Table of Contents
Global governance meets challenges originating from existing and emerging transnational threats as much as it does from the changing interactions between international actors. Within it, there are examples of divergent and convergent behaviour that influence the processes of making international policies. International agreements and strategies to combat bribery, anti-money laundering, corruption, and regulation of insurance policies, the reproduction of weapons of mass destruction and climate change have in common the need to provide stakeholders and citizens with policies that can be understood and implemented across borders. These examples suggest an increasing trend in global governance have standards developed, by a few, based on their potential for achieving compliance and through the use of peer-review mechanisms that favour harmonised practices. This study theorises that interdependence and globalisation trigger the occurrence of harmonisation of transnational policies and/or their processes through state action to protect their interests, regulatory competition, cross-border communication and policy imposition. It recognises that the international system is interdependent and primarily based on economic and security concerns of actors emerging from globalisation and the subsequent need to cooperate with a simplified system of similar goals and contents. The process of policy harmonisation is key to understanding the global governance of specific policy areas emerging from the recognition that one single state is unfit to counter threats and maintain a stable and growing economy given the obvious territorial, legal and other constraints (Rees 2011, p.233). In addition, the harmonisation of processes is thought to be a solution to collective problems brought about by globalisation because, among other things, “[t]he dark side of globalization has meant that illegal activities are increasingly being conducted across borders rather than just in the territories of vulnerable states” (Rees 2011, p.227; Reuter & Truman 2004, p.171). In other words, similar counter-threat systems facilitate global governance as suggested above by the measures carried out regarding corruption, weapons of mass destruction and the environment. Harmonisation is, in fact, not a new issue to international politics but one which has been present in international debates for some time, however, one which has been focused on ‘function’ rather than actors due to calls for efficiency and consistency as argued by King (Alldridge 2008; Cohen 2008). Accordingly, it is argued that “insufficient attention has been paid to the questions of the nature of the international agenda and who sets and implements it” with many authors discussing the consequences of who defines global priorities and how these priorities are followed up on (e.g., Alston 1997, p.447). While the need for harmonisation stemming from the international financial system requirements has been widely debated, the conditions under which it occurs, actors’ influence in it, and its presence in the policy-making processes still need further research.
The study seeks to understand whether the conditions for harmonisation indicate emerging changes in global governance strategies and actors. The AML standards were created by a small group of states (great powers) due to their interdependence and interests, and are currently maintained by intergovernmental organisations (IGOs). International regulation of anti-money laundering measures began around 1989 with the formation of the Financial Action Task Force (FATF). A few years later, IMF official Vito Tanzi (1996, pp.1–2) notably recognised that capital markets favoured money laundering, amongst other types of financial crime, posed a threat to the economy thus creating the need to tackle all, and reinforcing the maintenance and development of international efforts in this regard. International efforts are centred around the FATF’s ‘International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation’ (FATF 2012) (hereinafter, ‘the Recommendations /AML standards) which, comprise numerous recommendations. Some of the recommendations are directed at preventive actions to protect the international financial system, others at the enforcement of regulations that ensure prohibition, mutual legal assistance and international cooperation more broadly. In this case, this study looks into the changes in relationships between the various international organisations and the ways in which these actions influence or offer specific characteristics to the harmonisation of international policy-making processes. As Reichert and Jungblut affirmed, “governance is collective action, and collective action necessarily implies organisation, which in turn means delegated authority” (Reichert & Jungblut 2007, p.397). In the investigation of harmonisation processes, there is an underlying requirement to research the role of actors, their collective actions, appropriate tools used, and the way in which their actions and power influenced the adoption of specific strategies and standard harmonisation. In this context, the concepts of interdependence, globalisation, and harmonisation are the ontological basis for this research.
Guided by the objective to uncover actor interests and preferences, the study will begin by introducing the theoretical framework contextualising it within the literature debates on global governance, the discussion on players’ roles, actions and relevance to outcomes. It introduces great powers and networks of IGOs as the primary, and distinctive, players of global governance developing them according to the existing theories. The study framework focuses its attention on which actors are considered to have more impact in the international standard-making procedures and how these actors’ interactions may change throughout time depending on preferences and emerging threats. It further suggests that the analysis of the interaction between actors is generalizable to other international policy areas due to the nature of the challenges and cross-border threats, evolving political structures and different players involved in the process.
The concept of global governance was born with Rosenau and Czempiel’s ‘Governance without Government’ (1992) and the work of the UN Commission on Global Governance (Weiss & Thakur 1995). In this context, it is defined as:
“[t]he sum of laws, norms, policies, and institutions that define, constitute, and mediate trans-border relations between states, cultures, citizens, intergovernmental and nongovernmental organisations, and the market. It embraces the totality of institutions, rules, policies, practices, norms, procedures, and initiatives by which states try to ensure predictability, stability, and order to their responses to global challenges—such as climatic changes and environmental degradation which attract the attention of many states” (Weiss 2009, p.2).
Sammy Finer also defined governance as “the activity or process of governing or governance (…) the method, manner, or system by which a particular society is governed” (Rhodes 1996, p.652) and therefore any form of authority or enforceable system that determines the strategies and conduct of daily economic, political and social life. Broadly, global governance relates to all politics and coordination efforts happening outside of the traditional state realm of action although it can still be characterised as a “continuation of domestic politics by other means” (Milner 1997, p.252). In this context, it is in the interests of states to cooperate, specifically through law-making; it is intrinsic to success in a globalised world and generally serves to reduce transaction costs, problems of incomplete contracting, strengthen the credibility of commitments and the protection of citizens (Abbott & Snidal 2000, p.422). Essentially, global governance is a product of states’ recognition that in a globalised world “rules and procedures shape outcomes” (Gourevitch 1999, p.137) even if more distanced from state power than normal. In its very essence, it is a consequence of globalisation and therefore aims to generate mechanisms and response strategies to deal with transnational economic, security, and interdependence-generated problems.
Altogether, the vast body of literature connected to the concept of global governance is essentially divided into two distinct streams of thought. The first is concerned with the concept of international regimes and regime change (Ruggie 1998; Young 1969; Haas 1982). The second focuses on concepts of interdependence and actors’ roles as well as the premise of economic determinism in shaping global policy-making strategies (Rosenau 1999; Martin & Sinclair 1999; Held 1995). The latter is more relevant to its consideration of the role of actors and what influence they hold than on the regime created. The AML standards constitute, in many ways, a ‘regime’ but because that terminology leads to assumptions of civil society participation, norm building and governmentality, there is a clear attempt to avoid the term and focus on interest-based actions. Global governance, as a supranational theory, is thought to be able to explain variations in harmonisation across time but is less useful to explain differences across countries are providing a low basis for comparison with other situations (Givens & Luedtke 2004, p.149). Nevertheless, the clarification of the conditions that either most favours or harms it within a global governance setting is still possible and may contribute to future policy making.
It is argued that while states remain individual and primary actors, efforts to harmonise are taken jointly and under the expression of similar preferences. The ontological conceptualisation of world politics as organised around a process of global governance means that states must cooperate among themselves and coordinate strategies in the most practical way. This implies, among other things, the inclusion of other actors in the international policy-making scheme. It does not, however, mean that great powers lost their central position in that scheme, only that the centre is now shared. Therefore, unlike what might be imagined, the process of global governance does not imply a distortion of authority centres. On the contrary, as Rosenau contends “a definite fine line needs to be drawn between treating states as the only players on the global stage and as unimportant and aged players that have long since overstayed in the sector” (1999, p.292). The state, remaining the main actor in international relations, has its interests recognised as being primordial and generating policy preferences, which once established will impact domestic policies and ultimately the global setting (Milner 1997, p.241). Rosenau establishes, as a new global governance ontology, that authority lies with states, but that interstate relations and the participation of institutions in global governance generate spheres of authority, which are relational in character gathering strength from interactions between actors. Spheres of authority are “analytical units (…) distinguished by the existence of players who can evoke compliance when exercising power as they engage in the activities that delineate the sphere” (Rosenau 1999, p.295). Consequently, while the state continues to hold the ultimate decision-making power via sovereignty, its relations to institutions are the key to making global governance work and establish centres of power as demonstrated by the networked nature of the AML standards.
Great powers will always want more, that is the prerogative underlying their success. Ahrari (2011), Mearsheimer (2001) and Huntington (1993) have discussed the need to compete in the international system to obtain power, authority and control over existing interests. The main assumption behind this is the fact that power is relational and not absolute, in other words, great powers cannot exercise power alone because it is always reflected onto others that in their right might feel the need to contradict the order at stake. Hurrell reflects precisely on this aspect and the need for the US to cooperate and acquire the recognition of others as a power. To this author, the “stability of the hegemonic power depends on consensus as well as coercion and on the capacity to engender collaboration” (2005, p.51). The making and implementation of the AML standards are no exceptions. A great power coalition led by the US and the EU through the G-7 to protect similar interests i.e. the stability of the financial system and their large economies. Therefore, by eliminating the ghost of competition and possible war, as predicted by Mearsheimer, the research opens the ground to a more collaborative take on the actions of great powers that, in this case, are found to work together towards common goals and the elimination of common threats. In itself, this is a reflection of the interdependence problem and the existence of transnational issues and multiple actors.
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Therefore, in the development of the AML standards and the procedural harmonisation that emerges, great powers’ functions alone may be an insufficient explanation. The transformation brought about by the market and financial services liberalisation meant that more and more regulatory power was passed on from the state to international institutions, and as Carr said “[p]ower is an indispensable instrument of government. To internationalise government in any real sense means to internationalise power” (Carr 1964, pp.106–107). In effect, IGOs prominence in this area demonstrates that state power is sometimes found in the subjects of their delegation and what these actors do with it (e.g. form a network), rather than directly within the state.
Broadly, IGOs are “rules used by individuals for determining who and what are included in decision situations, how information is structured, what action can be taken and in what sequence, and how individual actions will be aggregated into collective decisions” (Kiser and Ostrom in, Peters 2005, p.59). They are means to shape individual action within a common choice setting (Diermeier & Krehbiel 2003, p.125), which while mainly generated by functional demands, can become permanent and change throughout time into something different from that originally planned by states (Krasner 1984, p.240). The purpose of these bodies is usually to advance common interests which mean the main rationale behind state delegation relates to the need to cooperate, exchange information, lower transaction costs from international politics and increase control over other state actions (Gourevitch 1999, p.141; Olson 1965, p.7).
The act of state delegation to IGOs is the defining moment of the IGOs nature as it is when mandates are awarded restricting functions and competencies. Institutions are created to serve state interests, and it is essential they keep them flexible on the one hand and under control, on the other, in case preferences change (Koremenos et al. 2001, p.318). As “[a]ctors pick the institution that gives them what they want” they must make sure they hold all relevant information about motives and restrictions that might come with it (Gourevitch 1999, p.155; See also, Hurrell 2005). This means that an assessment of mandates against institutional activities needs to be made to determine whether state preferences are the key to the outcomes or, alternatively, if actions by institutions lead to procedural harmonisation.
Flexibility and control are two key features of institutions as both bestow permanence and the ability to change without dismantling what was created by states e.g. threatening their interests (Koremenos et al. 2001, p.301). Moreover, delegating flexibility to institutions is not only profitable but comes with additional advantages (i.e. electoral gains, domestic approval) provided that states remain in control. Therefore, keeping institutions both flexible and under control means that states can shape IGOs’ actions without harming the nature of the standards that is being supported while ensuring a sufficient degree of credibility. IGOs are also, in line with this, recognised providers of legitimacy to decisions in addition to credibility and the more functional advantages of delegation (Black 2008, p.138). In spite of this, in cases of transnational necessity, “multilateral institutions are created to enhance political pressure” (Simmons 2001, pp.591–592). On weaker jurisdictions and while “[a]ctors’ preferences determine the range within which feasible outcomes are possible; the institutions determine where in that range policy will be” (Milner 1997, p.242). For some countries, the existence of IGOs and their increasing power helps counterbalance the inequality of state powers. Consequently, regarding policy convergence and harmonisation, this can mean non- great powers will be more accepting of IGOs policies than great powers and that. For example, when starting cooperation within new areas, institutions can play a significant role of administrator and information facilitator regarding parties’ record for compliance and the inclusion of states into the proposed process (Gruber 2000, p.67). The institutional action is, however, difficult to distinguish because state preferences would have to be assured of being equal and institutional choices as being different which the case is not always.
For neorealists and their reductionist approach, institutions are constraints to state action rather than agents and “conditions of possibility” for action (Wendt 1987, p.342). IGOs are a product of interdependence and collective action problems that have made it impossible for state actors to survive alone and increased the level of interactions among them (Young 1969, p.745). In this sense, the primary purpose of IGO’s is to act when and where it would be too costly for states to act alone i.e. filling in global governance gaps of institutional, knowledge and compliance. On the other hand, from a constructivist perspective, Martha Finnemore defines international organisations as political structures able to “influence outcomes by manipulating information, creating transparency, monitoring compliance, and enforcing rules in ways that change incentives for state action […] IO’s regulate through creating incentives for states to change behavior [therefore setting] the agenda for global governance” (Barnett & Finnemore 2004, pp.6–7). Constructivists argue that international organisations, in general, are more than just state agents and take a delegation to a higher level of problem-solving independently from countries (Barnett & Finnemore 2004). For these theorists IGOs don’t restrict state action, they expand its limits, as they are in effect a state construction, regulating through incentives and setting “the agenda for global governance” (Barnett & Finnemore 2004, p.7). The increased role that it is argued IGOs hold is such, in this sense, that national governments must organise themselves around “business generated by international organisations” (Keohane & Nye 2001, p.30) rather than have institutions organised around them.
IGOs became international actors preferences are generated which affect the making of international regulations and possibly shape the outcomes of decisions (Diermeier & Krehbiel 2003, p.126). States delegate to individual institutions, membership of those institutions increases, collective action problems multiply, institutions themselves need to cooperate, and thus institutional preferences appear. In the context of defining the conditions under which harmonisation occurs institutional preferences are thought to be exogenous and stable as predicted by rational choice (Koremenos et al. 2001, p.312). This means institutions are essentially informed by the external environment, namely state preferences and technical input, generating their own preferences based on that input. Depending on their membership IGOs’ influence is stronger or weaker as state delegation is more or less homogenous. Accordingly, the number of members and their heterogeneity, next to delegation, is also an important factor in determining the institution’s potential for harmonisation and their role as actors on the international scene (Koremenos et al. 2001, p.314). As far as AML is concerned the prevalence of homogeneity of IGO’s members is ultimately a strong determinant of the role these institutions will play.
IGOs are independent actors in global governance of rational design and purpose that serve a much greater role than merely collecting and transmitting information. Their preferences correlate to state interests and, although some distortion from delegation might occur, mandates and treaties rarely suffer from major deviation. Nevertheless, while all IGOs are state-controlled creations, the networks they form leads to convergence through the proximity created between bodies. The very existence of these networks and inter-state cooperation may be the basis for global governance and may also prove to be essential to the understanding of subsequent policy convergence and the presence of harmonisation. The key to understanding institutional preference formation may lie deeper than state preferences and delegation in the sense that the cooperation established between organisations may not have been predicted in the first place.
Policy networks as institutional expression
Wide-ranging literature has attempted to tackle the concept of policy networks throughout the years detailing different explanations and causes for the manifestation of these networks. Numerous definitions and categories have been delimitated in this context with Van Waarden (1992) naming seven dimensions to policy networks and Marsh (1998), Thatcher (1998) and others keeping to more restricted definitions. Whereas Benson and others favour the resource dependency explanation (Benson 1982; Klijn E. H. & Koppenjan J. F. M. 2000) as a cause, others attribute it to the issue of interdependence (Warden 1992), internationalisation (Hay & Richards 2000) and power (Smith 1993). Hugh Compston sees policy networks as political decisions taken by individuals or groups acting together and exchanging resources. The networks established stem from the existence of common problems with common solutions reached through actor built strategies and their incentives to regulate interactions (Compston 2009, pp.12–17). Consequently, the creation of policy networks depends on “the player’s perception that certain goals can be more easily reached through the exchange rather than acting alone. The similarity of player’s preferences; and the extent to which the international context favours such relations” (Blanco, Lowndes & Pratchett, 2011, p.302). Originally conceptualised within a domestic perspective the realm of policy networks was rather traditional i.e. targeted agricultural policy and other domestic boundaries.
The study has discussed the global governance literature contribution to the understanding of procedural harmonisation as regards the AML standards and its major players. The debate of existing literature emphasised how great powers are brought back into focus with the AML standards but, simultaneously, demonstrates that there is a need to develop the discussion of the IGOs contribution to the process. The study, therefore, developed from the acknowledgement that the making of international standards is increasingly becoming negotiated “between states and not within them” (Reich 2000, p.517). States with power would, in theory, be less dependent on cooperation to protect their interests. However, collective action problems have a tendency to lead to common solutions and common action as a product of interdependence and common economic interests. The premises put forward following the acknowledgement of interdependence indicate that new actors enter the negotiation process and so their interactions must be considered in relation to harmonisation as an outcome of global governance and a way to combat existing gaps. The paper suggests that great powers are at the centre of global policy making as is consistent with most realists and some rationalist approaches. As a whole, a great power effort towards harmonisation is thought to emerge from similar economic and security interests and shared preferences for collaboration, the ability to set international agendas and achieving compliance. Nevertheless, as literature on this issue is insufficient to explain AML standards’ developments IGOs surfaced, by bringing institutionalist approaches into the debate, as a complement to great power action through their network formation capacity and subsequent actions. In this context, IGOs share preferences, exchange resources and information as well as establish stable relationships that ultimately also favour harmonisation.
It is argued that IGOs networks are a moderating force to great power dominance of global politics, through the expression of their own preferences, and one which has the potential for success due to its shared preferences, resource exchange and stable relationships. The paper argues that procedural harmonisation is conditioned by the actions of preference sharing great powers, which is necessary but ultimately relies on network action as well. In this context, it benefits from greater representativeness, capacity to wield legitimacy and the ability to ensure compliance and thus may be an element for future consideration in policy making for global governance. The fact that small groups of states can create and propel global policy-making trends has not been sufficiently discussed in this study. The focus of the research was determining conditions for policy making, but there was a review element missing from the analysis that might contribute to the determining of whether or not these conditions are desirable seeing as they appear mainly as a consequence of great power action. Furthermore, where research showed that an IGOs network can counter or moderate great power action, it does not demonstrate whether the IGOs have the ability to start and mobilise towards an issue.
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