I’ve repeatedly complained about the absurdity of anti-money laundering laws and regulations.
- As a libertarian, I don’t like that the government forces banks to spy on customers.
- As an economist, I don’t like that these laws don’t come close to passing a cost-benefit test.
- As a citizen, I don’t like that AML policies divert law enforcement from fighting crime.
- As a humanitarian, I don’t like the way poor people are disproportionately hurt.
Today, let’s cross the Atlantic Ocean to examine some new evidence about why anti-money laundering laws and regulations are misguided.
Looking at the United Kingdom, this chart shows that AML poliicies impose nearly £35 billion of costs on the economy, which is twice as much as the total budget for policing in the country!
I created the chart, but the numbers come from a new study published by the London-based Institute of Economic Affairs.
The author, Jamie Whyte, compares costs and benefits. The results are not pretty.
…debanking is a problem in the UK. In 2021/22, UK banks closed 343,000 accounts, up from 45,000 in 2017 when the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) was passed into law. …Customers whose accounts are not closed also pay a material price, because complying with the government’s anti-money laundering (AML) regulations costs UK banks £34 billion a year, which is double the £17 billion spent on policing all other crimes in the UK… This cost must ultimately be passed on to customers through higher account fees, higher rates of interest on loans, and/or lower interest rates on deposits. …Given the lack of evidence that banks’ post-2017 AML obligations have done anything to reduce crime compared with pre-2017 trends, you might hope that the UK government, and all others, would simply eliminate them. …there is no evidence that the well-known and large costs of AML regulations are offset by their benefits.
Yes, you read correctly. There is no evidence that AML laws and regulations have had any positive effect.
The War on Drugs has been the main excuse for AML policies. Here’s some of what is in the study.
Between 1990 (when the FATF AML regulations began to come into force) and 2021, the number of illegal drug users around the world increased by 60% and the number of deaths attributed to drug use more than doubled. According to a 2023 report by the UK’s National Crime Agency: ‘From January 2022 to December 2022, cocaine prices have dropped by about 30% and heroin prices have fallen by about 33%.
Looks like one half of the Baptists and Bootleggers coalition is doing well.
Here are some of Whyte’s concluding thoughts.
The AML obligations imposed on banks have massive costs and no apparent benefit in reducing crime. The rational response is to abolish them or, at least, to scale them back… This is probably expecting too much of contemporary politicians, who find it difficult to stop regulating and who find it difficult to admit to profound policy errors.
Sadly, American politicians are just as feckless as British politicians. So the bad policies in the United States also seem invulnerable to common-sense changes.
To make a bad situation even worse, policy is like to become more nonsensical thanks to the War on Cash.
P.S. Since the statute of limitations presumably has passed, I can admit that I engaged in money laundering while in London about 10 years ago.
P.P.S. You may not think AML policy lends itself to humor, but here’s an amusing anecdote involving a former President. There’s also a very clever Instagram video from Australia.
The issue is that the government spends way too much money, it doesn’t “need” more revenue. You also want to add two new avenues into your wallet for the government: A wealth tax and a VAT. You shouldn’t fool yourself into believing that government will eliminate some taxes (payroll and business taxes) or into believing that they will keep rates at your 2-4-8 level. The federal income tax originally had a top rate of 7% when Wison first instituted it in 1913, by 1918 it had gown to 77%. The payroll tax was originally 2%, today it is 12.4%. Trust me, there will always be an “economic crisis” or some other crisis that will require tax increases.
$500,000 in total wealth isn’t really that much. Remember that total wealth would be based on all assets, including homes and retirement funds. Plus, this 2% would erode at one’s wealth on a yearly basis.
I support a tax blend that produces the revenue needed by government and not more than current revenues [Overcoming Dan’s first big objection]. The blend should produce approximately equal revenue from each tax base: 1) 2% of “average” net wealth, 2) 4% of value added [consumption, sales] and 3) 8% of income [no tax expenditures except for retirement]. Taxing each base for equal revenue, produces the lowest rate for each tax base.
I agree that taxation should do more than simply fund the government.
The most important feature is family support that enables mobility and child support over a typical work life. A net wealth tax exemption of perhaps $500,000 per family member might be a minimum starting point.
The second most important feature is fairness in temporary government support for health care, education, disability, business, etc. Knowledge of the net wealth, income, citizenship, and stage of work life should be used determine what, if any, government support should be given. Disagreements about what is fair are inevitable, but family wealth, consumption, and income data should make decisions about handouts to be more fair than they are without data.
The third most important feature is political. Most families like to compare their economic condition with others and all like to see their progress from year to year. Most will show gains, feel that they are being treated fairly with others in similar circumstances, and genuinely feel grateful to the political leadership that helps their family’s economic situation become more secure year by year.
Other aspects of the 2-4-8 Tax is speculative and untested. Will the nation’s economy continue to grow? If all types of securities can be extracted to individual wealth and dividends as individual income, there may be no need to tax corporations. Indeed corporations cans simply pay the wealth and income tax on behalf of individual owners since the rate is fixed.
Simplification of the tax code should be a plus. It should even be possible to eliminate the Social Security and payroll Taxes that overtax low earners and diminish wages paid by employees. The benefits can continue with funds from the new tax blend without pretending Social Security has been a savings program for anyone.
Estate taxes are a political football that I associate with the national debt. The Donald J. Trump proposed a plan to pay off the national debt by (temporally) raising the estate taxes. He abandoned the idea when he first ran for President 16 years later. He is brilliant in all kinds of economic innovation.
If investment growth remains around 8%, inflation around 2%, and GDP around 4%, the 2-4-8 Tax Blend should be a viable economic engine. In times of economic crisis it might be appropriate to give some discretion to the Fed to adjust the rates (or make recommendations to Congress) that one tax base be taxed raised so the others can be lowered. The distribution of family wealth is a trend that needs to be reversed over a very long timeline. Many of the best citizens are billionaires or close to it. They need to be encouraged to take some risks on a level playing field.
How is any net wealth tax fair? All that money was already taxed when it was earned. We don’t need to give the government yet another avenue to putting their hands in our pockets.
A fair net wealth tax requires anti money laundering rules.