HOW DO REGULATORY FRAMEWORKS INFLUENCE ANTI-MONEY LAUNDERING

AND COUNTER-TERRORIST FINANCING DISCLOSURE PRACTICES?

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Abstract:
The purpose of this thesis is to identify the current practices of anti-money laundering and
counter-terrorist financing (“AMLCTF”) disclosure in the United Kingdom's banking sector, as
well as their potential economic consequences. To accomplish this objective, the thesis is
structured around three specific aims. The primary aim is to assess the extent to which anti-
money laundering and counter-terrorism financing disclosure practices are reflected in annual
reports. The second aim of this study is to investigate the factors that influence the disclosure of
AMLCTF activities.
This study specifically examines the influence of corporate governance measures on AMLCTF
information. The third purpose of this study is to examine the impact of AMLCTF disclosure on
the performance of banks. To accomplish the above goals, the research initially establishes a
self-developed index and employs manual content analysis to assess the level of AMLCTF
disclosure across 625 bank-year observations in the United Kingdom over the period. The
primary contribution of this thesis is in the formulation and establishment of an all-encompassing
index for AMLCTF disclosure.
To address the research question the investigation of the drivers and repercussions of AMLCTF
disclosure yields novel insights to the existing body of literature on disclosure. The findings
indicate a progressive improvement in the AMLCTF disclosure score over time, surpassing the
score reported in previous literature. However, it is important to note that the average score
remains relatively low. The results indicate that the disclosure of AMLCTF is influenced by
board independence, audit committee size, and board gender diversity. Additionally, the data
reveals that the disclosure of AMLCTF measures has a detrimental effect on the performance of
banks.
The findings of the thesis shed light on the disclosure practices of AMLCTF in the banking
sector of the United Kingdom. The assessment has the potential to guide policymakers in
determining the degree of stringency or leniency within the industry's efforts to combat financial
crimes. The development of a global index or checklist for best practices in AMLCTF disclosure
could potentially assist policymakers and international institutions in their efforts. Additionally,
regulatory agencies can establish initiatives aimed at facilitating the promotion of institutions'
AMLCTF disclosures.

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TABLE OF CONTENT
INTRODUCTION
Chapter 1: Money Laundering Framework
Chapter 2: Legal Framework and Regulations
Chapter 3: The cost and effectiveness of AML policy
Chapter 4: Conclusion

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 INTRODUCTION
Introduction:
1.1 Background and Rationale:
The financial system and society as a whole are severely impacted by the activities of money
laundering and sponsoring terrorist organisations. To strengthen efforts being made all over the
world to combat financial crimes, it is of the utmost importance to investigate the interaction that
exists between regulatory frameworks, legal legislation, and disclosure practices.
Money laundering is the unethical and illegal activity of concealing the true origin of monies
obtained from illegal activities, such as drug trafficking, corruption, embezzlement, and
gambling, through a sequence of transactions that are intended to legitimise their origin. These
types of illegal activities include but are not limited to, gambling and embezzlement. There are
many different jurisdictions, each of which has its own set of laws that criminalise particular
behaviours; yet, these laws are interpreted and defined differently. In most cases, it is regarded
as a mission of fundamental significance within the context of organised criminal activity.
The criterion does not only apply to the exchange of money in the United Kingdom; rather, it
encompasses all forms of economic transaction. Cases of money laundering committed by
individuals in the private sector, drug traffickers, corporate companies, corrupt public officials,
members of criminal syndicates such as the Mafia, and even nation-states are investigated and
prosecuted by the judicial system. The rise of money laundering as a prominent topic in political,
economic, and legal discourse can be attributed to the growing complexity of financial crime as
well as the growing significance of financial intelligence in the fight against international crime
and terrorism. The actions that create the funds are often associated with criminal behaviour,
which makes it illegal to launder money because money laundering itself is illegal. There would
be no requirement for the process of money laundering if the monies had been received through
lawful means.
The Sanctions and Anti-Money Laundering Act of 2018, often known as SAMLA 2018, is a piece
of legislation that has been enacted in the United Kingdom and is applicable within its borders.
The primary goals of the Act are twofold: firstly, to grant the United Kingdom the authority to
establish its framework for imposing sanctions, thereby enabling it to independently impose
sanctions rather than relying on existing models provided by the European Union (EU) or the
United Nations (UN); and secondly, to incorporate measures aimed at facilitating the
identification, investigation, and prevention of money laundering and terrorist financing. Both of
these goals are listed as primary objectives of the Act. In addition, the Act intends to bring the
United States into conformity with the standards outlined by the Financial Action Task Force
(FATF), which will remove the need for the United States to implement guidelines from the
European Union. Sanctions and Anti-Money Laundering Act 2018 (SAMLA 2018) was passed
into law to provide the United Kingdom with the legal framework necessary to impose economic
sanctions, as well as provisions about money laundering and funding for terrorism. This was the
intention behind the enactment of SAMLA 2018. Following the United Kingdom's exit from the
European Union, also referred to as "Brexit," without the introduction of the Act, there is a risk
that the United Kingdom may violate its international responsibilities as a member of the United
Nations. This risk is magnified if the United Kingdom does not introduce the Act.

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The Act gives the United Kingdom the authority to carry out sanctions imposed by the United
Nations Security Council if those penalties have been approved by the council. In the past,
these sanctions were carried out by the regulations that had been set up by the European Union
in its Common Foreign and Security Policy.
The "Magnitsky Amendment" was included in the Sanctions and Anti-Money Laundering Bill on
May 1, 2018, after it was approved by a vote of 100 to 0 in the House of Commons of the United
Kingdom. Because of this legislation, the British government will now have the jurisdiction to
impose sanctions on persons who are responsible for serious violations of human rights.
As a direct result of Brexit, the United Kingdom has decided to enforce new and updated
sanctions beginning on the 31st of December, 2020. It is necessary for all entities to ensure
compliance with the new legislation and to have a good understanding of it.
The legislation incorporates several preventative measures for both the laundering of illicit funds
and the funding of terrorist organisations. The British government is given the authority to adopt
measures that support the detection or examination of money laundering and terrorist funding
activities, as well as measures that support the prevention of such activities, after the
implementation of further legislation by the British government. In addition, the implementation
of Standards makes it possible for the Financial Action Task Force (FATF) to effectively deal
with and reduce risks that are a threat to the integrity of the international financial system.
The Act intends to address concerns over the lack of openness regarding the ownership of
foreign firms and tries to do it in several ways. It requires the Secretary of State to publish
regular reports outlining the progress that has been made in establishing a registry of individuals
who eventually benefit from companies based in other countries and requires that these reports
be made public.
1.2 Research Questions:
Research Question 1: What are the key elements of regulatory frameworks and
legislation governing AML and CTF disclosure practices in UK legislation?
The UK's AML and CTF regulatory framework is primarily governed by the Money Laundering
Regulations (MLR), which have undergone several updates to align with EU directives and
international standards. Key elements include:
a. Customer Due Diligence (CDD): Stringent identity verification and risk assessment
procedures for customer onboarding.
b. Enhanced Due Diligence (EDD): Additional scrutiny for higher-risk customers or
transactions.
c. Suspicious Activity Reporting (SAR): Obligation for financial institutions to report
suspicious transactions to the National Crime Agency (NCA).
d. Record Keeping: Financial institutions are required to maintain records of transactions,
customer due diligence, and internal policies for at least five years.
e. Risk Assessments: Regular risk assessments to identify and manage money laundering
and terrorism financing risks.

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f. Training and Awareness: Mandatory training for staff to understand and adhere to AML and
CTF regulations.
Research Question 2: How do the UK regulatory approaches impact the disclosure
practices of financial institutions?
The UK's regulatory approach significantly influences disclosure practices:
a. Risk-Based Approach: The UK emphasises a risk-based approach, where institutions
assess and manage risks according to the level of perceived threat. This leads to more targeted
and efficient disclosure practices.
b. Technological Integration: The use of advanced technology is encouraged to improve
monitoring and reporting capabilities, making disclosure practices more streamlined and
effective.
Research Question 3: What are the costs and benefits associated with implementing
AML and CTF measures in the UK?
a. Costs: Financial institutions face costs related to compliance staff, technology, training, and
system upgrades. Compliance with evolving regulations can also lead to ongoing operational
expenses.
b. Benefits: The benefits include reduced exposure to financial crime, enhanced reputation,
and maintaining the UK's position as a global financial hub with robust integrity.
Research Question 4: How can the efficiency and effectiveness of AML and CTF
measures be improved through legislative and regulatory adjustments in the UK?
a. Digital Identity Verification: Incorporating advanced digital identity verification methods can
streamline customer onboarding and enhance accuracy.
b. Data Sharing: Facilitating data sharing between institutions and regulators can improve
overall detection and prevention capabilities.
c. Real-Time Monitoring: Implementing real-time transaction monitoring systems can enable
quicker identification of suspicious activities.
d. Global Collaboration: Strengthening collaboration with international partners to share
information and coordinate efforts against cross-border financial crime.
e. Regular Updates: Regularly reviewing and updating regulations to keep up with evolving
financial crime tactics.
1.3 Objectives:
The objective of this thesis is to examine the disclosure practices related to AMLCTF in the
annual reports of banks, as well as the potential economic implications associated with these
practices. To accomplish this objective, the thesis is structured around three specific aims. The
primary aim is to create an all-encompassing index for AMLCTF disclosure. The aforementioned
index is utilised to assess the level of compliance with AMLCTF disclosure requirements. The
primary aim of this study is to investigate the factors that influence the disclosure of AMLCTF
practices. Specifically, it seeks to examine the influence of corporate governance procedures on

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AMLCTF disclosure. The primary aim of this study is to evaluate the impact of AMLCTF
disclosure on the financial performance of banks.
The regulatory and public interest models are implemented with the genuine objective of
addressing market failures. Nevertheless, an examination of these externalities indicates that
the presence of externalities leads to a situation where the costs and advantages experienced
by people in terms of social costs and benefits, as well as unrestricted individual behaviour, tend
to generate a greater number of negative externalities compared to positive ones. The
implementation of cost imposition or subsidies has the potential to rectify this difference, which
has conventionally been addressed by regulatory measures. The enhancement of social welfare
can be achieved via governmental intervention aimed at rectifying market failures and
safeguarding the public through regulatory measures.
Comparably, both regulatory measures and self-interest serve as driving forces for
governmental entities to take action before and after legislative alterations, to mitigate the
potential consequences or optimize the advantages for various industries. One notable issue
regarding regulation is its susceptibility to capture, wherein the regulatory process aligns the
interests of the regulated entities with their private interests.
This notion additionally implies the degree to which regulation is influenced by the interests of
the public, private entities, or stakeholders, and necessitates careful consideration. The
stakeholders involved in this study seem to be driven by their interests and agendas, as
Masciandaro (2007) proposes. This finding helps to elucidate why supervisory authorities, rather
than politicians, take the lead in initiating measures for the prevention of money laundering. The
institutions subject to money laundering rules establish preventive measures and reporting
systems to address individuals who are suspected of engaging in money laundering activities
within their establishments.
Failure to submit the aforementioned suspicious reports may result in potential legal
consequences for the personnel, such as prosecution, or for the institution, such as financial
penalties, sanctions, and damage to its reputation. The institution bears the financial burden of
the process, resulting in the emergence of contradictory agendas about duties and
responsibilities. The question of the institution's advantage in the context of anti-money
laundering (AML) becomes a subject of discussion and policy formulation, potentially leading to
a dilution of the AML framework to align with the institution's interests.

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 Chapter 1: Money Laundering Framework
1.1 The AMLCTF Conceptual Framework
Linking the concept of AMLCTF disclosure to a firm context is likely to be described as reporting
the firm practices in fighting against ML and TF activities (Nobanee & Ellili, 2017; Siddique et al.,
2021). Although ML has many definitions in prior literature, the simplest one is transforming dirty
money into clean money (Buchanan, 2018; Kemal, 2014). Therefore, AML deals with mitigating
the risk of ML. AML is defined as preventing the launders from transferring and concealing
illegal sources of funds by placement in lawful financial schemes (Financial Action Task Force,
2022b; McDowell & Novis, 2001; Nobanee & Ellili, 2017; Teichmann, 2019).
Similarly, there is no specific definition for TF in previous literature. The IMF describes the TF as
the funds utilized by terrorists to perform terror attacks (International Monetary Fund, 2022b).
Indeed, CTF deals with combating the TF hazard (Bures, 2012). Also, the concept of CTF is
referred to the process of stopping terrorists from transferring legal sources of funds within the
legitimate financial system to perform illegal activities (Nobanee & Ellili, 2017; Teichmann,
2019). First, placement is to allocate the illicit fund in the financial system. Second, layering
indicates the repeated movement of the laundered fund in the financial system to obscure its
trace. Finally, integration is when the illicit origin fund appears to be legitimate economic
circulation.
The second phase is storing and transferring funds. It involves keeping the funds within the
legal system and then moving them physically through official channels such as the financial
sector, trading, charities, and non-profit organisations (United Nations, 2022). The last phase is
using funds. It focuses on financing the terrorist networks and groups for performing the crime,
such as getting weapons, bomb materials and other terrorist expenditures.
Accordingly, ML and TF threaten the strength of the financial system. In addition, both crimes
are likely to fall under the legitimate appearance in several forms: real estate, derivatives, luxury
vehicles and goods, casinos, trade, donations, social media fundraising, virtual currencies, and
charities. Also, these crimes occur under illegal sources in the form of fraud, embezzlement,
drug trafficking, smuggling, theft, and kidnappings (Bures, 2012; Teichmann, 2019).
Consequently, ML and TF mechanisms are associated with fragile financial sector systems that
facilitate the available services for illegal means. Criminals often threaten the banking industry
more than other business entities due to the banks' ability to provide various services and
products that criminals may use to hide their illegal operations. These services and products
may be in the form of money transfers, currency exchange, deposits, loans, cryptocurrencies
and electronic payments (Levi, 2015; Pramod, Li, & Gao, 2012; Simwayi & Guohua, 2011;
Whisker & Lokanan, 2019). Using these facilities to perform successful ML and TF operations
has several negative consequences.
First, it raises crime numbers and criminal wealth after acquiring the illicit proceeds of a lawful
nature and enjoying the returns generated from ML and TF by investing in massive businesses
(Murray, 2018). Second, it increases corruption that promotes ML and TF, as Mugarura (2016)
and Schneider & Windischbauer (2008) find that ML and corruption are correlated, and each is
a sequence for the other one. Third, it impacts the country's AMLCTF assessment and ranking
within professional institutions reports such as the BAMLI (Basel Institute on Governance,
2021). Fourth, it risks the nation's reputation, which is likely to influence investment rates
adversely based on the cost of risk exposures and individual wealth subject to in-depth

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assessment when the connection occurs to a high-risk economy (Simonova, 2011). Fifth, it
affects financial firms' performance and macroeconomic stability (Aish et al., 2021; Schneider &
Windischbauer, 2008).
In addition, after September 11, 2001, the ML concept extended to include TF due to the
negative impacts of both crimes on the financial sector and global economic stability
(International Monetary Fund, 2021). Accordingly, a new field opened for AMLCTF that leads
financial firms to work hard to enhance their efforts against ML and TF and secure their financial
system through implementing effective AMLCTF policies. Indeed, banks' compliance with
AMLCTF laws and regulations protects the shareholders' interest, attracting the investors'
confidence and clients' attention to the banks’ safeguarding practices (Mathuva et al., 2020).
Therefore, one of the techniques to display firms' compliance is to disclose the AMLCTF
information within annual reports to improve their transparency (Mathuva et al., 2020; Nobanee
& Ellili, 2018, 2017; Siddique et al., 2021).
Indeed, AML and CTF are two sides of a single coin by most AMLCTF disclosure studies due to
including AML indices items related to CTF (Mathuva et al., 2020; Nobanee & Ellili, 2018, 2017;
Siddique et al., 2021). For example, Nobanee & Ellili (2018) and Mathuva et al. (2020) AML
indexes obtain TF items within the technology category (other anti-terrorism financing software)
and know your customer category (blacklisted extremist/terrorist organisations and individuals).
Subsequently, this research examines the AMLCTF disclosure extent within the UK banks'
annual reports by constructing a new AMLCTF index and investigating the disclosure
determinants and economic consequences.
1.2 The UK's AMLCTF Regime
The UK updates the TA2000 Order 2007 and the POCA2002 Order 2007 for business in the
regulated sector and supervisory authorities (The Parliament of the United Kingdom, 2007b,
2007c). Whereas the disclosure obligation slightly occurs within the explanations of the
regulated sector in both statutory instruments. Then, the Terrorist Asset-Freezing etc. Act 2010
(TAFA2010) become into force in 2010. It employs the UN Security Council Resolution 1373.
The TAFA2010 strengthens the UK Treasury's authority to freeze the assets that belong to ML
and TF crimes (The Parliament of the United Kingdom, 2010). It maintains minimal information
about disclosures within the section of disclosure of information by the Treasury. Moreover, in
2013, a new law appears under the title of the Crime and Courts Act 2013 (CCA2013), which
introduces the National Crime Agency (NCA) and replaces the SOCA (The Parliament of the
United Kingdom, 2013). The CCA2013 explains the NCA officers, duties and inspection scopes.
Also, it defines the agency's power in handling the investigation of ML and TF issues and
preventing serious and organized crimes. Similarly, the CCA2013 indicates the role of courts
and justice in the UK and their connections with controlling crime. However, the Act refers to
minor information attached to the disclosure of ML compared to TF. Forwards, in 2015, the
Serious Crime Act 2015 (SCA2015) is issued.
The regulation updates CDD measures, reliance and record-keeping and beneficial ownership
information. The MLTFTFR2017 combines ML and TF in one title, unlike earlier laws and
regulations, which only point to one of the crimes (ML or TF). The title is likely giving the
regulation more value and concentration. Besides, it explains ML and TF disclosures in several
sections, such as internal controls, duties of supervisory authorities, and suspicious activity
disclosures. Further, in the same year, 2017, the UK publishes the Criminal Finance Act 2017

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(CFA2017), which comprises amendments to the POCA2002, provisions for terrorist property
and corporate offences for tax evasion (The Parliament of the United Kingdom, 2017a).
Also, in 2019, the Counter-Terrorism and Border Security Act 2019 (TFBSA2019) is circulated
to safeguard the UK ports and borders from terrorist actions (The Parliament of the United
Kingdom, 2019a). It improves terrorism offences, punishments and controls. Indeed, the
disclosure requirement is very low within the law schedules (SCHEDULE 3 – Border security).
Next, in 2020, the UK government amends the MLTFTFR2017 for the Brexit transition period by
announcing the Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations
2020 (MLTFEUER2020). The regulation focuses on the risk of ML and TF associated with the
UK exiting the European Union by offering updates to enhance due diligence determination and
KYC checks (The Parliament of the United Kingdom, 2020). In contrast to the MLTFTFR2017,
the MLTFEUER2020 attains minimum disclosure obligations in the beneficial ownership
information section. After that, the UK government places a law titled the Counter-Terrorism and
Sentencing Act 2021 (CTSA 2021) to manage the sentences related to terrorism (The
Parliament of the United Kingdom, 2021). Also, the law shows further explanations for terrorism
offences. The CTSA2021 expresses the intention of the disclosures within part 3, which is
allocated for preventing and investigating terrorism. Nevertheless, the UK issued amendments
to the MLTFTFR2017 Statutory Instrument 2022 consultation in 2021 to ensure that ML and TF
legislation meet the FATF standards (HM Treasury, 2021). Moving on to 2022, the current year
of the research, the Money Laundering and Terrorist Financing (Amendment) Regulations 2022
(MLTFR2022) is represented to the public and contains amendments to the MLTFTFR2017 and
the MLTFEUER2020 (The Parliament of the United Kingdom, 2022b). In contrast, disclosure
concerns are absent across the law sections. Also, the Economic Crime (Anti-Money
Laundering) Levy Regulations 2022 is introduced as new legislation that imposes levy payment
as a fixed fee to help the government toward AML (The Parliament of the United Kingdom,
2022a). The tax is decided upon the size band of the entity regulated for AML under the
MLTFTFR2017, which is determined based on their UK revenue. On the other hand, the
regulation does not specify the disclosure obligations.
1.3 The AMLCTF Supervisors
The regulatory landscape in the United Kingdom exerts a significant influence on Anti-Money
Laundering (AML) and Counter-Terrorist Financing (CTF) disclosure practices. This influence is
manifest through various regulatory bodies, each with distinct roles. Firstly, HMRC issues
AML/CTF guidance and sets non-compliance penalties, providing a foundational framework for
compliance. Secondly, the Financial Conduct Authority (FCA) acts as both a regulator and
enforcer, encouraging financial institutions to maintain robust AML/CTF controls through the
power to levy penalties. Additionally, OPBAS shapes the landscape by establishing high
AML/CTF supervision standards and promoting collaboration among professional bodies,
regulators, and law enforcement agencies. The Gambling Commission combats illicit financial
activities stemming from gambling and enforces fines for breaches, deterring malfeasance in the
sector. Lastly, oversight by charity commissions ensures transparency and accountability in the
charitable sector, reducing the risk of charities being exploited for money laundering or terrorist
financing. This comprehensive regulatory framework collectively shapes AML and CTF
disclosure practices by setting standards, providing guidance, and enforcing compliance across
various sectors.

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The UK's Financial crime supervisors include His Majesty's Revenue and Customs (HMRC), the
Financial Conduct Authority (FCA), the Gambling Commission, and other 22 professional
entities supervised by the Office for Professional Body Anti-Money Laundering Supervision
(OPBAS) (HM Treasury, 2020b). All supervisors work together to reduce ML and TF hazards
and assess firms' compliance with UK legislation. However, these supervisors vary in their
responsibilities and the scope of their work. This is summarized in five points as follows. (1) the
HMRC is accountable for issuing AMLCTF guidance and defining non-compliance sanctions. It
supervises several entities, such as financial service firms, high-value dealers, letting agents,
accountancy, trust and company service providers (HM Treasury, 2020b).
Also, under HMRC, Fraud Investigation Service (FIS) conducts the crime assessment with the
suspected criminals and gives the HMRC investigators permission to access the properties (HM
Treasury, 2020b). (2) the Financial Conduct Authority (FCA) is the financial sector regulator and
plays a major role in ensuring financial system integrity. It is considered a supervisor and a law
enforcement authority that can levy penalties for ML and TF breaches. The FCA oversee the
credit and financial industry, including the UK banks and crypto-assets firms (HM Treasury,
2020b). At the same time, the OPBAS oversight 22 Professional Body Supervisors (PBSs) of
the legal and accountancy division registered under the FCA. (3) the OPBAS is responsible for
developing AMLCTF supervision standards and assessing the PBSs which are practising high
supervision roles. Also, it promotes intelligence and data accessibility between the PBSs, other
supervisors and law execution bodies (Financial Conduct Authority, 2021; HM Treasury, 2020b).
The OPBAS works parallel to the FCA and checks compliance with the ML and TF regulations.
(4) the Gambling Commission fights ML and TF operations that arise from illicit gambling and
implements fines for breaking the legislation (HM Treasury, 2020b). In addition to its supervisory
function, it is a law enforcement body and incorporates other implementation units for
investigation purposes. It supervises the commercial gaming sector consisting of lotteries,
casinos, playing devices and others (HM Treasury, 2020b). (5) the Charity Commission for
England and Wales, the Charity Commission for Northern Irland, and the Office of the Scottish
Charity Regulators are supervisors for the UK's regulated charities within their areas (HM
Treasury, 2020b). They support safeguarding charities' funds by examining the suspected
actions and working alongside law enforcement authorities to protect charities from ML and TF
abuses. (6) the Prudential Regulation Authority (PRA) is the Bank of England prudentially and
collaborates with FCA to set the prudential standards and supervise the UK individual financial
service firms to ensure their reputation and safeness (HM Treasury, 2015).
1.4 The AMLCTF Law Enforcement Agencies
Regulatory frameworks in the United Kingdom exert a substantial influence on Anti-Money
Laundering (AML) and Counter-Terrorist Financing (CTF) disclosure practices. The UK's
approach to combatting financial crimes involves a network of law enforcement authorities and
prosecution agencies, which collectively shape the landscape of AML and CTF disclosures.
The National Crime Agency (NCA) is a central figure in this framework, tasked with addressing
serious and organized crime in England and Wales. Within the NCA, the National Economic
Crime Centre (NECC) serves as a coordinating body that brings together deputies from various
agencies, including the NCA, FCA, City of London Police, HMRC, Crown Prosecution Service,
Cabinet Office, Home Office, Serious Fraud Office (SFO), and Foreign, Commonwealth and
Development Office. This collaboration enhances the UK's capacity to combat money
laundering (ML) and terrorist financing (TF) and influences disclosure practices.

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The Financial Intelligence Unit (FIU) operates within the NCA's jurisdiction, situated within the
NECC. Its primary role is to collect, evaluate, and share Suspicious Activity Reports (SARs)
following the SARs framework. SARs provide essential insights into ML and TF risks, aiding
AML/CTF supervisors and law enforcement agencies in tracking criminal activities and reducing
their financial gains.
International cooperation is a cornerstone of the UK's strategy, with active participation in the
Egmont Group of Financial Intelligence Units and other global initiatives. Membership in these
organizations fosters collaboration, intelligence sharing, and the adoption of best practices,
further shaping the effectiveness of AML and CTF disclosure practices.
Local police forces across the UK, such as the Scottish Police Authority, the Police Service of
Northern Ireland, the City of London Police, and the Metropolitan Police Service, work in tandem
with the NCA to investigate financial crimes. Police and Crime Commissioners in England and
Wales oversee these forces, contributing to the broader enforcement of AML and CTF
measures.
The Serious Fraud Office (SFO) plays a specialized role in addressing serious fraud operations
associated with ML. Comprising legal experts and financial examiners, the SFO is responsible
for prosecuting and investigating such cases.
Multiple prosecution agencies also play a pivotal role in this ecosystem. These include the
Crown Prosecution Service in England and Wales, the Public Prosecution Service Northern
Ireland, and the Crown Office and Procurator Fiscal Service in Scotland. They assess and
review cases initiated by law enforcement agencies, provide guidance during investigations, file
suits in court, and issue confiscation orders. These agencies also support international
prosecution bodies in enforcing confiscation requests.
The Financial Conduct Authority (FCA), in addition to its regulatory duties, acts as a prosecution
authority responsible for monitoring ML operations within registered entities. It holds the power
to prosecute criminals, conduct confiscation investigations, and determine appropriate actions
against convicted offenders. The FCA collaborates with financial experts and legal professionals
to assess ML cases both locally and internationally.
Regular National Risk Assessments (NRAs) provide a foundation for the UK's regulatory
frameworks. These assessments analyze the ML and TF landscape, identifying vulnerabilities
and risks within the financial sector. The results of NRAs underscore the importance of robust
AML and CTF practices, particularly in the banking sector, and inform policies and actions
aimed at combating financial crimes.
1.5 Compliance with AMLCTF Regulations
The FCA and the JMLSG insist that understanding the threats of ML and TF operations
surrounding the business context and compliance with AMLCTF laws and regulations helps
mitigate financial crime risks (Financial Conduct Authority, 2015a; Joint Money Laundering
Steering Group, 2020). Therefore, financial firms, including the banks that the FCA regulates,
are required to comply with ML and TF laws and regulations up to the new amendments.
Also, the JMLSG publishes AMLCTF guidance to assist UK firms in implementing and
complying with the regulations (Joint Money Laundering Steering Group, 2020). Moreover, the
FCA and the JMLSG recommend focusing on some key points to improve firms' efforts in

12
combating ML and TF (Financial Conduct Authority, 2015a, 2015b, 2016; Joint Money
Laundering Steering Group, 2020). The first key point is governance. This point deals with the
senior management’s obligations to enhance the AMLCTF framework, including defining
reporting lines, meeting mitigating crime purposes by disclosures, receiving regular Money
Laundering Reporting Officer (MLRO) reports, and checking clients’ risks (Financial Conduct
Authority, 2016). Indeed, prior studies find that good governance reduces the pervasiveness of
ML and crime rates (Habibullah et al., 2016; Vaithilingam & Nair, 2007). The second is the
MLRO, which assesses the firm's compliance based on the available resources and the officer's
knowledge and expertise (Financial Conduct Authority, 2016). Prior studies state that the UK
MLTFTR2017 identifies the role of MLRO in determining and reporting illegal transactions to law
enforcement bodies (Ebikake, 2016). The third is the risk-based approach that focuses on risk
assessment (Joint Money Laundering Steering Group, 2020).
This point requires an effective system and controls to assist in defining the risk areas and
examining the firm's operations daily (Financial Conduct Authority, 2016). Indeed, banks are
engaged in evaluating risk exposures by assessing customers' backgrounds and understanding
their requested products and services that might be linked to suspicious actions (Boles, 2015).
Accordingly, the firms are required to submit SARs forms to NCA to alert the law enforcement
authorities to proceed with their investigations and check the suspicion reality (HM Treasury,
2020; Joint Money Laundering Steering Group, 2020). The fourth is customer context which
includes checking the KYC, CDD, enhanced due diligence and source of wealth and funds. This
key point involves verifying client identity, firm relationship with PEPs, accepting high-risk
accounts and tracking customer payments (Financial Conduct Authority, 2016). The fifth is
policies and procedures. This key point reflects the firms' keenness to comply with AMLCTF
regulations and employ effective AMLCTF programmes to support their competence in
preventing and detecting criminal activities at the right time and keeping the following policies
and techniques updated (Financial Conduct Authority, 2015a). Besides, this point represents
firms' behaviours in monitoring, record keeping and conducting reliance checks by others
(Financial Conduct Authority, 2016; Joint Money Laundering Steering Group, 2020).
The Sixth is recruitment, vetting, training, awareness, and remuneration. This key point includes
appointing qualified staff and scheduling regular AMLCTF training programmes to develop
employees' knowledge, skills, and experiences (Joint Money Laundering Steering Group, 2020).
Moreover, this point implies considering the remunerations upon personnel abilities and
continuously checking employees’ financial abuses (Financial Conduct Authority, 2015a).
Indeed, Kemal (2014) shows a significant relationship between staff training and predicting ML
in the banking sector of Pakistan. Therefore, the above proposed key points indicate the firm's
compliance with the UK ML and TF regulations. Nevertheless, each point requires a level of
disclosure in annual reports which is not specified. The uncertainty level of AMLCTF leads to
diverse reporting practices among financial firms, and the declaration extent remains ambiguous
unless the regulators find a method to improve the disclosures. On the other hand, non-
compliance is likely to impose significant financial penalties and detention and carry out
reputational damages. For instance, the POCA2002 part 7 expresses that the imprisonment
period is not exceeding 14 years (The Parliament of the United Kingdom, 2002). In addition, the
FCA places on their website the name of firms or individuals that are fined during a calendar
year and shows the amount and reason for their breaches.

13
 Chapter 2: Legal Framework and Regulations
2.1 Concept of money laundering
In recent times, money laundering is considered one of the major problems and it is very difficult
to have a grip on it. In simple words, it can be realized that in money laundering the criminal
income is converted into assets which cannot be marketed out to the primary crime. In addition
to this, it can be observed that money laundering has been further divided into three phases,
firstly, the placement of the fund that are resulting from the crime, to cover up their origins, the
layering of those funds has to be done along with the incorporation of the funds into the majority
of the economy[1]. Many forms of unlawful activities demand cash. For instance, drug dealing
involves a large amount of cash in minute denominations. The money launderer is responsible
for removing the cash from where it was obtained and putting the cash in a safe place where the
money cannot be traced or detected.
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer)
Regulations 2017 1.7 The MLRs use powers under the Sanctions and Anti-Money Laundering
Act 2018 (SAMLA) and are a vital part of the UK’s overall economic crime response. They
ensure firms in scope of the regulations (the ‘regulated sector’) take steps to detect and prevent
ML/TF. They also establish the legal basis for the UK’s supervisory regime, consisting of 25
AML supervisors who oversee those firms and ensure their compliance with the regulations.
There is an overlap between ML and TF, as both criminals and terrorists use similar methods to
store and move funds, but the motive for generating and moving funds differs. 1.8 The UK has
had regulations intended to prevent ML in place for nearly thirty years. Over time, these have
evolved in line with international standards and multiple EU Anti-Money Laundering Directives
(AMLDs). The most substantial recent revision was in June 2017, transposing the European 4th
Anti-Money Laundering Directive (4MLD) and the Funds Transfer Regulation, which were
themselves heavily informed by a substantial rewrite of international standards in 2012. Since
2017, the MLRs have been further amended, most significantly through the transposition of the
5th AntiMoney Laundering Directive (5MLD) in January 2020. Through all these revisions, the
MLRs have expanded in scope, bringing in new sectors outside of the original financial industry
focus, and extending the requirements for those in scope to ensure an understanding of the
beneficial ownership structure of those involved in transactions.
2.4 Deficiencies in UK Rules and Laws
There are several deficiencies found in the system of UK Rules and Laws as they are found to
contain certain ambiguities. Also, some of the laws are found to be poorly implemented. There
are found to be many differences between the interpretation and application of the law. It is also
been claimed that training provided to the community for enforcing the law is not sufficient.
The industry providing financial services is claiming the rise in cost regarding anti-money
laundering regulations. They are being viewed as proving more problems as compared to their
benefits. The legislation does not provide an objective understanding regarding removing crime.
This has regarded as a complete failure when we talk about avoiding terrorist financing. Some
of the deficiencies present in the system are:
Firstly, many of the digital banks did not fall under a specific regulatory statute. Thereby it is not
expected of them to adhere to the rules and regulations meant for the same. Sometimes it may
be found that transactions may not involve large sums of money. Now the question comes here
whether to monitor such transactions or not. Secondly, the legislation is against Data Protection

14
Act. The legislation requires banks to report the customers of whom they are suspicious. This
step however requires the leaking of data to the institutions. Hence, data privacy is one of the
biggest issues coming forward[19].
Thirdly, there are lots of issues regarding measuring the extent of the scale of money
laundering. Although efforts were made by the FATF (Financial Action Task Force) to correct
the problems, however, it failed. This problem arose on the basis that in every country there are
different definitions used in the context of money laundering. Fourthly, it is impossible to find a
reliable figure regarding the costs and benefits behind the implementation of Anti Money
Laundering Regulations. This problem prevents to calculate the impact of legislation.
Fifthly, many organizations like banks, do not differentiate between the cost spent on anti-fraud
and AML operations and thus they do not allocate costs to each operation separately. The
regulation does not provide any provision to differentiate. The UK once has also been criticized
for lacking in procedure to invest the companies involved in foreign bribery.
Due to the flaws present in the Anti Money Laundering legislation it has been viewed to be a
reason for causing harm to economic development. Such regulations are coming in the way of
capital formation from other nations. Also, this is considered a way of taking/diverting the capital
away[20].
It is to be concluded that the main purpose behind any law is to curb the ill effects, the law
system should try as much as possible that it should take the system in the way they are meant
to be to take maximum benefit out of fit.

Chapter 3: The cost and effectiveness of AML policy

3.1 The roles of the financial institutions and their responsibilities in terms of compliance
policy:
Weighing up the benefits and consequences of the action are traits of rational choice, whether
the criminal takes into consideration those risks is determined by many reasons. Lyman and
Potter (2007) suggest crime is committed for political, economic, psychological, social and
physical means. Organised crime and financial incentives play an important role in determining
whether a criminal will engage in crime (Akers, 1999; Lyman and Potter, 2007).
However, Wright, (2010) would argue that the choice to commit a crime has to make two further
considerations: 1. Many criminals when committing a crime are under the influence of alcohol or
drugs and with this temporarily impaired incapacity cannot make rational choices. 2. Most
crimes including serious ones do not occur penalties as they do not result in an arrest or
conviction, therefore the effect of deterrent through the severity of punishment is reduced
(Wright, 2010). Research by Ferwarder (2009) questioned if AML policy reduced crime. He
developed a theoretical model which suggested the criminalisation of money laundering had a
negative effect on the crime rate. He extended Becker’s (1968) ‘economics of crime’ model
which explains criminal behaviour under the assumption of rational choice to include the effect
of money laundering. This extension suggests that the anti-money laundering policy deters
potential criminals from committing money laundering and crimes in general. Using indicators
drawn from AML policies and mutual evaluation reports of the World Bank, FATF and IMF for 17

15
countries he concluded that “AML policy deters potential criminals from illegal behaviour and
therefore lowers crime rates” (Ferwarder, 2009: 923).
However, reliance on the results of this research lies with the quality of the evaluation reports
used for development. The FATF in April 2009 reviewed and re-issued the assessment criteria
for evaluating money laundering38 which suggested the previous criteria was somewhat flawed.
Ferwarder further concludes by suggesting the quality of the evaluation reports from FATF and
IMF could be improved in the future to further improve the results of the research methodology.
This however does not detract from the importance of the evaluation reports as Dawe,
presented in Unger (2013) also used the World Bank, IMF and FATF evaluation reports for all
countries as benchmarks for conducting a National ML/CTF risk assessment. The results also
fall in line with the work of Chong and Lopez (2007) who found that tougher money laundering
regulations that criminalise feeding activities and improve disclosure are linked to lower levels of
money laundering. Although there is little work focusing on the theory of optimal money
laundering regulation, the theory of regulation in other areas such as crime and the regulation of
legal markets can help formulate testable theories about money laundering regulation (Chong
and Lopez, 2007). The effectiveness of AML policy can also be related to the cost and benefits
of the regulatory system itself. Concerns have been expressed by financial institutions about the
cost of AML compliance and the benefits of such a compliant process (Bosworth-Davies, 2007).
And as Harvey (2005) points out little has been done to properly assess the extent to which
those measures are effective or appropriate.
Costs can relate to tangible operating costs such as physical resourcing for the compliance
regime. Benefits can relate to the success of the cost-flow such as intangible reputational
benefits from customers and competitors and to the tangible benefits from avoiding sanctions
and fines for not complying with the regulations. Frustrations would suggest a conflict in the
roles between their commercial interests (such as servicing the needs of clients and customers)
and being the government's ‘unpaid policemen’ (Harvey, 2004; Levi, 2007). Theoretically, as
crime theory would suggest it is impossible to eliminate criminal behaviour, so about financial
crime an equilibrium situation is required where the costs equal the benefits. Similarly from an
economic crime theory perspective investing in the system should reap greater benefits than an
alternative method. For AML the benefits of devoting resources to a system of prevention
should be greater than devoting resources to another activity (Biagioli, 2008). The balance it
would seem has to be drawn between the requirements of having a robust compliance system
that thwarts the efforts of criminals and terrorists to launder money, and the cost of complying
with those regulations. A third need arises that relates to the same financial institutions that
police the AML system as Reuter and Truman (2005) have noted: “The AML system has worthy
goals but it also imposes real costs. The obvious ones…government expenditure and the SAR
programmes (are a small part) Firms subject to the reporting requirements have to invest in
systems to identify customers and transactions and to deliver reports. They in turn subject
customers to costs and inconvenience by requiring additional information and time for
verification”. (Reuter and Truman, 2005:59) The interest from the financial institution perspective
surely has to relate to a business decision to manage risk within their institutions. That risk
relates to damage to their reputation and integrity by failing to comply with the AML regulations.
Further, they risk fines and sanctions from the Financial Conduct Authority (FCA) if found to be
failing in their task or breach of their obligations.
3.2 The integrity of the financial system

16
Risk in AML activity as suggested by Harvey (2005) impacts on the reputation and integrity of
the financial system. To evaluate the effectiveness of those rules and regulations Harvey sought
to evaluate using ‘second best’ measures of reputation, such as SARs, prosecutions and asset
recovery. Ross and Hannan (2007) identified risk as appearing as an explicit AML regulatory
consideration from the revised FATF recommendations in 2003; specifically recommendation 5
which stated that financial institutions should apply customer due diligence measures on a risk-
sensitive basis depending on the level of customer and transaction (FATF, 2003).
Recommendation 24 follows this up by implying that countries should extend AML/CTF
monitoring and compliance to designated nonfinancial institutions on a risk-sensitive basis
(Ross and Hannon, 2007). The AML/CTF strategy recommended by FATF in 2003 would allow
financial institutions and reporting entities to self-regulate based on a managing risk model.
Each area of their business could be assessed for risk and action taken to mitigate that risk.
Considering that the priority for money launderers is to look for weaknesses in the financial
system a risk strategy would put in place mechanisms to continually review all the systems.
FATF acknowledges the difficulties of applying risk-based concepts to the AML/CTF domain as
described by Dawes (as cited in Unger, 2013): that money laundering 83 and terrorist financing
are difficult to record as they maintain many processes hidden from normal activity. (Dawes, as
cited in Unger 2013). Dawes further suggests that different stakeholders in AML/CTF
communities see money laundering (ML) and terrorist financing (TF) risks from different
perspectives.
By building on the business model of risk using key indicators of threat (demand for money
laundering), vulnerability (structures, processes and weaknesses in the AML system) and
consequences (cost, damage to reputation) a build-up of information on typologies, case
studies, money laundering methods and patterns could be developed and continually reviewed
for use in assessing customer business and transactions (Reuter and Truman, 2004; Fleming,
2005; BosworthDavies, 2007; Ross and Hannan, 2007; Dawes in Unger 2013). For this model
to be successful would need the cooperation of the regulators and three conditions of risk in
place: a) Agreement about the risk being decided upon b) Must be an explicitly agreed model of
the attributes that will contribute to the assessment of risk c) Those responsible for delivering
and refining a risk-based decision model must have access to knowledge about the outcomes of
assessment (Ross and Hannan, 2007:110) The outcome from this model does not accurately
equate with the results of Harvey’s observations, however, there are some similarities. There is
a potential reduction in costs if specific areas of high risk are targeted than lower risk areas,
Less ‘defensive reporting’ as staff become more knowledgeable about money laundering trends
and most importantly reputational risk becomes a factor of all the reduced risk. Many previous
reviews of the AML/CTF regime have criticised the degree of exchange of information and
cooperation between law enforcement agencies, regulators and financial institutions (KPMG,
2003; Fleming, 2005; Lander, 2006). The benefits from improved relationships, improved
feedback and communication include greater quality SAR reporting, more effective matching of
data and overall general performance of reporting entities (Ross and Hannon, 2007; Unger and
Van Wararden, 2009; Van Den Broek, 2011).
Any criticism of this model's use could come from small or medium size businesses that have
been caught by the expanded regulation to report. Cost to these entities may be more visible
and less attention paid to risk which makes them more vulnerable to being targeted for money
laundering. The ideal measure of success of the above model would be a reduction in money
laundering activity. However as previously suggested it is difficult to quantify the amount of

17
money laundering activity. As a result, given that by its very nature, it is clandestine it is also
difficult to quantify the deterrent effect of those procedures on that activity. Money laundering
activity could be affected by the expansion of the reporting entities. It could be anticipated that
more SAR reports would generate an increase in convictions and asset recovery and therefore
provide a prevention and deterrent effect to criminal launderers (Harvey 2007). Theoretically the
model by following the ‘economics of crime’ should apply cost and risk to the launderer. In
reality, the cost of the regulation follows Stigler's (1971) and Becker’s (1968) position by the
institution absorbing the cost of compliance and ultimately any benefit going to law enforcement
and government. Much of the discussions above suggest the consequences are correct in that
the private 85 interest frustrations of regulated entities surrounding cost and potential reactions
are counterproductive (Unger 2013). While deterrence is most often associated with crime
control it is also a major part of regulatory enforcement (Clarke, 2000; Simpson, 2002).
“A crime control model can involve consideration of future conduct and remedies through
rehabilitation, restorative justice and mediation. Deterrence, incapacitation and rehabilitation are
all concerned with future conduct…deterrence which equates with a crime control strategy, and
regulation are part of an overall enforcement strategy emphasising crime prevention and
deterrence”. (Croall, 2003:47) Money laundering is harmful, it makes crime pay, alters the
cost/benefit calculation of those engaged in crime and encourages crime activity (Becker, 1968).
To protect citizens governments act on behalf of society, the economy and politics and require
information from the private sector. This sets out the criminal and regulatory requirements for
both law enforcement and regulated institutions for reporting suspicions of money laundering.
This responsibility places on regulated entities an external policing role in which they would
have to monitor and report upon the activities of their customers. Levi (2007) suggests “have
been involuntarily co-opted into becoming unpaid agents of the state”. (Levi, 2007:162)
The public interest argument can be compared with the policy to prevent money laundering from
a good governance perspective. Tensions identified by Van Der Broek and Addink (2011),
related to the legal rights of clients over-reporting information and client confidentiality and the
replacement of the rule-based approach to a risk-based approach that requires active
participation from institutions. This change from a more government-led design and functioning
of rules in the rule-based system has developed into a dilution of the public and private sectors
that can impact preventative accountability.
Harvey and Lau (2009) from interviewing compliance officers expected a positive correlation
between compliance and reputation however, found the opposite in that respondents suggested
that compliance was driven by fear rather than as a benefit to the bank. Harvey and Lau also
found that disclosure of the costs of compliance in annual reports was frowned upon due to the
potential backlash from shareholders. The above points to a move away from the role of
regulators as acting in the public interest to improve overall allocative efficiency, to acting in
their own best interests (Ricketts, 2006). This can be further examined by considering the
concerns of Bosworth-Davies who imparts: “In my considered judgement, there is no possibility
or likelihood whatsoever that any banker of stature in the financial sector will ever be prosecuted
for money laundering in the UK. We may have to face the possibility of difficult regulatory
findings, but no one in my circle believes that the government will bring criminal charges against
the board member of a leading British bank…” (Bosworth-Davies, 2007:196)
Protection of bankers is one of several points Bosworth-Davies makes about government
influence in AML activities. He points to the government wanting reporting entities to go beyond

18
their statutory duties by reporting suspicious activity reports (SARs) as opposed to suspicious
transaction reports (STR). This he suggests was so that governments get more information on
tax offences and offshore movements of funds. Which they were unable to obtain from voluntary
disclosure. The above would indicate a manipulation of the AML regime, not to prevent or deter
money laundering, but to provide a “means of providing the government with greater access to
information about tax evaders and others who seek to keep their assets out of the reach of the
government, the so-called, undeclared economic activity” (Bosworth-Davies, 2007:207).

Chapter 4: Conclusion
4.1 Research Summary
This research examines the AMLCTF disclosure in the UK banking sector, its determinants and
economic consequences. Also, the thesis highlights the UK’s efforts in fighting ML and TF
through the laws and regulations. Besides, it represents some international organisations that
work hard to combat ML and TF hazards, such as FATF, IMF, and BIOG. In addition, the study
depends on the agency, signalling, crying wolf, transparency-stability, transparency fragility and
economic theories in developing its theoretical framework and hypotheses. Although the earlier
AMLCTF disclosure studies are limited, to the best of the researcher's knowledge, the current
thesis identifies prior research gaps and decides the methodology that is used to answer the
thesis questions. The first research question is ‘What is the level of AMLCTF disclosure in
annual reports of the UK banking sector?’. The thesis developed a new comprehensive
AMLCTF disclosure index to answer this question, and the results show the AMCTF disclosure
score average is 0.227. This score is higher than prior AMLCTF literature averages of Nobanee
& Ellili (2017) and Siddique et al. (2021). However, the results imply that the AMLCTF
information in the UK banks' annual reports is low. Thus, the UK law authority may need to find
some methods to increase the disclosure requirements. Nevertheless, the study finds the
AMLCTF declarations improve over time. These improvements indicate that financial firms are
concerned about signalling their efforts to prevent ML and TF and reduce information
asymmetry by raising disclosures. Moreover, the thesis calculates the total actual scores of
each index category and item to understand the kind of AMLCTF information that is likely to be

19
disclosed more than others in reporting. The results show that the highest category scored is
‘Rist Context’ due to the potential negative impacts of ML and TF on the bank's survival and
reputation. For the same reason, the outcomes show that the highest item scored is ‘Financial
Crime, Cyber Crime, Organized Crime Risk, Corruption Risk, Bribery Risk, Money Laundering
Risk, CounterTerrorist Financing Risk and Fraud Risk’. On the other hand, the lowest category
scored is the ‘Know Your Customers’ upon the confidentiality of information; the banks tend to
disclose it in a limited manner. Besides, the minimum item scored is ‘Reports of 216
International Transportation of Currency, Cross-Border Movements of Currency, Currency
Transactions Report (CTR) and Foreign Currency Movements or Transfers’ due to the banks'
intention regarding the crimes attached to these services are minimal. The second research
question is, ‘Which corporate governance mechanisms drive the AMLCTF disclosure?’.
Underpinning agency theory, the results indicate that board independence, audit committee size
and board female are the determinants of AMLCTF disclosure. Therefore, banks can improve
AMLCTF disclosure by appointing more independent board members. Moreover, the banks may
enhance the disclosure by increasing the audit committee size.
The UK corporate governance code states the size to be at least 2 or 3 members in small firms
(Financial Reporting Council, 2018). Hence, the greater audit committee size reflects more
knowledge and experience, which is likely leading to expanding the AMLCTF declaration levels.
Besides, the findings show that appointing female board members negatively influences
disclosure. The adverse results may occur due to the females' emotional intentions. Thus,
banks may reduce board gender diversity to avoid reducing AMLCTF disclosures. Regarding
the control variables, there is a significant relationship between AMLCTF disclosure and each of
these controls: bank size and the nature of business. The thesis's last question is, ‘What is the
influence of the AMLCTF disclosure on the UK banking sector performance?’. Depending on the
agency, signalling and economic theories, the findings conflict with the research hypothesis and
show that AMLCTF disclosure negatively impacts bank performance. Accordingly, banks with
greater AMLCTF information are likely engaged with the potential of paying more costs for
AMLCTF implementation. These costs are probably reducing their profitability.
4.2 Research Implications
The research analysis and findings propose multiple practical implications. The development of
the AMLCTF disclosure index may benefit law authorities. It may assist the UK policymakers
and international institutions in setting a global index or checklist for best practices of AMLCTF
reporting via reviewing the current index contents. In addition, regulatory bodies may launch
techniques or schemes that help promote institutions' declarations. For instance, appointed
authorities regularly evaluate AMLCTF disclosure and 217 ranks the firms based on the
assessment outcomes. This method may create a competitive advantage by encouraging the
firms to improve AMLCTF efforts and reporting. Also, it may strengthen the weak aspects of
best combating ML and TF procedures. The assessment may guide the policymakers to figure
out the tightness and looseness of the banking industry in preventing these crimes. Besides,
this thesis provides a better understanding of corporate governance mechanisms that influence
AMLCTF reporting and highlights the disclosures' economic consequences. Also, the thesis
depends on several theories to explain the research models and anticipate the relationship
between the model's variables. These theories may assist in promoting the regulators' decision
to enhance AMLCTF disclosure policies. Moreover, through the study results, the low levels of
AMLCTF disclosure suggest enhancing the reporting levels and increasing the transparency to

20
satisfy the interest of annual report readers and make them aware of the banking context safety
against ML and TF crimes. Also, declaring AMLCTF information helps maintain the
stakeholders' faith and attract new investment. Further, the thesis suggests new areas for future
research (see section 8.3) due to the limited number of prior AMLCTF disclosure studies. The
researchers' contributions may support the firms' AMLCTF practices and enhance the level and
quality of AMLCTF information.
4.3 Limitations and Future Research
Although this research contributes to the AMLCTF disclosure literature, it has some limitations
and provides suggestions for future research. First, the thesis covers 625 observations (40%)
out of 1545 in the list compiled by the Bank of England on 30th April 2019 for several reasons
mentioned in subsection 4.7.1. The study focuses on the UK financial sector, particularly banks,
and do not recognize the non-financial sector disclosures in fighting ML and TF. Therefore, the
research conclusions are likely to be applied more to the UK banking sector or any developed
country with the same financial service context. Thus, to extend the number of observations in
future studies, the researchers may compare the disclosure level of financial firms with non-
financial businesses and resemble the declarations between developed and developing
countries. Such research may assist in 218 understanding the similarities and differences in
reporting AMLCTF and enhance the policymakers' requirements for better fighting the risk of ML
and TF. Second, the study analyses of AMLCTF disclosure depend on the data and information
in annual reports. Thus, future research may extend the medium beyond yearly reports to
include other information hubs, such as the firm's interim reports, websites, AMLCTF records,
disclosure forms and social media announcements. Third, the research depends only on a
quantitative approach to examine AMLCTF disclosure behaviour, determinants and
consequences. Hence, future research may use the qualitative approach, such as designing
questionnaires and conducting interviews to assess the reality of disclosed information in annual
reports. The qualitative approach is likely better for understanding the thesis results and looking
at the AMLCTF disclosure phenomenon in depth. Fourth, although the development of the
AMLCTF disclosure index depends on different sources, future researchers can still extend the
index content based on updates available for the same resources used to generate this thesis
index. These updates include amendments to AMLCTF laws and regulations and international
organizations’ standards. Also, the updates are likely affected by criminals' never-ending
invented techniques to perform illicit operations. Besides, the updates are influenced by the
country's efforts and assessments for ML and TF risks and checking the compliance level with
international requirements and recommendations. Fifth, from the theoretical perspective, the
thesis uses the transparency-fragility theory to confirm hypotheses H3.1 and H3.2 aside from
assessing the banks' engagement in ML and TF operations. Accordingly, future studies may
use this theory to examine AMLCTF disclosure scores for the banks that are suspected of
financial crimes or are punished by law enforcement bodies and evaluate the disclosure drivers.
In addition, other researchers may check the AMLCTF declaration of fined firms and its impact
on reputation. Sixth, the study focuses the analysis of the AMLCTF disclosure determinants on
a limited number of corporate governance mechanisms (board size, board independence, audit
committee size, board gender diversity, big4 and audit tenure).
The thesis uses these variables based on reviewing previous literature and the current study's
theoretical 219 framework. Consequently, future research may expand the assessment of
AMLCT disclosure drivers by obtaining different corporate governance mechanisms, such as

21
managerial ownership and other board characteristics that are not evaluated in the current study
(for example, expertise, meetings, compensations and age). Seventh, the thesis limited the
AMLCTF declaration's economic consequences by relying on the accounting-based
performance variables. The analysis does not include market-based performance factors due to
the lack of data in the databases that are utilized in the recent study and financial data
limitations in the sample annual reports that are collected from the Companies House service
website. Thus, other researchers may test the AMLCTF disclosure impact on firm performance
by examining market-based performance variables, such as Tobin-Q, price-earnings ratio, and
market-to-book value. Finally, the study is limited to scoring AMLCTF disclosure without
considering the reporting quality. Hence, future studies may be interested in looking at the
AMLCTF information tone, whether positive or negative. Also, the researchers may examine the
AMLCTF declaration readability and the extent to which the disclosures satisfy the shareholders'
needs.

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