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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

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.

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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