'A world fit for money laundering: the Atlantic alliance’s undermining of organized crime control' by Mary Alice Young and Michael Woodiwiss in (2020)
Trends in Organized Crime comments
This is the untold history of how prominent civil servants in the UK tailored US-devised anti-money laundering (AML) policies in ways that suited the needs of Britain’s financial services industry. In the aftermath of these initial compromises in 1987, criminal money managers in both the US and the UK were able to continue to operate in an environment that easily allowed them to hide and use dirty money. The researchers analysed six months of previously unseen personal correspondence and documents exchanged between various actors in the UK Government during 1987. From this they conclude that the core of the current, global AML regime, was not the destruction of drug money laundering and banking secrecy, nor the ending of criminal financial enablers and with it hot money; rather it was the protection and leverage of national trading interests on both sides of the Atlantic. And the drive to protect these interests would see crime control laws made, amended and changed to cater for the interests of the US and UK banking and finance industries. The file had been classified as secret and held by the UK Treasury until it was released to the public in 2017 as an archive document transferred to The National Archives in accordance with The Public Records Act and the Freedom of Information Act.
The authors argue
In the post 9/11 era, there has been a systematic and regular production of anti-money laundering (AML) guidance documents and the creation of various AML programmes from international bodies including the World Bank and the International Monetary Fund (see for example Schott’s Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism, Schott 2006); the Financial Action Task Force (FATF) (for example, Guidance on Criminalising Terrorist Financing, 2016 and Best Practices on Confiscation (Recommendations 4 and 38) and a Framework for Ongoing Work on Asset Recovery 2012); and the United Nations (UN) (Global Programme against Money Laundering, Proceeds of Crime, and the Financing of Terrorism (GPML) 2007). These ‘best practice’ initiatives centre on the notion that it is a priority for all countries to establish their own national frameworks to combat the phenomenon of money laundering and the wider concept of financial crime. Countries’ own frameworks are constructed in line with international AML standards and benchmarks initially created by the US as part of wider foreign and public policy initiatives to control organized crime.
Assumptions that the US is successful in its efforts to extend and apply the requirements of domestic crime control policies to foreign branches of domestic financial institutions located abroad, tend to be embraced by those who write non-critically about the “international fight against money laundering” and its threat to society, and who believe that the implementation of AML policies offers solutions to a myriad of organized crime problems (see generally, Robinson 1995; Stessens 2000; Fisher 2002; Leong 2007; Souster 2013; Cox 2014). Therefore, the wider literature base remains largely complaisant towards the international AML system and its hoard of “strong tools” such as international cooperation and the exchange of information, thought to be successful in the fight against crime, including corruption (Sharman and Chaikin 2009; Ferwerda, 2009). Sympathetic publications reinforce the misleading narrative of policy makers that organised and financial crime, including money laundering was largely driven by ‘traditional’ criminal organisations and remains a major threat to the democracy of all nations. As the authors will demonstrate, however, the current international AML framework arose out of expedient compromises that would favour the financial communities of the US and the UK at the expense of genuinely effective organized crime control.
As will be shown in this paper, the “claim makers” (specifically, US and UK policy makers during the administrations of Ronald Reagan and Margaret Thatcher) were successful in creating an internationally palatable AML template, by framing the threat mantra of money laundering, in such a way that it has been adopted by sympathetic, mainstream academics who are then able to bring definitions and concepts “to the public realm” (Ceresola 2019:51). It should be acknowledged that there are notable exceptions to the aforementioned mainstream narratives of the AML system, including critical scholars such as Levi and Reuter (2006), and Van Duyne (2008) who acknowledge that the international AML framework has not had the desired effect of suppressing criminal activities and thwarting organized crime groups. The origins of the AML machine, however, have not yet been examined in depth and the authors of this paper address this gap in the literature. Using primary correspondence data in the form of previously unseen letters between UK bankers and civil servants written during 1987, we seek to illuminate the compromises made as the global AML framework was taking shape. These compromises would come to render the framework as flawed.
Adopting the language of Ceresola (2019), the US has historically been the primary framer and claims-maker, in terms of defining money laundering, deciding the scale of the threat of money laundering, and subsequently, determining that coalitions between banking communities and governments were the best ways – indeed the only ways – to solve the problem of dirty money. Through the analysis of a mix of political and financial sector narratives presented in the form of correspondence data (typed letters), and official reports – some of which will be explored in this paper – it will be shown, that those responsible for the creation of the global AML regime have established money laundering as a continuing threat to society; one which is inextricably linked to the illegal drug trade. Having presented this ‘threat’ to a global audience, policy makers have been able to justify the creation of flawed policies in response to public anxieties which largely evolve from the media’s distorted presentation of organized crime (Greer 2013). As the research for this paper will reveal, the public presentation of the conceptualisation of the threat of money laundering and its control has grown, initially, from deals and compromises between US and UK policy makers. These compromises, shaped and moulded a global AML regime tailored to fit the US’ and UK’s own banking and finance trading priorities, using the war on drugs and thus organized crime, as a handy smokescreen. The US government was then largely responsible for setting the organized crime control agendas of national governments and international organisations, notably the UN, the FATF, the Basel Committee on Banking Supervision (BCBS), and international law enforcement agencies such as Interpol.
Within the policy making process, the framing of “public goods and public evils has ramifications for laws, legislation, and funding that affects individuals on the ground” (Ceresola 2019:52). This is the first known paper, using primary source correspondence data, to detail the reasons why US devised policies concerning money laundering controls in the 1970s and 1980s, were not initially acceptable to the UK and how compromises between both countries were engineered to deliver a palatable AML system, still in use today and protecting the richest countries. In the course of researching for this paper, the authors have uncovered that the framing of money laundering by the US in the 1970s and 1980s had numerous ramifications, including adopting the war on drugs as a political veil to justify targeting foreign tax havens as conduits of organized crime and money laundering. This tactic was also favoured by the UK which wanted to retain its wealthy tax haven territories with their secrecy laws, but also wished to be seen to be doing something about the war on drugs. Ultimately, the handy shield of the international war on drugs and dirty money, led to the creation of AML-focused bodies that rarely challenged the interests of those nations who were complicit in the establishment and maintenance of secrecy havens, and in so doing, elevated the role of bankers to criminal law policy makers while minimising the role of international law enforcement bodies such as Interpol. As will be shown, the ramifications discussed below, are relevant today because in the context of organized crime control at the wider level, the UK and US are still operating with the same assumptions and policies in the twenty-first Century.
In formulating a global AML template during the 1980s, the US’s public and foreign policy interests concerning the fight against drug money laundering acted as useful and morally righteous fronts for the real, self-serving interests of the US, which included boosting the wealth of national banking corporations and the government, and halting capital outflows from the US to foreign tax havens as citizens sought to maximise personal wealth by circumventing domestic tax laws. In seeking to recoup tax revenues, the US would be required to take action against the tax and secrecy havens hosting foreign branches of domestic financial institutions; institutions used by Americans and located in British overseas territories such as the Cayman Islands, Bermuda and the Turks and Caicos Islands. In response to threats of extra territorial jurisdiction, and in a bid to retain its dominance as a global financial services provider – not to mention the offshore wealth residing in its overseas jurisdictions - the UK was able to accommodate US proposals when compromises were made between both countries, which saw policies amended to present less of a threat to the financial services industries and economies of both countries.
This is the untold and previously secret history of how civil servants in the UK tailored US-devised AML policies to suit the needs of Britain’s financial services industry. Further, in the aftermath of 1987, criminal money managers in both the US and the UK continue to operate in an environment that easily allows them to hide and use dirty money.
