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Joras Ferwerda

Although the FATF 40 Recommendations, the Third Directive, and other international conventions all require various essential elements of money laundering to be criminalized, there remains a considerable divergence between the criminal provisions in the Member States in practice. This chapter reveals numerous significant differences between EU Member States in the definitions of money laundering in practice and classify them accordingly.
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Joras Ferwerda

Statistics on AML policy can be classified into two types: input statistics, which are the resources invested in AML policy like the budget of the FIU and other relevant institutions, and output statistics, which are the result of the AML policy, such as the reports disclosed to the FIU and the number of prosecutions and convictions for money laundering. It is very hard to use output statistics as an actual indicator for AML policy, because an increase in the number of reports can be the result of a greater anti-money laundering effort or an increase in the amount of money laundering. In this chapter we explore to which extent the differences in statistics between EU Member States can be explained. Moreover, these data form the basis for a cluster analysis, which shows that in terms of AML policy the 27 EU Member States consist of four groups which have their own distinct characteristics.
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Joras Ferwerda

The lack of hard data makes any country-by-country cost-benefit analysis of AML policy impossible at the moment. But by using the estimates that are available, and correcting these estimates for the price level and size of the countries, the chapter is able to estimate almost all cost components and some benefits for each EU Member State. This study estimates that the total costs of the 27 EU Member States are about 2 billion Euros, together with an immeasurable reduction in privacy and some inefficiency in the operation of society. Since most of the benefits of AML/CTF policy are hard or impossible to estimate, the cost benefit dilemma is basically reduced to the question: Does the EU want to spent about 2 billion Euros to obtain potential benefits, which include an unquantifiable reduction in money laundering, less crime in general, a reduced damage effect on the real economy and less risk for the financial sector?
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Joras Ferwerda

The fight against money laundering and terrorist financing has shifted the traditional responsibility of security partly away from the public. Commercial entities like banks were asked to monitor their customers and report potential money launderers and terrorist financiers. This move is not illogical: the gatekeepers of the financial system might be better suited to distinguish regular from irregular financial behaviour. But the involvement of private parties has not been an undisputed success. The main problem is that these entities are serving the public good with private costs. The private parties have been pushed into compliance with threats of sentences for non-compliance. This external motivation is vulnerable to strategic behaviour. Just to prevent any claims of non-compliance, banks and other entities might start reporting way too much, eventually crippling the overall effectiveness of the policy. Without the right incentive structure for the parties involved, success cannot be guaranteed. This chapter suggests that supervisors can play an important role here, since they could have the knowledge and data required without the incentive problem.

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Joras Ferwerda

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Joras Ferwerda

The international fight against money laundering is costly. This does not have to be a problem if the benefits of this international fight outweigh its costs. Perhaps these are necessary costs to protect our societies. When we agree that crime should not pay, the main question is at what cost? How much would we be willing to spend on making crime less worthwhile? An efficiency analysis can inform us. In this chapter we discuss what we should know and what we do know about: (a) the amount of money laundering (is money laundering so big that we should fight it?); (b) the effects of money laundering (is it really a problem when money is laundered?); and (c) whether the fight against money laundering is worth it (what does a cost-benefit analysis tell us?).

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Brigitte Unger and Joras Ferwerda

This chapter presents a Walker gravity model to calculate the amount of money laundering threat for 27 EU Member States. It is found that the threat of money laundering is greatest in the United Kingdom, Luxembourg and other west-European countries, as a result of their relatively sophisticated financial markets, their relatively high GDP per capita levels, their trade, as well as cultural links to a wide range of proceeds of crime-generating countries. The picture changes dramatically, however, when expressed as a percentage of each country's GDP. The threats can be very high - particularly for the smaller countries, such as Estonia, Latvia, Malta and Luxembourg. These countries are bordering or related to much larger countries that generate large amounts of money potentially available for laundering. They therefore face threats equivalent to a significant proportion of their total GDP, even - in those four countries - greater than their entire GDP. The threat assessment presented in this study, based on the Walker gravity model, appears to be quite robust.
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Ioana Deleanu and Joras Ferwerda

This chapter explores to what extent the policy response towards money laundering is effective in relation to the money laundering threat the EU Member States face. It is argued that AML policy response can be captured by several indicators: FATF compliance, legal effectiveness, timeliness of implementation, FIU response, international cooperation, information flows and the number of convictions for money laundering. The exploratory analysis is based on a set of figures which have a policy response indicator on the horizontal axis and the threat measure on the vertical axis. The chapter considers the diagonal area in these figures to mark an appropriate policy response - i.e. a policy response that is more or less proportional to the AML threat a country is facing. The chapter shows that most Member States have proportional AML policy responses. Nevertheless, all of them can improve on at least one aspect of their policy response with the positive exception of Denmark, that has, in the analysis of the chapter, relatively low levels of threat and relatively high policy response scores.
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Brigitte Unger and Joras Ferwerda

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Brigitte Unger and Joras Ferwerda