The Role of the Financial System in Criminal Organizations, Money Laundering, and the Design of Anti-Money-Laundering (AML) Policies: Striking a Balance between Prosecution and Prevention
Alejandro Werner
Roberto de Michele
Criminal organizations rely on the financial system to move and use their illegal profits, disguising them through a process known as money laundering. Illicit funds from crimes are first blended with legitimate business income, then transferred and layered through the financial system to hide their origin.
The global anti-money-laundering and combating the financing of terrorism (AML/CFT) framework, set by the Financial Action Task Force (FATF), was originally designed to help prosecute money laundering and related crimes, especially drug trafficking. As a result, many countries adopted frameworks focused primarily on criminal investigations. While still important, this approach is challenged by several factors, including increasingly sophisticated criminals capturing legitimate markets and, in Latin America and the Caribbean, large informal economies and heavy cash use.
Financial intelligence units (FIUs) are at the center of these frameworks and play a key role by collecting, analyzing, and sharing information on suspicious activities. However, growing operational demands and requests from other agencies have shifted their focus away from strategic analysis and feedback to the private sector.
The paper argues that the traditional prosecution-centered model overlooks the value of a strategic, preventative AML approach. This strategy would “tax” criminal activity by making it harder and more costly for criminals to use the financial system—through better detection, penalties, and system design—while minimizing burdens on legitimate users. We propose to tip the balance to preventative policy measures, especially using digital technologies to improve compliance and reduce costs. These measures are meant to complement, not replace, prosecutions. This paper ultimately reviews why AML matters, how the framework has evolved, challenges in Latin America and the Caribbean, limits of the prosecutorial model, and policy options to strengthen prevention.
Justice Systems and Organized Crime in Latin America: Five Areas for Improvement
Laboratorio de Justicia y Política Criminal
This paper argues that the ineffectiveness of Latin American justice systems in addressing organized crime is not primarily due to the scarcity of resources, but to poor strategic management that tends to favor individual punitive measures over structural impact. The assessment identifies a critical lack of empirical data and points out that previous procedural reforms have had little success both in terms of increasing criminal penalties for serious offenses and dismantling complex criminal networks, as they are often limited to prosecutions of flagrant offenses of little strategic value.
Against this backdrop, the paper proposes five key areas for improvement: strategically focusing criminal prosecution on high-impact crimes; strengthening interinstitutional coordination; implementing large-scale investigations that move beyond isolated incidents to uncover criminal patterns and structures; optimizing cooperation across jurisdictions; and designing robust legal frameworks for incentive-based criminal justice and the collective submission of criminal organizations. Overall, the proposal advocates a strategic and evidence-based criminal policy that prioritizes the deterrence of violence, challenges to state authority, and serious environmental harm, through focused, coordinated, and transparent use of the State’s enforcement capacities.
