This dissertation studied the concept of money laundering, the position of anti-money laundering law under the financial regulation law, the history of anti-money laundering, and the theory of financial institutions' liability, with the aim of establi...
This dissertation studied the concept of money laundering, the position of anti-money laundering law under the financial regulation law, the history of anti-money laundering, and the theory of financial institutions' liability, with the aim of establishing a theoretical framework for anti-money laundering from the perspective of the financial regulation law.
Anti-money laundering consists of two pillars: preventive regulations imposing anti-money laundering duties on financial institutions, and enforcement including detection of crimes and forfeiture of criminal proceeds. As money laundering is linked to the financial system, which is referred to as the best means to disguise criminal proceeds as legitimate, anti-money laundering mainly focuses the regulation of financial institutions. However, as disparate elements such as casinos and virtual assets are included in the scope of the regulatory law, and the law requires financial institutions to prevent customers who tries to launder money from entering the financial system as well as report suspicious activities of the customers to the authorities, anti-money laundering regulation is different from the original financial regulations aiming at protecting customers and ensuring the stability of the financial system, which leads to raising doubts about the concept of money laundering and the legal nature of anti-money laundering.
With reference to the U.S. Money Laundering Control Act which clarifies the relationship between financial transactions and money laundering, the concept of money laundering can be defined as transactions utilizing financial institutions (narrow one), transactions involving transfers of value (broader one), and all other acts of transferring funds (broadest one).
With respect to the position of anti-money laundering under the financial regulation law, there are conflicting views overseas: (i) theory of non-financial regulation the purpose of which is to suppress crimes; (ii) theory of regulation for the soundness of the financial system; and (iii) theory of compromise that the regulation aims at preventing crimes but also includes prudential regulation. As the main purpose of anti-money laundering is to prevent crimes, if it is understood only as financial regulations, it is impossible to explain regulations on areas outside the financial system. Moreover, the entry of illegal funds into the financial system may affect the decision-making of financial policies and lead to soundness risks. In this regard, the theory of compromise is reasonable. Therefore, regulations on financial institutions can be justified from the perspective of prudential regulation as well as prevention of crimes.
Money laundering began in earnest after the establishment of the financial system, and at that time anti-money laundering started. As regulations on financial institutions were tightened, money laundering expanded to areas outside the financial system, such as non-financial businesses and professionals. The BCCI case and the Bank of New York case, in which officers of financial institutions were actively involved in money laundering, cleary demonstrated that financial institutions had been in collusion with criminal forces to generate profits, while the Sindona case and the BCCI case, in which financial institutions collapsed, proved that money laundering entailed soundness risks.
While the U.S. anti-money laundering system began as a crime countermeasure, Europe's starting point was a different approach to protecting the financial system. This reflects the nature of anti-money laundering system respectively, which supports the reasonableness of the theory of compromise on the position under the financial regulation law, along with the history of money laundering.
Financial institutions are burdened with various liability due to tightened regulations. Suspicious transaction reports and trade breaks can lead to liability issues for customers. In particular, as the court in Shar case demanded justifiable grounds for exemption from suspicious transaction reporting, and the court in Ricci case acknowledged financial institution's liability for the cut-off of transactions, financial institutions fell into a dilemma between civil liability to customers and criminal liability for money laundering. In this respect, the requirements for establishing liability to customers should be interpreted in a limited manner. If financial institutions fail to discharge their anti-money laundering duties, it can lead to criminal and administrative sanctions as well as tort liability against crime victims, and if financial institutions suffer damage due to the sanctions, directors' liability for the institutions can also be recognized.
Since anti-money laundering is aimed at preventing crimes and protecting the soundness of the financial system, regulations on areas other than the financial system and the tightening of regulations on financial institutions should be justified and sustained. However, in order to resolve the dilemma of financial institutions, it is necessary to introduce an absolute exemption from suspicious transaction reporting and a UK transaction consent system, and an exit regulation to eradicate money laundering by financial institutions should be introduced.