10 ms·

Detecting Money Laundering

89 points by arshakn 10y ago

totoz 10y ago
.ml for money laundering.
jcoffland 10y ago
Financial institutions are not interested in being good at catching money laundering operations. They are interested in avoiding expensive fines. False positives are really bad for customer relations.
- msdos 10y ago
  When a bank loses money they pay for it. It happens often, for millions, says a friend who works in fraud analysis.
  - mifreewil 10y ago
    You are talking about fraud (I'm assuming wire fraud, chargebacks, stolen accounts, etc.) which I would put in a different category of risk for a financial institution than money laundering. These activities would lead to direct losses, whereas money laundering would not. I assume allowing laundered money through your institution is of less concern, since it would not lead to a direct loss to the institution. This is assuming you are not knowingly allowing the laundering to occur and you are following all AML and KYC regulations meant to prevent money laundering. If these standards are not met, it may lead to fines and having regulators watch your institution more closely.
    - PeterisP 10y ago
      Wire fraud and stolen account schemes generally get eliminated/caught because of laundering issues, not because of how they do the actual fraud; and for large cases of fraud / large stolen accounts, the laundering capacity limits the total amount. Good AML provisions help reduce your fraud losses, even if you decide to make some "exceptions" for your VIP customers.
    - ellius 10y ago
      It's actually the opposite of fraud, because laundering money involves transactions which frequently make a great deal of money for the bank. Look at the fat fees Goldman Sachs earned setting up the 1MDB transactions for Malaysia. There was a lot of speculation around the financial crisis that banks opened their doors to money launderers because it was the only available liquid asset available in sufficient quantity to keep them solvent. So the bank actually has an incentive to launder money, so long as it can do so without being caught and fined or having its employees go to jail. The point below is true though. Many of the same markers of fraud indicate money laundering, and having a good risk program can reduce both if that's your intention.
  - mahyarm 10y ago
    Fraud and money laundering fine avoidance are two different things.
- MichaelGG 10y ago
  Certainly the only moral thing to do is the absolute minimum to avoid being shut down. Money laundering is not ethically wrong and making it a crime is a great example of government overreach.
  - r00fus 10y ago
    Money laundering is not a crime? It's required to finance certain crimes, or to cover them up. It's not victimless.
    - MichaelGG 10y ago
      It's like civil forfeiture. It's LE being lazy or saying they can't figure out the real crime, so they'll just go after people's assets instead.
    - Pinckney 10y ago
      Private communications are also required for certain crimes, or to cover them up. Should we require that Apple monitor phone conversations for evidence of crime?
fiatmoney 10y ago
There is zero incentive to recognize money laundering "too well", particularly because it means essentially whatever FinCEN wants it to mean. It's an issue for lawyers to hash out exactly what patterns must be recognized.
- teemonasty 10y ago
  There may not be an incentive to recognize money laundering "too well" but there is incentive to get better. FinCEN will continue to raise the stakes of what is an acceptable AML program and staying ahead of the curve reduces the probability of a future fine.
dandermotj 10y ago
There seems to be some bizarre skepticism by some HNers of financial institutions' AML practices. But the thing is, AML is really difficult and expensive for banks, hiring floors of consultants dedicated to AML. This is a billion dollar problem (or more?). Whatever about training a CNN to classify images, an effective ML model/pipeline to tackle AML will break the back of a huge problem.
- Kinnard 10y ago
  It may be a billion dollar problem but it's a billion dollar problem like tax software, it wouldn't exist without the troll demanding his toll. The resources could be used elsewhere like on curing disease or on educating people: http://www.americanbanker.com/bankthink/money-laundering-is-financial-thoughtcrime-1058902-1.html http://www.americanbanker.com/bankthink/money-laundering-is-... It's a billion dollar problem that doesn't need to exist. Many people will probably make cursory argument that taxes(and by analogy ML regulation) are a necessary evil(They're now doing the troll's work for him)— I'd argue they are not necessary and they short-circuit us working on better replacements.
  - dandermotj 10y ago
    But in the real world AML isn't going away, and it continues to be expensive.
  - perlgeek 10y ago
    The troll is money laundering, not the regulation. And you can't ignore the troll, or even get rid of it, so you must mitigate damage.
    - Kinnard 10y ago
      How so?
    - dublinben 10y ago
      "Money laundering" is an imaginary crime. If certain patterns of transactions were not arbitrarily outlawed, there would be no need to enforce this law.
Hermel 10y ago
The direct and indirect cost money laundering regulation has reached a point where it far outweighs the benefits. Thousands of clients have to jump through cumbersome hoops just to increase the chances of catching one single money launderer by 1% or so. Even the IRS estimates the implementation costs of Fatca at 100 billion worldwide. In reality, it is probably much higher and far exceeds the amount of additional tax 'income' it generates. We really need to start to discuss the negative externalities of overzealous regulations.
- daveguy 10y ago
  Citations needed.
- perlgeek 10y ago
  It's not like money laundering is a victimless crime. Quite contrary, only money is laundered if it comes from illegal practices, which tend to have victims. Also, what do you think happens if you relax money laundering regulation?
  - pmarreck 10y ago
    The problem is that the set of things that are illegal in some country at this particular time, and the set of things that are "rationally definitely wrong everywhere, for all time" are never quite overlapping perfectly. Sex slavery? Arguably rationally wrong for all time and space. Drugs and prostitution? Debatable. For example, regulating drugs and treating addiction as a medical problem is probably much cheaper than waging an unwinnable drug war PLUS trying to find all the laundered money coming from it PLUS forcing all the "good actors" (non drug industry people) to comply with the regulations at no trivial expense. This is true for every economy that refuses to go away despite being wholly illegal. In those cases it is (IMHO) best to just regulate it... Same as what happened with alcohol after Prohibition. Nobody's making moonshine and killing bootlegger opponents anymore, and alcoholism is a manageable medical problem.
    - hiou 10y ago
      So your argument against tracking and enforcing money laundering laws is that laws in general are silly because not everyone agrees with them?
wallflower 10y ago
I can't find the reference right now but someone once wrote that PayPal was, at its core, one of the most sophisticated fraud detection engines ever created. In their early days, they almost went under multiple times because of the millions in chargebacks (This is one of those impossible problems that Elon Musk helped solve).
awt 10y ago
There is no such thing as money laundering. There is such a thing as food stamp fraud.
rando18423 10y ago
Wow. Since when is every regulation supposed to pay for itself? Do police? SWAT? I highly suggest reading Steve Randy Waldmann's analysis of the Baltimore riots and altruistic punishment. He is an actual economist, whereas this thread is as if he came in here and was telling you your code sucked. For those curious, his blog is called interfluidity.
- barsonme 10y ago
  With everything there is a trade-off. For some the lack of dollars brought in (or what have you) outweighs the benefits. An example is TSA. Some believe that even one life saved by the extra security (theater or not) is worth having to take your shoes off. Others do not.
- mhuffman 10y ago
  I just followed your advice and read Steve Randy Waldmann's analysis of the Baltimore riots and altruistic punishment. It is very clear that he is biased in his analysis. He is also wrong about the Baltimore riots being "altruistic punishment", at least according to the strict definition here[1], as the people rioting claimed to be directly harmed by the existing law enforcement structure that they were rioting against. Finally, why do you think that simple economic concepts can not be understood by developers? Why do you think there there are not lots of people on here with business degrees or backgrounds in economics? [1]https://en.wikipedia.org/wiki/Third-party_punishment https://en.wikipedia.org/wiki/Third-party_punishment
  - rando18423 10y ago
    I think his point is that the idea that knowing you will be retaliated against, even if it's a "net loss" in some ways for those retaliating against you, is an extremely powerful force for good in our society. Do you disagree? I think that because I'm a quant and I see people making pretty basic mistakes here, or making fallacious assumptions about other fields assuming they follow the same logic as software, quite often, and that seemed to be happening in this thread. I maintain that developers are usually not qualified to talk about economics in much beyond the most basic sense, because they haven't actually studied advanced economics beyond how it pertains to the tech industry. They just make linear extrapolations and are shocked (shocked!) when their narrow (and admittedly unique) model of the world breaks down.

89 points by arshakn 10y ago

totoz 10y ago

.ml for money laundering.

Financial institutions are not interested in being good at catching money laundering operations. They are interested in avoiding expensive fines. False positives are really bad for customer relations.

msdos 10y ago
When a bank loses money they pay for it. It happens often, for millions, says a friend who works in fraud analysis.
- mifreewil 10y ago
  You are talking about fraud (I'm assuming wire fraud, chargebacks, stolen accounts, etc.) which I would put in a different category of risk for a financial institution than money laundering. These activities would lead to direct losses, whereas money laundering would not. I assume allowing laundered money through your institution is of less concern, since it would not lead to a direct loss to the institution. This is assuming you are not knowingly allowing the laundering to occur and you are following all AML and KYC regulations meant to prevent money laundering. If these standards are not met, it may lead to fines and having regulators watch your institution more closely.
  - PeterisP 10y ago
    Wire fraud and stolen account schemes generally get eliminated/caught because of laundering issues, not because of how they do the actual fraud; and for large cases of fraud / large stolen accounts, the laundering capacity limits the total amount. Good AML provisions help reduce your fraud losses, even if you decide to make some "exceptions" for your VIP customers.
  - ellius 10y ago
    It's actually the opposite of fraud, because laundering money involves transactions which frequently make a great deal of money for the bank. Look at the fat fees Goldman Sachs earned setting up the 1MDB transactions for Malaysia. There was a lot of speculation around the financial crisis that banks opened their doors to money launderers because it was the only available liquid asset available in sufficient quantity to keep them solvent. So the bank actually has an incentive to launder money, so long as it can do so without being caught and fined or having its employees go to jail. The point below is true though. Many of the same markers of fraud indicate money laundering, and having a good risk program can reduce both if that's your intention.
- mahyarm 10y ago
  Fraud and money laundering fine avoidance are two different things.
MichaelGG 10y ago
Certainly the only moral thing to do is the absolute minimum to avoid being shut down. Money laundering is not ethically wrong and making it a crime is a great example of government overreach.
- r00fus 10y ago
  Money laundering is not a crime? It's required to finance certain crimes, or to cover them up. It's not victimless.
  - MichaelGG 10y ago
    It's like civil forfeiture. It's LE being lazy or saying they can't figure out the real crime, so they'll just go after people's assets instead.
  - Pinckney 10y ago
    Private communications are also required for certain crimes, or to cover them up. Should we require that Apple monitor phone conversations for evidence of crime?

fiatmoney 10y ago

There is zero incentive to recognize money laundering "too well", particularly because it means essentially whatever FinCEN wants it to mean. It's an issue for lawyers to hash out exactly what patterns must be recognized.

teemonasty 10y ago
There may not be an incentive to recognize money laundering "too well" but there is incentive to get better. FinCEN will continue to raise the stakes of what is an acceptable AML program and staying ahead of the curve reduces the probability of a future fine.

dandermotj 10y ago

There seems to be some bizarre skepticism by some HNers of financial institutions' AML practices. But the thing is, AML is really difficult and expensive for banks, hiring floors of consultants dedicated to AML. This is a billion dollar problem (or more?). Whatever about training a CNN to classify images, an effective ML model/pipeline to tackle AML will break the back of a huge problem.

Kinnard 10y ago
It may be a billion dollar problem but it's a billion dollar problem like tax software, it wouldn't exist without the troll demanding his toll. The resources could be used elsewhere like on curing disease or on educating people: http://www.americanbanker.com/bankthink/money-laundering-is-financial-thoughtcrime-1058902-1.html http://www.americanbanker.com/bankthink/money-laundering-is-... It's a billion dollar problem that doesn't need to exist. Many people will probably make cursory argument that taxes(and by analogy ML regulation) are a necessary evil(They're now doing the troll's work for him)— I'd argue they are not necessary and they short-circuit us working on better replacements.
- dandermotj 10y ago
  But in the real world AML isn't going away, and it continues to be expensive.
- perlgeek 10y ago
  The troll is money laundering, not the regulation. And you can't ignore the troll, or even get rid of it, so you must mitigate damage.
  - Kinnard 10y ago
    How so?
  - dublinben 10y ago
    "Money laundering" is an imaginary crime. If certain patterns of transactions were not arbitrarily outlawed, there would be no need to enforce this law.

Hermel 10y ago

The direct and indirect cost money laundering regulation has reached a point where it far outweighs the benefits. Thousands of clients have to jump through cumbersome hoops just to increase the chances of catching one single money launderer by 1% or so. Even the IRS estimates the implementation costs of Fatca at 100 billion worldwide. In reality, it is probably much higher and far exceeds the amount of additional tax 'income' it generates. We really need to start to discuss the negative externalities of overzealous regulations.

daveguy 10y ago
Citations needed.
perlgeek 10y ago
It's not like money laundering is a victimless crime. Quite contrary, only money is laundered if it comes from illegal practices, which tend to have victims. Also, what do you think happens if you relax money laundering regulation?
- pmarreck 10y ago
  The problem is that the set of things that are illegal in some country at this particular time, and the set of things that are "rationally definitely wrong everywhere, for all time" are never quite overlapping perfectly. Sex slavery? Arguably rationally wrong for all time and space. Drugs and prostitution? Debatable. For example, regulating drugs and treating addiction as a medical problem is probably much cheaper than waging an unwinnable drug war PLUS trying to find all the laundered money coming from it PLUS forcing all the "good actors" (non drug industry people) to comply with the regulations at no trivial expense. This is true for every economy that refuses to go away despite being wholly illegal. In those cases it is (IMHO) best to just regulate it... Same as what happened with alcohol after Prohibition. Nobody's making moonshine and killing bootlegger opponents anymore, and alcoholism is a manageable medical problem.
  - hiou 10y ago
    So your argument against tracking and enforcing money laundering laws is that laws in general are silly because not everyone agrees with them?

wallflower 10y ago

I can't find the reference right now but someone once wrote that PayPal was, at its core, one of the most sophisticated fraud detection engines ever created. In their early days, they almost went under multiple times because of the millions in chargebacks (This is one of those impossible problems that Elon Musk helped solve).

awt 10y ago

There is no such thing as money laundering. There is such a thing as food stamp fraud.

rando18423 10y ago

Wow. Since when is every regulation supposed to pay for itself? Do police? SWAT? I highly suggest reading Steve Randy Waldmann's analysis of the Baltimore riots and altruistic punishment. He is an actual economist, whereas this thread is as if he came in here and was telling you your code sucked. For those curious, his blog is called interfluidity.

barsonme 10y ago
With everything there is a trade-off. For some the lack of dollars brought in (or what have you) outweighs the benefits. An example is TSA. Some believe that even one life saved by the extra security (theater or not) is worth having to take your shoes off. Others do not.
mhuffman 10y ago
I just followed your advice and read Steve Randy Waldmann's analysis of the Baltimore riots and altruistic punishment. It is very clear that he is biased in his analysis. He is also wrong about the Baltimore riots being "altruistic punishment", at least according to the strict definition here[1], as the people rioting claimed to be directly harmed by the existing law enforcement structure that they were rioting against. Finally, why do you think that simple economic concepts can not be understood by developers? Why do you think there there are not lots of people on here with business degrees or backgrounds in economics? [1]https://en.wikipedia.org/wiki/Third-party_punishment https://en.wikipedia.org/wiki/Third-party_punishment
- rando18423 10y ago
  I think his point is that the idea that knowing you will be retaliated against, even if it's a "net loss" in some ways for those retaliating against you, is an extremely powerful force for good in our society. Do you disagree? I think that because I'm a quant and I see people making pretty basic mistakes here, or making fallacious assumptions about other fields assuming they follow the same logic as software, quite often, and that seemed to be happening in this thread. I maintain that developers are usually not qualified to talk about economics in much beyond the most basic sense, because they haven't actually studied advanced economics beyond how it pertains to the tech industry. They just make linear extrapolations and are shocked (shocked!) when their narrow (and admittedly unique) model of the world breaks down.