APPROACHES TO ASSESSING THE EFFECTIVENESS OF THE FINANCIAL MONITORING SYSTEM IN THE CONTEXT OF SANCTIONS POLICY
Abstract
So as to provide the necessary level of financial security, countries try to develop an up-to-date financial monitoring (FM) system, which would help countering illicit financial flows and operations. At the same time assessing their effectiveness might prove difficult due to the absence of clear criteria. We use the methods of analysis, abstraction and comparison to find and explain the flaws in existing approaches to assessing FM effectiveness. Reviewing FATF’s approach we find it lacking in accounting for the expenses on maintaining and improving the FM system, and quantifying its effect on the economic system, despite it being goal-oriented in nature. The same approach is characteristic of Ukrainian researchers, which mostly calculate the effectiveness based on the activity results of the State Financial Monitoring Service. We also highlight some of the issues related to assessing the effectiveness using such indicators as the level of shadow economy, share of government expenditures on maintaining the Financial Investigation Unit, and other values related to the suspicious activity reports and criminal proceedings statistics. Critically considering the economic consequences of money laundering we propose an approach to assessing the effectiveness of the FM system based on its effect on mitigating the decrease in economic growth, in which we divide two parts – effect on the amount of successfully legalized money and on the amounts of criminal activity. Thus, we suggest using the values of unexplained asset growth, real GDP growth due to FM activities’ impact on decreasing criminal proceeds, and weighted propensity to launder as additional criteria of assessing the effectiveness of FM system in the FATF framework. We believe our approach could be used not only to compare the development of country’s FM system with time, but also while calculating the planned effect on the economy when considering financing innovative projects in this sphere, both for government agencies, and banks and non-bank financial institutions, or when developing methods of stimulating realization of such projects as part of country’s financial policy.
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