Few areas of international law reach as far into our daily lives as international law of financial crime. If you buy a coffee using a bank card, take out a mortgage, invest in cryptocurrency or carry out a myriad of other financial activities – whether wholly mundane or highly esoteric – you are invariably subject to your bank’s transaction monitoring. If your transactions are found to be suspicious, they will be reported to the government’s financial intelligence unit and may be investigated further. Should you be flagged repeatedly, or merely unfortunate enough to be classified as high-risk (for example, because of your citizenship!), your accounts may be shut down with no explanation, with your financial life dramatically affected.

Those are but some ramifications of anti-money laundering, counter-terrorist financing and counter-proliferation financing (AML/CTF/CPF) rules. Some of them, like suspicious activity reporting, are central to the regime. Others, like wholesale financial exclusion – ‘derisking’ – of swathes of customers, are an unintended consequence. Sometimes, the line between the intended and the unintended can be fuzzy and subjective: if a bank does not offer services to customers from industries it deems high-risk, such as gambling or cryptocurrency, is it acting prudently – or engaging in harmful overcompliance that will either stifle those businesses or push them underground?

International standards

All of those might sound like issues that, while important, are far beyond the province of international law. Surely those rules are made by domestic finance ministries, not negotiated by diplomats; their implementation is overseen by national regulatory and supervisory agencies, not any international watchdog; and breaches are punished domestically without leading to any broader international repercussions for the state concerned?

Anyone with even a passing familiarity with the subject-matter will immediately recognise the provocation. Those are all false dichotomies. International standards against financial crime are, in fact, international. Conventions against transnational organised crime and corruption require states to put in place controls against financial crime, and the Recommendations by the Financial Action Task Force (FATF), an intergovernmental grouping co-located with the OECD in Paris, set out specific measures that countries should implement. To assess compliance, FATF runs a mutual evaluation process. Those jurisdictions that perform badly risk being placed on a ‘grey list’ or, in the worst cases, a ‘black list’ of financial crime troublemakers. In short, rules against financial crime are developed and enforced in a truly international, multilateral fashion.

This reflects their centrality to international peace and security. The FATF was borne of the need to go after the finances of drug cartels in 1989, before its expansion to tackle the proceeds of any and all ‘predicate crimes’. This includes the most heinous forms of organised crime: for instance, one its most recent reports addresses the financial footprint of online child sexual exploitation. Following 9/11, the FATF’s mandate has been expanded to terrorist financing. Likewise, after the Pakistani physicist AQ Khan was found to have procured nuclear weapons technology for multiple governments in violation of non-proliferation safeguards, the FATF turned its attention to the financing of proliferation of weapons of mass destruction. It is fair to say that the moral, security and geopolitical stakes of fighting financial crime could hardly be higher.

Devil in the detail

What we have, then, is an internationally mandated regime that addresses key global threats, shapes law enforcement powers, defines the boundaries of financial privacy, and costs hundreds of billions of dollars annually in compliance expenditure. One would expect its history, evolution and effects to be a major area of study and debate.

This is only partly the case. On the one hand, there has been an ever-expanding array of excellent financial crime scholarship, both academically and within think tanks. Slowly but surely, financial crime law courses spring up in law schools, mirroring the growth of specialised practices within law firms. On the other hand, the pace of these developments fails to keep up with the importance and global relevance of the subject matter.

This has profound implications for practice, too. It is far from uncommon for financial crime experts to query the value, and especially value for money, of the entire regime. The sentiment is perhaps best encapsulated in the parting press interview of the FATF’s former Executive Secretary, David Lewis, who proclaimed that all countries are doing poorly in fighting financial crime; it is only that some are faring even worse than others. This can be attributed in part to wanting compliance with international requirements, but one might also query whether the FATF Recommendations themselves are fit-for-purpose.

In a newly published book, Doing Business with Criminals: Between Exclusion and Surveillance, I set out to answer this question by tracing the thinking behind key components of the global financial crime regime. Among other things, it considers why money laundering was conceived as a distinct criminal offence at all; how the ideas of customer due diligence and suspicious activity reporting came about; when unintended consequences of the regime became apparent and what was done about them; and how the emergence of targeted financial sanctions – a concept increasingly familiar to anyone who follows the news! – represents a shift towards ever-greater control by governments of who is or is not a legitimate commercial counterparty.

My objective is to present a fresh and fair account of global financial crime rules. It is easy, and sometimes tempting, to paint a caricature of the regime as a series of well-meaning but ill-conceived attempts by governments to ‘do something’ about the finances of organised crime. Many a critic has done precisely that. The reality is both more complex and, in some respects, more reassuring.

The emergence of financial crime rules was inevitable. From the 1970s onwards, scandals across the western world shone a spotlight on the role of banks and other ‘professional enablers’, such as lawyers and accountants, in facilitating serious crime. It is easy to forget, amidst widespread criticism of the existing financial crime regime, that we know what an alternative with no such rules looks like – we only need to mentally travel back in time several decades.

But not all elements of the regime are equally important, or well thought through. For instance, while it is crucial that private-sector actors share appropriate information with law enforcement agencies, whether suspicious activity reports (SARs) are truly the best way of doing so is very much open to doubt. But, having been instantiated in the FATF Recommendations since their first promulgation in 1990, SARs have become a staple of the global regime, despite abiding doubts about their utility and efficiency.