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.
Drugs and Anti-Drug Policies in Latin America: Successes, Failures, and Wrong Turns
Daniel Mejía
This paper analyzes the evolution of drug trafficking, its links to organized crime, and anti-drug policies in Latin America in recent decades. The analysis shows a historic increase in cocaine production over the past 10 years, the rise of synthetic opioids such as fentanyl, and the expansion of methamphetamine production. Despite decades of strategies aimed at reducing the supply of drugs—including crop eradication, interdiction, militarization, and the frontal war against drug trafficking and criminal organizations linked to this illegal activity—drug production and trafficking in the region have reached historic highs, shifting geographically and adapting technologically to the supply-reduction policies implemented in the different countries.
Empirical evidence shows that prohibitionist policies have had limited effects on drug availability and instead have generated high side effects, including high levels of violence, corruption, and institutional weakening. This paper also examines how criminal organizations linked to drug trafficking have evolved, diversifying into new illicit activities. It also analyzes consumption patterns in Latin America, which show a worrying increase in the prevalence of the use of substances such as marijuana, cocaine, and synthetic drugs, particularly among young people.
Finally, a reflection is presented on the need for a paradigm shift in anti-drug policies, which implies abandoning strictly repressive approaches in favor of evidence-based strategies. These should combine smart security policies and targeted deterrence, harm reduction, institutional strengthening, market regulation, and public health approaches to more effectively address the complex dynamics of drug trafficking and organized crime in the region.
