The U.K. isn’t a any better at fighting money-laundering than other jurisdictions, despite spending more money on the problem, according to new research report.
The report, which was sponsored by the Institute of Chartered Accountants in England and Wales and the Corporation of London, suggests that the U.K. authorities could improve the perceived effectiveness of their efforts by doing more to publicize their successes.
The research assesses the perceived costs and benefits of UK Anti-Money Laundering Requirements (AMLR) compared with other jurisdictions including the US, Germany, France and Italy. It also examines how effective AMLR is and what impact the UK AMLR has on the competitive standing of the UK financial services industry.
The research was carried out between September 2004 and April 2005 and involved 34 personal interviews and an online survey to which we received 386 responses.
It finds that AMLR costs in the U.K. are significantly higher as a proportion of GDP than in other major jurisdictions. Almost two-thirds of U.K. respondents said that the requirements are too severe in proportion to the risks of money laundering. Yet, just over one-third of international respondents said the same thing. Overall, perceptions of current costs, past cost increases and future cost increases are higher from U.K. respondents than from international respondents.
Notwithstanding the added costs, the rigorous implementation of these requirements has not yet had a pronounced impact, either negative or positive, on the competitiveness of the U.K. as a financial centre, the study found. Respondents perceive that factors such as service levels, transaction costs, confidentiality and the size of the market are more important to competitiveness than AMLR.
Conversely, although the U.K. is perceived as being more heavily regulated than other major financial centres, its anti-money laundering regulations are not perceived as being more effective at detecting and deterring money laundering. “Our results suggest that very high AMLR costs may reduce the perception of AMLR effectiveness,” it says. “People who have experienced very high costs tend to feel less positive about AMLR in general and about the effectiveness of AMLR in particular.”
The study recommends that if very high AMLR costs reduce the perception of AMLR effectiveness, then further expenditure should focus on improving the perceived effectiveness of current requirements, rather than increasing the level of regulation. “One way of achieving this is to increase the perceived likelihood of money launderers getting caught, publicise the successes of the authorities and raise awareness of convictions, prison sentences and asset confiscations,” it suggests. The survey notes there is a perception that AMLR in major jurisdictions will become more similar with each other over the next few years. Respondents and interviewees talk of a ‘levelling of the playing field’ that is most likely to be achieved by other jurisdictions increasing their AMLR rather than the U.K. relaxing theirs. Two-thirds of respondents from international markets believe that AMLR in their countries will become more extensive over the next five years.
The survey also suggests that the effectiveness of AMLR could be significantly enhanced by closing regulatory gaps. Bookmakers represent one such gap, falling outside AMLR and providing an easy path towards financial legitimacy. Another gap involves payments for overseas intellectual property which is then written off.
“An even more significant gap is the communications gap,” the report says. “There is insufficient feedback to financial services institutions about the quality of their reporting and on new methods of money laundering. There is also insufficient publicity on successful prosecutions. If improved, this could yield significant results in terms of AMLR practicality and effectiveness.”