Money laundering regulations fail to meet targets

Regulations against money laundering have failed to eradicate drug trafficking and organised crime (Imagepoint) Imagpoint

Anti-money laundering (AML) regulations imposed on banks are costly with limited effects according to a study published by the Swiss Banking Institute.

This content was published on August 4, 2006 - 19:16

Researchers say that the rules have helped financial institutions safeguard their reputations but have done nothing to eradicate some types of crime.

The report, released on Friday and commissioned by the Association of Swiss Commercial and Investment Banks, compared AML banking practices in Switzerland, Singapore and Germany.

The results showed that the implementation of money laundering prevention measures has had little influence on international competition.

However, the study's authors reckon that the aim of these measures - preventing drug trafficking and organised crime - has not been achieved despite significant efforts from the financial industry.

Hans Geiger, who led the research at Zurich University, says that while banks want less regulation and agree that cost-benefit analysis should be a standard practice, no one is prepared to scrutinise AML measures from an economic perspective.

"Bankers prefer to call it an ethical issue rather than determine whether it's efficient or not," he told swissinfo. "In fact if anything, people want more AML measures."

According to the report, Switzerland, Singapore and Germany have comparable money-laundering regulations.

"Countries are more or less forced to follow the recommendations of the Financial Action Task Force [the international money-laundering watchdog] and little leeway is available for individual nations," said Geiger.

High price

But most Swiss bankers believe the price they pay to implement the regulations is too high, especially when compared to international competitors, even if they do not want to do away with the rules.

"Bankers are opposed to the idea since they are concerned it might give their competitors an edge," added Geiger. "They are more interested in a level playing field than in efficiency."

The report states that the banks' AML activities have in fact become a requirement to conduct successful business locally and abroad.

While some forms of crime still prosper despite the regulations, some success has been recorded concerning assets stashed away by so-called Politically Exposed Persons. Just this week, Switzerland finished returning funds stolen by the late Nigerian dictator Sani Abacha.

Geiger says that any bank would do well to avoid opening an account for a politician nowadays.

"As a customer, a politician would usually never have huge assets and such an account wouldn't be worth the trouble for a banker," he said.

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In brief

Money laundering involves concealing the origins of money earned through criminal activities and releasing it unnoticed into legitimate business activities.

It is most commonly associated with drug trafficking, but not exclusively.

The Swiss Money Laundering Act obliges all financial intermediaries to identify all clients and to establish the beneficial owners of the assets.

They must also report any suspicion of money laundering to the authorities and freeze related assets.

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Key facts

The number of reports on suspicious transactions submitted to the Money Laundering Reporting Office of Switzerland reached 729 in 2005 – down more than 11% on the previous year.
In 2004 assets amounting to SFr779 million had been blocked, but only SFr680 million in 2005.

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