Unfolding Dimensions of an Anti-Money Laundering/Counter-Terrorist Financing Complex System

Unfolding Dimensions of an Anti-Money Laundering/Counter-Terrorist Financing Complex System

by Dionysios S. Demetis

Over the past two decades, Anti-Money Laundering (AML) and the Counter-Financing of Terrorism (CFT) have undoubtedly emerged as two important contemporary themes that have generated considerable attention. The following Emerging Issues Analysis explores these two themes, and illustrates the complexities that are inherent in following transactions in this arena.


Anti-Money Laundering (AML) and the Counter-Financing of Terrorism have undoubtedly emerged as two important contemporary themes that have generated considerable attention over the past two decades. In their core, they constitute the broader responses to the phenomena through which they have gained their existence to begin with; namely, money laundering (ML) and the financing of terrorism (FT). But these responses can be rendered on a number of dimensions. Regulation has itself evolved in an attempt to encapsulate an increasing degree of variation. The introduction of the risk-based approach has largely guided this evolutionary step, supposedly getting rid of the rigidness of the rules-based approach and focusing on the prioritization of suspicion. Meanwhile, the widespread adoption of technological infrastructures, mostly in the form of transaction monitoring systems, has become interconnected with attempts to combat the phenomena. This has created a series of effects that cannot be easily delineated. Despite their importance, one can witness a widespread lack of guidance on the processes where technology influences the monitoring of ML/FT. In this paper, I analyze AML/CFT as a complex system in its own right, while taking the opportunity to address a number of aspects regarding the current status quo of AML/CFT dynamics. This is carried out over two distinct themes that are then systemically brought together by the concept of complexity. These themes include: the need for standardization and the risk-based approach.

Theme I: Standardization and regulation

In the realm of regulatory initiatives or even guidelines and industry forums, one can witness a great deal of activity. A number of relevant United Nations conventions, United States initiatives, European Union Directives, guidelines from the Basel Committee on Banking Supervision, Financial Action Task Force recommendations (as well as guidelines, typologies, mutual evaluations, etc), FATF-style Regional Bodies, Wolfsberg Group guidelines, and so on. One would have rightly expected that, with the onslaught of regulatory and other initiatives over the best part of two decades, a sufficient degree of organization would have been reached in the domain of AML/CFT. However, in talking about standards within the field of AML/CFT, one can actually make the case that we are, as a field, at an early standardization stage, despite the series of legislative and other initiatives. Dealing with ML/FT is indeed an international problem - but the international handling of it is often obfuscated by power struggles, lack of incentives, ambiguities in guidelines, or mechanisms that are introduced in order to help, and simply end up in the opposite direction.

In any field that takes itself seriously, the need to regulate and standardize emanates from a number of fundamental aspects at play. Standards are important in every field that faces challenges and actively seeks to coordinate an increasing number of stakeholders. A number of reasons can be found behind the need for standardization mechanisms. First of all, standards reflect the need for simplification. Secondly, they are required to establish trust, particularly when a large number of stakeholders participate in dealing with a problem domain. Thirdly, standards are supposed to circumvent the need to establish an extensive network of bilateral relationships; this is because they are meant to act as a common reference-point, a pillar through which a field like AML/CFT can expand and establish relationships of sound communication amongst stakeholders. But while a large part of these standardization requirements have been met by action taken by the FATF (the introduction of the 40 recommendations for ML and 9 special recommendations for FT in the main), there are other mechanisms through which stakeholders cooperate, communicate, and interact. In fact, when the dynamics of standardization are considered, one can swiftly see that there is certainly plenty of information sharing going on. But how is that information sharing taking place? [footnotes omitted]

Access the full version of "Unfolding Dimensions of an Anti-Money Laundering/Counter-Terrorist Financing Complex System"; with your lexis.com ID. Additional fees may be incurred.

If you do not have a lexis.com ID, you can purchase this commentary and additional Emerging Issues Commentaries from the LexisNexis Store.

Lexis.com subscribers can access the complete set of Emerging Issues Analyses for Banking & Financial Services Law and the Banking & Financial Services Area of Law page.

For more information about LexisNexis products and solutions connect with us through our corporate site.

Dionysios S. Demetis has a PhD on Anti-Money Laundering from the London School of Economics and Political Science. He is the author of numerous publications in the field of Anti-Money Laundering including a number of deliverables for European-Union funded projects. His latest book entitled "Technology and Anti-Money Laundering: A systems theory and risk-based approach" has been published worldwide in 2010 by Edward Elgar. More information about the author at: http://www.demetis.com.


  • 10-29-2011

Money laundering can save businesses and individuals a lot of money. It is hard to track too, that's why it is usually used when the person is making money with illegal activities. If you don't know what money laundering is, this article gives a great explanation. http://explainlikeakid.blogspot.com/2011/09/explanation-on-money-laundering.html