Sadly, my efforts to bring sanity to so-called AML policy (sometimes known as know-your-customer rules, or KYC) have been just as much of a failure as my efforts to get a flat tax. Or my campaign for a spending cap.
I can’t event get my left-leaning friends to care about this issue, even though poor people are disproportionately harmed when governments impose AML mandates on financial institutions.
The most-recent example is a proposed regulation, which Andrea O’Sullivan discusses in an article for Reason.
…the Federal Reserve and Treasury Department have proposed expanding what is called the “travel rule” to capture international funds transfers above $250. Currently, financial institutions are required to make certain reports on customers when they send international transactions in excess of $3,000. This has been the threshold since the travel rule was first adopted in the U.S. in 1996… surveilled people are suspected of no crime, nor are they given any opportunity to opt out of this data collection. Still, the government preemptively requires that their transactions be tagged and tracked as if they had done something wrong. …it’s worrying that government agencies don’t even consider personal privacy when proposing new regulations. …By law, federal agencies must issue cost-benefit analyses that weigh the trade-offs of a proposed new rule to industry and society. The travel rule analysis only considers the costs that would be imposed on banks on regulators. The extreme cost to privacy for millions of Americans is not even an afterthought… America’s financial surveillance system…creates compliance and hacking risks for institutions that must store this data. And it doesn’t even work very well. Criminals are routinely able to get the finance they need despite this web of data tracking. Meanwhile, innocent people may have trouble making transactions or get caught in the hassle of some overzealous agent. It’s a big mess.
This is an absurd proposal. The odds of any criminal being caught by added red tape are trivially small. Yet the bureaucrats at the Federal Reserve and Treasury are pushing this new regulation because they don’t care about costs that are borne by others.
Ideally, the entire reporting regime should be scrapped. As an interim measure, the $3,000 figure should be adjusted for the inflation that’s occurred since 1996, which would push the reporting limit to about $5,000.
Since we’re on the topic of inflation and reporting requirements, Prof. Randall Holcombe wrote an article for the Foundation for Economic Education about the anti-privacy reporting rules for other financial transactions.
…the Currency and Foreign Transactions Reporting Act of 1970 requires that financial institutions must keep records of cash transactions summing to more than $10,000 in one day and report suspicious transactions to the federal government. …because the limit is stated as a dollar amount ($10,000), inflation lowers the real value of that limit year after year. Adjusting for inflation, $10,000 in 1970, when the Act was passed, would be $65,000 today. …it appears to me the Act violates the Fourth Amendment, which states in part, “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated…”
Let’s close with a story in the Wall Street Journal that highlights how ordinary people are victimized by AML laws.
Mary Ann Liegey, a retired teacher in Manhasset, N.Y., was shocked in March when she received a letter from her local parish: “Your $20 check payable to St. Mary’s Church…was returned due to Frozen/Blocked Account.” The 75-year-old Ms. Liegey discovered that Citigroup Inc. had blocked her checking and trust accounts after she didn’t respond to a notice asking her for personal information to verify the accounts—part of the bank’s efforts to comply with government-mandated rules referred to as “know your customer,” or KYC. The rules are designed to make it harder for money launderers, terrorists and other criminals to finance illicit activities, hide funds or move dirty money around the globe. …The difficulty and complexity of these reviews are exacerbated by advances in technology that have fundamentally changed the ways people interact with banks. More customers are opening accounts or interacting through mobile apps rather than by walking into a branch and presenting physical identification.
Ms. Liegey isn’t the only victim.
There’s also Mr. Laderer.
Bill Laderer, who owns a landscaping business in Sea Cliff, N.Y., groused that Capital One Financial Corp. suddenly cut off his credit card because he hadn’t provided an employee identification number for his business, which has operated since 1941.
And Ms. Griffit.
Donna Griffit has had a Citigroup account for her California-based business, which helps startups craft pitches, for more than a decade. At the beginning of February, she got a letter saying the bank needed unspecified information from her by month’s end or her account could be closed. When she called the bank a few days later, no one could figure out what was needed, and the bank said it would get back to her, she recalled. She thought it was resolved. But in June, she discovered her account had been frozen.
I’ll close with this excerpt, which shows that all of us are actually victims because banks are spending lots of money to comply with AML/KYC laws.
Needless to say, those costs are passed along to customers.
…the average spending on KYC-related procedures for corporate and asset-manager clients by financial institutions with more than $10 billion in revenue grew to $150 million last year, with each having about 300 employees directly involved, up from just 68 a year prior.
What makes these laws so perverse is that they impose high costs on both individuals and businesses.
Yet they don’t reduce crime.
They don’t reduce terrorism.
They don’t stop drug dealers.
They don’t stop the mafia.
The bottom line is that you don’t help law enforcement by creating haystacks of data and then expect them to find needles.
Nonetheless, politicians support these laws because they can tell their constituents that they’re fighting bad people.
P.P.S. In my campaign to be a global money launderer, I have one victory and one defeat.
P.P.P.S. Statists frequently demagogue against so-called tax havens for supposedly being hotbeds of dirty money, but take a look at this map put together by the Institute of Governance and you’ll find only one low-tax jurisdiction among the 28 nations listed.
P.P.P.P.S. You probably didn’t realize you could make a joke involving money laundering, but here’s one starring President Obama.