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Licensed Unlicensed Requires Authentication Published by De Gruyter December 31, 2009

The Risk-Based Approach in the New European Anti-Money Laundering Legislation: A Law and Economics View

Lucia Dalla Pellegrina and Donato Masciandaro
From the journal Review of Law & Economics

Abstract

In 2005 the European Commission adopted the Third Directive on Anti-Money Laundering (AML), which was to be implemented into national laws at the latest by December 2007. The key feature that characterizes the Third Directive is the idea that the regulatory framework should be risk-based (RBA). The aim of this regulation is to elicit a high level of outcome in terms of AML effectiveness from self-interested financial institutions (FIs) who hold private information. In this paper we study how to increase the effectiveness of AML rules, using a principal-agent framework to describe the regulatory setting in which an RBA is applied. We focus on incentive problems arising in a three-layer hierarchy, which includes public authorities (policymakers), financial institutions, and supervisors.

Published Online: 2009-12-31

©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston

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