May 19, 2024 by Dan Mitchell @ International Liberty
I’ve repeatedly complained about the absurdity of anti-money laundering laws and regulations.
- As a libertarian, I don’t like that the government forces banks to spy on customers.
- As an economist, I don’t like that these laws don’t come close to passing a cost-benefit test.
- As a citizen, I don’t like that AML policies divert law enforcement from fighting crime.
- As a humanitarian, I don’t like the way poor people are disproportionately hurt.
Today, let’s cross the Atlantic Ocean to examine some new evidence about why anti-money laundering laws and regulations are misguided.
Looking at the United Kingdom, this chart shows that AML policies impose nearly £35 billion of costs on the economy, which is twice as much as the total budget for policing in the country!
I created the chart, but the numbers come from a new study published by the London-based Institute of Economic Affairs.
The author, Jamie Whyte, compares costs and benefits. The results are not pretty.
…debanking is a problem in the UK. In 2021/22, UK banks closed 343,000 accounts, up from 45,000 in 2017 when the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) was passed into law. …Customers whose accounts are not closed also pay a material price, because complying with the government’s anti-money laundering (AML) regulations costs UK banks £34 billion a year, which is double the £17 billion spent on policing all other crimes in the UK… This cost must ultimately be passed on to customers through higher account fees, higher rates of interest on loans, and/or lower interest rates on deposits. …Given the lack of evidence that banks’ post-2017 AML obligations have done anything to reduce crime compared with pre-2017 trends, you might hope that the UK government, and all others, would simply eliminate them. …there is no evidence that the well-known and large costs of AML regulations are offset by their benefits.
Yes, you read correctly. There is no evidence that AML laws and regulations have had any positive effect.
The War on Drugs has been the main excuse for AML policies. Here’s some of what is in the study.
Between 1990 (when the FATF AML regulations began to come into force) and 2021, the number of illegal drug users around the world increased by 60% and the number of deaths attributed to drug use more than doubled. According to a 2023 report by the UK’s National Crime Agency: ‘From January 2022 to December 2022, cocaine prices have dropped by about 30% and heroin prices have fallen by about 33%.
Looks like one half of the Baptists and Bootleggers coalition is doing well.
Here are some of Whyte’s concluding thoughts.
The AML obligations imposed on banks have massive costs and no apparent benefit in reducing crime. The rational response is to abolish them or, at least, to scale them back… This is probably expecting too much of contemporary politicians, who find it difficult to stop regulating and who find it difficult to admit to profound policy errors.
Sadly, American politicians are just as feckless as British politicians. So the bad policies in the United States also seem invulnerable to common-sense changes.
To make a bad situation even worse, policy is like to become more nonsensical thanks to the War on Cash.
P.S. Since the statute of limitations presumably has passed, I can admit that I engaged in money laundering while in London about 10 years ago.
P.P.S. You may not think AML policy lends itself to humor, but here’s an amusing anecdote involving a former President. There’s also a very clever Instagram video from Australia.
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