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
I agree. We already see instances of debanking (logical evolution of money laundering "control") being used to pressure political opponents and dissenters even in the "free" West. Even worse, governments silently share this power with private entities to pressure stuff they do not like as was recently demonstrated by the MasterCard/Visa debacle.
Ideally, access to the financial system and secrecy of financial transactions should be protected by constitutions in the same way as secrecy of correspondence and right to privacy. Unfortunately, most constitutions were written in the age when it was a given, since most people relied on physical cash and were was no need to explicitly protect this right.
I've worked in a regulatory agency, albeit for a brief time. I worked with analyzing data, usually in cooperation with law enforcement, as part of some case or operation.
I don't know what to tell you - but my experience was that it is the most careless and obvious criminals that get caught. Some even being very rich, rich enough to afford solid defense teams, and rich enough to stay in court for a long time. These were also the very same type of people that would cry to the media about unfair treatment, witch hunts, etc.
But, as for why these agencies go after the money: It is much easier to prove money laundering, rather than the actual crime itself. Many of cases I worked on focused on companies that illegally harvested regulated natural resources, used unreported employees, and did not report their sales / trades. Off the market, under the table.
We co-operated with other regulatory agencies around the world, and I can tell you - in the more corrupt parts of the world, the effects can be devastating on the community: No honest companies can compete against the ones that operate illegally, dire working conditions, less tax funding to the local community. What happens is that these actors eventually become local monopolies, and start operate semi-legally, but that's what the community is stuck with. If you report those companies, you end up losing your own job - should the company go down. And since these players don't care about regulations anyway, whatever natural resources they harvest, can risk being wiped out.
And to re-iterate: It is easier to follow the money. Usually in these cases, where there's smoke, there's fire.
It sounds like an utterly lazy government that cannot go after actual crime. I would never vote for such a government.
Meanwhile, the same corrupt government gives a free pass to its buddies devastating the planet with digging for oil and gas, destroying sea life with major leaks, and stops renewables from succeeding. See the current administration. The government permanently destroys farmland by using PFAS mulch as fertilizer, making the soil poison.
The difference between this country and others is only that corruption is legalized here.
Thr problem with people at such regulatory agencies is they drink their own koolaid a bit much.
I agree with you as well. I am sick and tired of being put in position where governments are turning the tables and ask people to justify their innocence without any recourse as if everyone is de facto a criminal.
They falsely assume the major burden of KYC/AML lies on the rich/criminals when in fact, as implemented in the USA, the burden falls largely on the innocent (and most of all on homeless / people with no address to pass KYC) with pretty vague data on whether there is much payback.
You think El Chapo had a lot of banking issues in practice? He went around most of these hurdles with and without the complicity of banks and governments.
HSBC's cash deposit tellers in Mexico were even reported to be wider to accommodate the larger cash deposits from the cartels [1]
The same people we put in charge of watching their own activites are the ones breaking the law, repeatedly... and the governments enable it by arguing that fines are "preferable" to real prosecutions and firm/long prison time for complicit bankers.
They are just taking their share on the illegal traffic revenues, like mob bosses do. No intent to stop them. And in the mean time all these AML hurdles hinder legal activites.
[1] https://www.theguardian.com/business/2012/dec/11/hsbc-fine-p...
> First, disentangling individual accountability within a vast corporate structure is difficult, particularly in determining whether any executives had the requisite knowledge and intent to be held liable.
We just need lower standards of proof. Something like:
1) you had some level of responsibility within the organization (no specific knowledge of wrongdoing required) 2) some kind of violation occurred within the organization 3) your wealth increased over some time period in which such violations were later found to have occurred
If those things happened, you are liable. People who profit should be on the hook for everything a company does, not in proportion to their specific knowledge of or involvement in any particular illegal activities, but in proportion to their nominal or "global" level of responsibility and the magnitude of their profit.
New blackmail scheme:
Get some sort of job in the company, do something illegal, threaten your manager with going to the feds, since at this point they are criminally liable for your act.
More generally, i get where you are coming from - its frustrating when the ceos are like, i just work here, totally wasn't me, excuse me while i cash my bonus cheque. But i still think morally its important that we punish people for things they actually did (or failed to do), not just by mere association.
Although perhaps something like an enhanced version of how supervisory responsibility in war crimes works would make sense - basically the way that works is if you are aware or ought to have been aware that someone under you is commiting a crime, and you don't investigate/take measures to punish/take measures to stop them, you are on the hook for the crime.
> Get some sort of job in the company, do something illegal, threaten your manager with going to the feds, since at this point they are criminally liable for your act.
Not if the manager goes to the feds himself.
> But i still think morally its important that we punish people for things they actually did (or failed to do), not just by mere association.
Well imagine you're a CEO and you not only didn't setup protections against wrongdoing but rather created a system of incentives that makes it beneficial to close your eyes to things.
In the Dieselgate the engineer went to jail, in Skyguide the air traffic controller got stabbed, the executives walk free.
> Get some sort of job in the company, do something illegal, threaten your manager with going to the feds, since at this point they are criminally liable for your act.
I guess I left out a key word in my conclusion there: "You are presumptively liable." The point is to shift the burden of proof. If it can be proven that someone else willfully did the violation (especially in order to screw you), that might be a defense. But the point is that the default assumption should be that greater responsibility/authority equals greater liability, and the burden should be on those with that responsibility/authority to prove that they are not liable.
> But i still think morally its important that we punish people for things they actually did (or failed to do), not just by mere association.
But that's it exactly. What they failed to do was ensure that bad things didn't happen while they were in charge.
> Although perhaps something like an enhanced version of how supervisory responsibility in war crimes works would make sense - basically the way that works is if you are aware or ought to have been aware that someone under you is commiting a crime, and you don't investigate/take measures to punish/take measures to stop them, you are on the hook for the crime.
Yes, something like that. The key phrase being "or ought to have been".
I want to agree with the standard “it happened under your watch and it doesn’t matter if it happened without your knowledge”, but wouldn’t it get really messy in practice?
Let’s say one particular org at a company engaged in the activity in question, generating increased profits for the whole company. Taking this approach to the extreme, literally every shareholder could be liable because they benefited from those profits.
I could be persuaded it's worth having a lower standard of liability for "sibling" orgs within a company, so that if, e.g., the billing department does something shady then the HR department doesn't necessarily bear liability for that (but execs above both still would).
But I'm kind of okay with shareholders being liable to a certain extent, as long as their liability is proportional to their benefit. Someone who had a few shares in their 401k and made a couple thousand dollars, okay, no big deal. But the prospect of having gains clawed back could make shareholders more vigilant in ensuring the company is fully aboveboard. It doesn't make sense for me to someone to rake in, say, $50 million in unrealized gains and then say "oh, I had no idea, oh well, I'll just enjoy my $50 million". It's sort of like how if a drug kingpin gets arrested, it may well be that assets of their family members are seized as ill-gotten gains.
"major Western banks frequently pay large fines for AML violations, yet bank executives rarely face criminal convictions"
Seems like changing this would fix a lot of the problems.
In the UK one of the best ways to launder money is to open a barber shop. Most people pay cash and unless they are going to watch every shop to see how many customers go through there's simply no way to police it effectively. I have heard that the shop owner will get a commission on any laundered money.
Same in Chile. A while ago our version of FBI closed 12000 barber shops along the country under an investigation on money laundering. It's so obvious it's ridiculous. 20 barber shops in the same street (we don't have a barber district btw), many of them working 24/7.
> For example, the United States has not required the disclosure of beneficial ownership information for establishing corporations (violating rec. 24) until recently.
I worked on a front line product for US banks and built a process to verify beneficial ownership for business account openings. I found the current expectations to be laughable:
https://www.federalregister.gov/documents/2022/09/30/2022-21...
> An individual may be a beneficial owner of a reporting company by indirectly holding 25 percent or more of the ownership interests of the reporting company through multiple exempt entities.
Getting around this is not very difficult if you are clever and wealthy.
The overall takeaway I had was that these kinds of rules don't really work in the cases where they need to the most. I don't know how much of a deterrent this could ever hope to be. We even developed an override process for this based on a request from one of our clients.
unsurprisingly they killed off the BOI reporting requirement in March [1]:
> ALERT [Updated March 26, 2025]: All entities created in the United States — including those previously known as “domestic reporting companies” — and their beneficial owners are now exempt from the requirement to report beneficial ownership information (BOI) to FinCEN.
Yea, AFTER you had to file the report to go to jail- and BEFORE it could be retroactively shot down nationally in court. (They already lost in some states)
Not all entities count. There are 23 types that are conveniently exempt from this regulation.
I generally like having these systems in place, because I find when dealing with certain vendors and businesses that following these helps me weed out many scammers when dealing with large amounts of money. Every transfer required a discussion with the teller asking questions about transfers and if the transaction is suspicious. Yes, criminals will find a way, but I find it provides me an easier screening to ensure some businesses are more likely legit.
Money laundering at the high level works as unless you are on the USA watchlist, it's the USA and it's allies that are the vehicle which facilitates it.
Offshore vehicles? Most are British islands.
Onshore vehicles? Delaware and similar
Unless the west puts you on a list, it's professionals will happily help anyone in the world.
I thought about this and decided if I needed to launder some money, I would paint some pictures and sell them to myself on ebay. Nowadays, that theme got easier with NFTs.
Crypto replaces all other money laundering schemes. This is the only use case for crypto. Easiest to hold anywhere, move across borders, don't even need freeports or anything physical.
Crypto is also the currency of corruption. Easiest way to pay/accept bribes by creating $myshitcoin.
Not really.
Most cryptocurrencies are open ledgers, quite easy to trace and track the movement of funds.
Pretty much every exchange for on/off ramping funds must comply with KYC and anti money laundering regulations. They use tools such as Chainanalysis (which analyses such addresses) and also reports back to governments.
It works well enough so that little people have a hard time dodging taxes. It creates some friction for criminals, but only in ludicrous concentrations of wealth like pablo Escobar managed.
Other than that it is largely ineffectual, it’s just not that hard to work around, for a percentage of course.
Its main function is to protect existing power structures from usurpment by potential up and comers. Oligarchs have no significant issues if they hire the right people, but small organizations can face cash crisis and limited maneuvering room.
Usually I am a big fan of HN comments. But this thread... So much cynical speculation. So little factual information.
Go ahead and downvote. I've got karma to burn.
The actual article is really interesting and informative.
I've yet to see a single comment here that referrences any of the facts or ideas presented in the article. It is entirely composed of people responding to the headline.
I found the section on MERS particularly interesting. Minimal training on how to asses inconsistent assements between countries, complete failure to mention massive laundering scandals at banks in the asses countries... And this is the primary method of international oversight to see if these systems work and are implemented consistently.
No, that was not money laundering, I was just realy smart/lucky on the stock market when someone else was realy dumb.
Considering the amounts being laundered, it seems likely that a lot of the money is ultimately being invested.
If we stopped money laundering totally and completely, and managed to track down and confiscate all that money, the stock market would crash, hard. So would real estate.
The proceeds of crime propping up some aspect of our economy seems like a bad reason to let it continue unabated.
You’re absolutely right, but the people holding millions or billions in illiquid assets are going to disagree.
Lucrum ante valores.
Residential real estate costs roughly tice what it did 10 years ago. A "crash" back closer to fair market prices would be the desired effect.
That would be the desired effect for those seeking to enter the real estate market for the first time, but it would be disastrous for those who took out mortgages in the last few years, and it would be unwelcome to those who owned their homes longer and consider it a large (or only) asset in their personal wealth. I doubt that real estate prices will be allowed to drop much, simply because homeowners vote more reliably than renters, and they won't vote against their own financial interests.
I see that the more egalitarian world is a must for us NOT going extinct.
And we're in the last minute to do that, if it's not too late already.
World seems to be headed to a short dystopian fascist phase before the collapse. A metacrisis caused by these tax-free metahumans with the tax fee multinational abstraction of individual power called corporations.
Left vs. right doesn't work to solve it, but the true dichotomy of people vs. billionaires with their sycophants.
> Left vs. right doesn't work to solve it, but the true dichotomy of people vs. billionaires with their sycophants.
Also known as... left vs. right. Left: people. Right: billionaires with their sycophants. (Democrats are not left)
It continuously boggles my mind how the American political education is so bad. You're not the first to say something like this.
only if they immediately sold all the confiscated assets. The government that did the confiscation could slowly divest on a schedule to minimize the effect on any markets involved.
It depends on the degree to which the continued flow of ill-gotten gains into the system is priced into current valuations.
Money laundering is an absurd concept made up by a lazy government that fails to go after the actual underlying crime or criminals. They don't really have evidence of actual crime, so instead they target anyone they don't like. The ultimate effect it will have is of people exiting the government controlled financial system altogether.
One thing that consumers can do right now is to petition their favorite online vendors to start accepting cryptocurrency, at least a stablecoin that you can swap to.