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After the Somalia Remittance Crisis: Can the Money Laundering Control System Be Fixed?


Peter Reuter
Visiting Fellow
Center for Global Development


Jean Pesme
Manager, Financial Market Integrity
World Bank


Justin Sandefur
Research Fellow
Center for Global Development

An elaborate global Anti Money Laundering system has been constructed over last 25 years. Originally aimed at reducing the drug trade and expanded to target a variety of crimes, it is now more driven by the goal of cutting off terrorist finance and imposing sanctions on countries suspected of acquiring nuclear weapons. The system is sufficiently established that it has received little criticism except at the margins, primarily with respect to how well it is implemented. Yet it is so unevenly implemented across nations, so widely flouted by major banks and with so little claim to either substantive or procedural legitimacy that this silence is hard to understand. A spate of aggressive actions by US prosecutors and regulators has generated a troubling response from the banking industry as it scrambles to reduce risk. Sending remittances to “high risk countries” such as Somalia and Pakistan is becoming increasingly difficult and expensive. Some developing countries are being cut off from the international financial system by denial of correspondent banking privileges with North American and European banks.

Peter Reuter, CGD Visiting Fellow, offered evidence for seeking substantial revision of the system. Though an authoritative assessment of the system was not possible at this time, perhaps ever, he claimed there are enough indicators of system failure to call into question the current design and implementation.

*The CIRF series is an academic research seminar that brings some of the world's leading development scholars to discuss their new research and ideas. The presentations are at times technical, but retain a focus on a mixed audience of researchers and policymakers. There’s more about the series here.


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