Money Laundering, Regulatory Penalties and Financial Delinking: A Review

Wahaj Ahmed Khan and Danish Ahmed Siddiqui

EconStor Preprints from ZBW - Leibniz Information Centre for Economics

Abstract: This paper examines the regulatory and punitive implications of indulgence in money laundering violations and their impact upon global financial connections via de-risking and delinking of financial institutions. Through thematic analysis of some of the most significant enforcement cases, including HSBC, Westpac, Danske Bank, Deutsche Bank, and Westpac, alongside the theory of deterrence and institutionalization, the research examines how financial institutions react to the anti-money laundering (AML) pressure. The study finds that the increasing severity of penalties for compliance, regulatory uncertainty and the risk of a reputational hazard have caused banks to cut off the relationship with their correspondent banks, particularly in regions with high risk and emerging markets. Although these actions are in line with the goals of deterrence to improve compliance. However, they can also lead to financial exclusion through the disruption of remittance flow, trade finance and access to aid for countries such as Nigeria, El Salvador, and Mozambique. The paper suggests that while AML frameworks are vital, a heavy reliance on punitive measures, without reforms that build capacity, could backfire and harm the economies that require the greatest financial integration. It advocates for a balanced regulator who is risk-sensitive, backed with international cooperation and transparency and a spirit of innovation.

Keywords: Anti-Money Laundering; Correspondent Banking; De-linking; Financial Inclusion; Regulatory Penalties; Thematic Analysis (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:esprep:341080

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