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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 cumb

by 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?
    - pmarreck 10y ago
      No, my argument is that they are a waste (literally, they cost more to implement than the money that is recoup'd from "illegal" activities). Certain laws are truly silly, however. I am allowed to maintain that opinion. I may also be anti-authoritarian in general, and do not believe in the vast majority of consensual crimes.
      - d4rti 10y ago
        > literally, they cost more to implement than the money that is recoup'd from "illegal" activities I'd presume there is a deterrent as well as a direct effect on reducing money laundering; I'd expect to see more money laundering if there were no checks. Quite how it would be measured is another question.
ellius 10y ago
There are a few basic problems with money laundering regulation: 1. The state wants it done because the intelligence is immensely valuable, not just from a law enforcement perspective but also from an international realpolitik / Great Game perspective (e.g. think tracking Putin's billions for the US, understanding flow of US Treasuries). This means the state tends to punish missing even a single money laundering lapse severely (which has the side benefit of lining their coffers). 2. Banks and other businesses don't want to do it because it's entirely a cost center to them. This incentivizes them to do the bare minimum to give the appearance of compliance to avoid prosecution while rarely doing the work effectively in practice. Business AML departments also have the problem of often working at cross purpose with the firm's other, frequently more prestigious and connected coworkers (think Goldman's main guy in Asia pushing through the 1MDB transactions). 3. The law pertaining to cooperation across institutions, section 314(b) of the USA PATRIOT Act, is voluntary. Money laundering almost always occurs across multiple institutions and frequently across multiple jurisdictions, many of which are stingy with intelligence or even purposeully opaque (Panama, Singapore, the Caymans, etc). This results in fragmentary and incomplete investigations and intelligence gathering, leading to an enormous amount of wasted and duplicated effort. If the countries of the world were serious about money laundering, they would focus on real cooperation and beneficial ownership requirements. Unfortunately the world's intelligence services all work against each other at one level or another, and they benefit from financial nontransparency (funding operations, obscuring flow of funds e.g. the US Treasury refusing until recently to publish info on Saudi ownership of Treasury bonds). Businesses are swept up in the game and even the few that genuinely seem to want to do the right thing find it impossible to overcome the hypocrisy of the game. As many commenters have noted below, money laundering is not a victimless crime. It aids human traffickers, arms dealers, and drug lords. Unfortunately it also benefits states, and businesses get caught in the crossfire.
unabridged 10y ago
With the possible rise of cryptocurrencies its only going to get worse. I believe governments should back off from income and profit taxing, its going to become more futile then the war on drugs. Governments should be focusing their taxes and revenue on tangible things that cannot be hidden or evaded, like property. This would solve so many problems in places like London or Vancouver where foreign money floods the market. Why waste time tracking endless trails of shell companies when you can just tax the wealth when it appears in public? Plus I see income and revenue as non-zero sum, one man or company making more money doesn't preclude someone else from creating wealth. Taxes on this are just a friction on the economy. But property is zero sum, every piece of coastline bought up by rich people as 4th or 5th homes means entire neighborhoods of normal families can only see water when they are on their 2 weeks of vacation.
- ComodoHacker 10y ago
  >Why waste time tracking endless trails of shell companies when you can just tax the wealth when it appears in public? Because the wealth should be taxed in the place (country state, region etc.) where it was made (and whose resources were used in the process) and not where it appears in public.
  - morgante 10y ago
    Tell that to the IRS, which insists that even if you're working in a foreign country, for a foreign company, on foreign projects that they still deserve their cut.
    - dandermotj 10y ago
      The US is one of the only countries on earth that follow this practice.
      - ced 10y ago
        So does Canada.
pmarreck 10y ago
I'm glad this is the topmost comment. Punishing the 99.5% of good actors to sometimes discover the 0.5% of bad actors seems exactly like forcing people to prove their innocence as all are presumed guilty.
- rayiner 10y ago
  "Punishment" and "guilt" and "innocence" are irrelevant concepts here. Banks aren't being "punished" by being required to implement money laundering controls. It's a condition of doing business as a bank, to serve certain government objectives. More generally: no western government recognizes a "fundamental right to commerce" such that restrictions on commerce require the existence of "bad" conduct worthy of punishment.[1] There is nothing "bad" about not implementing money laundering controls, just as there is nothing "bad" about talking a left turn on Constitution Ave between 9-5 on a weekday. But the government doesn't need to show its "bad" to implement the regulation. [1] Though we kind of tried that in the U.S. under the concept of economic due process.
  - defen 10y ago
    > More generally: no western government recognizes a "fundamental right to commerce" such that restrictions on commerce require the existence of "bad" conduct worthy of punishment. That's very interesting. I'm not going to argue with your claim, because I assume you know more about it than I do. But it's a very strange idea, because in many ways commerce is more fundamental than anything in the Constitution or its amendments. Take away everything in the Bill of Rights, all the freedoms defined in the Constitution and our heritage of common law, take it all away and you can still have a society. It would be a terrible, awful society that no one would choose to live in (probably something like the DPRK) but it would still be a society. But without commerce, it is simply not possible to even have a society. I would go even further and say that a vanishingly small percentage of people would even be able to survive without commerce. So in a certain sense it's just as important as air, food, and water.
    - rayiner 10y ago
      I don't think commerce is more fundamental. Humans survived for hundreds of thousands of years without commerce as we know it. Even at the time of the founding, the vast majority of Americans were living on mostly self-sufficient farms. Commerce in the modern sense is enabled by government: protection of property rights, imposition of a common currency, protection against pirates on the high seas. You can argue that government isn't necessary to enable commerce. That you could have a world that has commerce without government. But even if that were true, in the world we do have, commerce is built upon the infrastructure provided by government. Just like the road system. And the government is thus entitled to regulate commerce just like it regulates left-hand turns on roads. Of course, this is just an argument that regulation of monetary transactions is consistent with the assumptions underlying our institutions. I have no opinion on whether money-laundering controls are a good idea or not.
Canada 10y ago
I agree. Many honest people will not tolerate total financial surveillance and automated techniques like those in the article make honest people intentionally engage in structuring even though they have "nothing to hide" Financial privacy is like clothing. Yes, clothing can be used to conceal contraband and further illicit activity that is almost universally regarded as bad, but that doesn't mean the entire world is willing to be strip searched.
rando18423 10y ago
So society would be better off without altruistic punishment in the financial sector, which by the way is one of the most effective weapons in the post-nuclear age?
lifeisstillgood 10y ago
I am afraid I disagree. Criminal activity has one clear shared goal - to make money. And banks are outrageously complicit in money laundering for criminal organisations. Yet detecting crime through its laundering of proceeds is probably the most powerful Single idea we have - imagine a world where you could only commit crime in cash or for free. We talk about a poverty free world. A crime free world is also possible. Just make sure it does not pay.
- lazaroclapp 10y ago
  > A crime free world is also possible. Just make sure it does not pay. Even fictional post-scarcity utopias have crimes of passion. You cannot get anywhere near crime free without one of the following options: a) absolute coercion and perfect preemptive law enforcement, b) no laws to speak off (including no prohibitions against murder), c) radical departures from human nature as we know it. That said, I agree with your broader point: sometimes it is worth it to be able to detect and stop crime based on its financial footprint, even if you don't gain economically from doing so.
ProfChronos 10y ago
Completely agree. When I was working for a French bank, I saw how the US treats money laundering and it's an absolute nightmare. Let's take the example of a transaction that is processed in EUR by a French bank, from a French company to a Chinese company, on goods manufactured in, let's say, Ivory Coast. If in the email discussion, somebody answers while he/she in the US for holidays, then the transaction will fall under Fatca while there is absolutely no US interests affected whatsoever. Bottom line: Fatca is not only about money laundering, it is largely about maintaining the US dominance of international banking.
toadi 10y ago
Fatca is one of the reasons American nationals can't open a bank account in my country of nationality (Belgium). Banks just can't be bothered to implement and pay the costs for this.

by Hermel 10y ago

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?
  - pmarreck 10y ago
    No, my argument is that they are a waste (literally, they cost more to implement than the money that is recoup'd from "illegal" activities). Certain laws are truly silly, however. I am allowed to maintain that opinion. I may also be anti-authoritarian in general, and do not believe in the vast majority of consensual crimes.
    - d4rti 10y ago
      > literally, they cost more to implement than the money that is recoup'd from "illegal" activities I'd presume there is a deterrent as well as a direct effect on reducing money laundering; I'd expect to see more money laundering if there were no checks. Quite how it would be measured is another question.

ellius 10y ago

There are a few basic problems with money laundering regulation: 1. The state wants it done because the intelligence is immensely valuable, not just from a law enforcement perspective but also from an international realpolitik / Great Game perspective (e.g. think tracking Putin's billions for the US, understanding flow of US Treasuries). This means the state tends to punish missing even a single money laundering lapse severely (which has the side benefit of lining their coffers). 2. Banks and other businesses don't want to do it because it's entirely a cost center to them. This incentivizes them to do the bare minimum to give the appearance of compliance to avoid prosecution while rarely doing the work effectively in practice. Business AML departments also have the problem of often working at cross purpose with the firm's other, frequently more prestigious and connected coworkers (think Goldman's main guy in Asia pushing through the 1MDB transactions). 3. The law pertaining to cooperation across institutions, section 314(b) of the USA PATRIOT Act, is voluntary. Money laundering almost always occurs across multiple institutions and frequently across multiple jurisdictions, many of which are stingy with intelligence or even purposeully opaque (Panama, Singapore, the Caymans, etc). This results in fragmentary and incomplete investigations and intelligence gathering, leading to an enormous amount of wasted and duplicated effort. If the countries of the world were serious about money laundering, they would focus on real cooperation and beneficial ownership requirements. Unfortunately the world's intelligence services all work against each other at one level or another, and they benefit from financial nontransparency (funding operations, obscuring flow of funds e.g. the US Treasury refusing until recently to publish info on Saudi ownership of Treasury bonds). Businesses are swept up in the game and even the few that genuinely seem to want to do the right thing find it impossible to overcome the hypocrisy of the game. As many commenters have noted below, money laundering is not a victimless crime. It aids human traffickers, arms dealers, and drug lords. Unfortunately it also benefits states, and businesses get caught in the crossfire.

unabridged 10y ago

With the possible rise of cryptocurrencies its only going to get worse. I believe governments should back off from income and profit taxing, its going to become more futile then the war on drugs. Governments should be focusing their taxes and revenue on tangible things that cannot be hidden or evaded, like property. This would solve so many problems in places like London or Vancouver where foreign money floods the market. Why waste time tracking endless trails of shell companies when you can just tax the wealth when it appears in public? Plus I see income and revenue as non-zero sum, one man or company making more money doesn't preclude someone else from creating wealth. Taxes on this are just a friction on the economy. But property is zero sum, every piece of coastline bought up by rich people as 4th or 5th homes means entire neighborhoods of normal families can only see water when they are on their 2 weeks of vacation.

ComodoHacker 10y ago
>Why waste time tracking endless trails of shell companies when you can just tax the wealth when it appears in public? Because the wealth should be taxed in the place (country state, region etc.) where it was made (and whose resources were used in the process) and not where it appears in public.
- morgante 10y ago
  Tell that to the IRS, which insists that even if you're working in a foreign country, for a foreign company, on foreign projects that they still deserve their cut.
  - dandermotj 10y ago
    The US is one of the only countries on earth that follow this practice.
    - ced 10y ago
      So does Canada.

pmarreck 10y ago

I'm glad this is the topmost comment. Punishing the 99.5% of good actors to sometimes discover the 0.5% of bad actors seems exactly like forcing people to prove their innocence as all are presumed guilty.

rayiner 10y ago
"Punishment" and "guilt" and "innocence" are irrelevant concepts here. Banks aren't being "punished" by being required to implement money laundering controls. It's a condition of doing business as a bank, to serve certain government objectives. More generally: no western government recognizes a "fundamental right to commerce" such that restrictions on commerce require the existence of "bad" conduct worthy of punishment.[1] There is nothing "bad" about not implementing money laundering controls, just as there is nothing "bad" about talking a left turn on Constitution Ave between 9-5 on a weekday. But the government doesn't need to show its "bad" to implement the regulation. [1] Though we kind of tried that in the U.S. under the concept of economic due process.
- defen 10y ago
  > More generally: no western government recognizes a "fundamental right to commerce" such that restrictions on commerce require the existence of "bad" conduct worthy of punishment. That's very interesting. I'm not going to argue with your claim, because I assume you know more about it than I do. But it's a very strange idea, because in many ways commerce is more fundamental than anything in the Constitution or its amendments. Take away everything in the Bill of Rights, all the freedoms defined in the Constitution and our heritage of common law, take it all away and you can still have a society. It would be a terrible, awful society that no one would choose to live in (probably something like the DPRK) but it would still be a society. But without commerce, it is simply not possible to even have a society. I would go even further and say that a vanishingly small percentage of people would even be able to survive without commerce. So in a certain sense it's just as important as air, food, and water.
  - rayiner 10y ago
    I don't think commerce is more fundamental. Humans survived for hundreds of thousands of years without commerce as we know it. Even at the time of the founding, the vast majority of Americans were living on mostly self-sufficient farms. Commerce in the modern sense is enabled by government: protection of property rights, imposition of a common currency, protection against pirates on the high seas. You can argue that government isn't necessary to enable commerce. That you could have a world that has commerce without government. But even if that were true, in the world we do have, commerce is built upon the infrastructure provided by government. Just like the road system. And the government is thus entitled to regulate commerce just like it regulates left-hand turns on roads. Of course, this is just an argument that regulation of monetary transactions is consistent with the assumptions underlying our institutions. I have no opinion on whether money-laundering controls are a good idea or not.

Canada 10y ago

I agree. Many honest people will not tolerate total financial surveillance and automated techniques like those in the article make honest people intentionally engage in structuring even though they have "nothing to hide" Financial privacy is like clothing. Yes, clothing can be used to conceal contraband and further illicit activity that is almost universally regarded as bad, but that doesn't mean the entire world is willing to be strip searched.

rando18423 10y ago

So society would be better off without altruistic punishment in the financial sector, which by the way is one of the most effective weapons in the post-nuclear age?

lifeisstillgood 10y ago

I am afraid I disagree. Criminal activity has one clear shared goal - to make money. And banks are outrageously complicit in money laundering for criminal organisations. Yet detecting crime through its laundering of proceeds is probably the most powerful Single idea we have - imagine a world where you could only commit crime in cash or for free. We talk about a poverty free world. A crime free world is also possible. Just make sure it does not pay.

lazaroclapp 10y ago
> A crime free world is also possible. Just make sure it does not pay. Even fictional post-scarcity utopias have crimes of passion. You cannot get anywhere near crime free without one of the following options: a) absolute coercion and perfect preemptive law enforcement, b) no laws to speak off (including no prohibitions against murder), c) radical departures from human nature as we know it. That said, I agree with your broader point: sometimes it is worth it to be able to detect and stop crime based on its financial footprint, even if you don't gain economically from doing so.

ProfChronos 10y ago

Completely agree. When I was working for a French bank, I saw how the US treats money laundering and it's an absolute nightmare. Let's take the example of a transaction that is processed in EUR by a French bank, from a French company to a Chinese company, on goods manufactured in, let's say, Ivory Coast. If in the email discussion, somebody answers while he/she in the US for holidays, then the transaction will fall under Fatca while there is absolutely no US interests affected whatsoever. Bottom line: Fatca is not only about money laundering, it is largely about maintaining the US dominance of international banking.

toadi 10y ago

Fatca is one of the reasons American nationals can't open a bank account in my country of nationality (Belgium). Banks just can't be bothered to implement and pay the costs for this.