2.1 Anti-money laundering rules

In the beginning was the legislation criminalizing money laundering introduced by the US and the UK in 1986.Footnote ¹⁷ ‘Money laundering’ is a term that is at once ubiquitous in popular cultureFootnote ¹⁸ and opaque to the layperson, and so it is worth taking a detour to explain its meaning. In its original sense, the term refers to imparting an appearance of legitimacy to the proceeds of crime. A story is often told of Al Capone’s prescient concern that his wealth, absent any plausible account of how it might have been acquired, could lead to his downfall. He therefore, the story goes, set up a chain of launderettes around Chicago. Since quantifying the cash that could have been legitimately brought in by the launderettes was close to impossible, this business gave Al Capone the cover that he sought.Footnote ¹⁹

As far as one can tell, the story is apocryphal.Footnote ²⁰ It is nonetheless instructive as an explanation of what money laundering might entail. It also adds a practical level to criminals’ traditional aesthetic preference for running cash-intensive businesses like casinos, restaurants, and strip clubs. However, the modern concept of money laundering is not limited solely to the establishment of a front business or the creation of a cover story to obscure the criminal origin of the funds. The UNCAC and UNTOC both speak of a broad range of acts including the ‘conversion’, ‘transfer’, ‘concealment’ or ‘disguise’ of the proceeds of crime.Footnote ²¹

The original US and UK legislation was only concerned with the proceeds of drug trafficking. The focus on drug trafficking was transferred to the work of the FATF, an intergovernmental grouping set up by G7 in 1989 to internationalize the US’s onslaught on the finances of drug cartels.Footnote ²² Over time, the focus of the FATF – and, by extension, that of the global AML rules it promulgates – expanded to other types of predicate offences, beyond drug trafficking. Both the UNTOC and the current iteration of the FATF Recommendations require that states apply AML rules on an all-crimes basis, and at a minimum make sure that they cover the proceeds of all serious crime, defined by reference to applicable penalties.Footnote ²³

The FATF Recommendations have been revised multiple times over the past 30 years, such as when counter-terrorist financing rules were added to the FATF’s mandate shortly after the 9/11 attacks, but continue to be generally based on several precepts familiar since the FATF’s inception. Financial institutions and certain non-financial businesses should be required to conduct customer due diligence and report suspicious transactions to law enforcement agencies.Footnote ²⁴ States should, among other things, supervise compliance with these requirements, collect accurate information on beneficial owners of companies incorporated in their territories, and take law enforcement action against money laundering, including the prosecution of perpetrators and confiscation of the proceeds of crime.Footnote ²⁵ According to one of the participants at the FATF’s inaugural gathering, some of these components were cobbled together in short order and ‘no one believed they would survive the next three months’, yet they withstood the following three decades.Footnote ²⁶

As the name reflects, the FATF Recommendations are not binding in international law. Furthermore, the FATF itself is not an international organization but an intergovernmental grouping with no legal personality of its own.Footnote ²⁷ As an example, FATF employees are in fact employed by the OECD, from whose premises the FATF operates.Footnote ²⁸ Until 2019, the FATF functioned based on a time-limited mandate, which was then extended permanently.Footnote ²⁹ Despite this lack of formal juridical underpinnings for the FATF’s work, its prescriptions command a degree of respect that many an international organization would envy.Footnote ³⁰

To see that this is indeed so, and to understand why, one needs to consider the FATF’s peer review process, or mutual evaluation reviews (MERs). MERs involve the assessment of a country’sFootnote ³¹ compliance with the FATF Recommendations and are made publicly available online. The review process originally focused on ‘technical compliance’, or faithful transposition of FATF requirements into domestic legislation. In 2013, the assessment methodology was modified to evaluate the effectiveness of their implementation, too.Footnote ³²

There are no prizes for being top of the class, although some countries that do well in MERs do not shy away from flaunting their success.Footnote ³³ Those jurisdictions that fare poorly are at a risk of being placed on a list of High-Risk Jurisdictions subject to a Call for Action,Footnote ³⁴ known colloquially as the ‘blacklist’, or that of Jurisdictions Under Increased Monitoring,Footnote ³⁵ known as the ‘grey list’. As a result of a country’s placement on either of the lists, its companies and citizens are likely to face greater scrutiny in their transactions with foreign financial institutions, who need to demonstrate to their regulators that they effectively mitigate economic risks.Footnote ³⁶

Thus, following Turkey’s placement on the FATF’s grey list in October 2021, the Financial Times wrote of this as ‘a further blow to the country’s ability to attract foreign capital’.Footnote ³⁷ A yet more extreme example is the well-documented difficulties that Iranian citizens encounter, through no fault of their own, in obtaining access to banking services in certain countries as a result of Iran finding itself on the FATF’s blacklist, alongside North Korea, as well as in consequence of related US sanctions.Footnote ³⁸ These practical effects of a FATF censure are compounded by the symbolic element of ‘naming and shaming’ that countries are loath to endure, as Malta’s travails amply demonstrate.Footnote ³⁹

The impact of the FATF’s peer review process is therefore unmistakeable. It rests not on any exercise of a legal power – of which the FATF has none – but on the seriousness with which domestic regulatory agencies the world over, especially in major financial centres, take it.Footnote ⁴⁰ The presence of this impact is not to be equated, though, with the effectiveness of the regime that the FATF requires countries to maintain. Whether the panoply of AML standards that regulated businesses are held to is apt to reduce money laundering, let alone diminish the prevalence or severity of predicate offences, is a source of perennial and profound anxiety.

The consensus in the ever-growing expert commentary is that, at best, we do not know whether the current AML regime is effective,Footnote ⁴¹ although there are also those who assert with confidence that it is not.Footnote ⁴² To the extent there is disagreement, it revolves not around the conclusion but the path to it. Some argue that the overall objective of the regime must be the reduction of predicate offences,Footnote ⁴³ while others say there is value in simply ensuring that regulated businesses are not facilitating crime and are therefore not morally complicit in it.Footnote ⁴⁴ There is virtual unanimity that a better evidence base is needed on the effectiveness of AML regimes, and empirical research is starting to build up.Footnote ⁴⁵ However, even if data pointed to a decrease in predicate offences – the Holy Grail of AML measures, according to some – it would be difficult to ascribe it to the consequences of any particular intervention, such as AML controls.Footnote ⁴⁶ Many adduce evidence of private-sector practices being skewed towards ‘tick-box compliance’ due to existing regulatory incentives.Footnote ⁴⁷

The international law implications of this state of affairs have never been fully articulated. It is not simply the ostensible paradox of states bowing to ‘soft law’ that is, in terms of its global reach and weight, more ‘law’ than ‘soft’ that we should ponder.Footnote ⁴⁸ Nor is it the FATF’s clout that has earned it the moniker of ‘the most important international organisation you have never heard of’.Footnote ⁴⁹ What deserves our greatest attention is the gap in the international law of economic crime that the FATF standards never filled, namely the absence of a treaty norm, or other codified rule of international law, prohibiting a state from hosting the proceeds of crime from abroad or facilitating their laundering.

At first sight, the FATF Recommendations appear to be nothing less than an instantiation of such a norm that Michael Reisman urged in 1989, and one that Jason Sharman described as a ‘political and moral’ imperative in 2019. In truth, though, they are both more and less than that. They are more far-reaching, self-evidently, in that they form a comprehensive, multifaceted regime complete with official Interpretive Notes and FATF-issued guidance documents. They are also less ambitious in that their connection to the underlying policy value – or the desired end goal – is uncertain. Viewed against that backdrop, the question of international law’s stance vis-à-vis facilitating money laundering can hardly be resolved by simply pointing to the sui generis, quasi-binding regime established under the FATF Recommendations.

2.2 Asset recovery

The other set of international law rules that are relevant to this inquiry, albeit related to corruption specifically rather than a broad range of predicate offences, are the asset recovery provisions in Chapter V of the UNCAC. They are concerned with the recovery, or return, to the country of origin of the assets misappropriated through corruption. These rules can too be viewed as a legal embodiment of the new political and moral sensibility that repudiates dealing in the proceeds of overseas crime, but they too fall short of establishing a legal norm that bars states from facilitating money laundering.

The locus classicus for analyses of the UNCAC’s asset recovery provisions is its Article 51, which states: ‘The return of assets pursuant to this chapter is a fundamental principle of this Convention, and States Parties shall afford one another the widest measure of cooperation and assistance in this regard.’Footnote ⁵⁰

The magnificence of this statement is tempered by the travaux préparatoires to the Convention, which record the understanding of states parties that ‘[t]he expression “fundamental principle” will not have legal consequences on the other provisions of [Chapter V UNCAC]’.Footnote ⁵¹ It is, in essence, a political statement, not a legal provision. Furthermore, the content of the other articles in Chapter V paints the picture of a legal regime that requires of states parties little more than what they would have done anyway in the absence of those provisions.Footnote ⁵²

At the core of the UNCAC’s asset recovery regime is Article 57, which supplies the answer to the fundamental question: Who keeps the assets? There are two protagonists in the scenarios envisaged by the UNCAC: the requesting state, whence the stolen assets come, and the requested state, which holds the assets. The ‘fundamental principle’ language in Article 51 might have led one to expect that the return of assets to the requesting state must be effected in all cases, subject perhaps to limited exceptions. In point of fact, the position under the UNCAC is almost precisely the opposite.

The obligation to ‘return the confiscated property to the requesting State Party’ is only triggered ‘[i]n the case of embezzlement of public funds or of laundering of embezzled public funds’ and, crucially, if confiscation was executed ‘on the basis of a final judgement in the requesting State Party’.Footnote ⁵³ The provision borders on the superfluous. If a state recognizes and enforces a foreign judgment or confiscation order that requires the assets to be restored to the state they were diverted from, a stipulation that those assets must be returned to the requesting state is, arguably, redundant.

What the UNCAC does not address is the vital issue of when recognition should be denied to a foreign judgment that may have been obtained in breach of international human rights standards, as is not unheard of in circumstances of regime change that large-scale asset recovery efforts tend to stem from.Footnote ⁵⁴ One of its most recent manifestations is Uzbekistan’s vexed attempts to recover the assets allegedly misappropriated by the daughter of the country’s former president and her associates, who claim mistreatment at the hands of Uzbekistan’s judicial authorities.Footnote ⁵⁵

If assets are confiscated on the basis of a final judgement in the requesting state but involve the ‘proceeds of any other offence covered by this Convention’ (i.e., other than of embezzlement of public funds), then they must be returned to the requesting state ‘when the requesting State Party reasonably establishes its prior ownership of such confiscated property to the requested State Party or when the requested State Party recognizes damage to the requesting State Party as a basis for returning the confiscated property’.Footnote ⁵⁶ Here, too, the precise import of the provision is open to doubt since, if the requested state enforces a foreign judgment or confiscation order, it is not obvious what scope there will be – or should be – for questioning whether the requesting state is entitled to the assets it claims. On its face, though, the wording of the UNCAC allows greater latitude for the requested state to ask those questions than it does when the embezzlement of public funds is involved.

Finally, in all other cases, the requested state need only ‘give priority consideration to returning confiscated property to the requesting State Party, returning such property to its prior legitimate owners or compensating the victims of the crime’.Footnote ⁵⁷ In other words, while the return of the assets is held out as a desirable course of action, there is no legal obligation to follow it. That applies, for instance, to circumstances where the state in which the proceeds of crime were invested undertook its own investigation that led to their seizure and confiscation. Most of the best-known enforcement successes involving the proceeds of grand corruption fall into this category, such as France’s action against Equatorial Guinea’s vice-president,Footnote ⁵⁸ UK conviction of Nigerian state governor James Ibori and his associates,Footnote ⁵⁹ or US and Swiss money laundering convictions of former Ukrainian prime minister Pavlo Lazarenko.Footnote ⁶⁰

The UNCAC’s asset recovery arrangements are instructive because they do not place any particularly onerous obligations on states that find themselves hosting the proceeds of overseas corruption. To understand why this is noteworthy, recall that, like the UNTOC, the UNCAC obliges states parties to criminalize money laundering and ‘[i]nstitute a comprehensive domestic regulatory and supervisory regime for banks and non-bank financial institutions’ to prevent money laundering.Footnote ⁶¹ A situation involving asset recovery is one where, by definition, those controls have failed. One could envisage an approach requiring the state hosting the assets to remedy that failing by restoring the status quo ante through the return of assets, regardless of the victim state’s request or at least of whether a final court judgment was issued in the victim state. Indeed, this would be in line with what some argue best practice is, irrespective of the letter of the law.Footnote ⁶² This would, of course, still require a final court judgment in the state hosting the assets, for instance on the basis of its criminal prosecution of money laundering or non-conviction-based asset forfeiture proceedings.Footnote ⁶³

A particularly strong normative argument could be made in favour of that more expansive conception of asset recovery if one takes major economic or financial centres as the focal point. Since they benefit from facilitating an outsized portion of the world’s economic activity, so the argument goes, it behoves them to safeguard their economic infrastructure against criminal misuse, and rectify the consequences of such misuse occasionally happening.

In contrast, the current UNCAC scheme is based on a compromise that was forged during the negotiations between those in favour of unconditional return of stolen assets – generally Latin American and Asian states – and those who would rather leave the fate of the property at the discretion of the state where they were invested, most prominently the US. The solution that emerged from the debate is based on what one might call a ‘desert-based model’ whereby the disposition of the assets effectively depends on whether the requesting state played the decisive role in their confiscation.Footnote ⁶⁴

The negotiations leading to this outcome were plainly informed by participating governments’ sense of whether their country would one day fall within the category of ‘requested’ or ‘requesting’ states, but the resulting framework is not without its principled underpinnings.Footnote ⁶⁵ Unlike a legal regime that would have in effect required states to police overseas crime with nothing to gain from their efforts, the current arrangement creates – or, at least, does not remove – an incentive for them to take action against foreign criminal proceeds. The experience in other domains of anti-economic crime policy suggests this can be tangible factor. For example, the US is both the world’s most vigorous enforcer of foreign bribery laws and at the same time the country that collects multi-billion-dollar fines from companies that fall foul of those laws, including overseas corporations.Footnote ⁶⁶

There are, in short, good reasons why the UNCAC’s asset recovery regime involves the limitations that it does. However, those constraints mean that these rules, like the FATF’s AML standards, are not at all equivalent to an international legal norm that forbids states to facilitate money laundering, nor do they give rise to a legal regime where enabling economic crime – including in its most extreme form, namely hosting the proceeds of overseas crime – triggers meaningful consequences. For these reasons, if one is to find in international law an adequate response to the problem eloquently articulated by Michael Reisman in 1989, as well as some before and countless others after him, one must search further.

3.1 The existence of the rule

As is well known, the existence of a customary rule of international law requires that states generally and consistently conduct themselves in a certain way as evidence of a perceived legal obligation to do so (opinio juris). Establishing this is fraught with methodological difficulty, including in the determination of whether state practice is sufficiently general and consistentFootnote ⁶⁷ or whether it can be ascribed to the tacit acceptance of a legal obligation, as opposed to convenience or some other motivation.Footnote ⁶⁸ There is also a degree of circularity in the formation of a custom since, for a custom to emerge, states must have already believed they were bound by it and acted accordingly.Footnote ⁶⁹

For all these reasons, ascertaining whether a customary rule exists in international law hardly ever involves mechanistic application of law to a well-defined set of facts. Like partisan journalism, it tends to be an exercise in selective and purposive interpretation of reality, with what is or is not relevant – let alone what is or is not factually true – subject to contestation. The methodology of establishing an international custom is fluid, nowhere more so than in the ICJ, and therefore defies a neat summary.Footnote ⁷⁰ As one influential article suggests, it may be viewed as involving a Dworkinian attempt to identify a rule that both fits state practice and statements of opinio juris, and presents them in their best possible light.Footnote ⁷¹

Close to nothing has been written to date about the customary international law of economic crime, save for in the contiguous area of unilateral financial sanctions.Footnote ⁷² It is arguable, however, that there is a customary rule prohibiting states from facilitating the laundering of the proceeds of overseas crime. The case in support of this contention is not difficult to make. As regards opinio juris, there are a multitude of statements by states to the effect that they must not act as safe harbours for the proceeds of overseas crime, nor enable their exfiltration. For instance, the UN General Assembly’s Special Session on Corruption in 2021 culminated in the adoption by consensus of a political declaration that, in pertinent part, reads as follows:

Prior to that, the UN General Assembly called on states to take action against corruption-related money laundering in 2013.Footnote ⁷⁴ This follows on the heels of similar exhortations in the context of drug trafficking, which saw the General Assembly call on states to ‘develop effective mechanisms for the pursuit, freezing, seizure and confiscation of property obtained through or derived from illicit activities’.Footnote ⁷⁵ The relevance of the General Assembly’s pronouncements to ascertaining the existence of opinio juris is well-established.Footnote ⁷⁶

Multiple further examples of this sort of multilateral undertakings can be mustered. The G20 has likewise long been vocal on economic crime. In 2010, the G20 adopted its first Anti-Corruption Plan at the summit in Seoul, which contained the following statement:

Substantively similar commitments, couched in terms of ‘deny[ing] safe haven to corruption offenders and their assets’, have been reaffirmed in G20 documents ever since, including in its 2021 Rome Leaders’ Declaration.Footnote ⁷⁸ This wording traces its lineage to earlier documents adopted by the Organization of American States and APEC in the mid-2000s.Footnote ⁷⁹ Meanwhile, the African Union has expressed its commitment ‘to end the chronic illicit financial flows from Africa’ in 2015 and reaffirmed it in 2018.Footnote ⁸⁰

Further still, Transparency International documents over 600 corruption- and AML-related promises made by 43 states at the London Anti-Corruption Summit in 2016.Footnote ⁸¹ As an illustrative example, the following commitment made by Germany is rather typical of the participating governments’ statements:

As the word ‘commitment’ in the title of Germany’s document suggests, this statement, alongside those made by other participating states, is more than a mere proclamation of existing policy. It evokes the language of obligation. No legal source is identified for any such obligation, and one might therefore deem it an overreach to treat such statements as evidence of opinio juris. But to take that view is to overlook the broader context, namely the overwhelming recognition of the central place that tackling corruption-related money laundering, and money laundering more broadly, occupies in achieving vital developmental objectives.

Thus, the Global Declaration Against Corruption, which was adopted at the London Anti-Corruption Summit, states that corruption, and by extension corruption-related money laundering, must be tackled ‘if our efforts to end poverty, promote prosperity and defeat terrorism and extremism are to succeed’.Footnote ⁸³ UN human rights bodies have drawn connections between the prevention of money laundering and corruption on the one hand, and the effective realization of human rights on the other hand.Footnote ⁸⁴ This linkage augments the normative weight of AML concerns, although it is debatable whether a closer integration of corruption and human rights agendas would produce any benefits beyond that.Footnote ⁸⁵

It would be far too formalist, against this backdrop, to explain states’ avowed commitment to prevent the laundering of the proceeds of overseas offences as a product of shared policy preferences rather than of a legal obligation. The breadth and consistency of governmental rhetoric points unmistakeably to the requisite opinio juris. To further lend credence to it, one might weave an ever-thicker web of similar statements by governments and international organizations.Footnote ⁸⁶

To the extent that it is at all possible to plausibly object to this evidence of opinio juris, it would likely involve arguing that states’ respective pronouncements on the international arena speak to the existence not of a legal obligation, but of some other shared factors that define their stance vis-à-vis money laundering, such as practical convenience or ethical concerns. These objections, while ultimately less than convincing, are explored below following a brief tour d’horizon of relevant state practice.

There is a plethora of governmental action that constitute relevant state practice, from AML regulatory reforms to participation in cross-border asset recovery arrangements. That this practice is consistent and universal is beyond peradventure.Footnote ⁸⁷ Much of it can be accounted for by reference to specific norms discussed previously, such as the FATF Recommendations or the UNCAC, rather than an overarching, customary rule. This does not explain everything that states do, though. They often go beyond the requirements of either the FATF Recommendations or relevant treaties in an apparent quest for genuine effectiveness in preventing money laundering.

Examples are manifold. They include measures aimed at streamlining forfeiture of the proceeds of crime, such as unexplained wealth orders;Footnote ⁸⁸ public-private information-sharing partnerships that bring together law enforcement agencies, supervisory agencies and regulated sectors;Footnote ⁸⁹ expanded reporting requirements imposed on private sector, such as geographic targeting orders in the USFootnote ⁹⁰ or the reporting of international fund transfers in Australia;Footnote ⁹¹ the establishment of publicly accessible beneficial ownership registers;Footnote ⁹² and the imposition of targeted financial sanctions on corrupt foreign officials or their enablers.Footnote ⁹³ It is important to bear in mind that, while these measures may appear diverse to the point of being disparate in their nature, they are united in their objective of preventing money laundering, detecting it or confiscating the proceeds of crime.

None of these measures are mandated by any international requirement, binding or not, yet all of them have been implemented in pursuit of efficacious AML policies. Not only that, but the concept of efficacy itself has become an object of constant soul-searching among law enforcement and regulatory agencies entrusted with fighting money laundering. Both the FATF and certain national authorities, such as those in the US, UK and Australia, have pledged to work further on ascertaining the impact of AML regulation.Footnote ⁹⁴

These developments, namely the continuous elaboration of novel approaches against money laundering and strategic reflection on the effectiveness of the AML regime, bear ample evidence to the genuine, if tortuous, attempt by multiple states to confront money laundering. In doing so, they go beyond the requirements imposed by the UNCAC or UNTOC, or even those existing under the technically non-binding FATF Recommendations. The duty they seek to fulfil must therefore emanate from a source extraneous to existing treaties or soft law.

With both state practice and opinio juris thus in place, both elements that give rise to a customary international rule are satisfied. This is subject to the caveat that, as discussed earlier, none of the two can ever be established with scientific certainty, and there is therefore always room for doubt. Two possible objections have particular force. The first of these is that states simply do what is prudent. Confiscating the proceeds of crime is a more sensible criminal justice policy than allowing criminals to keep them, and therefore a broad suite of measures is adopted to give effect to that policy. In short, one might argue that the efforts we discussed are motivated by self-interest and pragmatism, not legal obligation. However, this line of reasoning only applies to the proceeds of domestic offences, not foreign ones. As Jason Sharman writes:

What is particularly noteworthy about Sharman’s selection of states is that all of them, as major international financial centres, can be characterized as specially affected states in the context of giving rise to a rule of customary international law.Footnote ⁹⁶ While neither the doctrine of specially affected states nor how one identifies them is free from controversy,Footnote ⁹⁷ it stands to reason that the acknowledgment by states like Switzerland of their responsibilities to counter money laundering should be afforded some weight in ascertaining the existence of the putative rule.

A second, subtler objection is that states may be enacting not a legal obligation but a moral or political responsibility. It is similar to the previous argument in that it too is predicated on the idea that, while states might express commitment to addressing money laundering, this only shows they consider it the right thing to do, not necessarily that they deem it a legal requirement. The reason this objection is altogether more complex is that, remarkably, international law scholarship supplies little guidance on how to handle it. There is no shortage of examinations of the role of ethics in establishing customary international law, but they focus on whether the ethical implications of a proposed rule should be relevant to deciding if it exists, for instance by obviating the need for state practice.Footnote ⁹⁸ Our question, by contrast, is whether certain statements – such as those we have seen states make about money laundering – should be ruled out as evidence of opinio juris because they speak to ethical, not legal commitments.

To answer this, it is helpful to observe, at the risk of stating the obvious, that one cannot establish the inner convictions of a state, a collective entity. The lawyer’s objective is thus not to penetrate the depths of a state’s psyche to fathom what it really believes but to assign normative significance to its actions and statements.Footnote ⁹⁹ In doing so, one has to embrace a degree of imprecision is inherent in expressions of opinio juris. As they are not based on a specific treaty rule, they can only point out an obligation of some description without pinpointing its exact source. To demand that they are, nevertheless, explicit in their assertion of a legal duty untainted by other considerations, such as political imperatives, would set a hurdle that is far too high. It would forestall much of the impressionistic, case-by-case practice of establishing customary rules that we are accustomed to. Consequently, while this objection is worth registering, it is not fatal, and should not preclude our further consideration of the potential customary rule prohibiting states from facilitating money laundering.

3.2 The content of the rule

So far, I have discussed the nascent rule in broad-brush terms. It is now time to consider its content in greater detail. A convenient starting point is Reisman’s and Sharman’s statements that articulate the mischief the rule seeks to address. Reisman writes about ‘concealing funds’ misappropriated from another state forming ‘part of the delict [and] an international legal wrong’, while Sharman speaks of a prohibition on ‘hosting money stolen by senior officials of another country’.Footnote ¹⁰⁰ It is evident that they refer to the same problem of states acting as safe harbours for the proceeds of foreign corruption.

The paradigmatic manifestation of this is the investment of the proceeds of corruption into the destination state’s economy, such as through deposits in its banking system or the purchase of real estate. Beyond this, various dimensions of facilitating money laundering exist. There are jurisdictions known for provisions of services that enable the exfiltration of criminal proceeds from states of their origin and the subsequent obfuscation of their illegal origins. Incorporation services and legal advice are central to the operation of such schemes, but this does not mean that the funds in question end up in the same jurisdiction.

For instance, British Overseas Territories and Crown Dependencies are frequently associated with corporate structures used for economic crime purposes,Footnote ¹⁰¹ but the money is far more likely to be used to purchase stately homes in England’s home counties.Footnote ¹⁰² Same goes for South Dakota, whose trusts were the main culprit of the Pandora Paper journalist investigation in 2021, but which is not known as a major destination for inbound investment.Footnote ¹⁰³ Even calling these jurisdictions ‘conduits’ for criminal proceeds may be misleading because the money may not pass through their financial system at all. Instead, the companies and trusts that they create would be used to hold funds in overseas bank accounts in their names. But, regardless of where the funds end up, professionals who offer related corporate services are indispensable to economic crime schemes.

To be meaningful, therefore, the rule against facilitating money laundering must run a broad gamut of behaviour that enables the laundering of criminal proceeds, including the provision of financial and non-financial services that fall within the scope of the FATF Recommendations. Since it is private institutions rather than governments that engage in this kind of conduct, a question arises as to what exactly the proposed rule of international law stipulates, and how it applies to those private, non-state actions.

It is important to clarify, as a preliminary matter, that we are concerned here with establishing a primary rule of international law – what is it that states can or cannot do? – rather than with the secondary rules of attributing the conduct of private entities, such as regulated financial institutions, to the state. Suppose a state’s central bank elected to fling its doors open to all foreigners with money regardless of its provenance, with billions of dollars’ worth of proceeds of corruption processed as a result. It is not beyond reason that such actions constitute conduct of an organ of a state or conduct directed or controlled by a state.Footnote ¹⁰⁴ With attribution thus established, we are however none the wiser as to whether there is in fact a primary rule of international law that has been breached.

As indicated above, there is no provision in either the UNTOC or UNCAC that prohibits states from facilitating money laundering, even in the egregious manner of this hypothetical example. This becomes even more apparent if one reaches into the adjacent domain of counter-terrorist financing (CTF), which is likewise governed by the FATF Recommendations and rests on a very similar regulatory regime to AML – hence the familiar abbreviation, AML/CTF.Footnote ¹⁰⁵ In Ukraine v. Russia, the ICJ faced Ukrainian claims that Russia had financed terrorism in Ukraine’s territory contrary to the International Convention for the Suppression of the Financing of Terrorism (ICSFT). The ICJ ruled in its judgment on preliminary objections that ‘the financing by a State of acts of terrorism lies outside the scope of the ICSFT’, while reaffirming that ‘all States parties to the ICSFT are under an obligation to take appropriate measures and to co-operate in the prevention and suppression of offences of financing acts of terrorism’ and rejecting Russia’s jurisdictional objection on that basis.Footnote ¹⁰⁶

Crucially, there is no dispute, in the context of terrorist financing, that states are obliged to suppress it within their territories. Article 18(1) of the ICSFT states:

This provision recognizes the threat that sheltering terrorist financiers presents to other states, which parallels the broader problem of terrorists finding succour in certain countries.Footnote ¹⁰⁷ Ukraine v. Russia, which is awaiting the judgment on merits, marks the first time that the ICSFT will be subject to the ICJ’s interpretation, and further light may be shed on the requirements this particular provision entails. (It is also of interest, in this connection, that according to a leading scholar, the law of CTF has crystallized into ‘genuinely new customary international law rules’ based on the ICSFT, relevant UN Security Council resolutions and the FATF Recommendations.Footnote ¹⁰⁸ Given the extent of opinio juris and state practice, this would seem all the more true as regards AML.)

Back in the realm of AML, it is precisely a rule of that nature that best encapsulates what states strive to do, namely to prevent and counter money laundering in their territories. It places, in essence, a positive obligation to deter money laundering. A central bank’s egregious criminality is less likely compared to the mundane reality of private businesses enacting a ‘see no evil’ policy, and the customary rule I suggest exists requires states to effectively police those private activities. This might superficially resemble the attribution of private conduct to the state, but in fact that conduct is something the state fails to prevent or punish rather than something it does.Footnote ¹⁰⁹

There are multiple reasons why such an obligation is particularly well-suited to the nature of money laundering. The first of these is the extent of the state’s day-to-day control over regulated sectors of the economy that are vulnerable to being used for money laundering purposes. By definition, as these are regulated industries, it is non-negligible. It is up to the government to decide whether a bank obtains a licence, or whether it should be revoked. It is up to the government to decide what record-keeping requirements all regulated businesses must abide by and what arrangements are in place to share the information they possess with law enforcement agencies, consistent with applicable data protection rules – whose design is also a matter of the state’s sovereign choices. It is up to the government to decide whether information on beneficial owners of property is collected and made available, and if so, how widely and under what conditions.

While we are ultimately talking about the behaviour of private-sector actors, they are shaped and constrained by a web of regulation that states weave. This is, to use Foucault’s term, a distinctly ‘disciplinary’ mode of interaction that is characterized by ongoing engagement, stick-and-carrot incentivization, and risk-management.Footnote ¹¹⁰ Widespread money laundering is indicative of a breakdown in this process. Rather than simply a control or surveillance failing, it is arguably a mark of a state that has prioritized profit over crime prevention in how it runs its financial and economic system. At the farthest end of the spectrum are states that deliberately engage in a ‘race to the bottom’ to attract capital at the expense of regulatory controls – or, in a journalist’s vivid metaphor, become ‘butlers to the world’.Footnote ¹¹¹

Seen in that light, the facilitation of money laundering acquires an even more troubling complexion, in a certain sense, than the presence of terrorist financiers within a jurisdiction. It is best conceptualized not merely as a law enforcement failing, but as misconfiguration by a state of its regulatory and law enforcement regime. This is not to understate the difficulty of policing economic crime or assert glibly that where there is a will, there is also – magically – the way. It is inevitable that, like other types of crime, money laundering will happen. At what point, though, does its prevalence become inconsistent with a state’s international obligations?

In this connection, it is helpful to recall the dichotomy between obligations of conduct and obligations of result, which was first borrowed from civil law systems by Roberto Ago and then found some acceptance in the international law doctrine as a useful analytical lens. Despite the complexity of Ago’s initial formulation,Footnote ¹¹² the best way to understand the distinction is this: if the obligation is ipso facto breached whenever a certain desirable state of affairs does not obtain, it is an obligation of result; if the obligation requires a state to act in a particular way whether or not any result is achieved, it is an obligation of conduct.Footnote ¹¹³

One way to frame the obligation to refrain from facilitating money laundering is as one of result. One could argue that if, for whatever reason, a given state is a major money-laundering hub, it finds itself in breach of the obligation at hand. Consider the experience of the UK, which boasts the second-best FATF evaluation results to dateFootnote ¹¹⁴ and yet, according to its own law enforcement agencies, hosts hundreds of billions of pounds in criminal proceeds from overseas annually.Footnote ¹¹⁵ It is plausible to argue, if one accepts the result-focused nature of the obligation, that the UK is a paradigmatic instance of non-compliance, despite the relatively well-developed anti-economic crime framework that it boasts.Footnote ¹¹⁶

The problem with this conceptualization is that states find themselves in drastically different circumstances. The larger a country’s economy, the more money laundering there is likely to be, in absolute terms. Or, alternatively, a jurisdiction with a relatively modest financial footprint may nonetheless cater specifically to those who seek secrecy, including criminals.Footnote ¹¹⁷ In short, there is no monetary threshold that would set apart ‘acceptable’ and ‘unacceptable’ amounts of money laundering.

An arguably better way to conceptualize the proposed obligation is therefore as a mixed one of conduct and result. Its essence is for a state to take measures against money laundering that are consistent with the magnitude of international money-laundering risks it faces (conduct component) and meaningfully reduce the laundering of criminal proceeds that originate overseas (result component).

This framing of the obligation is informed by one of the key tenets of the FATF Recommendations, namely the ‘risk-based approach’.Footnote ¹¹⁸ According to it, responses to money laundering at all levels, from measures taken by states to individual businesses’ policies, should be tailored to the magnitude and nature of existing risks. This means that jurisdictions that benefit from processing an outsized portion of the world’s economic activity, such as international financial centres, should also shoulder the burden of ensuring they do not thereby nourish criminality. To acknowledge that obligation is to redress to the paradoxical disparity between AML and CTF regimes, which are frequently mentioned in the same breath and yet only the latter of which requires states to effectively minimize criminal risks emanating from their territories.

Due to the sliding scale of responsibility that this obligation entails depending on a particular state’s circumstances, it can be difficult to adjudge whether it has run afoul of this rule. Like in the classical sorites paradox (how many grains of sand make up a heap?), it is impossible to say in the abstract how dramatically a state’s AML controls need to break down for the obligation to be violated.

To give an example of what a borderline case might look like, the US is arguably close to one. Its corporate secrecy regime enables significant criminality, albeit it is set to be revamped with the passage of the Corporate Transparency Act and the possible adoption of the Enablers Act.Footnote ¹¹⁹ It is, at the same time, one of the world’s most vigorous enforcers of AML and other economic crime rules. There are also states that clearly fall on the wrong side of the line. Historical examples include Nauru and Ukraine, both of which were at one point included on the US government’s list of jurisdictions of money laundering concern due to their role in financial operations of Russian organized crime groups.Footnote ¹²⁰ Based on think tank and civil society reports, there are countries that exhibit the same problematic behaviour today, but given the subjectivity of such assessments in the absence of comprehensive information,Footnote ¹²¹ there is little to gain from attempting to identify them here.

3.3 The impact of the rule

As with any rule of international law, the impact of a customary rule that states must not facilitate money laundering will depend greatly on its earnest enforcement. It is tempting, therefore, to make the trite point that it is not a silver bullet against money laundering (nothing ever is!). It is, however, valuable from both a practical and normative perspective.

From a practical standpoint, the impact of the rule will depend on whether it is conceived of as a purely result-oriented one or a mixed obligation of the nature proposed above, i.e., requiring states to both act consistent with the magnitude of international money-laundering risks they face and meaningfully reduce the laundering of foreign criminal proceeds. In the former case, it would place an obligation on states that goes far beyond what the current, process-driven international regime requires of them. In the latter case, it would form an additional impetus for the ongoing reform of that regime. To see why, a brief discussion of the FATF’s evaluation framework is required.

Rather than focusing on the result achieved by a country’s AML measures, the FATF approaches the issue in reverse order. Countries are expected to comply with the 40 Recommendations and demonstrate their effectiveness in pursuing 11 immediate outcomes, such as:

According to the FATF’s methodology, the fulfilment of these 11 immediate outcomes inexorably realizes a set of three higher-order, intermediate outcomes. They, in turn, give rise to the achievement of the single high-level objective, which is defined thus:

The transition from immediate to intermediate outcomes, and then to the high-level objective, is a theoretical construct.Footnote ¹²⁴ It is postulated but not proven. Jurisdictions are only assessed based on the 11 immediate outcomes, although the intermediate outcomes and high-level objective ‘could be relevant when preparing the written MER and summarising the country’s overall effectiveness in general terms’.Footnote ¹²⁵ The notion that they are intrinsically connected to a certain higher-level objective involves a leap of faith, and has Fullerian overtones.Footnote ¹²⁶

The present FATF approach is therefore that of prescribing the details rather than focusing on the whole. It is important to recognize that, far from it being misguided, it is based on a pragmatic effort to assess the (more) assessable features of a country’s AML framework that admit of concrete improvements, rather than seek to evaluate a protean, abstract high-level objective. However, as indicated earlier, strong performance in the FATF process is compatible with glaring money laundering vulnerabilities. Nor does the FATF process adjust a country’s overall result based on its stature in the global financial system.

It beggars belief, for instance, that the Kingdom of Tonga – one of the FATF’s lowest-rated countries – poses a greater money-laundering threat to the world than Russia, which is close to the top of the FATF’s league table.Footnote ¹²⁷ (Following Russia’s full-scale invasion of Ukraine in February 2022, the FATF announced that it was ‘reviewing Russia’s role at the FATF and will consider what future steps are necessary to uphold [the FATF’s] core values’, which has since resulted in banning Russia from ‘decision-making on standard-setting, FATF peer review processes, governance and membership matters’.)Footnote ¹²⁸

Part of the explanation of the status quo may be sought in the FATF’s institutional structure. As relates to engagement with the FATF, there are two tiers of countries. Thirty-seven member jurisdictions and two international agencies, the European Commission and Gulf Cooperation Council, take part in the FATF proper. Other states participate in, and are evaluated by, regional groupings known as FATF-style regional bodies (FSRBs). FSRBs therefore fulfil ‘an essential role in promoting the effective implementation of the FATF Recommendations’.Footnote ¹²⁹ But, crucially, it is the FATF members who decide on the content of the FATF Recommendations and vote on grey-listing and black-listing. Although other jurisdictions can make their views known to the FATF via FSRBs, the democratic deficit of such a set-up is apparent.Footnote ¹³⁰

The moral hazard it creates manifests itself in the fact that, in 2021, Turkey became the first ever FATF member to be ‘grey-listed’, or placed among countries with strategic deficiencies.Footnote ¹³¹ This is so despite the fact that the FATF brings together the world’s major financial centres, which are by their nature likely to be the most attractive money-laundering destinations. In fact, the FATF’s expansion over the three decades of its existence was openly motivated by bringing major financial centres into the fold and securing their high-level political commitment to AML measures, regardless of existing deficiencies, as was the case with Russia or China.Footnote ¹³² The FATF’s exposure to political pressures is further borne out by the resignation in 2021 of its executive director David Lewis, who reportedly urged FATF staff to ‘protect the secretariat and its professional status’ in his parting letter.Footnote ¹³³

The proposed customary rule cannot be expected to remedy these long-standing difficulties, but it can provide further normative support to the FATF’s incipient efforts to reorient itself towards effectiveness. Those are evident from a report that the FATF published in April 2022 and that it itself describes as ‘landmark’.Footnote ¹³⁴ It records woeful failings of the current system, such as that ‘[n]early all (97%) of 120 assessed countries have low to moderate effectiveness ratings for preventing money laundering and terrorist financing in the private sector’.Footnote ¹³⁵

Unless one ascribes to the more ambitious, result-focused version of the proposed rule, its content is in fact not too far removed from that of the FATF’s high-level objective. Indeed, the latter may be viewed as yet another indication of opinio juris. That said, the FATF’s mention of ‘financial systems’, ‘broader economy’, and ‘financial sector integrity’ arguably obscure more than they illuminate.Footnote ¹³⁶ By contrast, the formulation of the customary rule traced in this article is simple yet compatible with the basics of the FATF’s process.

This leads on to the normative impact of the proposed rule. The shift from description of state practice to prescription of required behaviour is central to the instantiation of a customary rule.Footnote ¹³⁷ It expands the governments, experts and civil society groups’ normative armoury as they continue advocate with states that shelter proceeds of crime. It can also help maintain momentum in the FATF’s own search for ‘effectiveness’ beyond the forty corners of its Recommendations.

It may be disheartening to accept that one of the primary benefits of acknowledging a novel, and theoretically momentous, rule of international law lies in facilitating advocacy efforts. It would, ideally, be destined for greater things than becoming a bullet point on an anti-corruption campaigner’s slide. Yet this is not unusual. Given the absence of centralized enforcement in international law, the divide between the legally binding ‘must’ and the hortatory ‘should’ is attenuated. In light of this, one might recall conceptualizations of law as a ‘linguistic register’ we use to make normative claims.Footnote ¹³⁸

This work resonates with a strand of academic thinking on corruption that considers whether symbolic anti-corruption measures are a useful means of changing minds or a distraction that sustains a false sense of achievement. On the one hand, John Noonan, a US law professor and subsequently an appellate judge, wrote in his treatise Bribes that ‘[l]aws do not testify to social fact; they do testify to social consciousness’.Footnote ¹³⁹ The history of bribery in particular, and economic crime more generally, is replete with hypocritical laws but, on that view, it would be short-sighted to disavow their long-term impact.

In contrast, Michael Reisman penned a polemical book about corruption entitled Folded Lies in 1979 that coined the concept of lex simulata and lex imperfecta, laws that are either simply not enforced or drafted with such flaws that they are impossible to enforce.Footnote ¹⁴⁰ Or, to give a contemporary example, recall the designation of asset recovery as a ‘fundamental principle’ of the UNCAC in its Article 51. Despite it being clear from travaux préparatoires that the expression is devoid of legal significance, its perceived political import was such that the head of the UN Office on Drugs and Crime pointed to this provision as the Convention’s main achievement.Footnote ¹⁴¹

One’s attitude to declaratory commitments against economic crime is likely to differ depending on which of these schools of thought one sympathizes with. No attempt will be made here to settle the debate, although it is difficult to deny the lasting impact of symbolism in an area of law where even the world’s best-known foreign bribery law, which now routinely leads the US government to net billion-dollar settlements, lay dormant in the first two decades since its adoption before it suddenly came to life and ceased being ‘symbolic’.Footnote ¹⁴²