A generation ago not a single country had laws to counter money
laundering; now, more countries have standardized anti money
laundering (AML) policies than have armed forces. In The Money
Laundry, J. C. Sharman investigates whether AML policy works, and
why it has spread so rapidly to so many states with so little in
common. Sharman asserts that there are few benefits to such
policies but high costs, which fall especially heavily on poor
countries. Sharman tests the effectiveness of AML laws by
soliciting offers for just the kind of untraceable shell companies
that are expressly forbidden by global standards. In practice these
are readily available, and the author had no difficulty in buying
the services of such companies. After dealing with providers in
countries ranging from the Seychelles and Somalia to the United
States and Britain, Sharman demonstrates that it is easier to form
untraceable companies in large rich states than in small poor ones;
the United States is the worst offender.
Despite its ineffectiveness, AML policy has spread via three
paths. The Financial Action Task Force, the key standard-setter and
enforcer in this area, has successfully implemented a strategy of
blacklisting to promote compliance. Publicly identified as
noncompliant, targeted states suffered damage to their reputation.
Subsequently, officials from poor countries became socialized
within transnational policy networks. Finally, international banks
began using the presence of AML policy as a proxy for general
country risk. Developing states have responded by adopting this
policy as a functionally useless but symbolically valuable way of
reassuring powerful outsiders. Since the financial crisis of 2008,
the G20 has used the successful methods of coercive policy
diffusion pioneered in the AML realm as a model for other global
governance initiatives."
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