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Making a Killing: The Cause of Misfire in Counter-Terrorist Financing Regulation

  • Author(s): Oxnevad, Ian
  • Advisor(s): Cioffi, John W
  • et al.
Abstract

Financial regulations designed to counter the financing of terrorism have spread internationally over past several decades, but little is known about their effectiveness or why certain banks get penalized for financing terrorism while others do not. This research addresses this question and tests for the effects of institutional linkages between banks and states on the enforcement of these regulations. It is hypothesized here that a bank’s institutional link to its home state is necessary to block attempted enforcement. This research utilizes comparative studies of cases in which enforcement and penalization were attempted, and examines the role of institutional links between the bank and state in these outcomes.

The case comparisons include five cases in all, with three comprising positive cases in which enforcement was blocked, and two in which penalty occurred. Combined, these cases control for rival variables such as rule of law, state capacity, authoritarianism, and membership of a country in a regulatory body while also testing for the impact of institutional linkage between a bank and its state in the country’s national political economy.

Within cases, institutional linkages and independence are traced through the creation of histories for each bank, and its role in its home state’s political economy. These histories are developed using documentary data from court cases, bank publications, existing historical studies, economic studies, memoirs, government reports, and diplomatic data. This same data is used to examine the adoption of financial regulations designed to counter terrorist financing, and the defensive measures taken by states to defend their banks.

The finding of this research concludes that institutional links between banks and their home states are necessary to block attempts at regulatory enforcement. The implications of this research are profound for both studies of international law and finance, as well as for issues of counterterrorism and security at the policy level. The key theoretical takeaway for questions of international finance is that state power continues to matter despite assertions of globalization and a neoliberal financial order.

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