What happens when global goals of financial inclusion run up against global rules designed to detect and prevent money laundering? Banks ‘derisk’. They exit relationships, or reduce exposure to customers, industries or countries perceived to pose heightened risk of facilitating criminal activity and money laundering. These relationships include money service businesses, currency dealers and charities, primarily in poorer or less-developed countries: the very regions that are the targets of global financial inclusion initiatives.
As a consequence, these clients are reluctantly forced to return to the shadow banking world from which they emerged. This trend can be blamed partly on well-intentioned anti-money laundering regulations introduced 50 years ago but not revisited to align them with contemporary realities. As an example, deployment of significant regulatory and law enforcement resources towards monitoring low-value transactions from, say, the street sale of drugs, has not resulted in a meaningful decline in money laundering. Instead, it has diverted precious resources away from focusing on high-value transactions, for example in real estate or the antiquities market. Iterative additions to the original regulations coupled with significant recent penalties for non-compliance imposed by global regulators have merely exacerbated the problem. The limited resources at our disposal now have to police a larger universe, errors and slippage are inevitable.
