The Harm of Anti-Money Laundering Laws, Part II

January 3, 2024 by Dan Mitchell @ International Liberty 

Editor's Note:  You may wish to review these articles,  Nigel Farage and The Banking World Update and Nebraska Becomes First State Refusing to Comply with Biden’s Plan to Let IRS View Your Bank Transactions to get an idea of where this is going, and what this is really all about.  RK

Last year, I shared grim details from a New York Times story on money laundering by Tara Siegel Bernard and Ron Lieber.

The reporters provided new ammunition for my long-held view that anti-money-laundering laws and regulations are fundamentally misguided.

• They are pointless.
• They are expensive.
• They are intrusive.
• They are discriminatory.
• They are ineffective.
• They disproportionately hurt poor people.

A few days ago, Ron Lieber wrote a follow-up story filled with all sorts of disturbing and disgusting anecdotes about innocent people losing their bank accounts because of pointless policies from Washington.

Here are some excerpts.

…more than 1,000 wrote to me and my colleague Tara Siegel Bernard — volunteered a story of losing banking and credit-card accounts and included contact information. It’s not the sort of thing most people normally do if they have something to hide. Banks say they need to close accounts they deem suspicious to prevent money laundering, fraud and terrorist financing. …

The account closings often come without warning. There is usually no recourse, appeal or explanation from the bank. Sometimes you find out you have lost banking privileges when you’re buying food at the grocery store and your debit and credit cards no longer work. But losing your bank account isn’t just inconvenient. It’s scary. If you’re a small business, it disrupts your payroll and can damage your reputation in the community.

If you want to understand why banks mistreat their customers, it’s not because they want to. It’s because they lose money if bureaucrats think they are being insufficiently aggressive.

Everything you need to know is captured in this headline from a 2020 article in Fortune.

By the way, when banks are hit with big fines for being insufficiently aggressive, it is very safe to assume that this will lead to higher fees for consumers.

So banks lose and customers lose while bureaucrats pocket $10 billion for the government.

And bureaucrats have also figured out how to extract lots of money by claiming that banks are being too aggressive. Here are some more excerpts from the NYT article.

…the Consumer Financial Protection Bureau.., as part of a $3.7 billion enforcement action against Wells Fargo, …chastised the bank for using an overly sensitive automated system to spot suspicious deposits and then freezing the customer’s entire account, along with any other accounts, for at least two weeks. Then, the bank would close the accounts and finally return the money. Wells Fargo paid over $160 million in customer remediation to over a million people affected by the freezes and agreed to use less severe tactics.

You may be wondering at this point why financial institutions don’t simply follow the letter of the law so they can avoid huge fines for being either insufficiently aggressive to excessively aggressive.

I’m sure they would if they could, but the AML laws and rules are best characterized as vague guidelines. Banks have to guess what regulators want, which is hard enough, but there’s no guarantee that any two bureaucrats will have the same interpretation. Or even that one bureaucrat will have the same perspective from one day to the next.

The bottom line is that these rules, both in the United States and elsewhere, are a $180 billion tax on banks and their customers.

I wrote in 2020 that these laws are perverse because they impose high costs on both individuals and businesses.

• Yet they don’t reduce crime.
• They don’t reduce terrorism.
• They don’t stop drug dealers.
• They don’t stop the mafia.

These facts should matter. And the article hinted at solutions (the headline closes with “Let’s Fix It”).

That got me hopeful, but the suggestions in the article are mostly about rearranging the deck chairs on the Titanic. There’s literally zero discussion of getting rid of these utterly ineffective and expensive policies.

Instead, the reporter offered up pabulum, such as having banks spend even more time and money to inform customers that they are being mistreated.

How disappointing.

P.S. I’m batting .500 in my career as a global money launderer.

P.P.S. Here’s Barack Obama’s satirical encounter with AML laws.