The Anti-Money Laundering Complex in the Modern Era

In 1970, Congress passed the Bank Secrecy Act largely in an effort to prevent United States citizens from using foreign bank accounts to avoid paying taxes. Since then, the core record keeping and reporting rationale has expanded dramatically and is now widely touted as a critical tool in combating all manner of criminal behavior, from drug trafficking to terrorism. However, using a detailed analysis of the legislative history of the anti-money laundering (“AML”) regime, this article reveals deep flaws in the rationale that underpins much of this regulatory approach. Through the compounding of erroneous assumptions, coupled with assertions of effectiveness that lack evidentiary support, the AML regime has grown into a vast complex, with regulatory stakeholders that literally span the globe. This growth has come at a price though, and has resulted in a system that suffers from a lack of clearly definable metrics and increasingly incomprehensible regulations. The latter of which has served to create an overarching focus on compliance measures, while the proscribed act of money laundering continues almost completely undetected. With the emergence digital and alternative remittance systems, the AML complex is being confronted with increasingly complex challenges to the detection of illicit proceeds. However, the research also shows that the various AML stakeholders are not only ill-equipped to counter technological innovations, the reactionary nature of the system only leads to false confidence and increasing vulnerability to criminal ingenuity. Many of the problems outlined are systemic in nature and defy simple solutions. However, this article does highlight critical issues that are seemingly unaddressed by the current regime, with an eye towards much needed reforms