Global financial governance and the informal: limits to the regulation of money

Abstract

The list of predicate crimes for the Recommendations of the Financial Action Task Force (FATF) has evolved and grown over its twenty-five year existence. The evolution of this list reflects shifting concerns among the central actors in the organisation, as well as representing a response to any 'displacement' activity undertaken by those seeking to avoid these forms of governance. When the scope for cooperation and compliance with the FATF Forty Recommendations was extended beyond the organisation's membership this governance regime encountered business sectors and financial practices not readily amenable to its objectives. This paper considers the causes and consequences for the situation, as developing economy states attempt to comply with the global governance expectations of the FATF when a significant portion of the domestic economy operates 'informally'. A frame of reference is provided, with a definition for the informal economy and the concept of displacement as used in research on criminal activity. The focus here is with the nature of the cash economy operating beyond the scope of financial surveillance with implications for the comprehensive effectiveness of the global financial governance regime. The context of informal financial practice and its separation from the regulatory structures of the state leads to a conclusion that global financial governance is limited in practice to the domain of the formal economy.

‘Follow the Money’

“…Through a review of the AML agenda, we aim to demonstrate that the US has formulated the problem in question and has also identified what it thinks are the best solutions to respond to it, disseminating this consolidated agenda abroad (EDWARDS;GILL, 2002). While most researchers analyze initiatives developed at a multilateral level in order to respond to what has been considered a rising common threat (ROMANUIK, 2010;VLCEK, 2017;SOTANDE, 2018), we will focus on the US's leading role in defining this agenda on a global level (ANDREAS; NADELMANN, 2006).…”

Informal Economy Enabling Tax Evasion and Money Laundering in Pakistan: An Analytical Study

“…The disparity between an anti-money laundering (AML) administration's framework and its actual execution outside of the underdeveloped country's economic constrained formal financial sector affects the administration's efficacy in combating money laundering. Shadow economies and irregular banking transactions originate and function outside of the reach of anti-money laundering procedures by definition (Vlcek, 2018).…”