Law Society backs AML Reform for effective financial crime prevention
By Simon Luke
The AML reforms are crucial for fighting financial crimes, says Simon Luke.
The Law Society recently offered its response on the government’s anti-money laundering consultation. It’s a timely statement, with a series of reforms on the table to improve the effectiveness of Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) supervisory bodies.
From the four options under consideration, the Law Society supports consolidation of regulators into one accountancy sector supervisor and one legal sector supervisor, albeit only for England and Wales. “PBS (Professional Body Supervisor) consolidation has the potential of simplifying the complex regulatory landscape, making it easier to navigate and bringing more consistent levels of supervision,” Society president Nick Emmerson stated. “The model also supports the preservation of the independence of the legal profession from the government.”
But why are these new reforms so important to get right?
Financial crimes are not mere concepts; they have real and often devastating consequences for individuals, communities, and entire economies. The faceless nature of these crimes may make them seem distant or irrelevant, yet the impacts are felt across society. Money laundering fuels criminal enterprises, destabilises governments, and erodes trust in financial institutions. It's a web that entangles not just the high-flying financiers but reaches into the lives of everyday people.
The portrayal of anti-money laundering as a “weapon of mass distraction” by Nigel Farage and others in recent times suggests a system out of control, but this interpretation misses the mark. Far from being a blind structure, AML regulations form part of a finely-tuned, global effort to combat the intricate and constantly evolving methods used by financial criminals. These regulations are the defence against practices that threaten to undermine not only economic stability but the very principles of justice and ethical governance.
Nigel Farage's claim might be attention-grabbing, but it fails to appreciate the delicacy and depth of the battle against financial crime. The real question we must grapple with is not whether AML laws are too robust, but whether we fully understand the multifaceted and profoundly consequential nature of what they protect against.
The ‘how’ of AML
A particular perception of AML is presented with the quote, “sweeping laws push the burden on to businesses and ultimately consumers, who end up accidentally caught as collateral damage of anti-money laundering laws”, which conveys anti-money laundering laws as orders leading to unintended repercussions. Ironically, this very perception epitomises the metaphor of a 'sledgehammer that misses the nut,' as it misrepresents the complexities involved in AML procedures.
Take a look at the real estate industry as an example. Regulations aren’t always articulated clearly, different roles and responsibilities can sometimes blur, third-party intermediaries are frequently employed to mask paper trails, and property prices can be manipulated to hide money. Compliance professionals have to navigate this precarious maze. Then, to compound this, they often have other roles and responsibilities. All in all, it is no easy feat.
But this is also the point of it, as bad actors aren’t easy to catch. It is a system that necessitates over-caution. Why? Because it’s far better to cast a wider net in the hope of catching more criminals, than it is to be lax and risk letting bad actors slip through undetected.
Of course, that is not to say that the system couldn’t be improved. The AML industry must always be in a state of evolution, scrutinising and refining systems to ensure that it is working effectively - as is being done with the UK’s reform of the AML/CTF supervision. But this need for reform shouldn’t undermine how it is being conducted now, and rather should be recognised as a necessary development to improve how we tackle financial crime.
The ‘who’ of AML
Anti-money laundering is sometimes referred to as a ‘victimless crime’. This is wrong. This occurs largely due to the fact that the nature of money laundering makes it difficult to see its direct impact. The crime, buried within financial transactions, pales in comparison to the immediate, destructive harms caused by the activities it supports.
Ask yourself this, when questioned on the negative impacts of the illicit drug industry, how many people would name the purchase of property as a significant issue, let alone a related activity? The answer is likely very few – and even those few would be greeted by a raised eyebrow from most. Our focus, as a society, tends to fall on the protection of individuals from harmful substances or the shielding of society from violent crime, meaning that money laundering, through vehicles such as property purchases, often becomes an afterthought, if a thought at all.
This said, it is vital to remember that money laundering has serious consequences and directly affects people in numerous ways.
Consider the social consequences. Money laundering is often intertwined with other severe crimes, such as drug trafficking or human trafficking. By allowing this money to be integrated into the economy, we are effectively fuelling the cycle of criminality, empowering those who cause harm and giving them more influence to continue their actions. In such a scenario, our financial system would reward the evil while punishing the good.
From a business perspective, illicit funds can distort market competition. Honest businesses find it challenging to compete with those bolstered by laundered money, resulting in skewed market dynamics. This disparity can stunt innovation, suppress fair competition, and hinder economic growth. Ultimately, laundered money is a hole in our economy with funds being taken away from those who need it.
Last year, reports found that questionable funds amount to over $125 million dollars every year in the UK. Imagine the transformative power of these resources if redirected towards education, healthcare, infrastructure, or community development. There are countless more productive and beneficial uses for this money that don't involve supporting those who seek to exploit society.
The ‘why’ of AML
Money laundering is real. The financial capital it steals from society is real. The damage and pain it inflicts on people is real. Yes, it can be costly for the industry at times and disruptive to consumers, but these are necessary costs in the pursuit of a more fair and just society. You’d rather fill out one extra form than miss illicit funds that are funded by drug trafficking.
We may not see and hear from the victims of money laundering every day, but that doesn’t mean that those victims don’t exist or that they aren’t in need of a financial system that works to protect them. This is the ‘why of AML’. It is why there are thousands of compliance professionals, across various industries, working tirelessly every day. And their work has never been more important.
Far from being a distraction, AML laws represent a vital frontline defence in preserving integrity, trust, and fairness in our global financial landscape.
Simon Luke is UK Country Manager of First AML