No, We Shouldn't Let Up On Anti-Money Laundering Enforcement

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Over the past six months, various arms of the law in the United States have significantly increased their anti-money laundering enforcement actions. The centerpiece of these actions have been fines to ING, Standard Chartered, and an anticipated forthcoming action against HSBC. Other banks, and even Wal-Mart, could be targeted in the near future as well.

The banks were cited or accused of a number of blatant violations of the law, but one common strain ran through all three. All three banks were allegedly ‘stripping’ wire transactions that were related to Iran. Banks that do business in U.S. dollar accounts are required to conduct certain kinds of due diligence on those accounts, if they are linked to certain types of high-risk customers. Embedded in each wire transaction is information about the owner of the account. All three banks allegedly stripped wire transactions from Iranian clients of their information, so as not to set off any alarm bells about who their customers were.

Now, you or I may think that this kind of intentional circumvention of anti-money laundering laws and U.S. government sanctions against a rogue state would warrant action of at least a fine—if not jail time for those involved—but not everyone agrees. James Alan Jones, from Pace University, wrote this week in The Hill,

Before the federal government makes major moves to further destroy the credibility of the U.S. banking system with large scale investigations of failures, along with international banks, to eliminate or curtail money laundering, officials need to step back and take a close look at the huge burden any bank faces in complying with the regulations.

No reasonable bank manager really wants to see money funnelled to terrorists, padding the huge wealth of drug dealers or preventing economic sanctions from inhibiting governments from unreasonable actions/sanctions. However, ever since the United States enacted sanctions against Castro’s Cuba in the early 1950s the effectiveness of such actions has been challenged by a multi-trillion dollar flow of funds around the globe on a 24/7 basis with no efficient system of knowing who the funds belonged to at any specific time, or where they came from.

Emphasis mine. Take a minute to process exactly what he is arguing. Jones is straight-up admitting reality: that we have designed an international financial system where trillions of dollars can flow around the world and we have absolutely no idea who that money belongs to.

This is a very bad thing. I’m sorry that banks have to spend time, money, and energy ensuring that we have some idea of whom we are doing business with. It might impact their bottom line a little bit. But do you know what else it does? It makes sure that sanctions against Iran stick. The easy, anonymous movement of money undermines a key U.S. foreign policy. It undermines efforts to fight poachers, terrorists, kleptocrats, and drug cartels.

If a bank is too big and too complex to be able to monitor the amount of money flowing through their systems, then that bank is too big and too complex. Of course, this isn’t a matter of a bank simply failing to monitor things that happen to occur inside its accounts. Over the past few years, we’ve seen Swiss banks knowingly aid tax evasion and help clients in Iran, Myanmar and Cuba evade sanctions. In the case of HSBC, the Senate Permanent Subcommittee on Investigation’s report released this summer clearly showed that executives were ignoring obvious evidence that they were dealing with drug cartels, including shipping massive amounts of bulk cash from Mexico to the United States.

Yes, these laws were generally (and, frankly, still are) laxly enforced for a very long time, and banks are now actually starting to be held accountable for violating the law. And yes, they are going to have to spend a little bit of money and time making sure that their clients aren’t illegal actors. The cost/benefit analysis holds up in a utilitarian sense. But more important, the moral case is even more clear: It wrong to help criminals perform crimes by banking their money. We have clear and undeniable evidence that this is going on – both by slipping under the radar screen of big banks and sometimes even despite obviously being on it. We should hold people and institutions accountable.