I’m hoping somebody can send me a plausible and documented cost-benefit analysis for anti-money laundering legislation but it’s proving difficult to find one. I’m not saying it’s a waste of money, I’m just saying that I don’t know whether it’s a waste of money or not.
Minty Clinch is a well-respected British travel writer. She writes about going off of the beaten track here and there.
More and more tourists are going on organised trips to remote or dangerous locations in search of adventure and travel kudos; Minty Clinch joins a group trekking through the High Pamirs of Tajikistan.
[From Magazine / Geographical]
Minty had an account at Barclays Bank for more than half a century until it was closed earlier this year after an electronic credit to her account for an article that she had written. Apparently this triggered some kind of bonkers transaction trap and she was booted out of the banking system.
Freelance travel journalist Minty Clinch told the BBC Radio 4’s You & Yours programme this morning that Barclays had blocked a payment into her bank account because it was for an article about Iran.
[From Barclays blocked payment to journalist for mentioning Iran | Edmund O’Sullivan]
So, receiving a payment that mentioned “Iran” in the remittance advice springs the trap. How dumb are these terrorists? I certainly wouldn’t put “money for bomb” in the description field for my PingIt payment to the Al Qaeda quartermaster-general, but perhaps I don’t think like a proper terrorist. Still, it’s good to know that anti-money laundering (AML) legislation is in place and effective.
The topic of AML came up time and time again in the discussions around Money2020 in Las Vegas, whether in the sessions about cryptocurrency or remittances or innovation or anything else.
As an industry, we are doing a poor job at identifying money launderers or prevent them to have access to payment systems @money2020
— The BayPay Forum (@baypayforum) November 2, 2014
This is astonishing when you consider the incredible amounts of money spent on AML. According to a KPMG survey, the cost of compliance with anti-money laundering (AML) regulations grew “beyond expectations” for banks last year. In fact, it grew by nearly two-thirds. I’ve been unable to find any authoritative figures to show how much global money laundering fell last year in response to this. The World Bank say that money laundering is between two and five percent of global GDP and in 2009 the World Bank calculated it to be four percent of global GDP. I’ve seen estimates of around two percent of GDP for the UK. I’m no expert, but it seems to me that there is an awful lot of money laundering going on and no evidence that vastly increased AML spending has had any impact. So where is the cost-benefit analysis (CBA) for AML? I found one from a few years ago and it concludes that for AL to be effective we would need to spend around half
Using the multiplier model of the relationship between criminal markets revenues and money laundering activities and data for 2004, the value of money laundering is equal to US$ 1.2 trillions (2.7%of the world GDP), while the maximum theoretical benefit in combating money laundering using financial regulation – in steady state – is equal to S$ 280 billion (0.6% of the world GDP).
I can see why politicians are in favour of tough AML (it doesn’t cost them anything) and I can see why lawyers are in favour of it, since it is in essence a full employment act for them, but where are the figures that show the expenditure on AML makes any sense? And the way that AML regulation is structured and “managed” means that the market is being undermined.
“Banks need a specific set of expectations which, if followed, would shield them from blame,” David Landsman, the executive director of the National Money Transmitters Association, told American Banker in 2012. “Right now they do not have that.”
[From A Modest Attempt to Ease AML Rules Side Effects – Bank Think Article – American Banker]
Indeed. It sometimes seems to me that the regulators feel that infinite AML would offer infinite protection and should therefore be the natural target. But AML doesn’t exist in isolation. It has a horizontal relationship with other regulation and a vertical one with the industry it is constraining.
We have the eternal conflict between AML and Data Protection where there is more than one specific point of friction:
[From Inconsistencies between the European Payments Legislative Proposals]
In addition, there is the pernicious impact of potential future action by (largely US) prosecutors.
One way to help banks overcome hesitations about working with money transfer companies would be to offer a legal safe harbor designation to institutions that do their due diligence, according to Schryer-Roy. This would protect banks from prosecution for money laundering charges.
[From A Modest Attempt to Ease AML Rules Side Effects – Bank Think Article – American Banker]
The reason I get so exercised about this is because the regulation on AML in practice translates into a tax on the poor and the disadvantaged. The serious money launderers just buy a bank, whereas the poor find they can’t send money home to their families. Therefore, in my opinion, we need to take on board the risk-based approach that the FATF recommends. Just as Bill Gates has suggested, we should remove low-value payments from AML and let innovators find ways to use new technology to serve excluded groups.
These are the personal opinions of Consult Hyperion and its guests and should not be misunderstood as representing the opinion of its clients or suppliers. To discuss how any of the technologies discussed in this post can benefit your business, please contact Consult Hyperion.
AML is not bad because it fails cost benefit analysis; its bad because its unethical.
Law in Western democracies is based on the idea that you are innocent until proven guilty. AML turns this principle on its head; everyone is guilty until proven innocent in the banking system; this is why the writer you cited had her bank account closed. She was never accused of any crime, not put on trial, not proven guilty and had her bank account closed for no reason whatsoever. This cannot happen with Bitcoin, and when people start moving their money with it, it will be like a breath of fresh air. No forms to fill out, no surveillance, no hassles, and no waiting.
AML and KYC are a tax on the poor and the rich, a tax that serves no purpose, and as you concede yourself, cannot catch the “criminals” who use their own banks to move their money freely.
Innovators are finding ways to route around AML and KYC. Bitcoin is going to mainstream all the practices that have been developed over decades, and you will find that the sky will not fall; in fact, quite the opposite will happen. The poor will be less poor, people will be more free and it will be an entirely good thing.
On behalf of the poor of the world who can’t say it: THANK YOU!
The entire whole everything blockage to financial inclusion is regulation and regulators working on behalf of banks. Kenya proved that, although nobody wants to admit it. Central Bank of Kenya let mPesa go forward, and held the banks at bay.
OK, so now the party is over, AML is in place in Kenya. But it is too late — the innovation is bedded into society, and the banks cannot stop competition in payments any more. Other countries can only learn: If you love your people, do not stop mobile money with regulation, AML, banking, identity, fears uncertaity and doubt.