Economics and Politics in Designing Supervision: The Case of the FIUs Against Money Laundering

In the last years, the design of supervision against money laundering has become increasingly essential in agendas of governments through the creation of specialized agencies: the Financial Intelligence Units (FIUs). The economics of Anti Money Laundering (AML) suggested that the Financial model of FIU (FFIU), which is the regime adopted for example in the US, should be the best choice. Nevertheless, although nowadays the FFIU is still the most common framework, an empirical analysis of the FIUs establishment shows a more nuaced reality; it is discovered that, after the 2001 terrorist attack, the adoption of FFIU is unlikely. September Eleven seems to be the key event in the more recent design of the supervisory architecture against money laundering, signalling that politicians seem to prefer the Law Enforcement model of FIU (LEFIU). Using a political economy model two possible and non-alternative explanations are offered. On the one hand, in order to counteract the terrorist threat, politicians could have preferred the comparative advantages of the LEFIU model in term of police and investigation powers rather than the information gains supplied by the FFIU model. On the other hand, politicians could have used the September Eleven event just as an occasion to avoid the establishment of a FFIU model with its higher risks of having banking capture and/or an over-powerful financial agency.