Money laundering has not been specifically criminalized for as long as some of the paradigmatic crimes like murder or theft. Nevertheless, today it is one of the core white-collar crimes with immense negative effects on the law-abiding society.
Anti-money laundering regulations have changed considerably during the past decades. And this evolution is continuing, signaling important developments in the global community’s attempts to combat financial crime.
A short history of anti-money laundering policy
Legend has it that the term “money laundering” comes from the infamous Al Capone and his gang, using paid laundromats as a front for the funds received from extortion, prostitution, and other illegal activities.
Although there is little evidence to support such theory of how the act itself got its name, we have a much better record of how it was criminalized and the efforts to combat it evolved.
Traditionally, the history of modern anti-money laundering regulation is taken to start with the USA’s Bank Secrecy Act of 1970. This legislation established the duties of banks to properly identify persons conducting financial transactions and keep records of such transactions. These kinds of rules remain the staple of AML all over the world.
Another milestone in AML regulation was the establishment of the Financial Action Task Force (FATF) in 1989 in Paris. Initiated by G7, FATF is the first global intergovernmental organization to be dedicated specifically to combating financial crimes through policy. It marks the start of treating money laundering as a global issue to be fought against by international collaboration.
September 11th, 2001, marked a turning point for most areas of international policy, and AML was no exception. In fact, due to concerns about banks and financial institutions being involuntary instruments of terrorist financing, compliance issues ended up in the spotlight.
The regulatory expression of the turmoil caused by the 9/11 attacks was the USA Patriot Act. Created as a general policy for countering terrorism, the Patriot Act instructed financial institutions to create anti-money laundering programs and set standards of conduct to obstruct terrorist financing as much as possible.
Although heavily criticized for authorizing unprecedented surveillance and technically expired since 2020, the Patriot Act remains largely actionable and a landmark in AML policy.
Since then, the first two decades of this century marked intensive and ongoing AML legislation, reflecting the changing technological and geopolitical global environment.
Current trends and developments in AML regulation
The evolution of policy battling financial crime is continuing. What does the future hold for it?
The latest of the long line of documents in the history of anti-money laundering regulation is the Corporate Transparency Act, going into effect on 1 January 2024. This legislation gives law enforcement agencies greater access to information regarding who is benefiting from private company ownership.
The main implication of this act regarding compliance is the strict obligation to report and keep updating the required information that falls on businesses. Given such regulatory tendencies, we can specify some main anti-money laundering trends that will be critical for banks and businesses.
- The need for modern technological solutions is growing. Many businesses already use AML software to ensure compliance. Due to the heightening standards of reporting and the growing volume of regulation, technology is going to play an ever-larger role in AML. This is motivating constant technological development.
- Anti-money laundering efforts need to be balanced against privacy concerns. Ever since the Patriot Act, increasing the power of law enforcement to persecute financial crime is accompanied by concerns about the potential violation of the right to privacy. Skillful legislation will be needed to combine the protection of privacy with an effective AML policy.
- Political sanctions are a growing part of compliance regulation. Sanctions are gaining prominence as one of the most important weapons of economic warfare. In today’s unstable geopolitical environment, tracking and enforcing sanctions is one of the most dynamic compliance tasks for financial institutions.
- More international regulation is to be expected. Sanctions are also a symptom of the tendency to globalize AML practices. While many important AML laws are passed by states separately, their effect is limited without international cooperation. Likely, the United Nations, European Union, FATF, and other intergovernmental organizations will continue to promote international AML legislation.
Keeping an eye on these trends and how they develop is a task for everyone in financial institutions, especially the compliance officers. While no one is to say with certainty what the laws of the future will be, we can be quite assured that the evolution of AML regulation is far from over.