A ‘Risky’ Risk Approach: Proportionality in ML/TF Regulation

Abstract

Proportionality matters in the relationship between the government and the public. Though it is not operationalised, it evolves alongside political and legislative developments. However, in the field of money laundering, it is questionable whether this principle is met. A review of the Regulatory Impact Assessments for UK Money Laundering Regulations in 1993 and 2001 showed costs to be significantly understated and benefits unquantified, merely promising sweeping protections for society. This way of dealing with proportionality to justify enhanced measures reduces it to an empty formula. We are of the opinion that the proportionality principle is too important to be ignored, especially in the (global) anti-money laundering (AML) policy which since 2001 additionally encompasses the financing of terrorism. This regime has now been made more targeted by the new risk-based approach. The question is whether this approach has achieved the right proportionality.