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 Palgrave Studies in Risk,
Crime and Society

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Risk is a major contemporary issue which has widespread implications
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 Abdullahi Usman Bello

Improving
Anti-Money
Laundering
Compliance
Self-Protecting Theory and Money Laundering
Reporting Officers
Abdullahi Usman Bello
Forensic Accounting and Financial Investigation
Economic and Financial Crimes Commission
Abuja, Nigeria

Palgrave Studies in Risk, Crime and Society

ISBN 978-3-319-43263-2 ISBN 978-3-319-43264-9 (eBook)
DOI 10.1007/978-3-319-43264-9
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To my wife, Hadiza Abdullahi, the mother of my two lovely children;
Muhammad and Usman
 Foreword

As these words are crafted, money laundering is centre stage both in

connection with the leaked Panama papers and the perceived risks posed
by offshore finance centres (OFCs) and with its link to corruption.
Public disquiet over foreign criminals using OFCs as a means of ‘laun-
dering’ their criminal assets through the London property market1
appears to be prompting more overt action on the part of the UK
Government with a series of recent announcements: requiring disclosure
of owners of all overseas companies purchasing property in the United
Kingdom (UK); a new corporate money laundering offence that would
hold employers responsible for failing to prevent money laundering by
their employees;2 and plans for introducing the offence of ‘illicit’ enrich-
ment for UK public servants.3

1
Damien Gayle “Foreign criminals use London housing market to launder billions of pounds”
The Guardian, 25th July, 2015. Available at: http://www.theguardian.com/uk-news/2015/jul/25/
london-housing-market-launder-offshore-tax-havens.
2
Patrick Wintour and Heather Stewart, The Guardian 12th May, 2016 “David Cameron to
introduce new corporate money-laundering offence”. Available at: http://www.theguardian.com/
politics/2016/may/11/david-cameron-corporate-money-laundering-offence-anti-corruption-
summit.
3
BBC News “Money laundering: new law planned to target corrupt officials” 21st April, 2016.
Available at: http://www.bbc.co.uk/news/uk-36098769.

vii
viii Foreword

If these proposals find their way onto the statute books, there will be
yet more rules and regulations with which companies and institutions
find themselves legally bound to comply. Of course public intervention
within otherwise ‘free markets’ is predicated on the desire to correct
some imperfection and indeed must be both justified and proportionate.
This is especially the case when state intervention places burdens upon
or intrudes into the lives of its citizens. Intervention in the financial
market is more frequently justified because in its absence, the rest of the
economy would fail to function. Writing almost thirty years ago, Lomax
(1987) cited in Franks et al. (1998, p. 1548) makes a most salient
observation “the only major threat to the future health of the financial
services industry is that of excessive or inappropriate legislation”. For regula-
tion is not cost neutral. Indeed in the UK each new law must be
accompanied by a regulatory impact assessment (RIAs), a ‘soft’ cost-
benefit assessment. ‘Soft’ because very often costs are only partially
identified whilst claimed benefits are unquantifiable, presented in narra-
tive terms. Thus, Harvey (2004) reviewed the RIAs for UK Money
Laundering Regulations in 1993 and 2001 and demonstrated costs to
be significantly understated and benefits unquantified merely promising
sweeping protections for society from the global threat to the integrity of
the financial system. Whilst no one would condone the activities of
organised criminal gangs or of terrorists, they are very different both in
objective and modus operandi but are within political discourse co-
joined in creating the ‘threat’ giving absolute justification for the impo-
sition of an extensive anti-money laundering (AML) regulatory
framework.
Such burdens are not inconsequential. Harvey (2008) noted that the
machinery of AML compliance had become self-generating with increas-
ing cost implications. Those charged with their compliance within
institutions can find themselves personally liable for failures within
their organisation or by any of their employees to spot and report
money laundering. Her respondents draw attention to their difficulties
in coping and refer to a culture that is fear driven and risk avoiding.
Those bearers of the poisoned chalice of AML compliance (Harvey,
2004) negotiate a tricky line between ensuring that they keep their
employing firm on the right side of the law whilst ensuring that they
 Foreword ix

do not overly inhibit the activity of those employed by the same

company to seek out and exploit profitable business opportunities.
After all, ‘risk taking’ is the pursuit of profitable opportunity whereby
the risk being taken is assessed, measured and managed.
Concerns about costs arising from and associated with what became
termed the ‘rules-based’ approach, an approach that was proving overly
prescriptive and burdensome, resulted in banks lobbying hard for a
change in which they both managed to bend the ear of the regulator4
and were consulted on implementation of the revised ‘risk-based’
approach to AML compliance. Risk and the appropriate way in which
it is handled has its roots in the insurance industry, where it was a
relatively straightforward affair to assess the probability of a set possible
incidents or events that have occurred within a defined time span to a
particular subject. Then calculate the loss (for it is usually a one-sided
affair) arising from its occurrence. In simple terms, risk = probability ×
impact. This quantitative assessment to risk was long ago adopted by the
Bank for International Settlements and promulgated through its various
Basel Accords for the measurement and management of risk within the
global banking sector. As the main complaint with the cost of compli-
ance with the original rule-based approach to AML compliance ema-
nated from the banking sector, it was understandable that they would
have been more receptive to a ‘risk-based approach’ (RBA) as this was
familiar language.
The banks formed part of a group asked to develop guidance in
relation to the RBA to foster a common understanding of what the
term actually meant. Although the best this group could offer was that it
“ . . . encompasses recognising the existence of the risk(s), undertaking an
assessment of the risk(s) and developing strategies to manage and mitigate
the identified risks” (FATF, 20075 p. 2). This inability to capture what is
meant by ‘risk’ within the arena of AML remains outstanding. Guidance

4
See Financial Services Authority (FSA) “DP22: Reducing money laundering risk: know your
customer and AML monitoring”.
5
FATF (2007), ‘Guidance on the Risk-Based Approach to combating money laundering and
terrorist financing’ FATF/OECD, Paris.
x Foreword

notes on the RBA set out in the FATF 20136 (p. 4) methodology state
that “Once ML/TF risks are properly understood, country authorities may
apply AML/CFT measures in a way that ensures they are commensurate
with those risks—i.e., the risk-based approach (RBA)”. Although there was
no attempt to inform supervisors how they should set about assessing
risk that being set out in the nine sectoral RBA guidance papers. The
guidance for the banking sector,7 however, lacks specificity making
application of the approach even more challenging, adding a new
dimension of ‘interpretation risk’ when the assessment of the bank
fails to accord with that of the regulator (see also Demetis & Angell,
2007).
In a perfect world, banks should be able to objectively assess the
probability that for the total number of transactions passing across
their books ‘x%’ will likely be associated with criminal activity. Of
course in and of themselves these will not necessarily be loss making,
so will not be observable from any historic loss database, and so indica-
tors and red flags have to be built up in more interpretative ways, hence
the criticism that banks can only truly observe what is unusual (Favarel-
Garrigues et al. 2008). Unfortunately, unlike ‘risk taking’, ‘being at risk’
lacks any objective rod of measurement. What is evident here is that
despite application of common vocabulary, the interpretation of ‘risk’
within AML is fundamentally different8.
It is this fundamental difference that Abdullahi Bello carefully lays out
before us in this book. He is, of course, not the first to centre a PhD
study on compliance officers, Antoinette Verhage conducted hers with
Belgian compliance officials noting (2011, p. viii) that ‘once they are

6
FATF (2013) Methodology For Assessing Technical Compliance With The FATF
Recommendations And The Effectiveness of AML/CFT Systems, FATF/OECD, Paris, February.
7
FATF (2014) ‘Guidance For A Risk-Based Approach; The Banking Sector’, FATF/OECD,
Paris, October.
8
For an elaboration of the general discussion about proportionality and the risk-based approach,
see Van Duyne, Harvey and Gelemerova (forthcoming) ‘The Monty Python Flying Circus of
Money Laundering and the Question of Proportionality’ Chapter in ‘ Illegal Entrepreneurship,
‘Organised Crime’ and Social Control: Essays in Honour of Professor Dick Hobbs’ (ed)
G. Antonopolous Springer, Studies in Organised Crime.
 Foreword xi

found, they are very interesting and intriguing conversation partners’.

Research in this field is not to be undertaken lightly; compliance
professionals are often reluctant to talk publically, being anxious not
to express views that differ from those of their employers. So it is less
usual for empirical work to focus on the personal challenges faced by this
group of people. By employing a grounded theory methodology, Bello
was able to hear first-hand about their concerns. Data collection was
carried out just by listening, no recording or note taking to disturb the
conversation flow with his respondents feeling able to talk more freely.
Through this approach he has been able to uncover the very personal
narrative of their daily lives and work pressures—the criticisms of
compliance officers as being seen as cost centres and profit inhibiting,
squeezed between two masters—their employer on the one hand and the
regulator on the other. They feel underappreciated, the object of oppro-
brium for their trading-based colleagues. He further clearly demonstrates
how the move from a rules based to a risk-based approach far from
improving matters has actually increased levels of uncertainty. This leads
him to derive what he refers to as ‘self-protecting theory’. This states that
the more there is unfair pressures on compliance officers, the more they
protect themselves rather than assist in regulation. However, rather than
leaving things at this juncture he goes on to carefully construct an
alternative approach to compliance that gives greater involvement to
money laundering reporting officers as co-constructors of an AML
framework in which they have control of their decision making.
This book makes an excellent contribution to literature on AML
compliance, and as we enter the Fourth Round of FATF Mutual
Evaluation, I recommend it as essential reading to policy makers.

Newcastle Business School, Professor Jackie Harvey

Northumbria University

References
Demetis, D., & Angell, I. (2007). The risk-based approach to AML:
Representation, paradox, and the 3rd directive. Journal of Money
Laundering Control, 10(4), 412–428.
xii Foreword

Favarel-Garrigues, G., Godefroy, T., & Lascoumes, P. (2008). Sentinels

in the banking industry: Private actors and the fight against money
laundering in France. British Journal of Criminology, 48(1), 1–19.
Franks, J., Schaefer, S., & Staunton, M. (1998). The direct and com-
pliance costs of financial regulation. Journal of Banking & Finance, 21,
1547–1572.
FATF (2007). Guidance on the risk-based approach to combating money
laundering and terrorist financing. Paris: FATF/OECD.
FATF (2013). Methodology for assessing technical compliance with the
FATF recommendations and the effectiveness of AML/CFT systems,
Paris: FATF/OECD.
FATF (2014). Guidance for a risk-based approach; The banking Sector.
Paris: FATF/OECD.
Harvey, J. (2004). Compliance and reporting issues arising for financial
institutions from money laundering regulations: A preliminary cost
benefit study. Journal of Money Laundering Control, 7(4), 333–346.
Harvey, J. (2008). Just how effective is money laundering legislation?
The Security Journal, 21, 189–211.
Lomax, D. (1987). Financial markets after the financial services act,
London: Butterworths.
Verhage, A. (2011). The anti money laundering complex and the compli-
ance industry. London: Routledge Studies in Crime and Economics
Edited by Peter Reuter and Ernesto Savona.
 Acknowledgements

I wish to start by thanking Allah, the most gracious and the most
merciful, for his blessings and my parents Usman Bello Akko and
Fatima Muhammad for their love and prayers.
I also acknowledge the support of Professor Jackie Harvey, Abubakar
Usman Bello and Nuhu Bello Akko among others.

xiii
 Contents

1 Introduction 1

2 Background of the AML Environment 25

3 Self-Protecting Theory – A Theory of MLROs 47

4 Compliance and Regulatory Dilemma 93

5 The Potential Solution to the Dilemma 107

6 General Application of the Self-protecting Theory 125

7 Conclusion 147

References 179

Index 195

xv
 List of Figures

Fig. 3.1 Summary of concerns and categories 82

Fig. 3.2 The basics of self-protecting 83
Fig. 3.3 The self-protecting theory (complying vs discharging) 85
Fig. 3.4 The self-protecting theory
(cooperating vs communicating) 86
Fig. 3.5 The self-protecting framework 87
Fig. 3.6 Detailed self-protecting framework 89
Fig. 5.1 Self-protecting framework 110
Fig. 5.2 Emergence of the middle-course approach 114
Fig. 5.3 Regulators’ perspective 115
Fig. 5.4 Banks’ perspective 116
Fig. 5.5 The middle-course approach 121

xvii
 List of Tables

Table 7.1 Contribution of the research 163

Table 7.2 Key concepts 174

xix
 1
Introduction

There has been a lot of discussion about the level of effectiveness of anti-
money laundering (AML) within the United Kingdom (UK) and even
globally. Some have attributed the problem with AML to weak regula-
tory and compliance framework, others lay the blame on the regulated
sector for not doing enough to prevent money laundering, while some
have attributed the problem to the cost of compliance imposed by the
regulators. This book looks at the problem of AML from the perspective
of one of the most important stakeholders, the money laundering
reporting officers (MLROs), because their voice is often not heard in
the debate despite the critical role they play in AML.
Consequently, the chapter introduces the problem with AML from
the perspective of MLROs. The aims and objectives of the book, the
justification for the writing of the book and a brief discussion on the
philosophy and methodology adopted for the research that underpinned
the book are also included in the chapter.

© The Author(s) 2016 1

A.U. Bello, Improving Anti-Money Laundering Compliance,
Palgrave Studies in Risk, Crime and Society,
DOI 10.1007/978-3-319-43264-9_1
2 Improving Anti-Money Laundering Compliance

Introduction
Money laundering is a global phenomenon that has been around for ages
(Unger 2013a). In its basic form, it is the process of concealing of the
source of illicit money. The problem with money laundering is that it
encourages criminal activities, allow money launderers to benefit from the
proceeds of their criminal activities and threatens the soundness of the
financial system (Schott 2006).
As a result of these negative effects, the international community has
introduced various initiatives to tackle the problem caused by money
laundering. The main organisation that deals with the problem globally is
the Financial Action Task Force (FATF), an institution formed by the
Group of Seven most industrialised nations initially to deal with drug-related
money laundering offences and later terrorist financing and other serious
offences. The organisation developed 40 Recommendations in 1989 as a
comprehensive measure to preventing money laundering. The recommen-
dations were subjected to various amendments before the organisation finally
adopted the Recommendations in 2012 for the prevention of money
laundering, counter-terrorist financing and proliferation of weapons of
mass destruction.
The United Nations (UN) was, however, the first to introduce a global
measure to tackle the problem with the introduction of the UN
Convention against Illicit Traffic in Narcotic Drugs and Psychotropic
Substances in 1988. Later, the UN introduced other conventions, such
as United Nations (2000) on Transnational Organized Crime and United
Nations (2004) on Corruption, to widen the scope of predicate offences
and adapt to changing money laundering schemes. Other institutions that
are at the forefront of the fight against money laundering include the
World Bank, IMF, Egmont Group and Wolfsberg Group.
The European Union (EU) is also active in combating money laundering.
Countries in the EU are obliged to follow various Directives on money
laundering that were passed mainly to implement the recommendations of
the FATF. The first Directive was passed to give effect to the first forty
Recommendations of the FATF, and when the recommendations were
amended in 1996, a second Directive was issued. There is also the third
 1 Introduction 3

Directive that is more comprehensive, which broadened the scope of pre-

dicate offences, included other organisations as regulated entities and intro-
duced a risk-based approach to AML. The Directive that is now in force is
the fourth EU Directive, which was issued in 2015 to further address the
threat of money laundering. Furthermore, member countries are required to
comply with the Directive by June 2017 (European Union 2015).
The UK, being one of the major countries in the EU and a strong
member of the FATF, is one of the most active countries in implement-
ing various AML Directives and FATF recommendations (de Koker
2009), mainly through money laundering regulations (MLR). The first
MLR was issued in 1993 to implement the first Directive, the second in
2003 to implement the second Directive and finally the MLR in force is
the 2007 MLR regulation, which is essentially a regulation that gives
effect to the third EU Directive (van den Broek 2011).
Several acts were enacted to support the fight against money laundering.
These include the Proceed of Crime Act 2002 (PoCA 2002), which is the
foremost legislation for dealing with money laundering. Before 2002 there
were Drug Trafficking Act 1994 (DTA 1994), the Criminal Justice Act
1998 (CJA 1988) and the Terrorism Act 2000 (TA 2000) that were also
related to the fight against money laundering. Several organisations were
also created to enforce the provisions of the law. Some of the organisations
include the Serious Organised Crime Agencies (SOCA) and the Financial
Service Authority (FSA), which, though not mainly created for AML, had
powers to implement AML regulations. These two organisations were
replaced by the National Crimes Agency (NCA) and the Financial
Conduct Authority (FCA), respectively, but they retain the same powers
and responsibilities to prevent money laundering. The two agencies were
created by the Crime and Courts Act 2013 and Financial Services Act
2012, respectively.
One industry that was subject to intense regulation regarding AML
was the banking industry because of the belief that the majority of
money laundering activities were conducted through the industry
(Takats 2011). Banks were unwillingly recruited to support the fight
against money laundering through requirements for them to implement
systems and controls to deter the use of their system for the conduct of
4 Improving Anti-Money Laundering Compliance

money laundering. Several other requirements were placed on the banks,

but perhaps the most important requirement now is to appoint an
MLRO to coordinate AML activities and liaise with regulators. The
main duties of an MLRO are to identify and report suspicious money
laundering activities within the bank to the regulators and to ensure that
banks are complying with other MLRs.

The Purpose of the Book

The purpose of the book is, therefore, to provide an understanding of
this regulatory environment, identify the problems affecting it and
suggest solutions. To achieve this broad objective, it was decided that
the best way is through understanding the concerns and behaviours of
MLROs and discovering a grounded theory that would explain these
concerns.

Justification of the Book

There are a lot of books and articles on money laundering, but most of
the writings are conceptual; reviews and opinions and the empirical
research in the field are mostly descriptive rather than theoretical
(Demetis 2010). There is, however, research that deals with the regula-
tory issues, but most are looking at the effectiveness of the regulation
from the perspective and based on the objectives of regulators. Examples
of such studies are Takats (2011), Masciandaro (1999) and Araujo
(2008). Other books in the area are focused on the effect and the
typology of money laundering. The author, therefore, decided to write
a theoretical book in order to contribute to knowledge in AML since
according to Demetis (2010 p. 36), “while these typological examinations
remain useful for practitioners, academic research ought to be grounded on a
theoretical level and assist in drawing the implication to practice”.
MLROs were eventually selected as participants for the research
underpinning the book because they are at the heart of AML regulation
given the responsibilities placed on them by law and the importance of
 1 Introduction 5

their duties to preventing money laundering. Besides, there is surpris-

ingly limited research on the role of MLROs despite their critical role in
compliance. The two studies in the UK focusing on MLRO identified in
the literature (Bosworth-Davies 1998; Webb 2004) are descriptive and
dated.
This book is, therefore, an attempt to look at the problem of AML
regulation from the perspective of MLROs and to discover a theory that
would contribute to AML field that lacks a theoretical foundation.

The Aims and Objectives of the Book

Consequently, the main aim of the book is to explore the main concerns
of MLROs in the UK banking industry in relation to the anti-money
laundering legislative framework and to present a theoretical explanation
of these concerns.
Specifically, the objectives are as follows:

• Provide an understanding of the AML environment from the per-

spective of MLROs.
• Discover concepts from their perspective that will explain their con-
cerns and the ways of resolving them.
• Identify the main concern of MLROs and the core category that
resolves it.
• Discover a theory that would explain how MLROs are resolving their
main concern.
• Discover a framework that will explain the environment in which
they operate.
• From the framework, suggest an effective and efficient approach to AML
compliance.

To achieve these aims and objectives, the book seeks to find answers to
two questions:

• What is the main concern of MLROs?

• How are they resolving their main concern?
6 Improving Anti-Money Laundering Compliance

These questions are based on the classical grounded theory approach for
conducting research in which a researcher is advised to enter the field
with as little preconception as possible and with no defined research
problem or research question (Glaser 1998). As data are collected and
analysed, the real research problems and research questions will evolve.
The answer to the first question denotes the problem facing MLROs
and the answer to the second question becomes the core category that
resolves the problem.
The main concern of MLROs from the research was found to be
unfair pressure mainly from regulators, and the strategy for resolving this
problem was through protecting themselves from the unfair pressure.
Below is a summary of how the problem and the question emerged from
the data.

Emerging Theory
The problem or the main concern that emerged was unfair pressure.
Unfair pressure is a high-level concept formed from a combination of two
concepts called unfair and pressure, which together conceptualised the
main concern of MLROs. Unfair pressure comprises two concerns:
regulatory concern and organisational concern. Under the regulatory
concern are defective regulations, which represent regulations that
MLROs consider faulty and ineffective; shifting expectation, which repre-
sents the continual changes in regulations and regulatory expectations
and damage to reputation resulting from fear of prosecution, fine and
penalties and naming and shaming strategy of the regulators. The final
concern under this category is naive regulators that represent the lack of
understanding of the banking environment and lack of skill and experi-
ence of some staff of regulatory institutions.
On organisational concern, this mainly relates to the concern of MLROs
over under resources and marginal management. Under resources represents a
situation where MLROs lack the time, human and financial resources to
discharge their responsibilities while marginal management is a concept that
represents the difficulties that MLROs face in managing employees that are
outside their control. Marginal management is peculiar to MLROs and
 1 Introduction 7

others in a similar situation where they have to deal with several other units
that may not share in their objectives of preventing money laundering.
The answer to the second question dealing with how MLRO are
resolving their main concern was found out to be protecting, a category
that conceptualises the various strategies adopted by MLROs to deal
with the unfair pressure exerted on them by regulators and banks. Two
main protecting strategies are used to deal with the unfair pressure; the
first is discharging and the second communicating. Discharging represents
a situation where MLROs are doing just enough to satisfy the require-
ment of law, but not necessarily to prevent money laundering. It has five
properties, namely assessing, reporting, learning, automating and com-
plaining. Discharging is mainly used to deal with regulatory concerns,
whereas communicating represent the strategy of MLROs for dealing
with organisational concerns, and it has four properties namely dialogue,
threat, justifying and complaining.
However, the protecting behaviour is moderated by another concept
called aligning. An MLRO adopts discharging or communicating strategy
based on his allegiance. MLROs that are aligning with banks and are
under unfair pressure from regulators are discharging while MLROs that
are aligning with regulators and are under unfair pressure from their
banks are communicating. Aligning has two properties, that is, interest
and belief. Interest is mainly in the form of reward and punishment while
belief has culture, ethics and conviction as its three properties.
MLROs in the UK banking industry are constantly trying to balance
conflicting pressure from the regulators on the one hand and banks on
the other by using the protecting strategy. However, it was discovered
that their main strategy is to deal with regulatory concerns mainly
through discharging their responsibilities to protect themselves rather
than complying with regulation to prevent money laundering. There are,
however, instances where they are communicating to protect themselves
against banks rather than cooperating to protect the interest of banks.
Based on these strategies and in line with the theoretical coding
process in the classical grounded theory approach, the author used the
paired opposite and degree theoretical codes to discover the self-protect-
ing theory. The self-protecting theory, in essence, states that the more
unfair pressure in exerted on MLROs the more they protect themselves.
8 Improving Anti-Money Laundering Compliance

Following from this theory, a framework was discovered to explain

the various strategic options available to an MLRO depending on the
nature of the unfair pressure. If the unfair pressure is coming from
regulators and an MLRO is aligning with a bank, the strategy is
discharging. If, however, the unfair pressure is coming from the bank
and the MLRO is aligning with the regulators, the strategy is commu-
nicating. Similarly, when an MLRO is faced with fair pressure mainly
from regulators and is aligned with the regulators, then the strategy is
complying. If, however, the MLRO is aligned with the bank and there is
fair pressure mainly from the bank, then the strategy is cooperating. This
framework is important because it explains the possible behaviour of an
MLRO when faced with different options. When the behaviours of
individual MLROs are aggregate in an industry like the banking indus-
try, for example, the predominant strategy would determine the nature
of AML compliance in that industry.
Furthermore, this aggregate strategy in turn points to the nature of a
regulatory environment. A regulatory environment where most MLROs
are adopting the discharging strategy is conceptualised as weak regulatory
environment since they are just playing along but not necessarily pre-
venting money laundering. In a situation where the predominant strat-
egy is communicating, the regulatory environment is called tough
regulation since MLROs are compelled to challenge their organisations
because of the pressure from regulators. In a situation where MLROs are
predominantly complying with regulations because of fair pressure from
regulators, the regulatory regime is called smart regulation. Finally, in a
situation where MLROs are predominantly cooperating with the banks
because of fair pressure from the banks, the regulatory environment is
called self-regulation.
At the end, an approach was proposed that would make AML
compliance more effective and efficient. The approach, called the middle
course approach, identified a middle ground between smart regulation and
self-regulation as a better strategy that would deal with the problem of
ineffective enforcement associated with self-regulation and inefficient
enforcement associated with smart regulation. This strategy is also good
for banks in that it would be more efficient than self-regulation and more
effective than smart regulation.
 1 Introduction 9

Potential Significance of the Book

By looking at the AML environment from the perspective of MLROs, it
is hoped that the main problem relating to AML will be identified rather
than a professional problem that is either dictated by regulators or
promoted by banks. Following from this is the potential to show that
MLROs, though part of the banking industry, are distinct individuals
with different concerns from both the regulators and the banks.
Understanding this difference may lead to a better understanding of
the AML environment.
Most importantly, however, introducing a theory to AML litera-
ture has the potential of opening a new vista in AML research and
practice because of the limited theoretical studies in the field. Thus,
the theory can be a source for further research within the industry in
addition to providing an explanation and prediction of compliance
behaviour. The framework that was discovered and the subsequent
recommended approach also have the potential to contribute to
knowledge and practice.
Finally, the theory has potential for general implication in other
substantive areas because it is well integrated with other theories, espe-
cially in economics, sociology and psychology.

Study Paradigm and Methodology

It is important to highlight the philosophy and methodology adopted
for the research that gave birth to the book. This, however, is a
summary of the process that led to the generation of the self-protect-
ing theory.
Based on a suggestion in the literature, the author first identified his
personal philosophical position on the nature of reality and knowledge.
It was discovered that the author’s position is aligned to a realist
ontology and subjective epistemology. A range of literature on paradigm
was then consulted to find out the paradigm that is closest to this
position, and it was discovered that Pragmatism is the closest to the
position of the author. However, Peirce Pragmatism is more closely
10 Improving Anti-Money Laundering Compliance

aligned because of its explicit, realistic ontological position rather than

other versions of Pragmatism that hold a more relativist position.
As a result of this choice, the methodology of enquiry was then
narrowed to only those that support a realist ontological view. Others
that have a relativist view were immediately rejected since the ontological
position was considered the most important criteria for selecting a
paradigm and invariably a methodology. Consequently, constructivism,
social construction and other interpretive methodologies were not con-
sidered for the research. Among the methodology that supports a realist
view, a second criterion was added, namely to find a methodology that
aligns with the objective of the research.
Accordingly, classical grounded theory was identified as the closest
methodology that satisfies the ontological question and provides proce-
dures for answering the questions and objectives of the book. In addition,
the methodology is well accepted, and leading approach in social research
(Clarke & Friese 2007), it also provides a “helpful framework for guiding
data collection and analysis” (McCann & Clark 2003 p. 16) and there is a
“wealth of literature on coding and analysis” (Urquhart 2001 p. 14) that
would make it easier to adopt. Unlike some methodologies, classical
grounded theory is also a complete package that has procedures for data
collection, analysis and even write-up (Elliott & Lazenbatt 2005; Glaser
1999).
Initially, the Strauss’s version of grounded theory was considered
because of its roots in Pragmatism, but it was discovered that its
philosophical basis is more towards the relative pragmatic position
and, therefore, inconsistent with the position of the author. It was the
desire to achieve a “methodological congruence” in which it is important to
match philosophy, methodology and method when conducting a study
that mostly influence the choice of classical grounded theory over the
Strauss and Corbin’s approach.
Below is a summary of the procedures in classical grounded theory:

Misunderstood concepts in grounded theory

Before explaining the process, however, it is important to understand
some key terms that relate to coding which are often misunderstood
leading to failure of the coding process (Glaser 1998).
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