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How effective are the current global standards in combating money laundering and terrorist financing?

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  • Sisira Dharmasri Jayasekara

Abstract

Purpose - The purpose of this paper is to study the impact of global anti-money laundering and countering the financing of terrorism (AML/CFT) standards on combating money laundering and terrorist financing (ML/TF) efforts. This study will assess the impact of AML/CFT legal framework as well as the effective implementation of the framework on combating crimes. Design/methodology/approach - The author develops an AML/CFT effectiveness index using the results of 11 immediate outcomes in mutual evaluation reports to measure the overall effectiveness of regimes in combating ML/TF. In addition to this index, the AML/CFT compliance index is used to measure the strength of the AML/CFT legal framework of countries. A model was developed and tested to measure the impact of the AML/CFT legal framework and its effective implementation on corruption, bribery, terrorism and crimes. Findings - The results suggest that the effective implementation of the AML/CFT legal framework is important to combat ML/TF. The existence of a sound AML/CFT legal framework alone will not be sufficient to combat ML/TF. Therefore, countries are required to implement their legal framework effectively to achieve the AML/CFT goals of the country as well as the global policymaker. The empirical results show a significant relationship between the AML/CFT effectiveness index with the proxies the author used to capture corruption, bribes and crimes. Considering the wide range of implications of the crimes, which are related to ML/TF, this study suggests the global policymakers to further strengthen the monitoring mechanism of AML/CFT deficient countries to protect the global financial systems from criminals. Practical implications - There is a dearth of studies on the impact of the effectiveness of the AML/CFT regime on combating ML/TF. Therefore, this study will lay the foundation for future studies on measuring the effectiveness of an AML/CFT regime. More appropriate measures will be developed in the future based on this foundation. Originality/value - This paper is an original work done by the author, which discusses the impact of Financial Action Task Force standards on combating ML/TF. The AML/CFT effectiveness index is the original idea of the author, which can be used as a quantitative measure to capture the effectiveness of the AML/CFT regimes in future studies.

Suggested Citation

  • Sisira Dharmasri Jayasekara, 2020. "How effective are the current global standards in combating money laundering and terrorist financing?," Journal of Money Laundering Control, Emerald Group Publishing Limited, vol. 24(2), pages 257-267, July.
    • Handle: RePEc:eme:jmlcpp:jmlc-05-2020-0047
    DOI: 10.1108/JMLC-05-2020-0047
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    Cited by:

    1. Lucia Pellegrina & Giorgio Maio & Donato Masciandaro & Margherita Saraceno, 2023. "Are Bankers “Crying Wolf”? Type I, Type II Errors and Deterrence in Anti-Money Laundering: The Italian Case," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 9(2), pages 587-615, July.

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