How effective is AML regulation at reducing money laundering?

At a glance

• Money laundering is vast, yet anti-money laundering efforts are costly and largely ineffective.
• The UK government is reforming its AML rules to be more targeted and effective.
• Reforms will refine due diligence for complex transactions and high-risk countries.
• Accountants must help deter criminals, despite the system’s well-known flaws.

While the scale of money-laundering is difficult to assess, few doubt the massive scale of the problem. The United Nations Office on Drugs and Crime (UNODC) estimates that 2% to 5% of global GDP is laundered each year – or between £1.6 and £4.2 trillion at 2024 values.

However, multiple reports suggest money-launderers are unusually hard to catch. Just 0.1% of illicit financial transactions are ultimately seized or frozen, according to a 2021 UNODC report. In the US, historical research suggests money-launderers face less than a 5% risk of conviction. Similarly, Europol notes that “confiscation of criminal proceeds remains at an alarmingly modest level of approximately 2%”.

Meanwhile, a 2024 analysis by Oxford Economics estimated that the UK financial services sector spent up to £38 billion on financial crime compliance in 2023, up 12% on the previous year and up 32% since 2021.

Financial crime expert Dr Ronald Pol has described AML as the “the world’s least-effective policy experiment”. He has also suggested that compliance costs could be “more than 100 times” higher than the amount of laundered money seized.

Blame for AML system inadequacies typically focus on:

• Transaction complexity – criminals move money through offshore accounts, cryptocurrencies and shell companies, making it difficult for financial institutions to trace.
• Compliance overreach – regulators often measure success by the number of suspicious activity reports (SARs), not prosecutions (for example, in 2022, American financial institutions filed more than 3.6 million SARs, but only a fraction led to investigations or convictions).
• Weak international cooperation – while money laundering is a cross-border problem, international collaboration remains fragmented.

Cat and mouse

Governments globally have steadily expanded AML obligations, adding more professions and greater due-diligence expectations. 

It is against this backdrop of global frustration that the UK is attempting to refine its own approach. The government acknowledges the system’s inefficiencies and is now taking steps to make the rules more targeted.

The UK remains exposed to high levels of money laundering. Last month’s National Risk Assessment 2025 report found that two emerging technologies – cryptoassets and AI – are posing new risks.

Also last month, HM Treasury released its response to the consultation on Improving the Effectiveness of the Money Laundering Regulations, aimed at making the rules more targeted and effective, supporting both economic growth and the fight against illicit finance.

Economic Secretary to the Treasury Emma Reynolds says that for regulations to be effective, they must be “as clear and targeted as possible”. The planned changes are intended to close loopholes, address new threats, and clarify requirements.

The central theme of the reforms is making customer due diligence (CDD) “more proportionate and effective”. This follows consultation feedback where many stakeholders described certain requirements as “ambiguous or lacking clear purpose” and not as effective as they could be.

Key proposed changes include:

• ‘Unusually complex’ transactions: The rules on applying enhanced due diligence (EDD) will be amended. Currently, EDD is required for all transactions that are “complex or unusually large”. This will be changed to only “unusually complex” transactions, a nod to sectors like corporate property sales and M&A where most transactions could be considered complex, leading to over-application of EDD.
• A new approach to high-risk countries: The requirement for mandatory EDD on any transaction linked to a ‘High Risk Third Country’ is being narrowed. Previously, this applied to any country on the Financial Action Task Force’s ‘Increased Monitoring’ list, currently 24 countries long. The rule will now only mandate EDD for the much shorter ‘Call for Action’ list, which contains just three countries with the most serious deficiencies.
• Improving access to Pooled Client Accounts (PCAs): To help businesses like solicitors that hold client funds, the government is removing the link between PCAs and simplified due diligence (SDD). Instead, new, specific provisions for PCAs will be added to the Money Laundering Regulations, which should allow financial institutions to offer these accounts in a wider set of circumstances.
• Closing loopholes: The regulations will be expanded to include the sale of ‘off-the-shelf’ companies by Trust and Company Service Providers (TCSPs). This addresses a gap where a company could be sold to a customer without the TCSP having to perform CDD on the buyer.
• RegTech: The government will produce guidance to clarify how digital identity technologies can be used for identity verification, which should streamline client onboarding.

IFA Director of Professional Standards Tim Pinkney has worked in the money-laundering space from a regulatory perspective since 2007, just as the MLRs came into force.

 “The problems that occurred with the effectiveness of that regime are still by and large the same as they were when it was first implemented,” says Pinkney, noting updates to the regulation in 2017.

Nevertheless, Pinkney is cautious about portraying AML laws as ineffective because the fight against financial crime must continue. “Accountants know they’ve got to play their part, but ultimately we’re not there to catch criminals but to make it harder for criminals to operate,” he says.

Enhance your understanding of anti-money laundering with IFA’s AML Matters webinar series.