In November 2015, the Center for Global Development (CGD) published the report Unintended Consequences of Anti–Money Laundering Policies for Poor Countries. The product of a working group comprising scholars, policymakers, market practitioners, and other subject-matter experts, the report warned that efforts to curb illicit finance were producing significant adverse side effects. Partly in response to heightened enforcement of regulations related to anti–money laundering and countering the financing of terrorism (AML/CFT), as well as sanctions, large international banks had begun exiting relationships with countries and market segments they perceived to be high in risk or else not worth the rising cost of compliance, a practice that came to be known as “de-risking.” These pressures sometimes interacted unfavorably with banks’ changing business strategies and heightened cost sensitivity in the wake of the global financial crisis, which put further pressure on low-margin business lines and relationships. As a result of these trends, affected parties could find it harder to access certain financial services, particularly cross-border payments. This situation appeared to pose a risk to international financial integration, financial inclusion, and financial transparency—and by extension, to economic growth and poverty reduction.
The 2015 report made five sets of recommendations to stakeholders to address de-risking. The purpose of these recommendations was to better understand the scale and scope of the problem, to clarify regulatory expectations, to improve regulatory compliance among the affected sectors and to lower the compliance burden where possible without compromising financial integrity.
The purpose of this new report is to take stock of what has been accomplished as well as what remains to be done. The policy response to de-risking, especially at the international level, has been commendable. International institutions—including the G20 and its member states, the Financial Stability Board, the Bank for International Settlements and its standing committees, the International Monetary Fund, and the World Bank—have all devoted significant effort to studying the problem, clarifying regulatory guidelines, supporting technological solutions, and offering technical assistance to government authorities in affected jurisdictions to help them improve their regulatory frameworks and supervisory practices. The G7 ministries of finance, often working behind the scenes, have also been integral to this effort.
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