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Are laws designed to prevent money laundering, terrorism-finance and sanctions violations unintentionally hurting people in poor countries? That’s the question a recent CGD report seeks to address. Anti-money laundering/combating the finance of terrorism laws (AML/CFT) are grounded in reasonable national security concerns – to prevent the cross-border flow of funds to terror or criminal groups. Banks, if unable to identify the end-customer of an international transaction, could find themselves (unwittingly or not) in breach of these laws, and facing stiff penalties.
The report identifies the practice of de-risking – whereby banks deny services to customers in countries that are deemed too risky. This may prevent some nefarious activity but it can also hurt those in developing countries who depend on such funds, including families of migrant workers, small businesses that need access to capital, and NGOs and their clients.
How can we make AML/CFT laws more equitable without going soft on national security?
"We don't see solving this problem as a tradeoff with solving the security problem," CGD Senior Fellow Vijaya Ramachandran, the director of the AML Working Group, tells me in the podcast. "We actually think if you can address this problem you may well make the security system stronger as well."
I sat down with Vijaya and Clay Lowery, the chair of the Working Group, to discuss the Unintended Consequences of Anti-Money Laundering on Poor Countries.
Earlier this year, The Centre for Research on Multinational Corporations (“SOMO”; a Dutch NGO) issued a report about an international mining company they said had avoided paying $232 million USD in taxes in Mongolia. The Oyu Tolgoi mine is considered a big deal in Mongolia and has been subject to lengthy negotiations on how to split the risks, costs, and profits of the project between the company and the government. While this question is of primary interest to the people of Mongolia, I think that delving into the detail of individual cases like this is also important for clarifying the broader debates and understanding of tax issues.