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.

Education and Youth Pathways Under Organized Crime
Martín Vanegas-Arias
Santiago Tobón
Youth homicide in Latin America and the Caribbean (LAC) reaches rates more than ten times those of Europe and Central Asia. Educational exclusion during adolescence remains disproportionately high in the same LAC countries where organized crime actively recruits young people. This policy document reviews experimental and quasi-experimental evidence on education and youth-development interventions that affect violent and antisocial outcomes, and assesses whether these findings can inform prevention strategies in organized-crime contexts. We organize the evidence around three mechanisms—human capital accumulation, peer-network effects, and self-regulation—and trace how each operates across the life cycle: early childhood, early adolescence, and late adolescence. Findings include: (i) targeted cognitive behavioral therapy programs reduce violent-crime arrests among high-risk adolescents; (ii) restorative justice practices in schools lower arrests and suspensions without increasing disorder; (iii) compulsory schooling reforms and dropout prevention reduce incarceration for marginal students; and (iv) conditional transfers that keep children in school offset early entry into illegal labor markets. Most of this evidence measures general criminal justice outcomes rather than organized-crime-specific outcomes such as recruitment, persistence, or exit. We identify the conditions under which extrapolation from general crime to organized crime contexts strengthens or weakens, and we propose a prioritized policy package that combines attendance incentives, high-dosage tutoring, behavioral skills training, and school climate reform. Education interventions can shrink the pool of adolescents vulnerable to recruitment and reduce violent behavior, but they cannot substitute for action on territorial control, corruption, or the profitability of illegal markets. Effective prevention requires education strategies embedded in broader security and institutional frameworks

