AML works, even if it intercepts less than 1% of criminal proceeds | Hacker News Reader

AML works, even if it intercepts less than 1% of criminal proceeds

jpkoning.blogspot.com

40 pointsmrcgnc74 comments

It makes non-crime also more expensive. My bank now, to comply with AML rules, has a yearly KYC process that keeps getting more and more annoying, requiring more paperwork, a lot more of my time to fill that paperwork and me feeling like a criminal (although a long term client and the bank made enough money of me).

I have no good solution, but this is also quite crappy.

Like for one of the business accounts, the KYC/AML 'assistent' for my bank kept sending back the documents with 'this is not in English'. It was my street name. The street name is a name, it's not translatable. But nope, they were not having it. And of course it's a 'different appartment' from my business account manager so he cannot help.

That’s a problem with your bank, not with the regulation. They decided how to implement aml, and it sounds like they’ve done a bad job and can’t deal with internal organizational barriers.

"That's a problem with your house, not with the flooding. They decided how to build it and it sounds like they've done a bad job and didn't handle setting up flood barriers properly."

This is a poor analogy. There isn’t a government mandate of floods and, if there were, one might reasonably choose to live in a home with strong flood protections.

That... does seem like a good analogy for this situation!

OP is not likely to be able to change KYC/AML laws, nor is the homeowner likely to be able to prevent the region from flooding, but they might have some effect on the bank (or could choose another one) if others implement those laws in a more efficient or effective way, just as the homeowner could upgrade their house to handle the regional flooding more effectively, or choose another house that did.

That's a critically poor read.

If your bank does something way outside required checks, you can switch banks. There are many.

That said sucking with one can (and logically should) make KYC checks easier over time.

Have you heard of "defensive SAR filings" by financial institutions? That's what is happening here. Banks are overly defensive: they would rather err by implementing onerous policies than getting fined hundreds of millions of dollars five years later.

Regulators are NOT providing any feedback whatsoever to already filed SAR filings, nor are they clarifying their AML policies.

> My bank now, to comply with AML rules, has a yearly KYC process that keeps getting more and more annoying, requiring more paperwork, a lot more of my time to fill that paperwork and me feeling like a criminal

What paperwork would they even need for this? All they need to do is confirm the identity of the account holder. You either show up at their office and show your passport or ID card, or you do it remotely. This should not take more than 2 minutes.

I don’t live in the same country and the country I live in is not english language. So everything has to be translated and notarised. Like proof of address for all shareholders etc. It’s a pain and definitely not 2 minutes.

For a company, sure, I can understand that, but that's just part of doing business.

For a consumer it's a non-issue.

It also means that more and more of completely legit businesses are just using grey platforms to avoid AML just because it's too much pain to deal with it.

Well, that’s the issu; for small things it’s often just easier to use cryptocurrency (which I don’t like) as I really just am not going to jump through hoops for flagged transactions and stuff. We have been in business for decades, never anything wrong but the past few years and especially this year, this aml/terrorism lark is becoming just bizarre.

Why you don’t like cryptocurrency if it helps you?

No reasonable business is going to use potentially illegal platforms just to avoid a bit of extra paperwork.

Especially when it's typically handled by the accountant.

There's no problem about it, a business does not necessarily need to have a bank account as long as it can send and receive payments and provide statements by request of a certified auditor when supplied with authorisation letter. My company actually uses Payoneer and does nothing dodgy or tax-avoiding, it's simply a lot more convenient that way (for example, most U.S. clients have a hard time sending SWIFT because all they used to is ACH, and Payoneer lets my company accept ACH - no EU bank would). My auditor is happy with this. I know vast majority of Payoneer uses are something crazy shady deals, but it doesn't disqualify legit users of it.

KYC / AML is the bane of our existences. My wife and I have been moving quite a lot over countries: just because we work remote and, wrongly, believed we were free.

But we've been tagged (or are systematically tagged) as "suspicious" and it's a constant headache to settle in a new country and open new bank accounts there.

They literally ask questions like: "And why did you live there? And why did you then live there? And why did you sent two times 300 EUR to these two people?" (because they're my wife's brothers-in-law, fucktard: we're talking about 600 EUR!).

And the thing is: once they start asking questions, they basically already have decided that it's a no. And they'll keep asking questions until you give up or until they give you the finger. I just sent a 49 pages (49 pages: that's not "nearly a book" but it's sizeable) document answering oh-so-many questions. Mega intrusive.

"And why haven't you used your bank card during that month?"

Questions like that. Insanity.

It's so complicated that we decided that this time we'll try to stay long enough in one place, letting time for things to "cool down". Which is insane: we're supposed to be free, but we obviously aren't.

We even had a desperate banker (at HSBC) tell us, literally: "Look, now it's going to be horrible: I'll have to act as a robot and ask you lots of intrusive questions but I'm forced to. I have to, I have no choice. I must fill this if you want to have a chance to have your account opened. My job used to not be like this, but how it is and I'm sorry about it". He was obviously not happy about the totalitarian turn society was taking and his job was taking.

It's now the third time, over three countries, that the bank first tell us: "All is cool" to then have the "committee" (due to KYC/AML) reject us. And the bankers don't understand. I tell them: "Look, it's easy: you believe you live in a free society, but you don't, you live in a totalitarian state. No harm feelings, I know it's not your fault.".

And moving targets: "We'll accept you but we don't want you to keep shares of that company in that other country to your name" / "OK, fine, we'll sell them" / "Oh, if you sell them, we still don't want you to bill that company". Fuckers. (and, no, we don't work in porn or anything like that).

And we do nothing wrong. We suspect they also think they're snitching us and denouncing us to the various IRSes: they can. We do nothing wrong. Just wasted taxpayers dollars if the IRSes look into our cases.

And waste is the name of the game: worldwide KYC/AML budget estimated at $180bn while it apparently allows to seize... Drumroll... $15bn. 12x less than it costs. All the while having employees (the KYC/AML team) working against the interest of the bank.

All these KYC/AML people are the worst of the worst type of persons on this planet: those who "just comply" ("we're just doing our jobs, not our faut, it's the rules"). They let the bad guys through the net but make life super hard for the little guys.

Just fuck the people who came up with these rules and fuck those who enforce them. I've got no respect for these people.

*EDIT*: ah yup I remember a funny one... In one case my wife's address got changed to "island of Jersey": we know it because despite the bogus country, the (snail mail) letter still reached us. I'm 99% sure this "island of Jersey" country code from the bank was a special code meaning: "flagged account". I may be wrong but this is really suspicious (not to mention stupid: because there's then a high-chance we legitimately won't get our snail mail letters).

Why do you keep opening bank accounts? You could open a multi-currency account like Wise or Revolut once, and just use that for everywhere you move.

That's exactly what I was thinking...

Wise and Revolut do not accept checks/cash. As a consequence, one has to have a local bank that accepts checks. Banks also flag accounts and close them later, when they find out that owners live abroad. So, one has to use some sophisticated VPNs to access banks.

(Not OP)

Wise has done repeated verifications for me over time, including as I’ve moved countries, temporarily blocking or delaying transactions more than any other institution I’ve used. They have to follow these rules too. To their credit, they’ve eventually unblocked or approved everything I’ve attempted, since of course it was all legitimate. But it has been a pain in the ass multiple times.

Also, sometimes you need a local bank account because of local country-specific reasons, such as developing a history with the local credit agency (this can include even regular deposit accounts), or avoiding problems from payment websites that expect you to have a local in-country account (quite common in the EU even though that’s illegal).

One of the reasons cryptocurrencies became popular even being so much riskier. The current banking system is a joke.

> And waste is the name of the game: worldwide KYC/AML budget estimated at $180bn while it apparently allows to seize... Drumroll... $15bn. 12x less than it costs. All the while having employees (the KYC/AML team) working against the interest of the bank.

> All these KYC/AML people are the worst of the worst type of persons on this planet: those who "just comply" ("we're just doing our jobs, not our faut, it's the rules"). They let the bad guys through the net but make life super hard for the little guys.

Yep.. And the bad guys aren't hurt by it. I see it similar to the entire 'ban encryption because of the children' blabber; you might save some, maybe, for a little while, at the cost of something much worse. The real criminals are already long gone anyway.

Nice point; but ... "you've got to look a little further / the argument i'm refuting is too simplistic" can continue here.

What cost does society at large pay for the 15% bite on people laundering money? How many legitimate transactions are made more expensive, or never begun at all, because of AML regulations?

> How many legitimate transactions are made more expensive, or never begun at all, because of AML regulations?

Vanishingly few, I'd say? You're asking that in a rhetorical sense: "Ah, but you didn't think about this did you? That invalidates your point."

But your question is a real one with a quantitative answer. And in fact AML statutes exist (or don't) in lots of different markets in the real world, and were introduced at different times. You can look at the macroeconomics if you want and try to puzzle out the effect.

And really there is none. Western capitalism was going gangbusters through the whole period in the 20th century where cash flow tracking was being introduced. And contemporary regimes that resisted AML introduction (c.f the famous swiss bank account) really didn't grow any faster or slower.

> really there is none

I personally know businesses owners who ceased operations because the laws around dealing with cash in quantity became too troublesome.

None? I think you might need to acknowledge you're speaking about something you don't have any experience with. Everyone who's touched that end of the money transfer elephant has come away stinking and with a great distaste for it. Myself included. I've definitely not done many (completely legal and above board) things simply because AML prevents it.

Most financial institutions in my country of residence will not have me as a customer because I hold a certain foreign passport. I'm too expensive to service because of these AML / KYC laws. And we know it is because of these laws as they stopped accepting me as a customer when these laws went into effect. There is exactly 1 financial institution in the country that will have me as a customer, but even then I am restricted from buying most of their products.

Is there a passport other than USA which has these properties?

Ourworldindata claims that the 20th century saw the relative wealth of the western powers continuously decline from ~70% of the world economy to ~40% today [0].

We can't be sure why, it is a very political question. The idea that western powers should control 70% of the world economy is certainly questionable. But something that the west has been doing has killed off growth and put it in a relatively weak position. Corruption of the banking industry away from making good investments and towards supporting government policy objectives is a candidate for contributing to that. It's gotten to the point where as far as I can tell the US has capital controls in place because foreign banks won't take US customers. Not an American so I might just be wrong on that point I suppose.

[0] https://ourworldindata.org/grapher/gdp-world-regions-stacked...

From that graph, it seems to just be about other parts of the world catching up, rather than an actual decline in the West. It is clearer after switching the graph from relative to absolute mode.

Yeah, that argument was taking data that says essentially "global trade driven by western rule of law regimes lifts all boats" and tries to say "western rule of law is bad because the other boats were lifted".

The ideological bent on HN threads really has gotten a little out of control in recent years. We're literally in a topic where the bulk of the posting volume is from the "money laundering is good, actually" camp.

If you are ahead and then everyone else catches up, what does that say about your running performance? It says achieving average speed, but recent performance was a bit sedentary.

And it isn't KYC/AML laws doing that in isolation because it is too big a trend and too much happens over a century. But "Western capitalism was going gangbusters through the whole period in the 20th century where cash flow tracking was being introduced." - no it wasn't. Western capitalism has been slowly mean-reverting to fall in line with all the authoritarian states and tinpot dictatorships. The economic strategy that the west has been using does not seem to be creating vast amounts of wealth in the west. Most of the wealth is being created in Asia.

And big investments take 20-30 years to pay off, so we're probably seeing the results of policies from 1940 through to around 2000 in that chart.

It's free trade which was pushed aggressively and enpowering China

Sure, but when a country with "People's Republic" in the name outperforms the US on economic policy after the US had a jaw-dropping lead coming out of WWII? It is worth getting into the weeds of what the US screwed up. The authoritarian streak in financial markets (of which KYC/AML are a major plank) is probably a significant factor. The US banks aren't running rings around the Chinese financiers with all the paperwork they have to do.

Although I'll say again that the whole thing is intensely political and I doubt there is any consensus on what just happened in the last 50 years beyond China is building stuff and the US is not.

Many foreign banks will take American customers even if many others won’t - both policies are common in Germany for example, and in Canada accepting Americans is routine. Plus, even most foreign banks that won’t accept American customers still routinely transfer money to and from the US, just as most US banks routinely transfer money to and from other countries. Nothing like capital controls.

I was talking with a bank teller in a tourist area. She told a lot of local restaurants are opening 4 or 5 bank accounts and depositing every evening, because no individual bank wants to accept the whole amount, because of AML. This in a country where most paymentscare digital.

What's the cost of all these restaurant owners doing all banks every day?

You need to balance the increased cost of legitimate transactions which is effectively zero against the cost of widespread money laundering. And having worked at two banks the cost of AML pales in comparison to the total amount of overheads.

Terrorism, sex trafficking, drug trafficking, organised crime etc. All are predominately financed through activities which depend on some form of money laundering. And the cost to society there is not measured in money but in lives, despair, suffering etc.

>Terrorism, sex trafficking, drug trafficking, organised crime etc

All these things still exist in spite of AML laws and there's no evidence that AML laws meaningfully reduce the amount of them occurring.

As the article says, it makes these activities more expensive.

It is ridiculous to assume that any law would completely eliminate crime.

But it is a fact that those crimes depend on money laundering in order to extract proceeds. And it is a fact that AML laws help law enforcement to identify the financial flows linked to money laundering.

The other big one is monitoring PEPs (Politically exposed Persons) for unusual activity. That list will include all your politicians their immediate family and known associates all the way down to local community councillors and representatives. That list may also anyone ever convicted of any crime or mentioned on a news website. It's been a long time since I was involved but there was a competition between list providers to have the biggest list.

That fact that they still happen isn't evidence that efforts to reduce it are ineffective. Most criminal orgs are running businesses, increasing the costs of doing businesses via enforcement or AML. On the margin, increased costs are passed to consumers which would reduce drug use. Cocaine is cheaper in Europe than in the US despite the US being a lot closer to the source, much of it due to the costs due to enforcement/AML. That's one of the points of the article, do you think drug consumption would be the same in Holland if the drugs weren't 15% more expensive?

The lens through which to look at is what level of enforcement/AML do we need to reduces societal harm cost effectively. Because you can't track every object that enters or every dollar that leaves.

So the question is more whether reducing the harms of drug consumption that amount is worth the impact on legitimate business. Then again the merits AML is that it hits most organized crime and costs a lot less than specific enforcement to stop trafficking and distribution. Now with fentanyl, you can't reasonable prevent trafficking at any cost because 5 tonnes can supply the entire USA, so you have to turn other the screws

Well, at my country we have the extreme added cost in that you must let your phone take a photo of you or your computer link you to a government account when you open a bank account. If you are a foreigner, you must "register your identity" with the local government, a process that can take a week, and you will have to do anyway because you need it for everything.

Besides, KYC also helps recovering money from your run of the mill scams and fraud. The kind of thing that makes victims every day, so I don't think anybody here puts a negative value on it.

Things this article fails to address:

1) That AML creates a massive honeypot of data for hackers, housed at institutions which historically have structural challenges with technology investment

2) The real, material downsides felt by non-criminals, as expressed by many others in this thread

3) That the sum total financial activity of criminals who would benefit from the lack of AML is likely a rounding error compared to money laundering carried out by banks like HSBC

4) The philosophical position that governments are entitled to dragnet surveil law-abiding citizens in order to combat crime

Seems like:

- 1 isn't necessarily true if certain techniques are used, and those techniques are indeed used (there's a bunch)

- 2 feels overblown by the other users here, to the point that I believe many who are opposed to AML efforts here are acting in bad faith and have other intentions

- 3 seems doubtful given modern Chinese and Russian money laundering efforts in the west

- 4 is a bigger discussion to be had, and in my opinion, can be justified given the societal consequences of not acting against money laundering. We've already seen a big consequence of it with real estate prices

I've worked at a number of financial institutions including two banks.

No idea what you are talking about with AML creating a massive honeypot of data for hackers. If a bank's internal systems were to be widely compromised then stealing a few graph datasets would be the least of their worries. You would have dozens of attack vectors to steal significant amounts of money without the bank finding out quickly.

And compliance issues by HSBC et al is a direct result of a lack of proper AML/KYC systems and processes. So you're making the case that we should roll them out.

> I've worked at a number of financial institutions including two banks.

I spent 5 years in fintech and touched over a dozen financial institutions. You're not thinking creatively enough. Plus everyone has to do KYC/AML, including two-bit money transmitter startups.

> And compliance issues by HSBC et al is a direct result of a lack of proper AML/KYC systems and processes.

Hah, okay. Even if that were true, just keep walking down the menu: JPM knew Jeffrey Epstein was their customer, too.

This feeling when you realize drug money laundering overhead is still lower than Apple tax — :(

And anyway these costs will be just passed on to the Dutch drug consumers, so what exactly is achieved here?

In addition, this "tax" just ended up within another department of organized crime.

I have yet to know a single person who followed through on “when cigarettes get to $X/pack I’m going to quit.”.

So there are many regulations, making many things much harder and sometimes extremely inconvenient and potentially hugely privacy-invading, with all the negative effects also for legitimate entities which are MUCH higher in numbers, only for something that is 1% efficient.

Great, what a waste of resources.

So AML works because now criminals must pay a 15% fee. While if they were above board they would pay taxes, insurance, various social fees. In the Netherlands corporate taxes are 25%.

Literally the criminals are better off financially with the worthless anti-money-laundering system than we have than with being legal and paying taxes.

What nonsense.

If the goal is to make crime more expensive it's been a miserable failure. Cocaine is cheaper inflation adjusted and Deutschebank and Wells Fargo are still in business.

These points seem like non sequiturs. There would really need to be a deep dive into why cocaine is cheaper (if it is? I have no earthly idea if it is or how one would be able to check). Assuming it is cheaper, it is because KYC laws are failing, or better production efficiency, or less competition among cartels?

The second point is hard to even reason about because I don’t think the purpose of banking laws is to put banks out of business. So I’d be curious what this has to do with anything if you don’t mind stating.

Not intending to come off as insulting here but it sounds like you don't know much about criminal enterprises OR money laundering.

KYC rules and many of the other AML efforts that make international students with 500 quid to their names jump through hoops to prove they're not funding ISIS are largely meaningless when the state protected banking system has been repeatedly caught directly facilitating setting up arrangements for south American drug cartels, Russian oligarchs, sex trafficking rings, the Trump organization, and every kind of tax evader in the US and Europe.

If you're seriously curious you can look into how many Deutsche bank executives went to jail and why the entire organization wasn't rolled up and replaced after the whole Panama Papers debacle. Spoiler alert: prepare for disappointment.

AML efforts finally busting the improbably succesful sushi restaurant in Laredo TX are a tiny drop in the ocean by comparison, even if we accept that such small wins are worth it.

Edit: I should note that better than nothing efforts to unmask real estate transactions are probably a net win. This isn't s surprise -- if you want to find money laundering, look at tiny section of the human species that has all the money.

This is a good time to reflect that high-value economic activity has an unexpected side to it. Apple is a good example - nobody believed post-2006 Apple was possible before it started throwing out market changing products, and the idea that a phone company would swoop in and become the most profitable tech company was not on people's radars. If something had disrupted Apple, it would never have been detected. We'd probably still be slowly moving away from Blackberries even now.

The article raises a good point that the small amount of proceeds seized isn't evidence of failure. But the people saying compliance is negligible aren't properly accounting for the danger of increasing barriers to entry in the financial markets. We've got no idea what household names never came to be because they got bogged down in so much paperwork that they never hit a critical mass.

The US banking sector is sick. It is becoming quite centralised and much more dependant on money printing than a healthy system would be. It has been part of the casino directing investment away from wealth generation and towards wealth-destructive ventures. AML/KYC is one of the things driving that and just because the cost is unmeasurable doesn't mean it isn't there.

his entire argument breaks down when a cartel owns the entire vertical and doesn't need to pay fees at each stop along the chain

I've never seen an instance of that happening. Could you send some examples of cartels owning banks or having a significant amount of control over them?

It's well known many banks in Mexico are cartel friendly. The Cayman Islands exist to laundry. The Panama papers has many examples

Here is one cartels story: https://www.npr.org/sections/parallels/2014/03/20/291934724/...

Check out this story how things can work out https://www.propublica.org/article/china-cartels-xizhi-li-mo...

These are still cost centers even if your organization owns them. The employees gotta eat.

And the price is everyone suffering for that 1% of criminal intercepts. If you propose a weapon or a drug with such efficiency you would be laughed upon. Why financial world isn't doing the same?

All sorts of restrictions on freedom and privacy "work", if you consider those parts of the human experience to be of zero value simply because they are unquantifiable in a spreadsheet.

> The cost of moving these €300,000 packages to Colombia adds up very quickly. First, the coordinator had to absorb a 3% fee to convert the trafficker's original low denomination euro banknotes to the very compact 500 euro note. To that, add a 2-3% fee to pay the individual courier and 0.5% on airline tickets, as well as additional administrative costs like modifying luggage and bringing couriers to and from the airport.

Thus, money laundering sounds like a market that is ripe for disruption by some startup ... ;-)

Yes, it lowers criminal margins by 10-20%. So what? For it to make a meaningful difference that number would have to be a lot higher. And it's unlikely that the current approach to AML will result in that number changing substantially because criminals only need one weak link in the financial system to undermine the whole AML apparatus.

Most economically driven crime has very high margins. Wholesale drugs in the Netherlands cost ~10 times what they do in Colombia, and I don't think "only" 8xing your money on a drug shipment instead of 10xing it is a very good deterrent.

Edit: And you can look at threat intelligence company reports to find that Russians already sometimes pay in excess of 40% to "cashout" business email compromise or investment fraud wire transfers. They happily pay this because even getting half of $80000 when all it took you was sending a few emails with forged From headers is a great deal if you are already morally bankrupt enough to stomatch stealing.

Notably absent from this piece is any attempt at an analysis of cost vs benefit.

Furthermore, this piece does not address the misuse of the rules to keep legal businesses out of the financial system.

The question almost never is "does this work?", but rather "is this worth the cost of doing it?"

And nothing about the other use of AML rules: combating tax evasion.

No.

It doesn’t work — because the robber-baron banksters and their politician and judicial enablers are completely free to commit crime, globally, using the banking system.

This KYC/AML only affects scum like you and me.

Almost all banks in the states are reluctant to deal with cash. That's why they are closing thousands of accounts every day in the name of de-risking. Many banks and credit unions just restrict how much money can you deposit per month. A local credit union opens business checking only if you agree to "no cash deposits". Chase restricts the max cash deposit per month to $4k for business checking.

100% AML compliance can be achieved, as regulators are pushing Banks to NOT accept cash/money orders/any untraceable monetary instruments. As this happens, Banks will debank you for reputational risk: maybe, you don't like vaccines or politicians that major news papers recommend you to support, etc. This is the path we are heading to.

Are you saying that’s impossible to identify a large quantity of 500 euro notes at airport security?

Why don't they transport it by boat themselves?

I couldn't help but notice this on the blog's sidebar:

Please donate to support my writing! BTC: 1Db... XRP: rMp...

I'm downvoting you because an estimated 3% to 5% of the world's entire GDP is linked to criminal activities (official CIA factbook numbers). Bitcoin doesn't even register on the radar of money laundering.

And only the dumbest of the dumbest criminals leave traces in a public ledger, especially now that several companies do specialize into analyzing these public ledgers to find evidence of criminal conducts.

I made the comment because the AML/KYC insanity is one of the factors that figured into the adoption of Bitcoin early on. There's a little bit of cognitive dissonance induced in seeing someone voice full throated support for AML while also asking for crypto donations.

I'm pro-crypto, btw.

i undid your downvote because it is well known that bitcoin is used to avoid law enforcement

All regulations are indistinguishable from corruption

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