analysis employing descriptive statistics and regression analysis. The research results disclosed that transaction monitoring positively and significantly influenced commercial banks profitability. Consequently, bank managers should incorporate transaction monitoring into their operations to augment the overall efficacy to detect and report potentially suspicious activities, and to strengthen operational controls.

Central Bank Digital Currencies and financial integrity: finding a new trade-off between privacy and traceability within a changing financial architecture

AbstractIn an increasingly digitised world, and within the new reality of digital finance, a fully digitised public currency seems to be a natural step. To this end, central banks have been testing the possibility to issue a digital form of the traditional fiat currency (so-called Central Bank Digital Currency-CBDC). As these projects steadily progress, and in some cases, reach the implementation phase, a myriad of questions, from legal to macroeconomic, arise. This paper aims to focus, in particular, on two complementary and co-related aspects involving CBCDs: (i) how can the full digitalisation and centralisation of the transaction ledger be combined with privacy and (ii) to what extent CBDCs affect the allocation of burden and the responsibility over supervision of retail transactions. Eminently, the use of cash ensures a form of default privacy that protects the individual against State and private intrusion. While this privacy has caused concern, due to its criminogenic potential, and has been consequently limited by anti-money laundering (AML) regulations, the remaining cone of shadow cash guarantees is a crucial limit to control. In the context of a shifting financial system, undergoing deep transformation due to increasing datafication and decentralisation of the market, a new governance of financial supervision and record-keeping—up to now based on a unique and centralised ledger—is crucial to redefine the trade-off between financial integrity and privacy. This article will examine the origins and characteristics of CBDCs, to then analyse how the trade-off between control and privacy is set to reshape this new architecture.

FINTECH, TAXATION, AND REGULATORY COMPLIANCE: NAVIGATING THE NEW FINANCIAL LANDSCAPE

The emergence of financial technology (Fintech) has revolutionized the global financial landscape, offering innovative solutions that challenge traditional banking systems and investment practices. This review explores the intersection of Fintech, taxation, and regulatory compliance, highlighting the complexities and opportunities within this dynamic ecosystem. Fintech encompasses a wide range of technologies, including blockchain, artificial intelligence, and mobile payment systems, which have streamlined financial services and expanded access to capital markets. However, this rapid evolution poses significant challenges for taxation and regulatory frameworks. Traditional tax laws struggle to keep pace with the speed and complexity of digital transactions, leading to uncertainties in tax treatment and enforcement. Navigating the tax implications of Fintech requires a nuanced understanding of digital assets, decentralized finance (DeFi) platforms, and cross-border transactions. Tax authorities worldwide are grappling with these challenges, seeking to balance innovation and compliance while ensuring a fair and transparent tax regime. The review examines various approaches adopted by governments and regulatory bodies to address Fintech taxation, including legislative reforms, international cooperation, and the use of advanced data analytics. Furthermore, regulatory compliance remains a critical concern for Fintech firms, as they must navigate a labyrinth of rules and standards across jurisdictions. Compliance requirements vary widely, ranging from anti-money laundering (AML) regulations to data protection laws, presenting operational and legal challenges for market participants. The review discusses strategies for achieving regulatory compliance in the Fintech sector, emphasizing the importance of proactive risk management, regulatory engagement, and technological solutions such as RegTech. Despite these challenges, the convergence of Fintech, taxation, and regulatory compliance offers immense opportunities for innovation and growth. By embracing digital transformation and adopting agile regulatory frameworks, governments and businesses can unlock the full potential of Fintech while safeguarding financial stability and integrity. This review provides insights into the evolving landscape of Fintech taxation and regulatory compliance, highlighting key trends, challenges, and best practices for navigating this new frontier in finance.
 Keywords: Fintech, Taxation, Financial, Technology, Review.

Know your customer: Unravelling the challenges

Regulated financial institutions must conduct regular know-your-customer (KYC) reviews on corporate clients to prevent money laundering and the financing of terrorism. However, national add-on requirements and regulatory discrepancies challenge the vision of a unified Europe, hindering the creation of an efficient, digital and hence scalable pan-European anti-money laundering (AML) process for all stakeholders who are active beyond their national borders. The current inability of banks to introduce efficient but robust pan- European KYC processes delays customers’ access to finance and other banking products, and indirectly impedes the free movement of goods, services and capital. The European Commission plans to introduce the Anti-Money Laundering Regulation (AMLR) to harmonise and strengthen the EU AML framework. This could reduce national divergences, allowing for a level playing field across the internal market and consistent application of provisions throughout the EU. Unfortunately, harmonised regulation alone does not solve the current issues faced by financial institutions. While a harmonised rulebook provides certainty related to ‘what’ needs to be done, significant pan-European discrepancies remain related to ‘how’ the requirements can be fulfilled. For example, the EU has directed all member states to establish commercial and beneficial ownership registers, but left the design of such registers under the authority of the member state. Consequently, banks active on a pan-European level have to adjust their processes based on the type and content of the national register. Also, the definition of what constitutes a politically exposed person (PEP) varies significantly across the EU, as do the enhanced due diligence requirements which are triggered upon the identification of such a PEP. This paper provides suggestions on how EU member states can help the financial industry in a joint effort to prevent money laundering and combat the financing of terrorism more effectively. The objective of this discussion is to create a streamlined and unified approach to KYC processes across Europe.

Why the c-suite should care about anti-money laundering

Complying with anti-money laundering (AML) regulations isn't easy, and too often it slips down the compliance priority list. But it's important that organisations develop a strong AML culture, and this needs to start with guidance from the top.

Predictive Power of Random Forests in Analyzing Risk Management in Islamic Banking

This study utilizes the random forest technique to investigate risk management practices and concerns in Islamic banks using survey data from 2016 to 2021. Findings reveal that larger banks provide more consistent survey responses, driven by their confidence and larger survey budgets. Moreover, a positive link is established between a country’s development, characterized by high GDPs and low inflation and interest rates, and the precision of Islamic banks’ survey responses. Analyzing risk-related concerns, the study notes a significant reduction in credit portfolio risk attributed to improved risk management practices, global economic growth, stricter regulations, and diversified asset portfolios. Concerns related to terrorism financing and cybersecurity risks have also decreased due to the better enforcement of anti-money laundering regulations and investments in cybersecurity infrastructure and education. This research enhances our understanding of risk management in Islamic banks, highlighting the impact of bank size and country development. Additionally, it emphasizes the need for ongoing analysis beyond 2021 to account for potential COVID-19 effects and evolving risk management and regulatory practices in Islamic banking.

Research on Money Laundering Cases, Risks and Countermeasures in the Insurance Industry

Money laundering has a substantial and far-reaching effect on the economy, causing incalculable damage. Due to the high volume of financial transactions in the insurance industry, it is vulnerable to money laundering. This paper seeks to provide a comprehensive analysis of domestic and international money laundering techniques employed in the insurance industry. In addition, it will evaluate the effectiveness and impact of the anti-money laundering measures and regulations implemented within the insurance industry. The research indicates that the insurance industry can reduce its exposure to money laundering by instituting stringent anti-money laundering measures. In addition, this study assesses the implementation and effects of anti-money laundering regulations in the insurance industry. In response to the identified risks and obstacles, a set of proactive anti-money laundering countermeasures is proposed. In conclusion, this study emphasizes the importance of mitigating money laundering vulnerabilities in the insurance industry and the significance of implementing robust anti-money laundering protocols. This study contributes to the ongoing discussion about AML compliance in the insurance industry by providing empirical insights and practical recommendations.

Compare the Beneficial Ownership Identification System from the Perspective of Anti-Money Laundering Between China and the UK

This study mainly focuses on the comparative study of the identification of beneficial owner system in anti-money laundering supervision of China and the UK. China scored poorly in The Financial Action Task Force's assessment of its anti-money laundering regime, which singled out major deficiencies in the system for identifying beneficial owners. Beneficial owner is an important concept in anti-money laundering regulation. The beneficial owner is, literally, the true beneficiary behind the company's various business practices. In today's very active economic activities, money laundering has always been the focus of law enforcement. At the same time, the complexity of corporate ownership structure and the diversity of money laundering forms have brought great obstacles to the supervision of money laundering. In such an environment, the identification and supervision of the actual beneficiaries behind the company can improve the efficiency of the supervision of money laundering. The UK received a high rating in The Financial Action Task Force's assessment and is considered to have set up an advanced anti-money laundering regulatory system internationally. Therefore, this study will find suggestions and directions for China's future institutional improvement by comparing the identification systems of beneficial owners in anti-money laundering supervision between China and the UK.

Dark side of decentralised finance: a call for enhanced AML regulation based on use cases of illicit activities

PurposeThis paper aims to focus on the need for an enhanced anti-money laundering (AML) regulation for decentralised finance (DeFi) to protect the integrity of global financial systems against illicit activities. Research highlights the requirement for a robust regulatory strategy for the fast-paced DeFi evolvement.Design/methodology/approachThis study used doctrinal legal research by analysing legislation, which involved creating use cases to illustrate different aspects of potential illicit activities via the DeFi ecosystem. Various DeFi applications were assessed for the potential regulatory responses and outcomes.FindingsThis paper offers valuable insight into the regulatory challenges presented by DeFi. This study addresses the blind spots leveraged by criminals afforded by the DeFi’s decentralised nature. This paper offers a comprehensive examination of DeFi regulatory challenges based on use-case scenarios and provides recommendations for regulators on how to address them effectively.Originality/valueThis paper proposes measures for regulatory authorities to minimise money laundering risks through new channels such as decentralised exchanges, non-custodial wallets and cross-chain bridges. This study concludes with the future directions for DeFi regulation and AML compliance.

The economic consequences of money laundering: a review of empirical literature

PurposeThe purpose of this study is to provide a timely synthesis of the empirical literature focusing on the economic consequences of money laundering, as this topic has been gaining momentum among policymakers and academic researchers due to its adverse effects.Design/methodology/approachEmpirical studies are collected by consulting accounting and finance journals in diverse digital sources (e.g. Science Direct, Blackwell, Taylor and Francis, Springer, Sage and Emerald). Key words used to identify relevant papers include “money laundering” and “anti-money laundering regulations,” with specific focus on the economic consequences. Our search strategy includes 24 published papers over the period of 2018–2023.FindingsFindings show that most studies represent cross-country investigations; the main topics investigated focus on accounting field (e.g. audit fees, real and accrual earnings management), tax evasion, financial stability, sustainability, economic indicators (inflation, economic growth, foreign direct investment) and financial inclusion; and the economic consequences of money laundering have been also examined within banking industry (e.g. banking profitability, banking stability). Reported findings of reviewed studies suggest that money laundering has diverse adverse impacts at the country level (e.g. increased tax evasion, higher inflation rate, less sustainability and foreign direct investments), at the firm level (e.g. increased audit risk and aggressive real and accrual earnings management) and within banking industry through negative impact of money laundering on bank’s loan portfolio quality, stability and profitability.Practical implicationsWith respect to policymakers, strengthening anti-money laundering regulations may play a critical role in reducing money laundering activities. Furthermore, financial institutions should implement specific rules dealing with anti-money regulations to ensure adequate compliance and disclosure. Finally, policymakers should be aware about the importance of digital transformation to combat money laundering activities since it facilitates the detection of financial crimes due to their traceability.Originality/valueThe summary of the empirical literature focusing on the economic consequence of money laundering represents a historical record and an introduction for accounting researchers. It also urges them to further explore the economic implications of anti-money laundering disclosure within banking industry.

Arbitrators’ suspicion of money laundering: choices against principles

PurposeThis paper aims to examine the options available to arbitrators when they suspect money laundering during arbitration proceedings, considering their compatibility with fundamental principles and concepts of arbitration.Design/methodology/approachUsing a doctrinal analysis approach, the paper draws on legal principles, antimoney laundering regulations and relevant literature to explore the topic. It considers relevant international treaties, standards set by the financial action task force on money laundering, cases and arguments from legal analysts and experts.FindingsThe paper identifies three options for arbitrators: disregarding suspicions, initiating an investigation or terminating the proceedings. Disregarding suspicions is deemed inappropriate, as it may facilitate the concealment of financial crimes. Initiating an investigation is seen as a preferable option, aligning with the arbitrator’s role and the public interest in nullifying contracts linked to criminal conduct. Terminating the proceedings is not recommended, as it contradicts the principle of natural justice. The paper emphasizes the importance of reasonable grounds for suspicions, notifying the parties, and allowing them to address the concerns.Originality/valueThis paper contributes to the existing literature by comprehensively analyzing the compatibility of these options with arbitration principles and concepts. It underscores the need for clear laws and directives to guide arbitrators in addressing financial crimes within the arbitration process, maintaining a balance between party autonomy and preventing the misuse of arbitration for illicit activities.

Benefit or burden? An exploratory analysis of the impact of anti‐money laundering regulations on sustainable development in developing economies

AbstractOver the years, efforts have been put in place to address money laundering activities including financial crime and illicit funding controls. These efforts have been recognized to promote financial integrity and effective governance systems. They have been further adjudged by the United Nations' sustainable development (Goal‐16) with a major concern to achieve peaceful, just and inclusive development. Previous studies reveal that money laundering activities have major implications for economic growth. However, little is known about the main implications of anti‐money laundering (AML) regulations on sustainable development. On this note, this study contributes to the ongoing debate by investigating the relationship between AML regulations and sustainable development in 72 developing economies, consisting 29 upper middle income, 33 low middle income and 10 low income countries. Using instrumental variable generalized method of moment (IV‐GMM), panel quantile estimation technique and dynamic panel threshold analysis, the findings are as follows. First, AML regulations promote sustainable development. Second, the panel quantile regression reveals that countries with moderate AML regulations attain higher sustainable development than those with excessive regulations. Further results on regional analysis show that AML regulations are more effective in Latin America, South Asia, Europe & Central Asia and Middle East & North Africa than in Sub‐Saharan Africa and East Asia & Pacific. These results are robust and stable after conducting a number of robustness analyses. The study suggests that effective AML regulations should be moderate and well‐implemented to further improve economic, social and environmental sustainability in developing countries.

A Simulation Game for Anti-money Laundering (AML) Using Unity

With increasing demand of anti-money laundering (AML) regulation in Fintech, AML is one of the key factors in FinTech and its regulatory technologies (RegTech). Presently, as research and education on AML focus on financial institutions and authority, the individual is vulnerable to money laundering (ML) by being money mules with lack of awareness. Therefore, this paper illustrates the design of a 2-player simulation game for AML, which integrates the game-based learning model with plots including introduction stories, player actions and ending stories. In the game, a player role-plays either a money launderer or AML specialist. Within 6 in-game months, the former needs to perform ML with a target goal while the latter needs to identify the former’s actions and restrict him to achieve his goal.
 For actions of the money launderer, this paper integrates the criminal order with the PLI model (placement, layering and integration) to simulate the full ML circle. The criminal order provides return to the attacker if he completes it within the time limit. Each layer in the PLI model is expanded with middle processes for the methodology. The attacker uses shell companies to hide his identity and support each transaction for ML with apparently legitimate reasons.
 For actions of the AML specialist, this paper integrates the AML transaction monitoring with the Financial Action Task Force (FATF)’s Forty Recommendation. The defender needs to perform AML transaction monitoring with identifying suspicious financial activities based on money flow. Then, he needs to identify the actual beneficial owner of suspected companies with their share distributions. Both money flows and share distributions are visualized in data charts. Later, the defender shall report suspicious companies to the Financial Intelligence Unit (FIU), which will return the investigation result at the beginning of the next in-game month.

‘It could have been us’. Peer responses to money-laundering violations in the Dutch banking industry

Much literature has focused on societal responses to corporate scandals, either by authorities or the public. However, there is little research on responses to corporate deviance by peers (corporations in the same industry). As corporations face a Zeitgeist characterised by increased attention to, and disapproval of, corporate deviance, they are compelled to respond to the external ‘labelling’ of their behaviour, as well as that of their peers. In this context of increasing public scrutiny, this article explores how (employees at) corporations respond to deviant peer behaviour. To examine this question, the case study of non-compliance with anti-money laundering (AML) regulations in the Dutch banking industry is utilised. Six stages of peer interactions were identified, namely, panic and fear, comparing practices, distancing, investing, and cooperation and defiance. In these six stages, condemnation between peers is incidental and mainly functions as a tool to guard their reputation (defence mechanism). Peer responses are determined by characteristics of the act (severance of the violation), actor (comparability and identification as peers), the audience (type of enforcement and public attention), and the situation (knowledge on the violation). As AML cases spread become more frequent across the industry, defence mechanisms also expand, thereby resulting in cooperation between banks and defiance of regulators.

The legal-criminal aspects of Iran’s anti-money laundering law in light of the FATF recommendations

PurposeThe purpose of this study is to examine Iran’s anti-money laundering (AML) system from a legal and criminal perspective and to understand the obstacles for international cooperation and the extent to which it aligns with financial action task force (FATF) standards. In this regard, three aspects are examined, namely, enforcement and guarantees of preventive measures, penalty for ML offences and the burden of proof.Design/methodology/approachThis subject is examined through the legal–criminal perspective, which concentrates on the effectiveness of legal measures in tackling criminal issues by focusing on criminal law. The legal–criminal viewpoint considers criminal behaviour as a breach of societal norms and strives to combat it through legal channels.FindingsIran’s AML laws and regulations are partially compliant with the financial action task force (FATF) recommendations. However, the main obstacle is not the lack of sufficient laws, rather the lack of proper implementation of these laws. In addition, there are foundational shortages, such as the absence of a national risk document to guide an action based on current risks.Originality/valueNo comprehensive study has analysed Iran’s AML laws, referring to the three main aspects of enforcement and guarantees of preventive measures, penalties for ML offenses and the burden of proof. In general, there are few research papers on Iran’s AML laws owing to Iran’s high ranking in ML/TF. However, analysing Iran’s regulations can be helpful in taking a step towards effective international AML practices.