How to Dodge Drowning in Data? Rule- and Risk-Based Anti Money Laundering Policies Compared

Unger Brigitte and Frans van Waarden
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Unger Brigitte: Utrecht University School of Economics
Frans van Waarden: University College, Utrecht University, The Netherlands

Review of Law & Economics, 2009, vol. 5, issue 2, 953-985

Abstract: In the past decade, anti-money laundering policy has switched both in the US and in Europe from a rule- to a risk-based reporting system in order to avoid over-reporting by the private sector. However, reporting instead increased in most countries, while the quality of information decreased. Governments were drowned in data because private agents feared sanctions for not reporting. However, unlike in other countries, this “crying wolf problem” (Takats, 2007) did not happen in the Netherlands, where the number of reports diminished, but information quality improved. The reasons for this can be found in differences in legal institutions and legal culture, notably the contrast between US adversarial legalism and Dutch cooperative informalism. The established legal systems also provide for resistance to change. Thus, lowering sanctions in order to reduce over-reporting may not be a realistic option in a legal system which traditionally uses deterrence by fierce criminal and private legal sanctions. Furthermore, a risk-based approach may not be sustainable in the long run, as litigation may eventually replace a risk-based approach again by a rule-based one, now with precise rules set by the courts.

Date: 2009
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DOI: 10.2202/1555-5879.1423

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