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Anti money laundering regime hard or soft law


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The emergence of soft law has proved to be more effective than hard law in tackling the laundering of illicit flows of moneys across national borders.

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Anti money laundering regime hard or soft law

  1. 1. Color scheme appropriate for class room presentation only
  2. 2. Treaty of Osnabruck: May 15, 1648 (Ended 30 Years’ War) Treat of Munster: October 24, 1648 (Ended 80 Years’ War)Ecclesiastical power vs. Temporal PowerEstablishment of the nation- state systemWestphalia II (New Order) 450 years later?
  3. 3. “Five crimes of globalization”, viz. illegal trade indrugs, arms, intellectual property, people andmoney.“Like the war on terrorism, the fight to control tocontrol these illicit markets pits governments againstagile, stateless, and resourceful networksempowered by globalization.” (CM Naim)“A new world order is emerging, …………. The state isnot disappearing, it is disaggregating into its separate,functionally distinct parts…………………..arenetworking with their counterparts abroad, creating adense web of relations that constitutes a new,transgovernmental order.…………..” (Anne-MarieSlaughter)
  4. 4. Chinese merchants, 3000 years ago,converted their gains from trade intoreadily movable assets, moving cash outto invest in other businesses and tradingat inflated prices to expatriate funds.(Sterling Seagrave: Lords of the Rim ) Basic principles remain the same – onlyprofessionalized and globalized Transition from “hand wash tolaunderette” (Savona)
  5. 5. CM Naim: Extent from $800 bn. to $1.5 trillion perannum Illicit flows come from drugs, organized crime,opaque financial transactions, accounting juggleryand price manipulation Goes through 3 stages – placement, layering andintegration Higher insurance premia because of fraud, forpublic works where corruption is endemic,individual customers, or the institution itself,defrauded by corrupt individuals within theinstitution, reputational loss of FIs and instabilityand low or no productivity + conspicuous
  6. 6. What is the role of international lawin collective legitimation for systemtransformation in the context of theanti-money laundering movement? How does international law createconstitutive and transformativepractices at the meso and microlevels? Are such transformative practicesalways effective?
  7. 7. Qualitative information Adaptation of the Sandholtz& Sweet constructivist model Three levels related to hardand soft law Implementation reviewed inreference to 3 major issues
  8. 8. Journals Reference books FATF, FSRB, OECD, G-7/8,UNODC, US Govt. publications Newspapers & magazines Internet
  11. 11. Multilateral Macro Meso Hard Law Soft Law Micro Vienna Palermo Conv Conv FATF FSRBs UNSC G-7 1990 Egmont Resolutions Convention OAS, etc Group G-7 2001 Basle IAIS Directive Principles AML Notes Domestic Law BilateralAML Law Courts Soft Law Hard LawCriminal Joint Other Legislature Commissions MLATs Law Treaties Governments
  12. 12. Positive NegativeIncrease in seizures Mainly US-led and confined to Latin AmericaFrozen bank accounts & Confiscation growing slowlycash seizures leading to as all governments are nothigher laundering cost cooperatingCloser controls enforced by Phenomenal growth in # ofFATF OFCs and low cooperation by host countriesMore regulation in havens Developed countries find itby peer pressure difficult to dismantle instruments such as flags of convenienceEst. of Kimberley Poor controls mainly onCertification Process account of popular demandUNGA Resolution Poor awareness of origins
  13. 13. Westphalia system took over 450 years togrow and stabilize Institutional infrastructure for enforcementand law-making weak Body of laws for non-state criminal actors ininfancy Capacity building in originating nations willtake several decades Increasing awareness of transnationalcrimes limited by various other parameterssuch as literacy, political regimes, etc.
  14. 14. Enforcement machinery in non-developed nations skeletal and poorlytrained Huge returns, particularly on drugs,keeps it a very attractive proposition Synchronized international cooperationat all levels gradually spreadingTherefore it may be too early to passjudgment on the success or failure ofeither hard law or soft law or both