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5 Rev. L & Econ. 953 (2009)
How to Dodge Drowning in Data: Rule- and Risk-Based Anti Money Laundering Policies Compared

handle is hein.journals/rvleco5 and id is 953 raw text is: How to Dodge Drowning in Data? Rule- and Risk-Based Anti Money Laundering Policies Compared BRIGITTE UNGER, FRANS VAN WAARDEN Utrecht University School of Economics; University College, Utrecht University, The Netherlands In the past decade, anti-mone laundering pody has switched both in the US and in Europe from a rule- to a risk-based reporting sstem in order to avoid over-reporting ly the private sector. However, reporting instead increased in most countries, while the quaky of information decreased. Governments were drowned in data because private agents feared sanctions for not reporing. However, undke in other countries, this c6ying wolf problem (Takdts, 2007) did not happen in the Netherlands, where the number of reports diminished, but information quaky improved. The reasons for this can be found in diffrences in legal institutions and legal culture, notably the contrast between US adversarial legaksm and Dutch cooperative informalsm. The established legal sstems also provide for resistance to change. Thus, lowering sanctions in order to reduce over-reporting may not be a reakstic option in a legal stem which traditional uses deterrence bj fierce criminal and private legal sanctions. Furthermore, a risk- based approach may not be sustainable in the long run, as itigation may eventuay replace a risk-based approach again by a rule-based one, now wth precise rules set ly the courts. 1. INTRODUCTION Awareness has grown that money laundering is harmful. It makes crime pay, changes the cost-benefit calculation of criminals (Becker, 1968) and enhances their incentives to engage in criminal activities. Money laundering can also have negative effects on society, economy and politics in other respects. Honest business may get crowded out. Financial markets may lose in integrity and that could have serious impact on large financial centers and their reputation. Corruption may increase in some sectors and eventually in the whole economy. The underworld could become intertwined with the upperworld. Launderers and other criminals could undermine politics, which poses a threat to democracy. Terrorist financing is now also considered part of money laundering and poses additional threats to society.

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