While the UK’s vulnerability to money laundering is well-known, an accurate estimate of the scale of money laundering in the UK is not available. As a recent workshop held by the Strategic Hub for Organised Crime Research and funded by the Economic and Social Research Council (ESRC) confirms, there is more thinking to be done about how we can exploit available data to improve our evidence base on the scale of money laundering.
Although this exercise is sensible, to understand its true value, we must start at the beginning and ask: Is a precise estimate truly necessary to convince anyone of the need to tackle money laundering? Will a more accurate estimate be genuinely useful in guiding the government’s and other sectors’ efforts to do so?
Is a precise estimate truly necessary to convince anyone of the need to tackle money laundering?
Issued to accompany the RUSI briefing paper on measuring money laundering, this commentary aims to address these questions. In short, we believe that although precise estimates can give flesh to what may otherwise be an abstract problem, many of the objectives that policymakers look to fulfil can be achieved without a definitive ‘money laundering figure’.
When it comes to assessing the threat posed to the UK by money laundering, the UK government and law enforcement agencies pull no punches. In particular, the 2017 National Risk Assessment acknowledges that ‘as a global financial centre the UK is particularly vulnerable to money laundering threats overseas’. The National Strategic Assessment for Serious and Organised Crime, published by the National Crime Agency in 2018, also notes there is ‘no reliable estimate of the total value of laundered funds that impacts on the UK’ but says it could amount to hundreds of billions of pounds. Meanwhile, the recent Serious and Organised Crime Strategy is couched in similar terms and refers to tens of billions of pounds.
There are two common threads that tie these statements together: on the one hand, the seriousness of the money-laundering issue and, on the other hand, the degree of uncertainty about its precise scale. These are not new developments; nor is this state of affairs limited to the UK. Widely cited estimates quantifying money laundering at 2–5% of global GDP have been rightly criticised as mere ‘facts by repetition’.
Widely cited estimates quantifying money laundering at 2–5% of global GDP have been rightly criticised as mere 'facts by repetition'
In addition to methodological challenges, there is the basic question of what we are trying to achieve by measuring money laundering. While some researchers have attempted to design suitable methodologies, others have taken a more critical stance, which is aptly expressed in the title of a paper written by an American scholar: ‘Are estimates of the volume of money laundering either feasible or useful?’.
So, are they?
As the SHOC workshop confirmed, the desire to assess the scale of money laundering in the UK is largely based on the premise this will help prioritise and devise appropriate responses. The scale of money laundering can be seen as a useful indicator of how serious a problem it is and, accordingly, how much effort should be invested into tackling it. Discussions of possible negative consequences of tackling money laundering, such as reducing the UK’s competitiveness as a place to do business, should arguably be also informed by an appreciation of the scale of the problem to begin with.
Although sensible in theory, this approach is difficult to apply. There is no clarity on how exactly the scale of money laundering in the UK should inform policy. For instance, it is unclear whether government policy should vary depending on whether it is hundreds or ‘only’ tens of billions of pounds that are laundered in the UK each year. Nor is there an understanding of how a more granular estimate, instead of one with a bewildering number of zeroes, would affect government policy.
‘Prioritisation’ and ‘practical’ objectives
To some extent, this is a chicken-and-egg situation. In the absence of a reliable estimate, it is difficult to foresee what specific impact its availability would have. To clarify the objectives of measuring money laundering, one workshop participant suggested we might think about two distinct objectives:
- Determining how high fighting money laundering should rank on the government’s agenda;
- Informing the application of AML measures, such as by focusing supervisory efforts on sectors of the economy where money laundering mostly takes place. This requires not one overall estimate of the scale of money laundering but several sector-specific estimates.
For convenience, these can be called ‘prioritisation’ and ‘practical’ objectives respectively. They demonstrate the value that reliable and precise estimates of money laundering can add.
However, both of these objectives can be fulfilled, at least in part, without having reliable and precise estimates of money laundering. For instance, the merits of taking decisive action against money laundering can be debated by reference to case studies of large-scale money laundering in the UK, which shed light on at least some of the figures involved. One could also make a normative argument that a global financial centre should dedicate a proportionate amount of resource to preventing its abuse by criminals – although that is an article of faith that cannot be empirically proven or falsified. At the same time, ‘practical’ approaches to money laundering can be informed by identifying relative money-laundering risks faced by various sectors rather than the amounts involved.
Comparing the scale of crime
A specific ‘prioritisation’ objective that a reasonably accurate estimate might enable us to pursue is determining how much effort and resource should be put into tackling money laundering compared to other types of crime. At first sight, if the scale of money laundering surpasses that of some other crime, that may justify allocating greater resources to tackling money laundering as opposed to those other crimes.
Monetary value alone is a poor expression of the societal harm caused by some types of crime
In fact, however, this premise is problematic. Monetary value alone is a poor expression of the societal harm caused by some types of crime. As one workshop participant observed, the societal impact of human trafficking or arms trafficking is not adequately reflected by the amount of money they generate. This same argument has been made in the academic literature. Furthermore, the overall amount of money laundered in the UK includes the proceeds of many different crimes, some of which can be seen as more socially harmful than others. Undermining the profitability of one type of crime may have more benefit than doing the same in relation to another. In short, a measurement of the amount of money laundered is an imperfect basis for identifying the harms of money laundering or comparing it to the harm caused by other crimes.
Given its potential importance for setting governmental priorities and allocating resources to those sectors at particular risk, improving the accuracy and reliability of money laundering estimates in the UK is a valuable task that presents a worthwhile challenge for researchers both within and outside governmental bodies. However, given the limitations inherent in most measurements, it is important to bear in mind that these estimates are helpful, but not indispensable. While we should strive to develop our understanding of the scale of money laundering, the uncertainty about the number of zeroes that attach to the problem cannot be an excuse for complacency.
Dr Anton Moiseienko is a Research Analyst at RUSI’s Centre for Financial Crime and Security Studies.
Tom Keatinge is the Director of the Centre for Financial Crime and Security Studies at RUSI.
The views expressed in this article are those of the author(s) and do not necessarily reflect the views of RUSI or any other institution.