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Comment by andrewstuart2 | Hacker News Reader

As someone who works at a financial institution, it's news generally because money laundering activity tends to be highly profitable for banks, since they get to collect fees on those transactions. There are almost no incentives for us to flag transactions on our own (unless we're being super humanitarian) without legislation/regulation, because as long as they get their money there's no downside except for victims of the crimes that the money originally originated from.

At least in my opinion, the legislation and big-deal-making is merited in cases like this, for the benefit of society.

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As an ex-consultant in the financial services sector I strongly disagree with your assessment:

"there's no downside except for victims of the crimes that the money originally originated from."

Why don't you detail what happens to people who get flagged by this software. Ie either send or receive suspected laundered money and what the odds are of such a flag actually resulting in a conviction.

If you get "flagged", ALL your funds are immediately blocked, your access restricted however long they wish (meaning think 6 months). The odds of a flag leading to a conviction are not even 2%. Even among those 2%, the vast majority of "money launderers" are victims of deception (for example the old "I'll send you money if you pay me 5/10/20% less of that money on a different account").

So no victims ? The truth is that a few thousand people per month (never saw absolute numbers but that seems a lower bound to me, and this is for a small EU country) are denied access to their own money for months (sometimes years), without so much as an explanation (it is illegal (and legally highly stupid) for the bank to state for what reason your accounts are blocked). Not one of their accounts, all of them. Needless to say, finding stories where this has resulted in making a person or even entire family homeless is not hard.

"No downside". Well, not for banks. Not for governments. For everyone else, extreme downsides.

I don't think you read their comment correctly.

They are saying that their is no downside, outside of running foul of laws and regulators, for banks to take money without review instead of flagging transactions as suspicious.

Your response is about additional benefits for them taking the money without questions.

I think you misread the comment. At least, I read it as "no downside to ignore money laundering", not "no downside to crack down on it".

Finance lobbying power must be weaker than popularly assumed if they failed to inspire a proportionate finder's fee that would make flagging worthwhile.

Of course, if I tune my cynicism level a bit darker that line of thought breaks down again, because then I start factoring in the possibility of "premium service tiers" with fees so high that a) no client in their right mind would ever consider them unless they have very pressing reasons to be friendly with the bank and b) no reasonable finder's fee could ever hope to win the bidding.

Is the idea of a finder's fee so negative? If banks regulators and the banks came up with a plan where sniffing out money laundering was rewarded and banks made extra money helping the justice system take on financial crime...isn't that the best possible outcome?

Of course the danger of such a system is banks would be overzealous in their reporting in the hopes of getting a lucky payout. That's another pitfall that would need to be addressed with fines or incentives. My point is that it's not inherently bad when businesses are rewarded for doing the right thing.

That's a bit naive I think. First it wouldn't be very effective, banks are banks, that is their expertise, just because there's a reward doesn't turn bankers into policeman that will detect and act on money laundering. Then, who shall pay for the reward. The government, the central bank? Tax reductions? How valuable is a cash reward for one of the big banks anyway.

Then on top of that politics come into play, with all these increasing trade embargoes and bi-lateral agreements, many transactions could be interpreted either as laundering or legit, depending on interests.

> First it wouldn't be very effective, banks are banks, that is their expertise, just because there's a reward doesn't turn bankers into policeman that will detect and act on money laundering.

That’s exactly how the system works though, minus the reward. The AML Officer is personally responsible for implementing policies & procedures that are “reasonably designed” to prevent and detect money laundering. Then the banks report their suspicions to the government. The government is not the first line of defense or even investigation when it comes to money laundering.

They’ll start growing snakes

Why would lobbyists work towards rewarding those who flag money laundering transactions when, presumably as presented by the parent comment, they make money off of these transactions? If anything, they would be lobbying against a finder's fee.

If we take the parent comment to be true, the fees levied against the institution for being caught (provided they can't worm their way out of it in the first place) are merely a slap on the wrist.

The idea, presumably, is that the "finder's fee" is money paid to the bank for finding money laundering, and that fee outweighs the profits from the transactions themselves.

"Fees" are not levied against an institution, "fines" are. And in that light, yes, fines are indeed too low to thwart a failure to identify the correct transactions.

Lawmakers and the public would almost certainly balk at billions in "finders fees" being just given to the banks, even if the money did come from seizures of the illicit assets.

I want a finders fee for reporting anyone who makes an illegal proposal to me. It would be a huge moral hazard to pay banks for flagging illegal activity. This should be part of normal procedure.

Ah, I see. You mean to say that the governing body concerned with money laundering would pay the financial institution. I was under the impression the finder's fee would be attributed to the employee, by the financial institution (a silly thought on my end).

Of course, it all wraps back around; the bank would need to have some sort of incentive to lobby for this, and given that they are potentially making money hand over fist not to, and given the current allegations against the governing body...

> I was under the impression the finder's fee would be attributed to the employee, by the financial institution

Sorry for being too ambiguous, "it all wraps around" on my end as well.

They are mandated to do flagging, but cannot be forced to be good at it. An incentive would not necessarily make them better at it, but it would still add rewards to all the cases they do find, despite all the squinting and bugs and carefully assigning the lowest performers to the task.

I'd imagine the fee would need to be at least a bit more rewarding than the current punishment is punishing.

As I wrote in the second paragraph ("cynicism level a bit darker"), it would be impossible for rewards to outbid transaction fees anyways, because the latter can be inflated in plausibly deniable cooperation between launderer and bank: slap on some bogus insurance, the 24 hours on call special and that outrageously expensive package that would in theory allow to summon a clerk being flown out to your yacht. All understood, on both sides, to be specifically designed to increase transaction fees to make turning a blind eye worthwhile. Money launderers know everything about reading and writing between the lines, it's basically their job.

Banks would still just catch the small fish who shop around for the lowest rates like a regular person. In the end, sibling comments about snakes and hazards are right.

Not only that there is no downside for banks but they actually profit much more from money laundering than from most legitimate transactions (relative not necessarily absolute) because of how layering works and the sheer amount of transactions and entities which are involved in the process.

The only people who get hurt are the patsies whether low to mid tier bank employees who are left hanging in large case or the victims of the laundering process which can be tricked into participating in the process through deception e.g. P2P loan schemes and transfer schemes or those who are employed by shell entities used in layering.

If you are getting flagged for money laundering you are utterly fucked.

You can’t access any of your accounts, your credit is frozen, even if you by some luck don’t lose your employment even your paycheck can be directly or indirectly withheld and you will be audited by your friendly tax authority.

The shadow economy is huge in many places it can be as large or even larger than the real economy and many nations including EU members actively support it because they rely on it.

> There are almost no incentives for us to flag transactions on our own (unless we're being super humanitarian)

I like how you frame avoiding profiting from crime not only as being humanitarian but actually as being super humanitarian.

To be honest, I find your comment quite frightening. I think bankers viewing being honest as a humanitarian act is in and of itself a much larger problem than faulty software.

And I like how you immediately decided to alienate somebody clearly on your side pointing out a systemic problem by moralizing at them.

Flagging suspicious transactions and verifying that they're legit is costly. Spending money to reduce profit for the common good is humanitarian. It has little to do with being honest. If the bank does nothing, the bank doesn't lie, it just doesn't go out of their way to verify that other people aren't dishonest. And the fact that people view letting bad things happen by inaction as less bad (or even not bad) shouldn't be a surprise. It's just human nature. And when someone pointed this out, you decided they were Bad and Frightening. Because they said people will follow incentives in a well-known moral hazard scenario. Get a grip.

Why do we still allow people to use cash? How much humanitarian good could we do by banning it once and for all? Gold is also a potent laundering tool, it can be re melted at a low temperature. It’s shocking that it’s still allowed.

I still use cash for entirely legitimate daily transactions, and for the same reason criminals use cash. Same goes with Bitcoin and cryptography.

I don't need banks monitoring and selling my purchase history to their "affiliates", like insurance companies, so that they can build shadow profiles.

Maybe I'm buying vegan groceries, getting wheat grass enemas and giving my money to the poor. Or maybe I'm spending it on McDonald's, hookers and blow. Either way, it's nobody's business but my own.

If you believe that expecting people to have a modicum of decency and some moral sense is akin to wanting cash banned, I feel bad for you.

The comment I was replying to was implying that in the absence of laws banks would have no incentive other than super humanitarianism for preventing obvious money laundering. That's beyond potential misuse. That's profiting of a crime out of pure greed. I know cynicism is currently fashionable but I would still expect most people to find that questionable.

Used to work at an investment bank (IT), are you saying all those recurring mandatory trainings on how to detect and report money laundering were a sham?

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