International anti‐money laundering regulation of alternative remittance systems: Why the current approach does not work in developing countries

Abstract

Purpose

The purpose of this paper is to examine the recommendations of an influential international advisory body, the Financial Action Task Force (FATF), towards regulation of Alternative Remittance Systems (ARSs).

Design/methodology/approach

The research design is a comparative analysis of Afghanistan and the United Arab Emirates, using available FATF documentation and external sources.

Findings

The analysis shows that FATF is right in pointing out that ARSs are useful vehicles for criminals to move operational expenses and launder the proceeds of their crimes. However, based on the cases of Afghanistan and the United Arab Emirates (UAE), it is argued that FATF's main approach of seeking to integrate these informal, traditional systems into the sphere and regulations of the formal banking system can be ineffective and even counterproductive in developing countries. Rather than taking a genuinely risk‐based approach, all ARS operators are required to be registered or licensed, conduct Customer Due Diligence (CDD) and fill out Suspicious Transaction Reports (STRs), just like commercial banks.

Research limitations/implications

The impact of mandatory registration and requiring CDD and STRs has been negligible in Afghanistan and the UAE. Therefore, the article calls for new approaches to control money laundering in ARSs.

Originality/value

The paper is the first independent, comparative case study analysis of FATF regulations and implementation. It illustrates the limited knowledge/research in the field, and the inherent limitations of the current regulatory approach.

Citation

Trautsolt, J. and Johnsøn, J. (2012), "International anti‐money laundering regulation of alternative remittance systems: Why the current approach does not work in developing countries", Journal of Money Laundering Control, Vol. 15 No. 4, pp. 407-420. https://doi.org/10.1108/13685201211265999