The agency dilemma in anti-money laundering regulation

TLDR

The paper extends prior agency‑insight work on AML and ML partners, positioning its framework beyond existing sectoral analyses. The study aims to develop a comprehensive multi‑agency theoretical framework for applying AML regulation within the banking sector. The authors link the framework to a PhD study on trade‑based money laundering, employing an agent‑principal model to analyze regulatory impacts on risk assessment. The framework shows that treating banks merely as law‑enforcement arms is ineffective and may foster complex, hard‑to‑detect ML schemes, underscoring implications for banking, regulators, and law‑enforcement.

Abstract

Purpose The purpose of this paper is to provide a comprehensive theoretical framework that can be applied to the application of anti-money laundering (AML) regulation within the banking sector. Design/methodology/approach The paper is linked to a PhD study to be published in Winter 2015/Spring 2016 that looks at trade-based money laundering and risk assessment using an agent–principal relationship to explain the underlying relationships affected by regulation in a ML context. Findings The paper finds that imposing regulation and assuming that the banking sector is simply an arm of law enforcement is not an effective approach and could actually contribute toward developing ML schemes that are too complex to be easily detected. Practical implications The paper has implications for the banking, regulatory and law enforcement areas involved in ML and its detection. Originality/value The paper offers originality in providing a comprehensive multi-agency framework that is cognisant of all factors affected by AML regulation. It extends beyond existing work that has offered agency insights into various sectors of AML and ML partners.