Regulating money laundering in developing countries : a critical analysis of South Africa's incorporation and implementation of the global FATF standards

• Main Author: Hlophe, Zakhele
• Other Authors: Vogel, Mary Elizabeth ; Bowling, Benjamin ; Yeung, Karen
• Published: King's College London (University of London) 2013
• Subjects: 332.1068
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.676917

This work uses the competing theories of regulation and ‘policy transfer’ analysis to examine why and how the global Financial Action Task Force (FATF) regime against money laundering emerged and was introduced in developing countries, particularly South Africa. It also examines the regime’s implementation efforts within South Africa’s banking sector. The popular explanation from the FATF is that this regime was introduced to help in dealing with issues of crime and protecting the financial system against abuse by criminals. The inquiry unfolds in the context of South Africa’s dual socio-economic conditions that straddle the developed-developing country divide. Findings of this study are that the global FATF regime did not primarily emerge for the proclaimed purposes of detecting or combating crime or to protect the global financial system from abuse by criminals. It may have instead emerged to deal with issues of competition, particularly regulatory and tax arbitrage. Evidence also clearly shows that the regime was imposed on many developing and small countries through the FATF’s strategies of naming, shaming and blacklisting those it labelled as Non-Cooperating Countries and Territories at the turn of the 21st century. The spread of the regime throughout the world at all costs appears to point towards a concerted drive to use or manipulate public sentiment about crime and to stigmatise mainly small and developing countries to the benefit of the narrow political and economic interests of some Western countries. Regarding the introduction of the FATF standards into South Africa, evidence shows that although the country was not blacklisted and was eventually made a full member of the FATF, the regime was, nevertheless imposed. In examining the imposition of these standards in South Africa, we found some of their crucial aspects were not designed for implementation under the socio-economic conditions of underdevelopment. Evidence also shows that they are not effective in detecting and combating crime despite the great, yet uncalculated, cost of compliance that they impose on society.