Is AML Compliance Itself a Scam?

An interview with independent AML advisor Graham Machiado By Christina McDonnell, Media and Publication Head TheAMLConsultant.com.au

In a compliance environment increasingly shaped by global standards and expanding regulatory expectations, Graham Machiado has taken a provocative stance. In his recent article, “Is AML Compliance Itself a Scam?”, he challenges the structure, incentives, and effectiveness of the modern anti-money laundering (AML) regime.

Below is an edited extract of our conversation, presented in interview format. Responses reflect Machiado’s position, articulated with structured clarification during the discussion.

On His Professional Role

Christina : You describe yourself as a private advisor to high-net-worth individuals and politically exposed persons who are subject to enhanced scrutiny. Some might interpret that as operating in a grey zone. How do you define your role?

Graham Machiado: I represent clients who are subject to customer due diligence — particularly enhanced due diligence. These are individuals who face intense scrutiny by reporting institutions. My role is to advise them on managing their financial affairs lawfully and transparently while navigating that scrutiny in a structured and comfortable way. I do not assist in evasion. I assist in lawful risk management.

On the Cost of AML Compliance

Christina: In your article, you argue that AML compliance is excessively costly and economically irrational. That’s a serious claim. On what basis?

Graham Machiado: Financial institutions supervised under frameworks shaped by the Financial Action Task Force and enforced locally by agencies such as AUSTRAC spend enormous sums on compliance infrastructure — monitoring systems, consultants, reporting teams, remediation programs.

These costs are borne by shareholders and customers. Yet the measurable return — in terms of clear crime reduction — is difficult to demonstrate.

At the same time, an entire ecosystem benefits financially from expanding compliance complexity: consultants, software vendors, outsourcing firms, certification bodies, academic programs, and professional associations.

My concern is structural: if the system continuously grows in cost and complexity without proportional evidence of crime reduction, we must examine whether incentives are properly aligned.

On AML as a Public Good

Christina: You’ve described AML as a public good. But if that’s the case, why shouldn’t financial institutions contribute to it?

Graham Machiado: Crime prevention is a public good. Traditionally, public goods are provided by the state.

Under current AML regimes, private banks conduct investigations, monitor transactions, classify risk, and report intelligence — under threat of significant civil penalties if they fall short.

My question is one of proportionality. Why are profit-driven institutions effectively deputised to perform quasi-policing functions? If burglary prevention is a public responsibility, we don’t fine residents because a criminal operates in their neighbourhood.

Basic due diligence is reasonable. But the scale of responsibility has expanded dramatically.

On Convictions Versus Compliance Penalties

Christina: You argue that there are relatively few money laundering convictions compared to the scale of compliance spending. What evidence supports that?

Graham Machiado: Mutual Evaluation Reports issued under the Financial Action Task Force assess effectiveness across jurisdictions. In many countries, the number of standalone money laundering convictions remains modest relative to the estimated scale of illicit financial flows.

Meanwhile, regulators regularly impose substantial civil penalties on banks for compliance deficiencies.

The optics are difficult to ignore: institutions are heavily penalised, yet underlying criminal networks often appear less frequently in conviction statistics.

My concern is enforcement asymmetry — are we targeting criminals, or are we targeting compliance failures?

On the Role of Financial Intelligence Units

Christina: You’ve suggested that money laundering enforcement should sit primarily with police rather than civil financial intelligence units. Why?

Graham Machiado: In many jurisdictions, financial intelligence units are administrative or civil bodies rather than law enforcement agencies. Their role is analytical — processing suspicious transaction reports and disseminating intelligence.

Financial crime, however, is criminal conduct. It requires investigative expertise, evidence gathering, understanding of predicate offences, and prosecution strategy.

My argument is that the centre of gravity should sit with professional crime fighters. Regulatory analysis has a place, but crime investigation should remain firmly within criminal enforcement agencies.

On FATF and the “Sisyphean Task”

Christina: You describe global AML standards as creating a “Sisyphean task” for countries. That’s a strong metaphor. What do you mean?

Graham Machiado: Although formally described as “Recommendations,” the standards issued by the Financial Action Task Force function as global requirements. Countries risk grey-listing and reputational damage if deemed deficient.

This creates a cycle:

• Amend laws
• Expand regulatory frameworks
• Allocate resources to technical compliance
• Undergo evaluation
• Then adapt again as standards evolve

For smaller or developing countries, significant resources may be diverted toward satisfying evolving assessment criteria rather than strengthening frontline investigative capacity.

It can feel like pushing a boulder uphill — only for the benchmark to shift once progress is made.

On Infrastructure and Responsibility

Christina: Critics would argue that without strong gatekeeper obligations, financial systems risk becoming safe havens for illicit capital. How do you respond?

Graham Machiado: The financial system is infrastructure — like telecommunications networks. Criminals can misuse infrastructure. Those who abuse it should be punished.

Banks should conduct reasonable identification and cooperate with lawful investigations. But we must distinguish between enabling crime and failing to predict it perfectly.

If criminals continue to exploit the system despite escalating compliance expenditure, then perhaps the model requires recalibration — not abandonment, but reassessment of roles and responsibilities.

Conclusion

Graham Machiado’s arguments are deliberately provocative. He does not call for dismantling AML frameworks. Rather, he questions whether the current structure — shaped globally by the Financial Action Task Force and implemented locally by agencies such as AUSTRAC — has drifted from its core mission.

Is the system optimally designed to reduce crime? Are incentives aligned with measurable outcomes? Has responsibility shifted too heavily onto private institutions?

The compliance community may strongly disagree with Machiado’s conclusions. But the questions he raises — about cost, accountability, proportionality, and effectiveness — are unlikely to disappear.