The problem of regulating the easy way out – EU money laundering regulation

Abstract

Purpose

Current research within law and economics focus on money laundering as an externality problem caused by financial institutions. Thus, when existing research and legislation place the responsibility on financial institutions, it creates a void where it is neglected that clients of financial institutions may, in fact, play a vital role in the problem of externality. However, based on the definition of money laundering, this paper aims to examine and analyze the need to focus on the clients as part of the externality problem with regard to money laundering.

Design/methodology/approach

This paper examines how a lack of regulatory focus on the clients of financial institutions lead to inefficient anti-money laundering regulation. Through a functional approach of law and economics, it analyzes the externality problem of money laundering based on both the legal definition and the economic conditions of the problem.

Findings

Based on the fourth anti-money laundering directive, the paper argues that present regulation has a tendency to focus on financial institutions, thereby not considering the entire scope of the externality problem in money laundering. For regulation to efficiently combat money laundering, it is necessary to place some responsibility on the clients of financial institutions and not solely on the financial institutions. Nevertheless, the inclusion of client responsibility might lead to some legal or economic complications, which need to be subject to further research.

Originality/value

The paper identifies the need for a fundamental change in the perception of the externality problem of money laundering, and thus, presents the required approach to reach an efficient solution.

Citation

Rose, K.J. (2019), "The problem of regulating the easy way out – EU money laundering regulation", Journal of Money Laundering Control, Vol. 22 No. 4, pp. 666-677. https://doi.org/10.1108/JMLC-03-2019-0022