The War on Money Laundering: the impossible victory  

The unanimous international awareness of the priority of preventing and repressing money laundering is one of the most singular events of recent decades. The United Nations Convention against organised crime of 2000 marked a universal starting point in the fight against money laundering.

The scale of the phenomenon is dismaying. Although it is risky to make estimates of the amount of money that escapes state control, the International Monetary Fund’s estimate of 2% to 5% of world GDP could not be more telling. The volume of transactions on the financial markets is close to 100 million dollars per second. This is a huge volume, and it is impossible to prevent launderers from combining, in just a few minutes, transactions of many millions of dollars to hide/floridate criminal money. 

The attack on the Twin Towers in 2001 gave a new and terrible dimension to the problem, bringing to the attention of the international community that money laundering is not only a serious disruption to the economy of states, but also a source of funding for the most vicious forms of terrorism. That same year, the United States passed the so-called Patriot Act, with a set of strong measures against money laundering and the financing of terrorism, requiring much stronger prevention programmes from financial institutions and increased due diligence reporting on foreign bank accounts.

The European Union, which had already adopted a Directive to control money laundering in 1991, has since published four more, one of them in 2001, tightening up its instruments to combat money laundering and tackle new forms of money laundering. A European Regulation is now being prepared, which will unify the regulations of the Member States and the creation of a European Authority, the AMLA (Anti-Money Laundering Authority) based in Frankfurt, which will coordinate the national Financial Intelligence Authorities.   

For its part, the Financial Action Task Force (FATF) has become a global benchmark in the fight against corruption and money laundering. Its well-known 40 Recommendations and its periodic evaluations of states have put an end to the apathy of most of them. The inclusion of a country on a black or grey list has become a stigma of the first order, causing suspicion and rejection in international trade. Nobody wants to be on such lists any more.
In Latin America, a large number of states have adopted or are adopting all or most of the FATF Recommendations.

The creation of GAFILAT, made up of 18 countries in the region, has given impetus to a good legislative framework for combating money laundering in the region. The International Monetary Fund, the World Bank and the Inter-American Development Bank are also supporting countries in the region in strengthening their financial supervisory systems. However, structural weaknesses and corruption problems in some countries make it difficult - indeed, impossible - for legislative measures to be effective. Corruption frustrates money laundering investigations themselves, and some Latin American and Caribbean economies have become laundering centres, where criminal groups are free to roam and transform their profits at will.    

The road is long and much remains to be done

In general terms, the fight against money laundering focuses on two phases: prevention and repression.

Prevention aims to prevent money laundering from being perpetrated through rigorous money controls, monitoring of clients and business partners (KYC, "know your client"). Financial institutions have the primary responsibility to implement measures capable of alerting to any attempt, and to report suspicions to the Financial Intelligence Authority. But all organisations, large or small, each at their own level, are equally obliged to protect themselves from the risk of using or being used in the movement of funds derived from corruption or drug trafficking. 

In terms of repression, in recent years we have witnessed an astonishing expansion of the offence of money laundering in criminal codes and a considerable, sometimes disproportionate, increase in prison sentences, driven by the FATF’s constant scrutiny of states, but also by the influence of the OECD. But an effective fight against money laundering requires a much more ambitious scope than the extension or aggravation of criminal offences.  It must be able to put a real end to criminal activity (drug trafficking, tax fraud, corruption, etc.), so that the dismantling of a criminal organisation does not end with the arrest and imprisonment of the criminals. It is necessary to get to the bottom of their financial system, to intervene and neutralise it, because, if this is not done, criminal organisations reproduce, like a hydra, at full speed.  

The appearance in 2009 of crypto-assets, without any legal regulation, and with their enormous potential for anonymity, opened up a new and suggestive scenario that delighted money launderers. According to Europol data, money laundering through cryptocurrencies increased by 30 % in 2021 alone, and some estimates from that same year calculated that the total capitalisation of the cryptocurrency market had reached its historical maximum in November, with 2.6 trillion euros.  The rise of this new - indeed, not so new - economy is simply meteoric.

Thanks to their anonymity, speed and transnationality, cryptoassets are a tempting, and relatively safe, instrument for circulating dirty money around the world.

In 2018, the European Union, alarmed by this hole of impunity, made obliged entities - and therefore subject to duties of control, business monitoring, etc. - providers of virtual currency exchange services for fiat currency and electronic wallets. Much more recently, it has published the European Regulation known as MiCA (Markets in Crypto-Assets), which includes an ambitious regulation of crypto-assets, mandatory in all EU Member States and whose entry into force is already taking place in stages. Although the evolution of the crypto phenomenon is so dizzying that it is still too early to assess the effectiveness of these initiatives.  

In Ibero-America, the situation is quite different. Regulations on cryptoassets are fragmented and differ substantially from country to country. Each state financial authority is developing its own rules, without being particularly concerned with designing legislation that is convergent with those of other states, which would make it possible to envisage legal and judicial cooperation in this area in the near future. The divergences are so great that, by way of example, while in El Salvador bitcoin has been legal tender and integrated into the state financial system for three years, in Bolivia it has been absolutely prohibited since 2014 until now.

Cryptoassets are a fascinating reality that is certain to profoundly transform our economic world in a very short time. But they inhabit a high-risk zone, a veritable highway for the uncontrolled circulation of money or assets. It is imperative that states develop strong and coordinated regulation.

About Diego Cabezuela:
Diego Cabezuela is a lawyer and President of In Law Alliance of Lawfirms, as well as Senior Partner at Círculo Legal (Spain). 

In Law Alliance is a network of international law firms specialising in business law. It was created in 2006 in Panama, and its objective is to provide legal services, reports and advice in all areas related to companies and business.