Combating money laundering: does implementing the Financial Action Task Force recommendations bite?
May 2022
Research Paper 5
Dr Sami Bensassi, University of Birmingham
Arisyi Fariza Raz, University of Birmingham
SOC ACE Project: Combating trade-based money laundering: do the Financial Action Task Force recommendations bite?
PUBLICATION SUMMARY
The Financial Action Task Force (FATF) focuses on combatting money laundering. In February 2012, it codified its recommendations, ‘FATF Recommendations 2012’, consisting of a framework of measures and international standards to combat money laundering and terrorist financing. Once a country agrees to follow the recommendations, it has to produce its anti-money laundering (AML) framework that FATF can assess.
In this paper, we attempt to answer a simple question: is this working? We look at a group of eight countries in Africa and the Middle East that in the 2012– 2020 period have voluntarily agreed to implement these recommendations. Using a ‘difference in difference’ methodology, we test whether suspected illicit financial flows (IFF), measured through the trade-gap methods, decline after the decision to implement FATF recommendations. Our results point to a reduction of the trade gap characterising tax avoidance through import under-invoicing and/or Trade Based Money Laundering (TBML) through export over-invoicing.
