Dr. Anja P. Jakobi

Dr. Anja P. Jakobi
Peace Research Institute Frankfurt (PRIF/HSFK)
Baseler Str. 27-31
60329 Frankfurt/Main, Germany
email: [email protected]
phone: + 49 69 95 91 04 58
fax:
+49 69 55 84 81
How to Use Global Networks: Institutional Entrepreneurship and the
Worldwide Diffusion of Anti-Money Laundering Policies
Abstract
Within only 20 years, anti-money laundering regulations have widely spread across countries
and have thus become a worldwide phenomenon and an area of global concern today. This
article explains this worldwide change driven by the institutional entrepreneurship of the
United States and partner countries that relied on the network of the Financial Action
Taskforce (FATF) and its regional counterparts. Institutional entrepreneurship is marked by
the aim to bring wide-ranging change, and networks are particularly useful in spreading ideas
and policies among a large group of states. While efforts of institutional entrepreneurs are
most visible in the first stages of network building, these core actors can move to the
background once the change has been stabilized and change appears to be an overarching
collective enterprise. Over time, the FATF developed from a small taskforce to a worldwide
institution, but the structure of the network, despite its global reach, nonetheless favors the
position of those countries that initiated the institution in the first place. The seemingly fluid
network structure can thus be used to bring global political change while at the same time
securing central positioning and ongoing connections among core stakeholders. As one
consequence, the number of active proponents for global change in money laundering could
be much lower than the global activities of the FATF network would suggest.
Keywords
World society, networks, money laundering, FATF, US
Acknowledgements
This paper benefited from comments given by participants of the 2nd AGORA meeting in
Brisbane, January 2011, in particular Jason Sharman and Eleni Tsingou. I also thank Bastian
Herre for research assistance with the underlying data set.
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Introduction: The Rise of Anti-Money Laundering Policies
For about 20 years, countries have increasingly been adopting anti-money laundering
standards. As a consequence, banks increasingly assess who their customers are, whether they
are trustful or where their wealth comes from. While this nowadays seems to be business as
usual, banks for a long time did not care about the income of their clients, but referred to
values of privacy. The former anonymous bank accounts provided a prominent example for
such secrecy. However, in sharp contrast, the wealth of former leaders Mubarak or Ben Ali
has recently been subject of a public debate and was frozen abroad directly after their
resignation (Financial Times 2011). The idea of how banks and countries should respond to
ill-gotten wealth has thus changed extensively: Such financial assets are now to be quickly
traced, frozen and returned. The global emphasis on fighting money laundering has enabled a
related exchange of information, removed barriers to banking secrecy within and between
countries, and provided a structure for quick enforcement. As a result, the world has become a
smaller place when it comes to hiding money.
In this article, the theoretical concept of ‘institutional entrepreneurship’ is used to
explain this wide-ranging change of anti-money laundering policies and practice (compare
e.g. Hardy and Maguire 2008). Institutional entrepreneurship is a concept linked to new
institutionalist research in organizational sociology, a strand of research that is usually
referred to as sociological institutionalism in IR (Finnemore 1996b). Institutional
entrepreneurs are important elements of change and help to set up new standards across a
diverse set of actors (Beckert 1999). Institutional entrepreneurs have a visible self-interest in
such change and try to overcome barriers by very different maneuvers. As this article shows,
the Financial Action Taskforce (FATF) has been the crucial tool for institutional
entrepreneurship in the field of anti-money laundering, in particular for the United States (US)
and other founding members.1 While the FATF network has expanded from only a few
OECD countries in 1989 to a global network nowadays, these countries still hold central and
important positions in this institution.
The transnational organization of criminal networks and the simplicity of related
financial transactions has been an important trigger to establish international cooperation and
exchange against transnational organized crime. Accordingly, studies of global governance
and networks have frequently analyzed anti-money laundering policies, for example as a
crucial case for global public policy and networking, but also argued that the success in terms
of initial policy goals remains modest (Reinicke 1997:135-172, Tsingou 2010). Some
analyses presented the FATF foremost as a forum that disseminates policy problems (Hülsse
and Kerwer 2007, Hülsse 2007), while others pointed at its creation and the important
influence of powerful states (Simmons 2000, Drezner 2007, Roberge 2009). Recent work
analyzes the activities of the FATF, for example with regard to persuasion processes, but also
on how power is executed within the network (Nance 2011, Sharman 2008). As research
shows, there is an important linkage of power and policy diffusion, which implies that
powerful states coerce smaller countries to adopt the new standard (Sharman 2011).
This article contributes to this literature both theoretically as well as methodologically:
By referring to the concept of institutional entrepreneurship, it shows how the FATF network
could be used as a tool to bring change to a global field, considering issues like power and
resources as well as norms and diffusion. The concept thus bridges across rationalist and
constructivist analyses of the FATF, acknowledging the obvious power relations involved, but
1
Current FATF members are Argentina, Australia, Austria, Belgium, Brazil, Canada, China, Denmark, Finland,
France, Germany, Greece, Hong Kong (China), Iceland, Ireland, India, Italy, Japan, Netherlands, Luxembourg,
Mexico, New Zealand, Norway, Portugal, Russian Federation, Singapore, South Africa, South Korea, Spain,
Sweden, Switzerland, Turkey, United Kingdom, USA, and the European Commission and Gulf Cooperation
Council.
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also pointing at how learning and soft governance instruments are used to bring about global
political change of standards. As such, it contributes also to a refined analysis of global policy
networks. Using quantitative network analysis means applying a statistical model to
substantiate these claims, which goes beyond the qualitative case studies presented so far. The
benefit is not only a more empirical and general account of this research field, but the
possibility to lay out a research design that is transferrable to other cases of institutional
entrepreneurship, global network creation and related policy change.
Institutional Entrepreneurship and Global Networking
Institutional entrepreneurship is a concept derived from sociological institutionalism, a strand
of research that has been groundbreaking for constructivist research in IR (e.g. Finnemore
1996a, Finnemore 1996b, Katzenstein 1996). Sociological institutionalism builds on two
interrelated, yet different lines of thought, namely organization studies and world society
studies. While the former involves the study of organizations, their functions, people and
structures working in them (compare Greenwood et al. 2008), the latter are most often large-N
studies showing political or societal change across countries and time, usually with the
assumption that countries converge towards a common model, that of dominant world culture
(Meyer et al. 1997, Krücken and Drori 2009). As one of the most cited earliest work of
sociological institutionalism is titled, formal structure is thus only ‘myth and ceremony’
(Meyer and Rowan 1977). Organizations are embedded in an environment to which they need
to respond, and by following trends and expectations in the organizational field, they raise
their own legitimacy, and show adherence to common principles. This is called the
‘organizational field’, a surrounding sphere of organizations in which linkages and common
expectations exist (DiMaggio and Powell 1983). The idea of an organizational field, of
common trends, expectations and legitimacy corresponds to the idea of a ‘world society’ or
‘world culture’. Broadly spoken, world society is the constitution of a common space of
interaction, in which activities are linked, for example by common organizations, common
events and related cross-national interaction. Like in the organizational field, countries in
world society show a tendency towards isomorphism – tendency i.e. to become alike
(Radaelli 2000, DiMaggio and Powell 1983). This is visible in cross-national diffusion
processes.
However, the assessment of diffusion processes and the emphasis on legitimacy
cannot explain why specific norms or policies emerge in the first place. IR research has
developed models of a norm life cycle in which individuals or non-governmental
organizations start pushing for change for moral reasons (Finnemore and Sikkink 1998,
Nadelmann 1990). Organizational studies have pursued a similar route, but without the
normative or moral connotation, analyzing institutional entrepreneurs as agents for change
that can also based on egoistic reasons only (Beckert 1999, Hardy and Maguire 2008).
Institutional entrepreneurship refers to the broad ‘activities of actors who have an interest in
particular institutional arrangements and who leverage resources to create new institutions or
to transform existing ones’ (Maguire et al. 2004:657). The idea of institutional
entrepreneurship is an important theoretical step in sociological institutionalism since it
focuses on actors’ potential for change, not on the constraints under which they operate (Leca
et al. 2008:3).
Characteristics of Institutional Entrepreneurship
Institutional entrepreneurship is a collective process that involves partnerships, cooperation
and coalitions, material and discursive interventions (Hardy and Maguire 2008:209). Central
actors in an organizational field usually have more resources and contacts that help to
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innovate (Battilana 2006). ‘Social skills’ and the ability to relate to others are of particular
importance, for instance to achieve cooperation among diverse actors, pursue agenda-setting
with a view to common activities, or to persuade others that common interests exist (Fligstein
2001). The status of actors is also a critical component of institutional change: Actors that
come from a high prestige organization are usually at the center of the field and can thus
trigger change more effectively than those on the margins or from an organization with a low
level of prestige (Battilana 2006). Mobilizing resources is essential for institutional
entrepreneurs since they need to overcome initial resistance and secure support. Tangible
resources like financial assets can be used to bypass sanctions that other field members may
impose, or they can be used to finance the initiation of institutions or to pressure other
members to favor new institutions. Intangible resources like social capital, legitimacy or
formal authority help institutional entrepreneurs too. Social capital assists actors in providing
and receiving information and support, and in bridging different contexts that might be crucial
for institutional change. Legitimacy facilitates the perception of claims as important and gain
attention. Finally, formal authority also provides an important avenue to institutional
entrepreneurship, given that others orient themselves towards formal requirements (Leca et al.
2008:14-16).
However, power is also an important element, given that an change does not happen
in a vacuum but affects existing arrangements. In organizational analyses, power is based on
superior resources, ranging from finance to knowledge or force (Beckert 1999:792). At the
same time, power as a relational concept is intrinsically linked to the position of entrepreneurs
in the field (Lawrence 2008:174). In particular the accumulation of social, cultural or other
capital can enhance the position of an actor and his or her capability to exercise power (Leca
and Naccache 2006:645). Actors thus occupy power positions, but they do not have power per
se (Hardy and Maguire 2008:201). Institutional entrepreneurs thus face easier conditions
when their position in the field enables close contact to any other important field member.
Institutional entrepreneurs use logic and arguments that seem to appeal most to the
constituency of the field (Leca and Naccache 2006:634). By theorizing and framing,
institutional entrepreneurs devalue the status quo and seek to establish alternatives that also
resonate with the field members. Claims typically involve both interest-based as well as
normative claims: For example, claims related to efficiency are combined with moral
arguments (Hardy and Maguire 2008:208-9). In particular perceived uncertainty provides
opportunities for institutional entrepreneurs and supports institutional change, since field
members have not decided what appropriate reactions would be (Beckert 1999).
With regard to change in world politics, we can thus expect institutional entrepreneurs
to apply discursive strategies like framing to push forward a specific policy development.
Financial and social resources can be used to foster policy development in the favored
direction, for instance by sponsoring policy-implementation or by pressuring in diplomatic
networks. Mobilization of like-minded states as well as building alliances and initiating
cooperation with others is part of the strategy of institutional change. Legitimacy as well as
authority can be used too, for example when states point to the normative or legal obligation
to overcome obstacles in policy adoption.
With a view to the consequences, institutional entrepreneurs can be recognized by the
wide-ranging and deeply impacting change they aim at. Instead of influencing only a
restricted set of actors, they attempt to change rules of a field, which may result in new norms
and practices. Successful institutional entrepreneurship in world politics should result in wideranging political change, namely cross-national policy diffusion (compare e.g. Simmons et al.
2008, Meseguer and Gilardi 2009). Such diffusion is not restricted to norms in a strict sense.
Instead, change can also be brought about by seemingly technical issues or by policies that
have no immediate normative connotation. The central issue in institutional entrepreneurship
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is the intention to change the field and, in consequence, a subsequent diffusion of the new
policy and practice.
Networks as Tools for Institutional Entrepreneurship
Networks represent a particular form of international institutions (Slaughter 2004, Reinicke
1997). As a soft form of governance, networks have low costs of establishment, but may well
rely on enforcement capacities of their members. Like other international institutions,
networks can be used to establish club-rules or to find consent for multilateral rules that
would not have been accepted as a mere bilateral agreement (Abbott and Snidal 1998:18-19).
If non-members want to join, they need to comply with regulations that they could not
negotiate in the beginning (Stein 2008:211). Early proponents of sociological institutionalism
already identified networks as a source of isomorphism, causing the diffusion of standards
and norms (DiMaggio and Powell 1983). With a view to institutional entrepreneurship and its
emphasis on voluntary and flexible relations, networks are particularly suited to serve
powerful states in a non-formal execution of power and change. Networks emphasize the
relational aspect in bringing change, because the central characteristic of a network is its ties
among its members. These ties can be used to collaborate as well as to execute power. In
particular the structural position in a network is important: Central positions allow extensive
and diverse incoming information, while enabling the communication of ideas and political
goals easily across the whole field. Networks can therefore be a crucial tool for institutional
entrepreneurship. For the effective communication and realization of their aims, central
players may use a range of instruments, including discursive and framing strategies, the
formation of alliances and coalitions within the network, as well a their financial, social or
other forms of capital.
However, the different advantages of networks in the context of institutional
entrepreneurship do not come to bear at any given point of time: Building a network is
different from maintaining its structure. In line with the idea of institutional entrepreneurship,
the initial phase – construction – should be particularly crucial in determining the extent to
which a network has transformative capacity and thus serves the interests of its initial
founders. It is therefore important to distinguish three phases of networking: a) initiation and
construction; b) enlargement and transformation; and c) stability and backing up.2 During
initiation and construction, institutional entrepreneurs draw on resources, contacts and
legitimacy to bring together other allies for change. At this stage, they can be considered a
small group of outsiders compared to the overall field that still follows other rules. In the
second phase, the network has been expanded beyond its core, and significant change in the
overall field is already visible. Here, institutional entrepreneurs can build upon the effects of
network members as multipliers of institutional change and the connected cascade of
adoptions of the new practice. In the third step, the network has nearly expanded to a global
reach. Only few outsiders are not members and remain in widely peripheral positions. The
field has changed along the ultimate goal of institutional entrepreneurship and alternative
approaches are widely marginalized. In line with institutional entrepreneurship, the whole
process of change can be grounded in very different motives, ranging from egoistic to
altruistic, and it can involve any effective instrument available to the entrepreneur, from
power play to moral persuasion. Differences in behavior can only be expected to vary over
time, in the sense that efforts are most visible in the initial stage of building the network, but
revert to the background when a sufficient network structure has been built and stabilized.
2
See parallels to Nadelmann (1990) and Finnemore and Sikkink (1998) for stage models of moral
entrepreneurship.
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Institutional Entrepreneurship and the FATF Network
While institutional entrepreneurship is at the heart of global political change, networks are
central tools for reaching this new order. With regard to the case of anti-money laundering,
this article shows that the FATF network has been a crucial tool for the institutional
entrepreneurship of its founding countries, in particular the US. In a collective effort, the
network moved countries worldwide towards a new standard against money laundering. In a
variable-oriented connotation, the idea links the global diffusion of anti-money laundering
policies (dependent variable) to the global FATF network (intermediate variable) based on
institutional entrepreneurship (independent variable). The FATF is the crucial tool for policy
diffusion of the new standards
This is not an identical, but a complementary and bridging hypothesis to the existing
literature: It underlines the importance of the US and other states, their power and strategies in
the diffusion of anti-money laundering policies (compare Simmons 2000, Drezner 2007,
Sharman 2011). But the article also shows that the FATF and its specific features have been
necessary for the wide-ranging success of institutional entrepreneurs. The tool is thus not
random and state power and coalitions alone do not guarantee success. This argument is in
line with the high functionality of global policy networks (Slaughter 2004, Reinicke 1998). At
the same time, the idea of the network as a tool of institutional entrepreneurs also supports
arguments of persuasion, legitimacy and the construction of problems in anti-money
laundering (compare Hülsse 2007, Hülsse and Kerwer 2007, Nance 2011). In particular the
continuous embedding of states in a network, in combination with more central states’
resources, ideas and policy ideas make persuasion of a new standard possible. Networks, in
that sense, are thus important means to promote ideas combined with a social setting that
benefits central actors (compare Kahler 2009). They transfer the individual goals of
institutional entrepreneurs to collective action, and execute power not only within the
network, but subsequently also on its environment.
Data and Methods
Three variables are at the center of analyzing the FATF as a tool for institutional
entrepreneurship: The dependent variable of a new norm of anti-money laundering, the
intermediate variable of the FATF network and the independent variable of institutional
entrepreneurship. This article applies a mixed method design and several steps to examine this
development of institutional entrepreneurship. Different quantitative indicators are
supplemented with qualitative information on case studies of the FATF and global anti-money
laundering policies.
The FATF network will be analyzed based on two quantitative network analyses, one
which examines the development of the network over time, and the other which analyzes the
background relations of the network. Both analyses refer to how closely the network is linked
to institutional entrepreneurship, and are based on using available qualitative information and
additional quantitative network analyses (see Wassermann and Faust 1994, Knoke and Yang
2008, Scott 2007, Hanneman and Riddle 2005). Quantitative network analysis has recently
become more prominent in IR research (see Hafner-Burton et al. 2009, Kahler 2009). The
method examines the relationship in a group of actors, and traces their relationship by
quantitative indicators as well as in visual maps. The networks presented in this article are
non-weighted, one-mode networks.
The longitudinal network analysis shows how the FATF and its network have grown
over time (years 1990, 2000 and 2010). In this step, only single country members are
analyzed (N=193), thus excluding organizational members like the European Commission or
the Gulf Cooperation Council. The cross-sectional analysis shows how prominent or less
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prominent actors are in the overall structure of the FATF network and also considers the
possibilities of more hidden influence of countries besides full membership. The analysis
includes all country members as well as associated members, such as territories, associates or
observer members. The number of actors analyzed in the networks is then significantly higher
(N=263). Some organizations send delegates from different organizational units to meetings,
e.g. the European Union sends delegates from the European Commission and Europol. Since
these delegates are part of a common organization, I summed up such multiple appearances
under one label, here ‘EU’. This is done to compensate for the fact that any country,
regardless of its size and whether different offices are involved, could also only be counted
once in the data set.3 Moreover, this second analysis of the FATF and FSRB network is only
cross-sectional, not longitudinal, due to data constraints: Data on when a specific country
organization has become observer are hard to find and there are many missing values in the
past. As a consequence, only data on current membership in FATF and FSBRs could be used
(refers to August 2010).
The quantitative network analysis is carried out by using UCINet for calculations and
NetDraw for related maps (Borgatti et al. 2002). Several indicators are calculated and
presented in full in the appendix (compare Hanneman and Riddle 2005, Wassermann and
Faust 1994, Scott 2007, Knoke and Yang 2008): The number of ties refers to how many
relations exist in the given data, delivering a first indicator of whether or not members of a
given population are linked to each other and how densely. A more specific indicator is
‘overall density’: This indicator measures how many of all potential relations actually exist,
thus providing a good indicator of relative size and growth of a network. It varies from 0 (no
contact existent) to 100 percent (all theoretically possible contacts are established). Centrality
measures refer to how central an actor is in the network, which indicates a favorable position.
‘Degree centrality’ shows how far an actor is placed central to other actors. ‘Betweeness
centrality’ is used to show how far an actor is positioned as an important node to other
members of the network. Two actors may have the same degree of centrality, but may diverge
in their betweeness centrality, which would signify a better access position to other actors of
one of them. Geodesic distances provide different measures of the closeness of network parts:
The ‘geodesic distance’ refers to how far away other actors are. Linked to geodesic distance,
‘compactedness’ is a measure that shows how close the overall network is and ‘breath’ shows
to what extent it represents a rather dispersed structure. ‘Reach’ represents a specific measure
of how far or close actors are to the others in the network. Specifically, reach calculates how
many actors can be reached with how many steps within the network (dw reach), calculating
steps and the distance. In its standardized form (normdwreach), this value is put in relation to
a model in which all actors would only be one step away. Taken together, these measures
allow for a detailed assessment of the importance of actors within the FATF network.
In addition, I provide descriptive statistics on different so-called FATF-Style Regional
Bodies (FSRBs) and their linkage to FATF members over time. These data were mainly
generated by analyzing annual reports of the Caribbean Financial Action Taskforce (CFATF)
and the Asian Pacific Group (APG). The selection was made since not all FSRBs provide
reports regularly or do not necessarily contain a detailed financial statement: The CFATF
provides annual reports from 1994/5 until 2008/9 (with two exceptions). To show the
importance of donor countries in the activities of the CFATF, I carried out a quantitative
content analysis, analyzing how often these external supporters are mentioned in the annual
reports. The APG provides detailed statistics on its budget in its annual reports from
1999/2000 until 2009/2010. On this basis, I carry out a longitudinal analysis of its main
3
This treatment results in a slight bias towards international organizations, in particular with regard to their
centrality and related values. This is not further considered here since the position of international organizations
is not the focus of this article, and even the maximum values for international organizations do no exceed the
maximum values of countries.
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funding contributions since its inception, focusing on the countries that contribute most to its
working and existence. The statistical information of the CFATF and APG is supplemented
by case-based evidence on what the external actors regularly do in these and other regional
networks.
The diffusion of anti-money laundering policies will be shown by two indicators: The
first one refers to the beginning of membership in the FATF or any regional organization.
This can be conceived as an informal ratification of FATF regulations, given that these
regulations are formally not binding and do not need formal approval. The second indicator
refers to the establishment of a Financial Intelligence Unit (FIU), an organization that
oversees the implementation of anti-money laundering laws. I show the longitudinal
development of anti-money laundering regulations by diffusion curves from 1988 to 2010,
also distinguishing organizational types of FIUs. The underlying data set covers 193 countries
worldwide and refers to August 2010. It has been generated by analyzing online information
available provided by the FATF, FSRBs and related organizations.
The FATF: Initiating a Global Standard
Anti-money laundering policies first appeared prominently on the international level in 1989,
with a decision of the G7 to establish the FATF as temporarily body attached to the
Organization for Economic Cooperation and Development (OECD) (Jakobi 2010).4 Formally
proposed by the French who held the presidency of the FATF, the meeting had been prepared
in the background by the Americans and involved visits of foreign delegations to
Washington.5 After its inception, the FATF was hosted by the OECD, which is the usual host
for the implementation of G7 decisions (Woodward 2009). The FATF was financed by
special contributions, divided among states in a similar way like the OECD contributions. The
US has contributed around 25 percent of the FATF’s budget.
From the very beginning, the US played a crucial role in the establishment and
development of the FATF (see e.g. Simmons 2000, Roberge 2009). The US has a history of
engagement against transnational organized crime which also enhanced its standing as a
serious and powerful country in this respect: Examples are the war against drugs, but also law
enforcement exchange, anti-corruption and many other policy areas (Friesendorf 2007,
Andreas and Nadelmann 2006, Abbott and Snidal 2002). The country’s willingness to change
the global field with regard to money laundering, its resources and expertise were important
preconditions for successful institutional entrepreneurship.
The 1970 Bank Secrecy Act established customer identification measures for all
accounts in the US (Levi 1991:249). Since the Money Laundering Control Act in 1986,
money laundering has been criminalized. This was followed by several other acts that aim to
fight such crimes (Reuter and Truman 2004:65,45-105,118, Alford 1993/1994). Part of the
1986 legislation was the requirement that the Chairman of the Federal Reserve Bank had to
consult with other central banks about the problem of money laundering and the responsibility
of banks. After initial reluctance on the part of other Banking Chairmen, the Basel Committee
on Banking Supervision finally issued a statement in 1988 that mentioned the importance of
knowing the customer in order to avoid suspicious transactions and to cooperate with law
enforcement (Reuter and Truman 2004:80). The US Federal Bank initiated and prepared this
statement (General Accounting Office 1991:61).
4
The 1988 UN Vienna Convention against drugs also contained a first, but less prominent reference to money
laundering.
5
I thank Thierry Godefroy for this information based on interviews he conducted, see also Godefroy and
Lascoumes (2004:151-55).
.
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At a time when only very few other countries were actually concerned with this issue,
it was the declared goal of US politics to establish an international level of fighting money
laundering, Around the same time, it became clear to the US that mutual assistance treaties
would not solve the problem of whether or not transactions would be adequately recorded and
monitored. Countries and banks could simply state to have adequate records, without any
verification possible. Also, it would be highly problematic to effectively enforce sanctions
within such treaties, even if they were considered to be very necessary for giving teeth to
fighting money laundering (General Accounting Office 1991:56). There was thus a great need
for a multilateral, yet enforceable instrument to bring about wide-scale change with regard to
money laundering. Moreover, the internationalization of standards was plausible for the US
since it had a history of unsuccessful attempts at applying its national laws to other territories:
In the early 1980s, the US attempted to apply its anti-money laundering regulations –
particular access to financial information – to banks with branches in the Caribbean region.
After denial, a US court fixed nearly two million US $ as court charges, combined with a
threat to freeze US assets of the bank. International protest at that time prevented the US from
establishing this strategy. However, the US made tariff concessions in the framework of the
Caribbean Basin Initiative which was dependent on cooperation against money laundering
(Helleiner 1999:73). By setting a global standard, anti-money laundering issues would no
longer be perceived as only a national regulation, but as a global concern. In consequence,
any sanctions would be multilateral in terms of underlying reasons and applicable
instruments.
Reaching such multilateral agreement against money laundering has been a core
function of the FATF. In crime governance and other fields of foreign policy, the US follows
a pragmatic and case-specific approach by choosing multilateral strategies when they appear
to be reasonable and picking those forums that seem to be most promising for its policy goals
(Luck 2003:27-28,47, Foot et al. 2003:266). Moreover, the US has regularly created or
supported international institutions in locking in smaller powers to an order that was
dominated by American ideas (Ikenberry 2003). The case of initiating anti-money laundering
regulations in the US-dominated G7 was such a case of pragmatism and strategic reasoning,
as a form of networking based on soft governance was applied to establish a wide-ranging
global regulation in those countries that are close to or even hosting large banking centers. At
the same time, crime prevention and prosecution was not an entirely new topic for the G7.
The meetings had already dealt with crime governance during the 1980s. Internal working
groups, most prominently the so-called Lyon Group and the Rome Group, developed policy
proposals to fight transnational crime, also with the aim of spreading them to other
international forums (Scherrer 2009).
Moreover, the US also found a field that was particularly perceptive to anti-money
laundering issues: The establishment of global anti-money laundering regulations dates back
to the late 1980s and early 1990s and in particular is linked to the growth and integration of
global financial markets. These markets not only provide opportunities for capital with licit
sources, but also for profits derived from illicit activities, in particular organized crime. This
problem became particularly obvious in the early 1990s, with the scandal surrounding the
Bank of Credit and Commerce International (Simmons 2000:244-5,249) Estimates were given
that an amount of 122 billion US dollars was laundered in Europe and the US, while others
assume that an an amount of one billion US dollars enters the financial market each day
(quoted by Simmons 2000:245).
Cooperation against money laundering also relied on further functional rationales:
Since the banking sector operates internationally, financial transactions are directed to the
place that offers the most favorable conditions. Burdens resulting from anti-money laundering
regulations are less confidentiality and bank secrecy, as well as costs linked to the
surveillance process (Alford 1993/1994). Both factors may result in clients opting for
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countries with another regulatory regime. Fighting money laundering is thus not necessarily
appreciated, and countries with a large banking sector, like offshore financial centers, may
profit significantly from a less strict regulation. This results in difficulties for regulators and
banks in other countries, in particular those of the US. The country already introduced a
national act against bank privacy in the 1970s (linked to the Racketeer Influenced and Corrupt
Organizations Act, RICO), resulting in growing costs of surveillance for US firms (Simmons
2000:246-8). Establishing a worldwide level-playing field thus not only enabled common
regulations for oversight, but also benefited the US banking sector compared to others.
Against this background, the G7 established the FATF in 1989, assembling 16
members of the highly industrialized world favorable to anti-money laundering regulations
(Gardner 2007:329). Today, the organization has 34 country members, plus the European
Union and the Gulf Cooperation Council. From the very beginning, the FATF was
conceptualized as a temporary institution, based on mandates that need to be extended. The
FATF aims to strengthen criminal law against money laundering, increase international
cooperation, and enhance the role of the private sector in anti-money laundering measures. In
the beginning, the focus was placed on money laundered from drug trafficking. Over the
years, this mandate had been extended to money laundering in general and later also to
terrorist financing.6 Current activities are based on the revised recommendations issued in
1996 and 2003 and were later supplemented by the new focus on terrorist financing (Gardner
2007:329-32). Since a revision of the mandate in 2008, activities also include first steps to
counter the financing of proliferation (FATF 2008a:2-4, FATF 2008b). In addition, the FATF
studies trends and methods in international money laundering and publishes typologies of
incidents that are assumed to represent typical money laundering schemes (FATF 2005:1-2).
Several plenary sessions are held during the year, during which the FATF discusses
regulations, implementation and reports. Attendees are financial regulators, law enforcement
representatives, and civil servants from national Treasury or Justice Departments (Levi and
Gilmore 2002:95).
The standard instruments of the FATF are the forty recommendations on fighting
money laundering, initially issued in 1990. Like the FATF itself, they represent a soft form of
governance, because they are formally non-binding. They intend to both prevent and
prosecute money laundering and cover four main areas: Firstly, they are concerned with the
legal system and targeted at criminalizing money laundering nationally. Secondly, they list
measures to be taken by financial institutions and the related non-financial sector. Thirdly,
they elaborate on institutional preconditions and further measures to prevent money
laundering and, fourthly, they define necessary international cooperation (FATF 2003). In the
beginning, the recommendations were formulated rather flexibly and imprecisely to cater to
very different legal traditions. Following new trends and insights in money laundering, the
recommendations were revised in 1996 and 2003. They have also been supplemented by the
new focus on terrorist financing in 2001, the latter again mainly influenced by the US
(Gardner 2007:329-32).
The recommendations are linked to a rigorous review process. FATF members are
required to submit an annual self-assessment, and they are regularly peer reviewed by other
members and the secretariat. In the case of non-compliance, measures include reporting on
deficiencies in FATF meetings, official letters or a high-level mission that is sent to the
country. Instruments also involve the binding request to banks to pay special attention to all
financial transactions to or from the specific countries. This measure makes access to major
capital markets extremely difficult for business and citizens. Finally, the FATF can also
6
In that process, the very idea of money laundering has also been reversed: While the original concept of money
laundering has been using ‘dirty money’ for licit purposes, terrorism financing means using good money for bad
purposes. This is actually not laundering, rather dirtying, and it is easy imagine a broad political agenda funded
on principals of related criminalization. Proliferation financing could be only a first step.
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revoke membership status (Levi and Gilmore 2002: 96, FATF 2008a:2, Gardner 2007: 333).
Despite being non-binding, FATF regulations are thus strictly enforced. For example, Turkey
was threatened with sanctions in the mid-1990s, which led to changes in the legislation.
Austria was even considered to be expelled from membership due to ongoing resistance
against the internationally required abolishment of anonymous bank accounts (Levi and
Gilmore 2002, Drezner 2007).
Countries have been subject to review procedures, even if they were not members.
Since the late 1990s, these countries have been monitored through an assessment in the
framework of the non-cooperative countries and territories (NCCT) process, whose first
report was issued in 2000 and included a list of countries that seemed to be non-compliant to
the recommendations. These and other subsequently listed countries were neither members of
the FATF nor did they sign up for the recommendations. Instead, the NCCT process was a
‘naming and shaming’ approach towards non-members, supplemented by counter-measures
and sanctions (FATF 2000:7-9). While the FATF justified the monitoring in the NCCT
process with the global nature of the money laundering problem and the effect a few countries
may have on the whole financial system, the process was criticized, since it meant that a club
of countries assesses non-member compliance to its own rules (FATF 2000:1, Levi and
Gilmore 2002:103-4). In particular, the obvious political component in judging countries was
a key point, as close allies of G7 countries were never targeted (Tsingou 2010:623). As a
consequence, future reviews have been partially transferred to multilateral institutions like the
International Monetary Fund (IMF) or the World Bank (Gardner 2007:339-40, Reuter and
Truman 2004:167-8). However, this also provoked some problems, for example since the
IMF linked its anti-money laundering agenda to that of the G7 (Tsingou 2010:623-4).
By creating the FATF, the US and its allies established a central body that promotes
global anti-money laundering standards. By choosing a forum – the G7 – where countries
would not deny support, and by subsequently linking it to the OECD, a legitimate
international authority was created that worked on an issue on which knowledge was sparse,
linked to other severe crimes – drugs – and that was difficult to counter, even for OECD
countries with huge banking sectors. The formally voluntary work of the FATF secured the
influence of those countries that were particularly interested in pushing the issue forward
through expertise and financial support. With regard to the idea of institutional
entrepreneurship, it is obvious that a relational concept of power is most adequate to describe
the creation and focus of the FATF: Although it has a clear mandate to internationalize the
primarily national regulations against money laundering, the US alone would not have been
able to set up a global standard setting body. Yet it could form an alliance of supporters that
continuously grows. At the same time, given that the US held crucial resources such as
knowledge and financial resources, it was in a favorable position to influence the further
development of this creation. Also, the uncertainty and urgency linked to money laundering
have been an important precondition for establishing an international body against money
laundering. Strategies like framing – linking money laundering to serious crimes – or the use
of alliances and cooperation, as well as the authority and legitimacy of the US in preventing
and punishing crime all supported the creation of the FATF. However, the FATF itself has not
been the only instrument for moving the global field to accept money laundering standards:
As the subsequent section shows, the influence of the FATF has been translated to regional
oversight, again widely supported by the US and its partners.
The Global Outreach: Expanding the FATF network
A central element of establishing FATF regulations worldwide was the inception of FATFstyle regional bodies (FSRBs). FSRBs are regional networks of states in which the
implementation of FATF recommendations is monitored, in a similar style as in the FATF
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itself. FSRBs have been initiated since the 1990s, with a growing number and increasing
coverage of countries in any region of the world. In almost all cases, FSRBs are single
standing organizations or formalized networks and only the European Moneyval is linked to
an existing international organization, the Council of Europe. Usually, country membership in
the FSRB goes hand in hand with the acknowledgment of FATF recommendations and the
procedures of the respective FSRB. In some cases, countries have been members of an FSRB
without signing a related memorandum (e.g. Mexico in the Caribbean Financial Action
Taskforce, CFATF), and others have been reviewed before becoming members of an FSRB
(Monaco before accessing Moneyval). The differentiation between FATF and regional FSRBs
allows for an effective and regionally differentiated strategy in implementing universal
standards. In fact, it appears to be a one-way street, in which the FATF sets regulations which
are subsequently implemented by regional bodies under consideration of local specificities.
Due to this regional expansion, the original small group of countries concerned with
establishing the global standard against money laundering successively grew over time and
now involves nearly any state worldwide. And even if new states come to exist, like the
former Netherlands Antilles Curaçao and St. Martin, they are connected to these regional
bodies within weeks (CFATF 2010a).
Figure 1 shows the development of membership in the FATF and the FSRBs over
time, starting from 15 country members in 1990 to 109 members in 2000 and 167 in 2010.
The figure shows that the majority of the 193 countries analyzed have become involved in
one or more organizations concerned with fighting money laundering. Nowadays, some
countries are even members of three organizations, for example Russia and China. Others are
part of two, like the US or Australia. There are several visible sub-networks – clusters that
show no ties to the large network in the middle. These are African-based GIABA (Groupe
Intergouvernemental d'Action contre le Blanchiment d'Argent) and the Middle East and North
Africa Financial Action Taskforce (MENAFATF), as well as the CFATF together with the
South American Grupo de Acción Financiera de Sudamérica (GAFISUD). They form subnetwork of their own, which means that their members are not members of any other group.
However, given the relationship between global FATF regulations and regional FSRB
implementation, we can expect that these segregated bodies are also in some way integrated
into the FATF network, although it must be in a more loosely connected way than other
FSRBs and countries. All in all, nearly all countries have become members of one of the
regional organizations by 2010, which signifies a large change in the overall field with regard
to anti-money laundering policies and a high degree of integration into a new normative
framework.
The growing integration of countries is also reflected in the quantitative analysis of
these networks (see table A-1 in the appendix): While in 1990 only 210 links existed among
the countries, this number has grown to 4228 in 2010. Countries thus have more contacts
related to fighting money laundering than they had 20 years ago, which is also shown in a
growing density of measures. The measurements of geodesic distances show that the network
has become more cohesive and less fragmented over time. This means that the initial network
showed a higher degree of hierarchy and exclusiveness, but both declined over time. This is
also in line with the theoretical idea of different phases of network development: While the
initial supporters where most important in the first and second phase, their impact has become
less pronounced after the field moved to the new standard. This pattern is also visible in
measures of centrality: In 1990, all FATF members were separated from the others, but equal
within the network. In the following years, some have become members of other bodies too,
while the overall network expanded. This puts those countries that are members in more than
one network in a central position, either because they relate to many others (degree centrality)
or because they provide an important link among other countries (betweeness centrality).
While FATF members usually showed the highest measurements of centrality in 1990 and
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2000, the situation widely changed in 2010, when Russia and China showed the highest
measurements for centrality. These countries have thus become the central parts in the FATF
network and are connected to many other countries, including those that are more distant or
difficult to reach for others. However, they took on this more prominent role only after many
countries were persuaded by the new standards. Thus the current importance of Russia or
China only bears potential for the transmission of ideas within the network and was much less
pronounced at times when the global standard was not yet established.
Figure 1: Development of the FATF-FSRB network over time
1990
2000
2010
Source: Own calculations.
Cross-Regional Outreach: Formal and Informal Linkages
The different positioning and influence of central actors can also be shown in the
regionalization of FATF activities, a process in which associate membership, observer status
or other forms of support have become particularly important. The FATF network then
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encompasses relations between full members and observing or associate members, including
international organizations and other actors. The related support of anti-money laundering
activities can take very different forms, including background work like financing or technical
assistance. The worldwide existence of regional FSRBs should not be mistaken for a bottomup process. Instead, beginning with the CFATF, the creation of FSRBs was initiated and
supported massively by FATF-members.
The linkage is visible in overlapping membership, assistance provided and financial
support of activities: Moneyval, the FSRB attached to the Council of Europe, has two regular
observing members from the FATF, and others deliver technical assistance and expertise
(Moneyval 2010:13-16) Major donors to the Western African GIABA are the UK, US, France
and Portugal, including technical assistance delivered by these and other countries (GIABA
2010:6,16). The Eastern and Southern African Anti-Money Laundering Group (ESAAMLG)
was also initiated with support from the FATF, prominent members and other international
organizations. Its founding meeting ‘was a culmination of consultations that had taken place
since 1995 on the need to develop a regional mechanism to co-operate in the implementation
of AML programmes.’ (ESAAMLG 2009:7). Later, the US also provided technical assistance
and training in the fields of anti-money laundering and FIU operations, e.g. in Lesotho and
Malawi (ESAAMLG 2009:38,54). The initial founders of the FATF thus facilitate global
activity by investing resources and technical knowledge.
The CFATF provides a particularly suitable example of this support: Although it
seemed to be rather isolated in the overall FATF network above (figure 1), the CFATF has
been supported from its very beginning by non-members countries that are central in the
network. The CFATF founding meeting was already accompanied by five FATF members
that were also donors to the process of building the organization: the US, Canada,
Netherlands, France and UK (CFATF 1995:5). Two years before the official creation in 1992,
a meeting in Aruba gave rise to the organization and 19 recommendations modeled after the
FATF (Richards 1999:233-7). Over many years, the donor countries – later renamed to
Cooperating and Supporting Countries (COSUN) – provided funding for the secretariat and
its operations: In 1999 alone, France provided the deputy director and US$ 29,000, Canada
provided US$ 13,333, the UK US$ 24,357, Netherlands US$ 30,000 and the US provided
US$ 40,000 to the operations of the CFATF (CFATF 1999:11). This stands in sharp contrast
to the annual membership contribution of around US$ 5,200 for CFATF members in that
year. More recently, the smallest amount given by a COSUN country still exceeded the
largest membership contribution (CFATF 2002:49). Moreover, since its beginnings o, the
organization had difficulties in raising the membership fees, which resulted in a shortfall of
around 300,000 US $ in 2007 (CFATF 2007:24). While this has led to doubts concerning
anti-money laundering commitments, countries have pointed to their stressed economies and
their status as developing countries (CFATF 2009:49-50). In 2010, and after a crisis in the
operations of the CFATF, the organization decided to introduce sanctions if members did not
fulfill their obligations (CFATF 2010b).
CFATF and COSUN provide an important example of how the regional efforts are
widely dependent on external support. Donors also differ in their importance: not only with
regard to financial investment, but also with regard to their role in overall organizational
activities. An analysis of references to COSUN in the annual reports of the CFATF shows that
they are frequently mentioned, most often the US (see figure A-1 in the appendix). Such
references include the mentioning of mutual legal assistance treaties, funding information or
new national laws. Thus, there is apparently not only a dependency on funds from COSUN,
but CFATF members also have political and technical exchange with these countries, and
their input is essential in many respects.
However, the CFATF is not the only FSRB in which FATF members are substantially
engaged in securing anti-money laundering implementation. The Asian Pacific Group (APG)
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is a further case of well-documented support of FATF members, in this case as full members.
The APG was founded in conjunction with the Commonwealth Secretariat as part of an
awareness raising strategy against money laundering in the Asian and Pacific Region. A first
secretariat was established in 1995 with the objective to establish a permanent regional
network (APG 2010b). The formal decision to establish the APG was taken in Bangkok in
1997, also with reference to the fact that other regions had already introduced anti-money
laundering policies, which created stronger problem pressure for those regions that lagged
behind: ‘There is an increasing risk of vulnerability to money laundering in the Asia/Pacific
region as other regions introduce anti-money-laundering measures’ (APG 2000:35). The
already existent activity against money laundering thus delivered a legitimate as well as
functional rationale for further regional activity. The APG secretariat was established in
Australia; today the organization comprises 40 members, of which 10 are also FATF
members. Many countries only have a low per capita income, for example Afghanistan and
Myanmar.
Given that it is the main sponsor of the secretariat, the Australian government has the
largest share in member funding of the APG so far (2,832,496 AU$ in total, see table A-2 in
appendix). Membership rates formally correspond with the economic status of a member
country, but are adapted to the overall organizational costs and the number of other paying
members. Besides Australia, the US has frequently paid the largest share to the organization:
From 1999 onwards, its membership contributions alone add up to 2.463,413 AU$. Japan also
contributed a large share of AU$ 2,013,713. With a large distance, Korea and India follow in
fourth and fifth place of overall contributors (AU$ 806,740 and AU$ 734,098). The relative
contributions in combination with member states reflect an even more pronounced hierarchy
in funding of the APG (see figure 2). The average annual funding of Australia has been 29.3
percent from 1998/99 until 2009/10. The US contributed an average of 18.5 percent and Japan
16.1 percent.7 However, this mean value conceals the fact that these countries contributed
more than 90 percent in the beginning years, only slowly declining to 39.8 percent. At the
same time, the organization has grown from three paying members (Australia, Japan, Hong
Kong) to 40 today.
Figure 2: Membership Contributions to APG
100
90
Percentage Australia, USA and Japan
No of Paying Members
80
70
Percentage United States
60
50
40
30
20
19
98
/9
19
99
/0
0
20
00
/1
20
01
/2
20
02
/3
20
03
/4
20
04
/5
20
05
/6
20
06
/7
20
07
/8
20
08
/9
20
09
/1
0
10
0
Source: own calculations based on APG annual reports, rounded figures.
7
This percentage was calculated as a mean value of all annual shares, thus excluding inflation effects.
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Notably, these figures do not include voluntary contributions or sponsorship for special
events. Related amounts can be substantial: In 2000, the US government sponsored a
workshop for evaluators with 162,945 AU$. The Australian government and administration as
well as other countries and international organizations also sponsored similar activities, which
added up to around 40 percent of the overall budget in that year (APG 2001:43-44). Around
ten years later, such support from core FATF and OECD members is still provided (compare
APG 2010a:40): In 2009/10, Australia provided accommodation and support to the
secretariat, and made further voluntary contributions accumulating to 306,401 AU$. Canada
supported the attendance of delegates and participation in meetings by several APG members
(AU$ 219,564). The United States supported the development of national coordination with
regard to anti-money laundering and counter-terrorism financing (US $ 64,824). Furthermore,
New Zealand supported missions and gave voluntary contributions amounting to AU$ 45,000.
The start and the agenda setting of the APG were thus heavily influenced and
supported by FATF members, which are still the dominant contributors to the organization.
The regional effort to keep up with international standards thus is closely linked to specific
member countries that have initiated the very same global standard before. With a view to
institutional entrepreneurship, the case of the APG shows that the countries that were
particularly eager to set the new standard supported its diffusion by initiating and enlarging a
regional network. After the process had reached a level of stability, their engagement
remained substantial, but has become relatively small over time.
Both cases of the APG and the CFATF show the different the support of regional
efforts is among FSRB members: The large share of organizational funding and sponsoring of
events is paid by those countries that have supported the setting up of the global regulation in
the first place. Besides Australia, the country hosting the organization, the US has been an
important contributor of both membership payments but also extra funds to events that seem
to be particularly important. In the case of the CFATF, the US and other COSUN were able to
influence the activities and organization extensively even without being a member.
Membership, thus, is an important element for agenda setting, but it is not necessarily
required. Resources, expertise, and also coalition-building and burden-sharing with like
minded states can do the job too. From the perspective of institutional entrepreneurship, it is
evident that the US and other states have effectively placed anti-money laundering on agendas
worldwide, by first creating a global standard and then massively investing in its regional
implementation and oversight. Whether or not the initiators are formal members of these
regional networks does not seem to be the most important factor. Instead, the resources
provided have been crucial and include not only funding for the regional organizations, but
also training seminars, advice on how to set up FIUs, and similar activities.
Status Quo: Stabilization of Anti-Money Laundering Policies
The global network against money laundering thus benefits widely from background
activities of prominent and early FATF members and their resources. This influence and
centrality also is apparent when analyzing the whole network quantitatively, including the
observers, associates and the like. By this method, we not only cover the obvious activities of
FSRBs, but also supporters like COSUN, international organizations active in the field, as
well as any other actor that has the status of being associated with the worldwide network. In
total, this expanded network includes relations among 193 countries (of which 170 are
network members or observers), 14 territories and 53 organizations (all members or
observers, all referring to 2010). There are many relations that span across different parts of
the network and among different regional and international organizations. Figure 3 shows
this network using a node size that reflects the degree centrality of network members. Larger
nodes thus signify a more central position.
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In comparison to the network of members in the same year, shown in figure 1 above,
the expanded network shows a higher degree of integration: Only MENAFATF and GIABA
now form two sub-networks, while all other countries and organizations are linked to each
other in one overall structure. This is also reflected in network measures (see Table A-3):
240 of 263 actors are either members of the FATF or an FSRB, or they have some form of
associated membership. The overall density is 0.2244 and is thus significantly higher
compared to the network that only encompasses members. Furthermore, compactedness is
higher and fragmentation lower. These values reflect the higher interaction that is possible
when combining the different membership ties. The network is not only broader and denser,
but also demonstrates higher centrality values. This signifies that members are less equal and
that some network members enjoy significantly more links to countries and organizations
than others. Here, the US stands out with the highest degree centrality of 0.774 and the
highest betweeness centrality of 0.030. The United Kingdom ranks second with a degree
centrality of 0.744 and a betweeness value of 0.025. In contrast, those countries that seem to
be highly prominent in the membership network – Russia and China – are becoming less
important when considering this broader network (values of both: 0.542; 0.006). The
inclusion of less prominent structures, like a more informal network including observers and
associates, thus strengthens the position of network members that seemed to lose their central
position over time.
This trend is also underlined by the reach values that signify how easy other actors
are accessible to given members of the network: Here again, the United States is the leading
country with a reach of 202, followed by the UK and Canada. Their values correspond to
their ability to reach more than 70 percent of all actors in the network immediately. China
and Russia show a value that signifies only a reach of around 65 percent, which is 11 percent
less than the US. The changes within the network structure are thus not as pronounced as the
analysis of membership linkages above initially suggested. Instead, the network still puts
those countries in the most favorable and central positions that have initiated the global fight
against money laundering in the first place – in particular the US. The global FATF network,
thus, is a structure that early members can consistently rely upon.
Figure 3: Global FATF/FSRB Network including Associates and Observers
Note: Size of nodes corresponds with their degree centrality.
Source: Own calculations
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Such a central position in a wide network, combined with the resources and authority of the
US is highly favorable and can be used to engage in the network widely and effectively. One
example of a powerful information spread was the case of the Banco Delta Asia in Macao.
Relying on an anti-terrorism law, the US accused the bank – by reference to classified data –
of supporting the North Korean government in acquiring weapons of mass destruction. In
2007, international banks were called on to voluntarily not trade any dollars with the institute.
Banks refrained from doing so which quickly led to the near-collapse of the bank near
collapse and stigmatized it as an international pariah of the financial system within a few
weeks (Gaylord 2008).
However, the network is not only a tool for spreading information but also has led to
wide-ranging policy and organizational change. Looking at the world today, anti-money
laundering efforts are abundant. Related legislation or institutions have been introduced in
nearly all states worldwide as customers have to fill out forms and banks must submit
suspicious transaction records. Part of these implementation efforts is the establishment of
FIUs. These organizations have been created as oversight bodies, for example to ensure that
banks follow anti-money laundering regulations, or to investigate suspicious transactions. In
line with the growth of anti-money laundering efforts, FIUs have spread worldwide at an
accelerating speed. They were first introduced Australia and Norway in 1998, followed by the
US and France in 1990, and later increased to 173 countries in 2010 (compare figure 4).8 The
establishment of FIUs first was only a by-product of anti-money laundering efforts, but since
2003 FATF recommendations 13 and 16 refer to the operation of an FIU, including its
assessment in monitoring. While many countries had established FIUs before, the number
grew further after 2003. The changed recommendation was mainly an outcome of the Egmont
group (International Monetary Fund and World Bank 2004:19). This group is a worldwide
organization of FIUs, formed in Brussels in 1995 at a US/Belgian initiative, and is nowadays
an observer in the FATF network (Gilmore 2004:71). The Egmont group established a
definition of FIUs, as well as best practices and other standards relating to these bodies, and
paved the path for the acknowledgement of FIUs as important instruments to fight crime.
Today, FIUs are also mentioned in binding conventions relating to terrorism, transnational
organized crime or corruption. They are thus an important organizational policy outcome of
global anti-money laundering efforts, but as such also enable a further differentiation of these
efforts and, at the same time, form a structure that has again been highly influenced by G7
and OECD members in its first years. As in other cases, a template for how FIUs should be
structured and operate was laid out by the same actors that have also been prominent in the
overall network.
This is reflected in the specific organizational form of FIUs. They can be set up
according to four different models (International Monetary Fund and World Bank 2004:1017): Administrative FIUs provide a buffer between financial institutions and law enforcement,
channel obtained financial information to different agencies that are responsible for regulatory
implementation or punishment. A second type is the law-enforcement FIU: In such cases, the
FIU is attached to an existing police unit, relies on own policing capacities and investigates
money laundering attempts crimes. The third model is a judicial FIU. This model is more
common in the continental law system. Prosecutors in a judicial FIU have direct access to the
information on financial activities and can initiate and oversee the investigations. Another
FIU type embodies different elements of these three types. The early FIUs of Australia, the
United States and France were administrative FIUs and this category is the predominant
model to date: of 173 FIUs, 125 are administrative types, 26 are law-enforcement types, 11
are judicial types and 11 other or unknown. Their predominance has increased over time, so
that 77.1 percent of all FIUs since 2003 are administrative FIUs. The operations of FIUs thus
8
The number of existing FIUs increases to 190 when off-shore territories like the British Virgin Islands are also
included.
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also follow those models that have been initially most prominent and have been set up by
most of the initial founders of the network.
Figure 4: The Diffusion of FIUs and FATF/FSRB Membership
200
180
FIU Establishment
160
FATF/FSRB Membership
140
120
100
80
60
40
20
20
10
20
08
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
0
Source: Own calculations
Looking back at international activities against money laundering, the large scale of
change is obvious: within just 20 years, the global field has changed massively from a few
countries aiming to prevent money laundering to a global network with a wide range of
policies. The outcome is a growing awareness among banks and other financial institutions of
money laundering, related monitoring of transactions as well as the worldwide proliferation of
FIUs. It has taken about two decades and required financial investment and many other tools
to promote international exchange, regulation and enforcement at the current level, but it has
ultimately been highly successful in terms of change.
Conclusions: Institutional Entrepreneurship, Networks and Global Policy Change
In 1993, the then Executive Secretary of the FATF stated that the organization ‘is not and has
no pretensions to become the United Nations of the anti-money laundering world. We want to
remain a cohesive and flexible body’ (Griffiths 1993:1827). Despite its exclusiveness, the
FATF has triggered a global change in anti-money laundering policies. As a tool for
institutional entrepreneurship, the networked form of the FATF provided important ways of
influence and information to its initial founders. While nowadays acknowledged as the
standard setter, its development was long-winded and resources, technology, cross-regional
efforts and exchange were required for it to reach and hold this position.
The US and its fellow funding members of the FATF have fostered wide-ranging and
global policy change, in an area that was formerly subject mainly to privacy and secrecy. The
idea of institutional entrepreneurship has proven helpful in explaining this change, since it
underlines the importance of collective activity to influence a whole field and its standards.
Thus it serves to conceptualize collective activity and its extensive impact.. By analyzing
origins, mechanisms and effects of international policy change without being bound to a
rationalist or constructivist framework, institutional entrepreneurship can be an important
element to explain further changes in world politics. In particular its proximity to network
analysis makes this concept an important middle-range supplement to other theories in IR, as
it draws on arguments linked to power, interests and persuasion alike. It requires the analysis
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of very different ways of influencing the field and thus draws a complex picture of political
activity, including different means of influence and coalition-building.
The FATF, its regulations and related bodies have been a significant success as a soft
form of governance that is enforced by strong means and supported by its initial founders. As
the examples of the CFATF and the analysis of the global network of members and associates
showed, a central position in the network may be hidden behind a less important official
status. Despite many changes in the structure, membership and the recommendations
themselves, the regulatory authority of the US and initial FATF members has persisted. The
widening of a network – which may look like disseminating responsibility – does not mean
that the opportunities of actors become more equally dispersed. Instead, influential positions
established in the beginning might well be found in the network even decades later. This also
shows the importance of less formal channels of influence that come along with the flexibility
of governance networks. The flipside of this phenomenon, however, is that the actual number
of true supporters of the global network may be much lower than the large spread and the
wide-ranging activities suggest. Global networking is then still the work of only a few states,
which may lead to doubts on whether the worldwide standard is actually appreciated by the
majority of states. The difficulties in the CFATF may be one indicator of this problem.
Furthermore, the case of the FATF also shows a further limitation of global efforts:
While global networking, increased information exchange and visible policy change might
appear to be a success story, money laundering is nowadays not necessarily easy to prevent
and detect. The issue of reliable data on money laundering remains salient. The current FATF
mandate contains references to cost-benefit analyses and global threat assessments (FATF
2008a:3). The mandate’s first version even explicitly stated that ‘the FATF should also
increase its efforts to become the authoritative source of data/information on money
laundering and terrorist financing issues’ (FATF 2004:3). Thus, so far all activities have
resulted in a highly developed structure, but it is still unclear to what extent this actually helps
to prevent money laundering or how large the problem of money laundering actually is. From
a theoretical perspective this uncertainty has an important side effect: as organization
sociologists acknowledge, in particular those organizations which have unclear goals and
outcomes that are difficult to assess are influenced by diffusion processes (DiMaggio and
Powell 1983). The insecurity linked to such cases makes external influence more likely. From
this perspective, the success of establishing an anti-money laundering structure might be
closely linked to its insecure outcomes. However, this could have severe consequences for the
analysis of many current efforts at global governance. Accordingly, we could expect those
areas to flourish on the global level, in which the actual policy outcome is most difficult to
detect – and perhaps not even existent. In other words: areas with very wishful aims but
highly unclear outcomes.
Thus, both the successful and unsuccessful efforts at fighting money laundering have
important implications for effective resource investment and global agenda-setting. Future
research needs to tackle this and other issues closely. All in all, the informality and flexibility
of networks are important means for bringing about wide-ranging change by institutional
entrepreneurs. The analysis of which countries initiate such activities, in which policy fields
and with what degree of success is an important, yet underdeveloped research topic.
20
AP JAKOBI
Appendix
Table A-1: FATF and FSRB Network Statistics over Time (countries only)
Year
Number of Actors analyzed
Number of FATF or FSRB members
Number of Ties
Overall Density
Highest Degree Centrality
Highest Betweeness Centrality
Geodesic Distances
Average Distance
Compactness
Breadth
Source: own calculations
21
1990
2000
2010
193
15
210
0.0057
0.078
0
193
109
2134
0.0583
0.214
0.005
193
167
4228
0.1163
0.344
0.132
1
0.006
0.994
1.402
0.072
0.928
1.979
0.22
0.78
Table A-2: Membership Contributions to the APG
Country
Afghanistan
Australia
1998/9
1999/00
2000/1
2001/2
2002/3
2003/4
2004/5
2005/6
2006/7
2007/8
2008/9
2009/10
0
0
0
0
0
0
0
1,108
4,800
5,532
6,135
250,000
250,000
250,000
250,000
257,244
264,447
264,000
266,000
266,921
270,000
119,364
6,630
Total
24,205
124,520 2.832,496
Bangladesh
0
0
0
0
0
4,800
14,974
4,800
6,829
7,554
8,093
7,773
54,823
Brunei Darussalam
0
0
0
0
4,386
4,800
4,800
4,800
4,800
5,532
6,135
6,630
41,883
Cambodia
0
0
0
0
0
0
4,792
4,800
4,800
5,532
6,135
6,630
32,689
Canada
0
0
0
0
0
0
0
0
128,444
151,677
170,536
180,211
630,868
China, PR
0
0
0
0
0
0
0
0
0
0
0
210,000
210,000
Chinese Taipei
0
0
16,151
44,162
47,936
56,394
56,462
53,017
49,041
53,200
56,869
57,478
490,710
Cook Islands
0
0
0
4,792
4,439
4,800
4,800
4,800
4,800
5,532
6,135
6,630
46,728
Fiji Islands
0
0
0
4,481
4,193
4,800
4,800
4,800
4,800
5,532
6,135
6,630
46,171
13,400
0
39,032
37,478
38,607
45,505
46,236
45,180
38,471
41,074
44,110
46,011
435,104
Hong Kong, China
India
0
0
0
0
123,205
71,806
75,618
78,787
75,766
90,410
101,705
116,801
734,098
Indonesia
0
0
0
0
0
38,796
24,787
26,404
29,996
34,557
39,204
44,831
238,575
39,970
106,908
125,397
145,533
125,915
171,600
180,000
186,000
187,000
220,880
250,750
273,786 2.013,739
Japan
Korea
0
0
19,620
75,427
53,820
74,372
79,310
82,816
86,851
100,800
112,454
121,270
806,740
Laos
0
0
0
0
0
0
0
0
0
5,532
6,135
6,630
18,297
Macau, China
0
0
0
5,058
4,487
4,800
4,800
4,800
4,800
5,532
6,135
6,630
47,042
Malaysia
0
0
4,220
16,623
13,652
16,377
17,474
17,459
16,704
19,000
21,730
23,989
167,228
Maldives
0
0
0
0
0
0
0
0
0
0
6,135
6,630
12,765
Marshall Islands
0
0
0
0
0
7,134
4,800
4,800
4,800
5,532
6,135
6,630
39,831
Mongolia
0
0
0
0
0
0
4,800
4,800
4,800
5,532
6,135
6,630
32,697
Myanmar
0
0
0
0
0
0
0
1,477
4,800
5,532
6,135
6,630
24,574
Nauru
0
0
0
0
0
0
0
0
0
5,532
6,135
6,630
18,297
Nepal
0
0
0
1,491
4,431
4,800
4,800
4,800
4,800
5,532
6,135
6,630
43,419
New Zealand
0
10,000
10,000
12,597
17,015
19,485
20,225
41,524
50,664
61,875
34,134
36,706
314,225
Niue
0
0
0
4,956
4,071
4,800
4,800
4,800
4,800
5,532
6,135
6,630
46,524
Pakistan
0
0
0
10,285
8,429
9,576
15,863
14,601
12,914
10,898
10,223
9,638
102,427
Palau
0
0
0
0
4,367
4,800
4,800
4,800
4,800
5,532
6,135
6,630
41,864
Papua New Guinea
0
0
0
0
0
0
0
0
0
0
3,276
6,630
9,906
Philippines
0
0
4,204
12,822
10,504
12,315
16,030
8,742
10,782
12,075
13,696
15,596
116,766
AP JAKOBI
Samoa
0
0
4,280
5,076
4,456
4,800
4,800
4,800
4,800
5,532
6,135
6,630
51,309
Singapore
0
0
11,586
16,707
27,150
27,948
31,999
31,297
30,057
33,926
37,652
41,555
289,877
Salomon Islands
0
0
0
0
0
0
0
,0
750
5,532
6,135
6,630
19,047
Sri Lanka
0
0
0
0
0
4,800
4,800
17,101
4,800
5,532
6,135
6,630
49,798
Thailand
0
0
0
4,716
4,518
52,569
20,696
25,851
19,849
22,698
25,184
27,897
203,978
Timor Leste
0
0
0
0
0
0
0
0
0
0
6,135
6,630
12,765
Tonga
0
0
0
0
0
0
4,800
4,800
4,800
5,532
6,135
6,630
32,697
United States
0
114,825
144,775
148,875
239,625
217,500
236,775
232,925
220,000
291,033
295,000
Vanuatu
0
0
0
2,387
6,644
4,800
646
4,800
4,800
5,532
6,135
6,630
42,374
Vietnam
0
0
0
0
0
0
0
0
750
5,532
7,217
7,925
21,424
322,080 2.463,413
Note: All amounts given in AU$, not adjusted for inflation. Voluntary contributions or special funding is not included. The slight variance in the decrease
and increase of funding in single years is explained by rising costs that nonetheless result in lower membership fees in a given year, if new members are
accepted which contribute to burden sharing.
Sources: APG Annual Reports, own calculations
23
Table A-3: Network relations including observers, associates and the like
Analyses
Number of Actors
Number of FATF or FSRB members/observers
Overall Density
Highest Degree Centrality
Highest Betweeness Centrality
Results
263
240
0.2244
0.744
0.3
Geodesic Distances
Average Distance
Compactness
Breath
1.624
0.411
0.589
Reach (dwReach)
Mean
Standard Deviation
Maximum
Minimum
Countries with highest reach:
- United States
- United Kingdom
- Canada
- France
- Russia, China, Japan
108.56
57.28
202
1
202
198.5
188
180
172
Reach (normdwReach)
Mean
Standard Deviation
Maximum
Minimum
Countries with highest reach:
- United States
- United Kingdom
- Canada
- France
- Russia, China, Japan
Source: own calculations.
0.41
0.22
0.77
0
0.768
0.755
0.715
0.684
0.654
AP JAKOBI
Figure A-1: Mentioning Donor Countries in CFATF Annual Reports
60
United States
Canada
Netherlands
France
United Kingdom
50
40
30
20
10
19
98
/9
19
99
/2
00
0
20
00
/1
20
01
/2
20
02
/3
20
03
/4
20
05
/6
20
06
/7
20
08
/9
19
97
/8
19
96
/7
19
95
/6
19
94
/5
0
Note:
The
figure
also
mirrors
short
term
trends
caused
by
a new anti-money laundering regulation in the UK or the Dutch FATF presidency.
events
like
Source: Own calculations based on CFATF Annual Reports (no report available for 2004/5 and 2007/8)
25
9/11,
AP JAKOBI
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