How well does the money laundering control system work?

This discussion revolves around the perceived ineffectiveness and negative consequences of Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations, with a particular focus on their impact on everyday citizens and the broader economy, alongside debates about their actual utility in fighting crime and terrorism.

Money Laundering's Economic Impact and Market Distortion

A central theme posits that illicit funds, laundered through various means, are deeply integrated into global financial markets, particularly in real estate and stocks. Stopping money laundering entirely could lead to market crashes.

• cluckindan states, "If we stopped money laundering totally and completely, and managed to track down and confiscate all that money, the stock market would crash, hard. So would real estate."
• jollyllama adds a crucial nuance: "It depends on the degree to which the continued flow of ill-gotten gains into the system is priced into current valuations."
• Regarding real estate specifically, fugazithehaxoar observes, "Residential real estate costs roughly twice what it did 10 years ago. A 'crash' back closer to fair market prices would be the desired effect." However, Telemakhos counters this, highlighting the negative impact on existing homeowners, "I doubt that real estate prices will be allowed to drop much, simply because homeowners vote more reliably than renters, and they won't vote against their own financial interests."
• cluckindan further notes the reluctance of those holding assets: "You’re absolutely right, but the people holding millions or billions in illiquid assets are going to disagree. Lucrum ante valores."

The Ineffectiveness of AML/KYC and the Burden on Lawful Citizens

A significant portion of the discussion criticizes AML/KYC regulations for being both ineffective against sophisticated criminals and burdensome for law-abiding individuals.

• tim333 expresses frustration: "The money laundering control systems, as well as being ineffective at controlling crime can be a pain in the neck for the law abiding. I have money from my grandad, received 40 years ago. No one really has records going back that far but you try buying a house and they want proof of the origin of the funds."
• mothballed agrees, suggesting a different motive: "The point is to raise the barriers/cost of business high enough so that the larger criminal enterprises do not have competition from the smaller ones." This leads to consequences for innocent parties: "They falsely assume the major burden of KYC/AML lies on the rich/criminals when in fact, as implemented in the USA, the burden falls largely on the innocent (and most of all on homeless / people with no address to pass KYC) with pretty vague data on whether there is much payback."
• olalonde points out regulatory vagueness and arbitrary enforcement: "AML regulations are intentionally vague, so different reporting entities tend to interpret them in their own ways." This can lead to legitimate funds being problematic: "It's extremely simple until it's not. Let's say you bought 100$ worth of BTC back in 2012 with cash at a meetup. Now it’s worth $1M, but you can’t prove its origin. You now have a perfectly law-abiding person that risks being accused of 'money laundering' just to keep what's rightfully theirs."
• jgilias shares a concrete example: "For a fucking Toyota Yaris. Bought by a retiree. Who’s going to be paying it through the banking system where they already have KYC, AML, and all her financial history. If that’s not overreach, I don’t know what is."
• fuoqi argues that the system pressures citizens: "We already see instances of debanking (logical evolution of money laundering "control") being used to pressure political opponents and dissenters even in the 'free' West."

The Role of Cryptocurrencies and the Evolution of Laundering

The discussion touches upon the perceived role of cryptocurrencies in money laundering, with some arguing it's a significant problem and others downplaying its scale compared to traditional methods.

• Notch123 observes, "Only read the abstract, but this doesn't seem surprising seeing that crypto, despite maybe noble intentions, has evolved in the worlds' easiest way to launder money."
• Stagnant offers a counterpoint: "In the grand scheme of things crypto-related money laundering is just a drop in the bucket compared to the amounts being laundered using more traditional methods."
• pavlov dismisses this "drop in the bucket" argument: "Crypto advocates love this “drop in the bucket” excuse. By the same logic, it’s not a problem if I manufacture extra strong alpha-PVP and hand it to school children, because my drug distribution is just a drop in the bucket compared to the global cocaine trade."
• PaulHoule discusses the pseudonymous nature of many cryptocurrencies, noting that while not fully anonymous, they offer significant challenges for tracking.
• multjoy identifies USDT as a specific concern: "USDT is the money launderer’s dream. If they can get it into crypto (and there are a number of firms who are barely disguised criminal finance portals), the world is very much their oyster."

Government Incompetence, Complicity, and the Erosion of Privacy

A strong undercurrent is the belief that governments and financial institutions are either incompetent, complicit, or intentionally using AML/KYC to increase surveillance and control.

• phkahler questions the status quo: "We all complain about big brother, new surveillance tech, and the easy sharing of personal data with government. And yet, some of the biggest problems seem to be untouched. Is this incompetence, bureaucracy, complicity?"
• throw101010 leans towards complicity: "The moment you try to look into the fines governments impose on banks caught money laundering and the rare cases in which bankers actually see a prison cell, your last option is the most likely one, with a sprinkle of the two others." He adds that AML efforts are often "content with it's likely better than doing nothing... but never measure the lost opportunities in trade/business they cause."
• OutOfHere criticizes money laundering laws as a governmental construct that fails to address actual crime: "Money laundering is an absurd concept made up by a lazy government that fails to go after the actual underlying crime or criminals. They don't really have evidence of actual crime, so instead they target anyone they don't like."
• onetimeusename suggests a hidden agenda: "In practice we have a system where money laundering has not ended and we have much more financial surveillance for average citizens. That was probably the purpose all along and it never had anything to do with finding tax evaders or stopping terrorism."
• nine_k echoes this, stating, "What's the point of surveilling the movements of average citizens' money? They usually don't hide anyway... Terrorists were but a pretext to produce moral panic." This is clarified by kelnos as a bid for more power: "People in power want more power. They want more control, even over average, law-abiding people. They want to moralize and tell you what you should be buying and consuming. Power over others is the goal; it's not incidental."
• alexey-salmin asserts that the middle class is the primary victim of these policies: "Nah, it's always the middle class that gets screwed. Poor can't be squeezed for more, rich have resources to fight back, the middle class ends up paying for everyone."

Civil Asset Forfeiture and the Erosion of Presumption of Innocence

The discussion highlights concerns about civil asset forfeiture and the general shift in the burden of proof, where individuals are presumed guilty and must prove their innocence.

• fuoqi uses an analogy: "Just replace 'money' with a gold bricks. If I have them in the trunk of my car and move it around, you can't arrest my car on the assumption that the bricks are 'the proceeds of a crime'. You have to reasonably prove it with all the red tape involved, or GTFO of my way."
• benmmurphy and efitz explain civil asset forfeiture: "My understanding was the police were able to do this in the US using civil forfeiture... a law enforcement officer in many jurisdictions in the US can seize the gold bar without charging you with anything, under the assumption that it is proceeds for a crime, and in an insane twist, they get to keep part or most of the value of the seized property when it is sold at auction."
• K0balt further elaborates on the lack of rights for seized assets: "The 'crime' is alleged to the objects in question, and since they aren’t people they don’t have rights. Civil Asset Forfeiture. It’s clearly unconstitutional, but it’s too profitable to stop."
• olalonde highlights the inversion of proof: "The crazy thing about money laundering laws is that in many jurisdictions, just failing to prove the legitimate origin of your funds can be enough to lose assets, and face criminal prosecution, without the state ever proving an underlying crime. It effectively shifts the burden of proof."
• mothballed claims, "KYC and AML invert the burden of proof and are essentially an exception to the 4th amendment, that's why they're so controversial."

The Concept of "Money Laundering" as a Tool of Social Control

Some participants argue that "money laundering" laws are not truly about preventing criminal activity but rather about controlling the populace.

• bradley13 posits, "Moving money around is a crime...why? It results in massive intrusiveness by government: full insight into everyone's finances, without evidence of a crime."
• pjc50 defends the logic, albeit acknowledging its impact: "The short answer is that said money is either the proceeds of a crime, or (in the other direction) being sent to or from a sanctioned person, organization, or country. This is why it's so hard to push back against, like the TSA. 'Do you want terrorists using the banking system?' is a killer argument for midwits."
• ctl9 argues the core issue is the desire for control: "Control."
• nine_k agrees, stating, "My point that authorities already exercised enough control over normal citizens anyway. Most Americans live paycheck to paycheck, and never cared to have a bank account in Switzerland, let alone an anonymous bank account. But the few certain Americans, and especially non-Americans, who did apparently bothered the US administration enough."
• kelnos reframes this, suggesting the focus is on average citizens: "I honestly don't think the rich people with hidden bank accounts really bothered those in power that much. Why would they; those people are their friends, in many cases. People in power want more power. They want more control, even over average, law-abiding people."
• matheusmoreira and AnthonyMouse discuss the "letting the terrorists win" concept in relation to post-9/11 policies, suggesting that enacting freedom-reducing policies in response to terrorism is a victory for terrorists. matheusmoreira states, "Terrorists destroyed the USA by destroying all of its freedoms and values. They happily gave up freedom for security in spite of the warnings of their founders. All it took was two aircraft."

The Pervasiveness of Laundering in Various Industries and Businesses

A recurring theme is the observation of seemingly legitimate businesses operating in ways that suggest they serve as fronts for money laundering, often characterized by low customer volume, high markups, or cash-heavy transactions.

• imglorp ties this to a broader understanding: "I've come to realize that viewing the world through the simple lens of laundering causes dumb systems to suddenly make sense. Silly rabbit, you thought these industries were there for the normal public?" The post then lists various industries: gambling, casinos, commerce, crypto, shell companies, real estate, and lotteries as potential conduits.
• agos provides a specific example: "In my country you can just go to any tobacconist, buy 1000 € worth of scratch cards with cash, and happily keep whatever comes out. And since they're heavily regulated, you can check winning probabilities in advance so you already know the expected return!"
• K0balt notes observations from the developing world: "Out in the developing world you’ll see all kinds of things that make no sense commercially, because they were really just a way to park a few million dollars in a way that slowly trickles out under the guise of legitimacy. Buildings with rent ROI> 100 years. A motorcycle dealership with 3000 motorcycles in stock, slowly selling them off , many > 10 years old and zero miles…. Etc."
• salomonk_mur mentions similar observations in Colombia: "Here in Colombia it's almost a staple to find perpetually-empty restaurants that never go broke. We call them 'lavaderos' - kinda like 'laundering-stations'."
• close04 describes high-end venues: "Actually, any business that can just add an arbitrarily huge markup for what are otherwise cheap, run of the mill products and services is probably also laundering money. Usually exclusive/luxury places, the ones where in one go they can convert the lowest possible cost into the highest possible clean profit."
• Traubenfuchs cites examples in Austria: "In Austria we have an infinite amount of middle eastern barbershops and „phone shops“ with about zero customers. Quick calculations on minimum wages, rent, other costs and the required amount of sales show that they can not be profitable."