AML/CFT: Strengthening Financial Inclusion and Integrity

September, 2009     Jennifer Isern and Louis de Koker

Over the past 30 years, access to formal financial services for low-income people has increased dramatically. However, misguided efforts to reduce criminal behavior threaten to slow the pace of that progress.

International standards on anti-money laundering (AML) and combating the financing of terrorism (CFT) promote financial integrity and support the fight against crime. However, the inappropriate implementation of these standards—especially in emerging markets—plays a role in excluding millions of low-income people from formal financial services. It can relegate the unserved majority to the informal world of cash, undermining social and economic advancements and denying regulators and law enforcement a key means of strengthening financial integrity: the ability to trace the movement of money.

It need not be this way. Financial inclusion and an effective financial integrity regime can—and should—be complementary national policy objectives. International AML/CFT standards have some flexibility, enabling countries to craft effective and appropriate controls. The challenge is finding the right level of protection for a particular financial environment.