This project investigates the evidence of what regulatory frameworks, tools or novel instruments have been shown to be effective or ineffective at deterring the various enablers from contributing to illicit financial flows around the world.
Project Summary
Traditionally, regulators and enforcement agencies have focused on going after those committing the crimes, not the enablers of corruption. Nevertheless, professional intermediaries (lawyers, accountants, bankers, real estate agents and others) are crucial enablers of illicit financial flows (IFFs).
This research project reviews evidence on how enablers become involved in these schemes, what instruments and regulatory frameworks exist to steer them from facilitators to being the first line of defence to counter global money laundering, and how effective these tools have been to deter their participation in IFFs around the world.
Policy and Programming Implications
Regulation is the primary policy response for addressing the role of enablers, but it differs across jurisdictions and industries. Strategies to regulate the various enablers face an inherent challenge in that the activity is rarely contained within a single jurisdiction and, while international in scope, actors in different countries play different roles. Understanding these differences is key to targeting effective policy mechanisms at the international, national, and subnational levels.
A patchwork of governance systems tends to regulate the financial, legal, accounting, and other enabler professions, with further variation by national or subnational jurisdiction, and state and self-regulation. The researchers seek to understand the critical roles enablers play in IFFs, examine the diversity of regulatory models, and explore what is known about their effectiveness in order to help target future research efforts.
To further illustrate this problem, it is helpful to look at where the enablers who do the laundering are located. While it is difficult to measure the extent of IFFs flowing through different jurisdictions, according to recent reports the United States and the United Kingdom are responsible for 40% of all money laundering in the 38 OECD countries. The most significant implications of IFFs are for countries located in the Global South, with annual IFFs estimated at USD $88.6 billion stolen and channelled to the Global North, often facilitated by the enablers.
The research delineates between policy approaches and anti-corruption interventions at various jurisdictional levels, outlines tools (such as artificial intelligence and regulatory frameworks like beneficial ownership), and identifies key gaps in policy responses to curb the role of enablers in IFFs.
Research Questions
- How do enablers support illicit financial flows?
- What regulatory approaches have shown signs of effectiveness in thwarting the participation of enablers in IFFs?
- How do regulators in anti-money laundering regimes contribute to the problem?
- What impact do technological innovations and other tools, including AI, have on money laundering detection?
Methodology
The methodology rests on research and analysis of primary qualitative and quantitative sources, as well as interviews with practitioners. This is achieved in 5 steps: 1) compilation and review of secondary qualitative data; 2) analysis of key documents and studies; 3) assessment of primary qualitative data through informational interviews; 4) analysis of gaps in evidence; 5) synthesis of findings and a cumulative report.
ACE Impact
Findings
- Concerning the state of evidence related to the participation of enablers in International Finance Facilities (IFFs), our research finds that policymaking is not the same as policy implementation. Governments in the United States, the United Kingdom, Canada, Switzerland, France, and other countries have made strides to advance policies that would make it harder for enablers to help criminals launder their money. Such measures include efforts to advance beneficial ownership transparency, expand powers of unexplained wealth orders, create registries of overseas owners of real estate, and increase the responsibilities of certain enabler classes, such as lawyers, to prevent corruption.
- While governments have been quick to announce new measures, the effectiveness of these policies largely hinges on commensurate resources dedicated to monitoring and enforcement, including ensuring the validity and quality of large amounts of collected data. Thus far, there is little evidence to indicate that new policy measures have led to effectively curbing the role of enablers in IFFs, or that policies targeted at enabler groups are curbing the flow of illicit funds into those jurisdictions.
- Significant data gaps preclude the ability to analyse which policy responses aimed at enablers are most effective. While case studies clearly show that enablers do participate in IFFs, there is much less data that shows their direct intentional involvement. This leaves open several unanswered questions, including what type of regulation is most effective, what elements are crucial to successful beneficial ownership registries, how to avoid forum shopping, and whether global standards result in professional regulatory improvements.
- Competing priorities complicate the path to targeting enablers. Decision makers and regulatory authorities must weigh the relative costs associated with implementing a policy versus the benefits that it might return. Even when the decision is taken to focus on enablers, is it better to focus on emerging enabler groups or established enablers? Answering this requires knowing the size of the market that is ripe for abuse as well as the pool of potential enablers.
Impact
- Part of the core team of legal advocates helped to advance seminal legislation in Canada related to beneficial ownership by amending the Canada Business Corporations Act. Bill C-42 reached Royal Assent on 2 November 2023. It creates a public registry that lists beneficial ownership information for federally-registered corporations. This registry will be free, searchable, and scalable for all Canadian provinces. This legislation will help prevent money laundering, tax evasion, and terrorist financing. To accompany this, we launched a press conference at the Parliamentary Press Gallery and a side event to celebrate the passing of the legislation.
- We hosted a panel at Transparency International Canada in November 2023 to discuss the next steps in corporate transparency reform, and we are currently working with the Canadian Government and governments at the provincial level on outcomes from this event.
- We’re working with law societies in Canada on various measures they have to combat money laundering in the legal profession.
- Part of the core team authored an upcoming Organisation of Economic Co-operation and Development (OECD) and United Nations Office on Drugs and Crime (UNODC) publication about state measures to incentivise business integrity, including programs to counter the flow of illicit funds. This resource guide is meant to be used by states to strengthen their anti-corruption initiatives as they relate to business integrity.
Research Team Members
- Noah Arshinoff, Founder and Managing Director, ACT International Consulting; Adjunct Professor of Anti-Corruption Law, University of Ottawa, Canada
- Marc Tassé, Senior Advisor, ACT International Consulting; Professor, Telfer Business School and Faculty of Law, University of Ottawa, Canada
- Jane Humphreys, Senior Associate with ACT International Consulting; Founder of Beyond Borders Policy Consulting, Canada
