How well does the money laundering control system work?
(journals.uchicago.edu)287 points by PaulHoule 3 days ago
287 points by PaulHoule 3 days ago
Out in the developing world you’ll see all kinds of things that make no sense commercially, because they were really just a way to park a few million dollars in a way that slowly trickles out under the guise of legitimacy. Buildings with rent ROI> 100 years. A motorcycle dealership with 3000 motorcycles in stock, slowly selling them off , many > 10 years old and zero miles…. Etc.
Here in Colombia it's almost a staple to find perpetually-empty restaurants that never go broke. We call them "lavaderos" - kinda like "laundering-stations".
I've always wondered if Baskin Robbins is a front, I used to see them everywhere in Oregon, where they were always empty even during the summer made me wonder how they stayed in business. as a kid I always thought it was a mob front.
Heya Jerry! Hope you're well!
I think Baskin Robbins was just increasingly bad.
Growing up in Wichita it was definitely around and I remember going to it a lot when young. But then we started going to Braun's more, and I think it was a combo of location, liking the ice cream better, and getting burgers if we wanted.
I think they just didn't adapt over the decades and sort of coast as a zombie now.
I can't think of why I'd go to one vs so many other options now. Even supermarket stuff is gonna be better.
This is interesting to me and I see why it would work in a place with lower state capacity but in more developed countries it’s not a great strategy. You want your money laundering to operate through high volume cash businesses. When I lived in Seattle I used to sometimes go to a sketchy cash-only teriyaki joint. The food was great and they were always filled with paying customers. Sadly, they were later caught and shut down.
The scaryaki joint on 3rd? Weren’t those guys also fencing stolen iPads or something?
That place had super good food though!
This is, unfortunately, a problem that many tech companies have made worse and more accessible as they have removed friction from these systems.
Most folks will remember the 2019 temination of lootbox key trading for CS:GO on Steam.
https://www.bbc.com/news/technology-50262447
https://www.gamesindustry.biz/research-identifies-suspicious...
https://www.sciencedirect.com/science/article/pii/S266628172...
I'm not sure what good ways there are to manage this generally, other than limiting the size or types of financial transactions that can occur within a system.
You can thank Cryptic Studios for the loot box virus...
Trying to stop money laundering via mass surveillance of people's transactions is futile and creates far more losses than gains for society. It is what's responsible for the epidemic of debanking that has emerged over the last decade.
https://en.wikipedia.org/wiki/Debanking
"The Financial Conduct Authority reported that banks in the UK were closing nearly one thousand accounts daily, with just over 343,000 closed in 2022, compared to about 45,000 in 2017.[4]"
Money transfer is a basic utility and should not be rationed out and gatekept by government regulators.
Lotteries, too: https://www.acamstoday.org/lottery-and-money-laundering-a-ma...
I remember reading about a case where criminals bought an entire issue of a local lottery, thus collecting all the prizes, and apparently saw that a reasonable cost to launder their cash.
this works quite well even at small scale. In my country you can just go to any tobacconist, buy 1000 € worth of scratch cards with cash, and happily keep whatever comes out. And since they're heavily regulated, you can check winning probabilities in advance so you already know the expected return!
A prominent Belgian political figure laundered cash for years using the lottery https://www.euronews.com/my-europe/2024/12/11/revealed-how-t...
> Then there is the case of international terrorism, where bands like ISIS have been noted for their laundering of cultural antiquities.
Reminds me of True Lies.
Add to the list almost all high end (dance) clubs, the kind that sell you the $50 bottle of champagne for $5000, "cleaning" thousands for every easily justifiable and anonymous bottle sale with close to 0 effort.
Actually, any business that can just add an arbitrarily huge markup for what are otherwise cheap, run of the mill products and services is probably also laundering money. Usually exclusive/luxury places, the ones where in one go they can convert the lowest possible cost into the highest possible clean profit.
The expression goes back to the Roman Republic. Coined by former consul Lucius Cassius Longinus Ravilla, who 'gained fame for formulating the question "Cui bono?" ("Who benefits?") as a principle of criminal investigation.'
And for a specific example:
In my local neighbourhood there are a couple of commercial spaces that keep seeming to become new businesses, go through the expected few months of rebranding and outfitting, stay for a couple more months, then shut down. Only to become new businesses doing the same thing. Repeat ad nauseum.
Which would be fine, except it’s always the same owners. I’m not sure what the grift is, but I’m sure there’s one. Perhaps its simply taking advantage of business loans. Perhaps something more involved with contractors and business expenses charged differently on paper. I’m not sure, but I’m sure I’m curious.
In the same way that buying a company and taking out business loans for expenses isn’t itself fraudulent, but can be done for that purpose, I can’t help but feel like there’s something going on.
This is a fairly common view, but it overstates people's rationality abd assumes you have perfect information, leading people to pretty conspiratorial views.
Often the actual answer to things not making sense is that most things in the world are done poorly and many things are some mish mash of various interests rather than a singular actor.
Incompetence is far more common than malice, and many observers are themselves incompetent.
If you read The Guardian or even The Economist or other UK sources you see there is a drumbeat of concern about "bad businesses" which range from
http://wormwoodiana.blogspot.com/2025/04/do-charity-bookshop...
which legally evade taxes and
https://www.londoncentric.media/p/asf-aziz-london-candy-shop...
which illegally evade taxes not to mention
https://www.theguardian.com/uk-news/2022/dec/26/more-than-90...
and
https://www.esquire.com/uk/style/grooming/a65829331/high-str...
and these are frequently accused of being involved in all sort of crime not least money laundering.
> which legally evade taxes and
If it's legal I think it's "avoidance".
In Austria we have an infinite amount of middle eastern barbershops and „phone shops“ with about zero customers.
Quick calculations on minimum wages, rent, other costs and the required amount of sales show that they can not be profitable.
Moving money around is a crime...why? It results in massive intrusiveness by government: full insight into everyone's finances, without evidence of a crime.
And, yes, this does get abused. Government is people, some of whom are evil, or out for revenge, or whatever. I had an acquaintance whose accounts were periodically frozen by the IRS, because he had pissed off the local office. He would get them unblocked, but only after weeks of missing mortgage payments and other bills.
Ending anonymous banking like in Switzerland was a major objective for the US. They said it was because it allowed money laundering for terrorists. People will get upset when the government talks about ending encryption in order to stop terrorism but the same concept applied to money apparently doesn't matter.
In practice we have a system where money laundering has not ended and we have much more financial surveillance for average citizens. That was probably the purpose all along and it never had anything to do with finding tax evaders or stopping terrorism.
> much more financial surveillance for average citizens
As with the TSA, any system designed to filter "bad guys" ends up being a huge imposition on average citizens, because there's a lot more of them.
I can see how TSA is an imposition on a large number of average citizens. The Internet is telling me that in recent years (except during COVID) about half of Americans flew in the past year [1], which would mean each year about half of Americans have to deal with the TSA.
But with money laundering and KYC I'm having trouble remembering ever having to deal with them. What are situations where the average citizen finds them an imposition?
I vaguely remember being asked what the sources were for the money in my IRAs, but don't remember who asked or what I was doing with them. Maybe it was during an application for a home equity line of credit? Anyway, whatever it was I just told them (rollover from a 401k, money from my salary, and earnings from investments held in the IRAs) and they didn't ask for any proof or anything.
[1] https://www.airlines.org/dataset/air-travelers-in-america-an...
We need far more of a willingness to "bite the bullet" and accept that sometimes bad things happen, and after a bad things happens we can simply go back to how we were doing things before.
We don't need to constantly change and often times collectively punish society for one bad terrorist attack.
What's the point of surveilling the movements of average citizens' money? They usually don't hide anyway. I suppose tax evaders were the target all along, with a smattering of criminal operators, e.g. drug dealers. Terrorists were but a pretext to produce moral panic.
You justify surveillance in the wake of terrorist attacks, etc. and when public sentiment toward government is mostly good (the financial surveillance here is an example)
You make moves to constrict the available information and permitted behavior of residents and citizens in excess of what is defined by law through pressure on culture and public marketplaces, etc. and not legal action by government. (e.g. the stuff going on with erotic content on Steam recently, but not limited to stuff like that). You start with more questionable and controversial things like e.g. sexually explicit content, then progress to all content or ideas that are inconvenient to your regime.
You boil the frog of authority over the public at a rate where only a minority starts noticing problems and looking for solutions in educating themselves using politically inconvenient media (and flagging themselves as enemies in the surveillance tools) or taking action that is inconvenient to you
You start making court cases against these inconvenient people and start deporting them or incarcerating them. First with e.g. illegal immigrants or foreign national students that are saying things that are unpopular, but slowly escalate to all the people that disagree with you.
If you don't think all these things are well established, I'm not sure what to tell you.
> What's the point of surveilling the movements of average citizens' money?
The most important is taxation. People pay their babysitters or gardeners under the table, or transact with friends and family without reporting income, and this is a huge amount of lost tax revenue.
Another reason are policy options. For one, there are certain decidedly "non-terrorist" goods and services that the government might not want you to purchase. Heck, in the era of ZIRP, many economists were seriously talking about negative interest rates. You can't do that if a person has the option of taking out cash and hiding it under the mattress.
Unless you have a regular 9-5 job (bonus point if it's government), most small businesses and sole traders are evading taxes (not just optimizing). Also, your ability to increase taxes is tightly linked to your ability to collect it. So by surveying transactions, you are able to increase taxes.
If you can make private and uncensorable payments, you can pay an army.
The “only one army” concept is how governments remain governments.
If you could raise and pay a competing army, the state’s monopoly on “legitimate” violence becomes threatened.
This is why most states also heavily restrict private access to arms. Interestingly enough, it is also why the United States explicitly protected it: to specifically prepare for (and protect the right to) violent revolution.
To be fair Switzerland really did (does?) help to launder a lot of money for terrorism.
> Moving money around is a crime...why?
The short answer is that said money is either the proceeds of a crime, or (in the other direction) being sent to or from a sanctioned person, organization, or country.
This is why it's so hard to push back against, like the TSA. "Do you want terrorists using the banking system?" is a killer argument for midwits.
> killer argument for midwits
It's a real shame that kind is allowed to vote. IMO, they're more destructive than the 90 IQ and below crowd.
Just replace "money" with a gold bricks. If I have them in the trunk of my car and move it around, you can't arrest my car on the assumption that the bricks are "the proceeds of a crime". You have to reasonably prove it with all the red tape involved, or GTFO of my way.
Civil asset forfeiture- a law enforcement officer in many jurisdictions in the US can seize the gold bar without charging you with anything, under the assumption that it is proceeds for a crime, and in an insane twist, they get to keep part or most of the value of the seized property when it is sold at auction. It’s insane.
Everyone else telling you about civil forfeiture; I'm going to mention the original James Bond novel Goldfinger, in which part of the early plot is exactly Auric Goldfinger hiding gold in the panels of his Rolls-Royce in order to smuggle it out of the UK, which was illegal at the time. Even for gold legitimately owned.
(historical background: https://www.chards.co.uk/guides/exchange-control-act/785 )
Actually, yes they can. No warrant, no charges, nothing. It’s basically up to the discretion of the officer present.
The “crime” is alleged to the objects in question, and since they aren’t people they don’t have rights.
Civil Asset Forfeiture. It’s clearly unconstitutional, but it’s too profitable to stop.
My understanding was the police were able to do this in the US using civil forfeiture.
Money is a call option on the labor of its citizens. When money accumulates to people who operate against the best interests of its citizens more and more of a countries labor and future is traded for less societal value. There exists some tipping point where no societal value is created and money exists just to drain the vitality of its citizens. In other words, no matter how hard you work things only get worse.
A great article on this dynamics that is worth a read (https://www.propublica.org/article/china-cartels-xizhi-li-mo...)
This doesn't really have anything to do with "money laundering". For example, you get the same set of problems if the money is accumulating to monopolies or industries with artificial scarcity as a result of regulatory capture even though the law doesn't require them to "launder" the money they're accumulating.
Meanwhile in the case of classical criminal enterprises, the laws against money laundering don't actually work because in practice there are ten thousand ways to exchange value other than with official currency. And then the systems to prevent "money laundering" cause more problems for honest people who get trapped up in them out of ignorance, or become victims of corrupt government officials who use financial surveillance systems for oppression, whereas professional criminal organizations just restructure their activities to bypass the rules.
All of the other items you mentioned are things that society attempts to regulate against as well. And while there are an infinite number of ways to exchange value it stays between those involved. If the drug dealer is happy to trade heroin for house painting the damage is self limiting.
Once it’s converted to money it’s everyone’s problem. I can’t avoid my mortgage interest helping supporting the dealer who is supplying the addicts who are stealing my stuff. The harder I work, the worse it gets.
The controls may not be effective but I think they are necessary. I wouldn’t want to live in most countries where money laundering dominates financial activity.
It being a crime depends on who you are.
I'm in an EU country where banks go through all the necessary checks.
As someone who worked for a bank, I got hit by the AML check on a larger transaction, delaying it for over 3 months in the end, causing me to have to spend from my companies war chest instead.
Once, I mistakenly sent a large amount of money from my own account to my own account, which I had to spend multiple emails and phonecalls explaining the mistake to the tax authority.
But, we had cases where people illegaly transferred hundreds of thousands/millions of dollars to accounts without anyone reacting.
We have a large amount of real estate that is "bought in cash". It is especially popular among politicians who declare getting a large "loan in cash from their mother" or "their parents collected money for years". When you compare the salaries to the amount of cash earned, it is obviously impossible unless they were genius investors too.
We have corruption cases in which money was transferred from government companies into personal accounts without anyone's knowledge or anyone triggering a check.
These transactions are somehow legitimate and not investigated.
The AML system as it is is not just inefficient, it is suspect to corruption, human error and vindictiveness.
One of the most common abuse is to call political opposition money launderers to freeze their assets
https://www.amnesty.org/en/latest/news/2024/09/india-fatf-ra...
As someone who sees the outcome of people losing everything to sophisticated scammers/ fraudsters and thieves and how little authorities are able to do, nah, the overreach is not in sight.
There are more criminals than abusive IRS agents. And usually when people tell me stories like that, there is more to it..
C'mon, moving money is not a crime but moving money that has been illegally obtained is a crime (drugs, prostitution, illegal sports book,...) as is concealing the source or target of money sent to terrorist organizations and yes it makes certain things harder than they used to be for the rest of us.
Only one of 1000 money laundering alerts ends in prosecution of a criminal. 999 are innocent people suffering.
Most of the commenters here have zero connection to reality eh.
For the uninformed: if you cannot complete KYC or proof of wealth checks, you do not lose your money.
The institution you're trying to transact will just will not work with you. They might not for any number of other reasons: adverse media, dodgy transaction history, etc. etc. etc.
Well, no? You can lose your money or access to your money which is very close by the practical means.
A friend of mine wired his money across the border following his relocation, transaction got blocked on KYC for several weeks, rollback became impossible because the source bank got sanctioned in the meanwhile. Money was forfeited with very little chance of recovery.
My personal account was frozen once due to KYC which made it impossible to pay the rent. Luckily I've had some reserves to live but paying for an appartement in cash isn't legal in my country of residence.
Saying "it's just the institution won't work for you" is extremely deceptive, on purpose or not. There are complementary laws that make sure you HAVE to deal with these institutions so when they close the door you're screwed.
> For the uninformed: if you cannot complete KYC or proof of wealth checks, you do not lose your money.
Your money indefinitely frozen without a clear process that requires lawyers, courts, money?, and time is essentially you losing your money.
That is the problem with this approach if you are a small guy. A big guy/corporation can pull other resources to fight this. You can't as it is probably your only bank account.
Just using an unlicensed hawaladar to transmit legally earned and taxed money is money laundering (whether that is the actual statute that would be charged, idk, but it falls under the stuff AML compliance is supposed to catch). The whole system is absolutely insane.
>Moving money around is a crime...why? It results in massive intrusiveness by government: full insight into everyone's finances, without evidence of a crime.
Because Karen is salty her teenage son's weed dealer isn't paying taxes, basically.
And then there's all the people who see these broad invasive things as a way to get at people who can't otherwise easily be caught, Al Capone and the like.
And don't forget all the idiots who see it as a means for "their guy" in government to exert control over people they don't like such as brown people without papers, uppity truckers with horns, etc.
In Canada any transactions over a certain limit require the regulated counterparty to file a Suspicious Transaction Report with FINTRAC.
FINTRAC is unable to establish a pattern in those reports and prosecute. Instead, when someone is charged with an indictable offence, their name and related entities are searched for STRs. Any financial crimes are then used to create additional charges.
The net result of this, because of lack of digitization and various privacy guarantees, is that it is almost impossible to be charged with financial crimes as a primary offence in Canada.
Source: former RCMP financial crimes consultant.
It is similar in the US, except we call it a currency transaction report [0]. Because the amount — $10,000 — is not indexed to inflation, these reports are extremely numerous, mostly automated, and are almost entirely useless — beyond conveying the ability to charge ordinary people with structuring [1].
[0]: https://en.wikipedia.org/wiki/Currency_transaction_report
> beyond conveying the ability to charge ordinary people with structuring [1].
It doesn't, lol. Structuring is when you make several smaller transactions to avoid a CTR. If a CTR was created, you aren't structuring. And if you are structuring, a CTR isn't created.
The Cullen Commission Report [0] was damning. Canada is “willfully blind” to the issue and is, at this point, knowingly funding international crime and terrorism.
Canada's financial & political system are due for a reckoning in the next 10-20 years
The crazy thing about money laundering laws is that in many jurisdictions, just failing to prove the legitimate origin of your funds can be enough to lose assets, and face criminal prosecution, without the state ever proving an underlying crime. It effectively shifts the burden of proof.
One of my favourite stats is that assets lost to forfeiture overtook assets lost to crime in the US
https://www.nemannlawoffices.com/blog/law-enforcement-seized...
Seriously, why would you have a problem explaining where a $5M came from?
In most places this is "proceeds of crime", requiring associated convictions.
In places that have unexplained wealth statutes, the bar is also pretty high - "balance of probabilities" is not hard to argue IF YOU HAVE LEGITIMATE SOURCES OF MONEY.
Please don't use uppercase for emphasis. If you want to emphasize a word or phrase, put asterisks around it and it will get italicized.
I believe he wasn't just emphasizing, he was yelling specifically.
"If you have nothing to hide you have nothing to fear."
It is extremely simple to prove legitimate origin of funds though.
You're acting like the government will charge you for a $100 in your wallet.
Any circumstance where the onus is on a private citizen to prove innocence instead of the government to prove guilt is a perversion of justice. Stupid voters and the government will destroy all privacy for the sake of "the guns, the gangs, the children"
It's extremely simple until it's not. Let's say you bought 100$ worth of BTC back in 2012 with cash at a meetup. Now it’s worth $1M, but you can't prove its origin. You now have a perfectly law-abiding person that risks being accused of "money laundering" just to keep what's rightfully theirs.
I've had this exact problem before, though not with such high amounts. To make it worse, it was Monero rather than Bitcoin, which made tracing impossible. In the end, I just had to produce emails/documents proving I was paid in crypto a couple years back & the associated increase in value since then. I got the crypto into my bank via a sketchy non-kyc exchange and somehow they didn't care about that at all.
Bitcoin literally has an immutable transaction record baked into it's model.
You would be able to point to the timestamp when you took possession of the wallet which would prove providence unambiguously.
No, some financial institutions like Binance only allows clients to get statements for the last year or so. P2P transaction details go back only a couple of months.
Sometimes your employer goes out of business. Employees do not always preserve their payslips.
Then there are countries like Georgia, it's culturally acceptable to buy real estate with cash. If no valuation of the property was made, it becomes very difficult to prove where the money came from.
The money laundering control systems, as well as being ineffective at controlling crime can be a pain in the neck for the law abiding. I have money from my grandad, received 40 years ago. No one really has records going back that far but you try buying a house and they want proof of the origin of the funds. Trying going to your bank to get records from five years ago often gives a date out of range error.
>The money laundering control systems, as well as being ineffective at controlling crime
The point of AML/KYC regulations isn't to stop all crime, just like the point of US sanctions on Russia isn't to stop all Russian exports. In both cases it's to raise the cost of doing business for the entity being targeted. In the case of Russia, they can still sell their oil to India or whatever, but at a steep discount. In the case of drug cartels, they can still get their funds into the regular banking system, but also at a steep discount. Smuggling pallets of dollar bills across the border and setting up a network of front companies is expensive. Doing all that also which implicate them in even more crimes, so even if there's no evidence of them smuggling fentanyl, they can be prosecuted purely on the basis of having a car full of cash.
>I have money from my grandad, received 40 years ago. No one really has records going back that far but you try buying a house and they want proof of the origin of the funds.
The better question is why are you were sitting on cash for 40 years. In that time inflation already ate 66% of the value, and if you factor in the opportunity cost of not investing the money in stocks/bonds, the loss is even greater.
It wasn't in cash. It was in equities to a large extent. But they still ask for the source. Even if it's from selling shares they want to know where the shares came from. At least sort of. The whole thing is a box ticking exercise for compliance to cover their own arses.
In fact it's worse than that in some ways as I had an investment advisor who bought and sold stuff and I don't know if I have records of what exactly.
>It wasn't in cash. It was in equities to a large extent. But they still ask for the source.
And saying "gift from dead parents" wasn't enough to placate them? They wanted receipts? I get asked about source of funds all the time, but I don't think I've ever been asked to provide proof.
The point is to raise the barriers/cost of business high enough so that the larger criminal enterprises do not have competition from the smaller ones. Ensuring the greatest threats become even bigger ones, but also that any corrupt politicians/officials/bankers get even bigger payouts and the payouts they get are more predictable from fewer channels.
>The point is to raise the barriers/cost of business high enough so that the larger criminal enterprises do not have competition from the smaller ones.
You can make the same argument about literally any crime deterrence measure though? For instance having drug search dogs at airports probably makes it harder for the indie drug trafficker to get drugs through, but probably isn't going to do much against organized crime networks with insiders working at the airports and/or bribed officials.
> The better question is why are you were sitting on cash for 40 years.
That's not a better question; that's just ignoring reality. Who cares why they were sitting on cash for 40 years? People should be able to do whatever they want with their money, even if it's not the most financially advantageous thing.
I don’t think that really is the better question. It’s their money, if they want to do silly things with it that’s up to them.
Yes, but they are now aiming to use these funds to buy real estate and of course that is going to raise a bunch of flags. If the government would accept this without challenge criminals would suddenly be left all kinds of crazy inheritances. At a minimum you'd expect some documentation of how that money landed in their possession in the first place, for instance a will, a final balance of an estate and so on.
I've handled a couple of these for family members and the amount of paperwork around even a minor inheritance can be pretty impressive.
If I get the OP correctly it wasn't 'cash' that they were sitting on but it was a balance in a bank account. You can turn that into cash (unless lots of other people try to do the same thing at the same time, see also 'bank run') but strictly speaking it isn't cash.
Nobody is questioning the source of funds for the balance in a bank account that’s been there for forty years.
OP could literally just put it in the bank, sit on it for a year, and there’d be zero questions. They are mostly only interested in knowing that you didn’t get this money from a different loan that they aren’t aware of (like a personal loan, or one you got two days ago that hasn’t yet been reported).
"Sorry, you didn't invest your money optimally, so we confiscated it all"
Okay...
> I have money from my grandad, received 40 years ago. No one really has records going back that far but you try buying a house and they want proof of the origin of the funds.
This makes zero sense.
I have bought a house, and they want bank records going back like a few months or maybe a year at most. If that money has been sitting in an account for that long, nobody gives a shit where it originally came from. Like, if you had $100,000 for a down payment, they’re not checking the last twenty years of your paystubs to make sure the math checks out.
The only thing they really are interested in is knowing this money didn’t just appear out of nowhere because you got a personal loan from someone or because you got a conventional loan from a lender that hasn’t reported it to a credit reporting agency yet, and which would affect the decision to underwrite your loan.
If you’ve just been holding on to large sums of literal cash dollar bills for the last 40 years, that is such a comically ridiculous financial decision I don’t even know what to tell you.
> I have bought a house, and they want bank records going back like a few months or maybe a year at most.
I had to juggle with this a little bit because I had sold some crypto for the down payment, but it's crypto that I had been keeping in a hardware wallet for years. As a result, I could certainly generate records showing how long I'd had it, but they'd be my own records based on the blockchain--not from any bank.
They ended up accepting transaction records from Coinbase, though even those mostly just showed some Bitcoin being received into the account and then being sold before transferred to the bank. But I guess that was enough for them.
In any case: I did ask about it and they told me it wasn't actually for KYC laws or money laundering. The reason they want a paper trail is to make sure you didn't actually just borrow the money from someone else. And that makes sense, since they're super picky about you not opening any new lines of credit while trying to close the mortgage.
That requirement isn’t about money laundering at all. They are wanting to make sure that you aren’t borrowing the down payment from someone else, because that would mean you don’t actually have as much (or any) of your own money invested in the property.
The point of a down payment is to make it so the borrower has an incentive to not default on the loan, because the borrower would lose the down payment.
If the down payment is actually borrowed money as well (like suppose you get a credit card advance for the money), then the borrower won’t lose anything if they stop paying the loan, and there is increased risk that the loan defaults.
You shouldn't really need to prove where you got them from; what the system cares about is that you're not laundering it, and it's obvious that nobody launders money on a multi-decade timescale. All you should need to satisfy them is just to show that you've been in possession of it for so long the bank can't even show where it came from anymore. That is itself proof that it's not laundering. You may have good success just pushing back a bit with this point.
One fun way to get around this is to have enough money to sidestep the bank altogether. The title company does not give a shit about where the money came from. All they will want to see is a screenshot of your current balance so they know you aren't wasting everyone's time.
I bought a cheap property (vacant land with no utilities) then built the house literally $20 or $1000 at a time buying blocks/wood/pipes etc as I was building. All the money was legally earned and taxed, but the point is even the title company was sidestepped in this case beyond an amount pretty trivial in comparison to the value of the property and very little of it would have had to of went through the traditional financial system in order to make it possible.
> but you try buying a house and they want proof of the origin of the funds
Fannie Mae's assessment criteria for origin of funds has a time limitation. If that money has been in an account you control, for forty years, "origin of funds" is not a question. I want to say the cut off is something like 36 months, but it may be even less.
Helpfully, all this information is public: https://selling-guide.fanniemae.com/sel/b3-4.3/verification-...
Wait until the wise people explain to you that generational wealth is inherently evil and this money should be forfeited anyway.
Well, sometimes they really gum up the works. I have developers in Ukraine and several times in the last year a wire transfer to them to pay them their monthly salary was held up for more than a month in transit. It was stuck at a bank in NYC and no amount of me pushing on my rep at Wells Fargo could get it unstuck OR returned. Last one ended up taking almost 2 months to get there! And, they told us it was going to be returned, so we paid the person via other means (BTC). Very frustrating.
The moment you try to look into the fines governments impose on banks caught money laundering and the rare cases in which bankers actually see a prison cell, your last option is the most likely one, with a sprinkle of the two others.
My main issue is that all the AML/KYC/KYB barriers we have to deal with never seem to be subject to efficiency tests, all the studies I read and the few audits of these system seem content with it's likely better than doing nothing... but never measure the lost opportunities in trade/business they cause.
In a way it's the same hopless fight against so-called piracy for movies/games. The motivated actors who want to break the law find ways to do it at a large scale, mostly without consequences... and the honest people are just hindered when they want to use their content (even lose access to it when DRMs rely on the existence of the developer/publisher and their goodwill to maintain it way past the time when that media was able to generate revenues).
I worked in the legal cannabis industry in California before the pandemic. The business I worked for had to jump through a lot of hoops, including dividing itself into multiple LLCs, in order to deal with the disparity between state and federal laws, and the business policies of banks and even some of our equipment vendors (I remember specifically that McMaster-Carr would not do business with you if you were a cannabis company). Most cannabis businesses were forced to work in cash, which made a lot of financial transactions difficult, but also made it easier to do business with those still in the "traditional market". In the end, the stricter regulations had the effect of greater concentration of ownership, but questionable efficacy in stopping illegal exports.
It's my understanding that cannabis is still federally illegal virtually without exception, therefore changing AML law might not do much for your industry since it was always an illegal conspiracy to knowingly aid and abet the commission of a felony.
It hasn't been my industry for years, and the legality of intrastate cannabis is still being fought in the courts, see the Canna Provisions case which has been ongoing since 2023 and is currently on the Supreme Court docket.
I'd like to see intrastate commerce of plants not be interstate commerce, but until the supreme court decides otherwise most of the legal finding in Wickard v Filburn are still intact that it is interstate commerce to even grow a crop (in this case weed) on your own property and consume it even if you don't sell or transfer it.
Finding intrastate regulation of cannabis as outside of interstate commerce would basically implode most the government at this point, which I'm doubtful they would allow. The Civil Rights Act, ADA, FDA, EPA, OSHA and a myriad of other stuff all squarely rely on the same precedent that makes federal intrastate marijuana regulation legal.
Thanks for the reference to Wickard v Filburn, definitely an interesting read. On it's face it looks like a questionable decision and politically motivated, but I see your point about how it helped to create the current regulatory environment, for better or worse.
Not very is the answer. When I worked in finance in the UK a few years back, the credit control team had a few ex-commercial bankers. Those guys had wild stories, the best ones were usually how much money they'd find being added to children's accounts for "birthday gift money". Usually with certain groups who have traditionally large families, the children would all have regular four and five figure cash lodgements.
Only read the abstract, but this doesn't seem surprising seeing that crypto, despite maybe noble intentions, has evolved in the worlds' easiest way to launder money and the president himself happily makes a couple of 100 mil with his own shitcoin.
In the grand scheme of things crypto-related money laundering is just a drop in the bucket compared to the amounts being laundered using more traditional methods.
Most crypto coins (not Monero) are pseudonymous. If a particular bitcoin wallet comes to somebody's attention they can investigate hassle anybody that this person tries to trade with, tell exchanges not to redeem cash, etc.
Thing is these tactics aren't just available to the authorities but also to anyone like intelligence agencies, the mafia, etc. so the confidentiality problems are much much worse with crypto.
> Most crypto coins (not Monero) are pseudonymous.
It's worth reading the OSPEAD report from the Monero Community: https://www.getmonero.org/2025/04/05/ospead-optimal-ring-sig...
> Monero users with extreme threat models should be aware that anti-privacy adversaries can leverage timing information to increase the probability of guessing the real spend in a ring signature to approximately 1-in-4.2 instead of 1-in-16.
So slightly worse odds than Russian Roulette. Cool. Cool.
It's not Russian roulette. It's a guess you still don't know if you are right. There is still plausible deniability.
Hopefully FMCP will get implement soon to mitigate these issues.
> tell exchanges not to redeem cash
Try telling it to Chinese, Russian, Indian exchanges.
But it’s intentionally set up to be much more accessible than the traditional laundering methods.
Crypto advocates love this “drop in the bucket” excuse. By the same logic, it’s not a problem if I manufacture extra strong alpha-PVP and hand it to school children, because my drug distribution is just a drop in the bucket compared to the global cocaine trade.
"This isn't a problem yet" is the argument, but... if you do enough money laundering for long enough and grow the share of crypto as a share of the economy....
Here is a good book on the topic of pre-crime society. Not just AML, but censorship, surveillance industry (think Palantir) and so on:
https://www.amazon.com/Compliance-Industrial-Complex-Operati...
It's nice to observe in detail this system's behavior, but asking how _well_ it works might be asking an unanswerable question.
This system is the result of compromise among the biggest financial and governance systems. It's basically a melange of the possible and desirable (for many reasons), in service of multiple goals.
It's not its own thing. It's not owned, no one controls it, it's not subject to market forces, it's pretty much required for those who agree and avoided by others, and its benefits are almost exclusively hidden outside the justice and security services.
Even the simplest measures of accuracy seem inapt. False positives are clearly wrong (but so numerous now they are ignored and thus harmless?), but it's not clear that false negatives aren't intentional as a matter of investigational and prosecutorial discretion.
To me it's like asking the EPA to prove health benefits: since it's largely impossible, you end up with a reason to disable the regulatory system as ineffective.
Targeting these controls while the Genius act loads up trillions in stablecoin for a run on treasuries is fomenting a financial crisis.
I've come to realize that viewing the world through the simple lens of laundering causes dumb systems to suddenly make sense. Silly rabbit, you thought these industries were there for the normal public?
Gambling: https://www.cbc.ca/news/politics/online-gambling-sites-money...
Casinos themselves: https://www.ibtimes.com/political-capital/trumps-businesses-...
Commerce: https://www.wired.com/story/wired-awake-180518
Crypto: https://financialcrimeacademy.org/cryptocurrency-money-laund...
Shell companies: https://newrepublic.com/post/192244/trump-celebrates-destroy...
Real estate: https://www.firstaml.com/resources/5-ways-criminals-launder-...