Within the area of law and economics, money laundering is consisting of two main characteristics as follows: a general feature of illegality and a special feature of concealment ( Masciandaro, 1999). The externality problem of money laundering 2.1 Defining money laundering The intended contribution of this analysis is to analyze whether the scope of the 4AMLD is sufficient in terms of treating the externality problem of money laundering or if there is a need for the EU to stretch the regulatory framework to include the clients. Subsequently, an analysis will be made to determine if money laundering can only be regarded as an externality problem caused by the banks or other financial institutions (hereinafter financial institutions) or if the problem of externality and treatment of which combatting money laundering has to include the clients of these institutions. To conduct such analysis, the article will take its point of departure in a comparison between the legal definition of money laundering by the 4AMLD and the economic definition and functioning of externality problems. Instead, the aim of this article is to analyze if the focus should solely be on the banks when treating money laundering as a problem of externality. Based on the emphasis that money laundering acts as a polluting externality to legitimate financial sectors, the research has focused on how to limit or hinder the money laundering problem of externality by focusing on the relationship between banking sectors and governments or regulators – though this is not the aim of the article. Recent research has followed the general perception of banks being the cause of most money laundering as they provide money launderers with a gateway for placing funds originating from illegal proceeds into the legitimate financial sector ( Masciandaro, 1999 Masciandaro and Filotto, 2001 Araújo, 2008 Araújo and Loureiro, 2015). Instead, the clients remain under the different national jurisdictions within the national criminal justice frameworks. One reason for this can be found in the 4AMLD because the directive does not directly cover the clients. These cases have resulted in a national, regional and international focus on the banks’ involvement in money laundering while less focus has been put on the clients using the banks for money laundering purposes.
Following the deadline for implementation in 2017, several big cases have revealed European banks’ participation in significant money laundering transactions ( European Parliament, 2019). With the implementation of the fourth anti-money laundering and counter terrorist financing directive (4AMLD), the EU highlighted the need to strengthen international cooperation in combatting money laundering. Copyright © 2019, Emerald Publishing Limited
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