Efficiency of the Gatekeeper System

Author: Mr. David Pije, Head of Compliance, Commercial Bank International, Dubai, UAE

5–8 minut

Debunking the Current Financial Crime Architecture

This piece uses the metaphor of Hans Christian Andersen’s “The Emperor’s New Clothes” to critically examine how governments and financial institutions address financial crime. The story’s morals

  1. Truth-telling, 
  2. Challenging the status quo, and 
  3. Existing group-think — are essential for rethinking the effectiveness of anti-financial crime measures.

In this analogy, the “emperor” represents lawmakers and financial supervisory authorities, while the “spectators” are licensed financial institutions and their compliance officers. The creation of new regulatory authorities like the Anti Money Laundering Authority (AMLA) in Frankfurt is likened to the emperor’s new attire — seemingly impressive but lacking substance in delivering real results.

Truth

  1. Despite public claims, the system for combating financial crime has been inefficient since the first anti-money laundering (AML) laws of the early 1990s. The gatekeeper model, which assumes banks can accurately observe and understand every transaction, has proven flawed. Despite their efforts, financial institutions rarely see the full picture and often fail to do enough.
  2. Confiscation statistics — often used as a measure of effectiveness — are inadequate. In the EU, only a handful of countries can provide basic data on confiscated assets, and even these figures are outdated. Without a clear understanding of the scale of laundered funds versus confiscated assets, it is impossible to assess the success of current measures.
  3. Decades after financial institutions became gatekeepers, governments still lack the investigative resources needed to trace, freeze, and confiscate criminal proceeds. The proportion of illicit gains, estimated at 2–5% of global GDP, remains unchanged since 1990. Banks continue to be fined for repeated offenses, treating these penalties as a cost of doing business, while financial crime persists and remains lucrative.

Challenge the Status Quo

  1. By 2023, global compliance costs for banks and fintechs reached USD 206 billion, yet less than 1% of laundered funds are confiscated. The system designed to fight financial crime has become a costly, ineffective burden. The introduction of virtual assets, such as stablecoins, further undermines effectiveness. Stakeholders continue to suggest incremental improvements rather than questioning the overall AML architecture, where cost is rarely considered.
  2. AML and counter-terrorism financing (CTF) laws focus on prevention and confiscation, but additional regulations and supervisory layers have not led to meaningful progress. Regulators increasingly criminalize money laundering directly, targeting banks for penalties rather than prosecuting criminals. This shift has turned the system into a business model for consultants and technology providers, while criminals continue their activities largely unimpeded.
  3. Regulators now prioritize compliance over genuine risk mitigation. The focus has shifted to “box-ticking” rather than addressing real threats, and gatekeepers have followed suit — prioritizing regulatory satisfaction over actual crime prevention.
  4. Two solutions could enhance the system’s effectiveness:
    1. Centralize AML/CTF detection in a government-controlled entity with sufficient resources and expertise, requiring banks to share financial flows and contribute funding. This would be more cost-effective and provide a comprehensive, actionable view of financial crime, reducing compliance costs significantly as the role of AML monitoring units is returned to the government; or
    2. Adopt a new governance model that places citizens and businesses at the center, not banks. Every individual and entity would have a legally validated digital identity and a digital vault for recording financial positions. The vault would contain only necessary administrative values, and data would remain with the owner, shared only when justified. The technology for this approach already exists.

Money launderers can currently distribute transactions across different banks, concealing suspicious margins and making detection difficult. Using stablecoin wallets, transactions can be presented to multiple banks, projecting “normal” margins and evading gatekeeper scrutiny—effectively enabling advanced money laundering.

The solution: compare the values in the digital vault at the start and end of each year. The vault acts as a continuous “Pre-Filed Tax Return,” requiring explanations for deviations in value. Unlike the current system, the (legal) entity is the central reference point for its financial positions, enabling proportionate supervision.

With this approach, the responsibility for transaction monitoring shifts to the government. Banks retain their roles in risk management, lending, and customer integrity, but are relieved from duties for which they are not equipped. A semi-independent government entity would handle monitoring and report suspicious transactions to authorities.

Group-think

  1. Alternatives to the current architecture exist, including centralized detection and enforcement or a new gatekeeper model. These would lower costs and improve results, but the compliance industry—banks, regulators, and consultants—has little incentive to change a system that secures their livelihoods. Stakeholders with vested interests are interconnected and benefit from maintaining the status quo.
  2. Constructive criticism is discouraged, especially in cultures where challenging authority is frowned upon. This stifles reform and risks professional consequences for those who speak out. The compliance function, despite claims of independence, is rarely truly autonomous.
  3. Instead of focusing on getting to the core issue of tackling inefficiency of the current architecture, new supervisory entities are launched which do not bring us one millimeter closer to attaining one or both of the principles underpinning any local AML law: prevention of money laundering and/or confiscation of ill-gotten gains. New supervisory bodies like the AML Authority in Frankfurt focus on detection and cooperation only. It does not have the authority to confiscate, which remains a national responsibility and is not addressed by current reforms.
  4. A serious, inclusive debate about the true costs and benefits of compliance has never occurred among all stakeholders. The current model, which outsources detection to private gatekeepers, is extremely costly and yields little benefit. Recent research (Nazzari & Reuter, 2025) confirms these inefficiencies and the lack of evidence for success.

Who Will Tell the Emperor the Truth?

Despite evident shortcomings, few have spoken out about these systemic issues. The prevailing culture is to ignore critics until their voices become too loud. Most practitioners, regulators, and consultants view the challenges through a narrow lens, avoiding fundamental questions about effectiveness.

It is uncomfortable for governments to admit that, after decades and massive investments, the fight against financial crime has yielded disappointing results. The rise of VASPs and stablecoins will make detection even harder in the existing framework.

A reset is required. Either local governments take direct responsibility for detection and enforcement through a harmonized mega due diligence entity, leveraging private sector expertise as needed, or the digital vault concept is launched, eliminating gatekeepers altogether. This transition may face resistance but is necessary for progress.

Conclusion: The current approach to combating financial crime is plagued by inefficiency, misaligned incentives, and reluctance to embrace fundamental reform. Without honest evaluation, courage to challenge entrenched interests, and open debate, the emperor will continue to parade in invisible clothes—while the real problems remain unsolved.

About the Author

David Pije, Head of Compliance, Commercial Bank International

David has over 19 years of compliance experience gained from leading international financial institutions in Europe, the Americas and the MENA region.

Prior to joining CBI, David was Head of Compliance for a leading UAE bank. In this capacity, he was responsible for strengthening compliance culture and transforming the compliance department into a multi-dimensional team with a focus on policy setting, advisory, assurance, and awareness.

As Head of Compliance at CBI, David is responsible for aligning the Bank’s business activities to local regulatory requirements and implementing international compliance best practice across the organisation.

David holds a Master’s degree in Business Law (LLM), a Master’s degree in European Studies (MA) and an Executive Master’s degree in Compliance & Integrity Management, obtained from Radboud Universiteit Nijmegen, Universiteit van Amsterdam and Vrije Universiteit Amsterdam, respectively. He is also a Certified Anti-Money Laundering Specialist (CAMS).

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