International anti‐money laundering regulation of alternative remittance systems

Joanna Trautsolt and Jesper Johnsøn

Journal of Money Laundering Control, 2012, vol. 15, issue 4, 407-420

Abstract: Purpose - The purpose of this paper is to examine the recommendations of an influential international advisory body, the Financial Action Task Force (FATF), towards regulation of Alternative Remittance Systems (ARSs). Design/methodology/approach - The research design is a comparative analysis of Afghanistan and the United Arab Emirates, using available FATF documentation and external sources. Findings - The analysis shows that FATF is right in pointing out that ARSs are useful vehicles for criminals to move operational expenses and launder the proceeds of their crimes. However, based on the cases of Afghanistan and the United Arab Emirates (UAE), it is argued that FATF's main approach of seeking to integrate these informal, traditional systems into the sphere and regulations of the formal banking system can be ineffective and even counterproductive in developing countries. Rather than taking a genuinely risk‐based approach, all ARS operators are required to be registered or licensed, conduct Customer Due Diligence (CDD) and fill out Suspicious Transaction Reports (STRs), just like commercial banks. Research limitations/implications - The impact of mandatory registration and requiring CDD and STRs has been negligible in Afghanistan and the UAE. Therefore, the article calls for new approaches to control money laundering in ARSs. Originality/value - The paper is the first independent, comparative case study analysis of FATF regulations and implementation. It illustrates the limited knowledge/research in the field, and the inherent limitations of the current regulatory approach.

Keywords: Money laundering; Alternative remittance systems; Hawala; FATF; Afghanistan; United Arab Emirates; Developing countries (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jmlcpp:13685201211265999

DOI: 10.1108/13685201211265999

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