How Well Does the Money Laundering Control System Work?

How does that even work? You think that without an AML system, el chapo is going to be opening a wells fargo account with his real name?

> ALERT [Updated March 26, 2025]: All entities created in the United States — including those previously known as “domestic reporting companies” — and their beneficial owners are now exempt from the requirement to report beneficial ownership information (BOI) to FinCEN.

[1] https://www.fincen.gov/boi

The point of AML/KYC regulations isn't to stop all crime, just like the point of US sanctions on Russia isn't to stop all Russian exports. In both cases it's to raise the cost of doing business for the entity being targeted. In the case of Russia, they can still sell their oil to India or whatever, but at a steep discount. In the case of drug cartels, they can still get their funds into the regular banking system, but also at a steep discount. Smuggling pallets of dollar bills across the border and setting up a network of front companies is expensive. Doing all that also which implicate them in even more crimes, so even if there's no evidence of them smuggling fentanyl, they can be prosecuted purely on the basis of having a car full of cash.

>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.

The better question is why are you were sitting on cash for 40 years. In that time inflation already ate 66% of the value, and if you factor in the opportunity cost of not investing the money in stocks/bonds, the loss is even greater.

Fannie Mae's assessment criteria for origin of funds has a time limitation. If that money has been in an account you control, for forty years, "origin of funds" is not a question. I want to say the cut off is something like 36 months, but it may be even less.

Helpfully, all this information is public: https://selling-guide.fanniemae.com/sel/b3-4.3/verification-...

This makes zero sense.

I have bought a house, and they want bank records going back like a few months or maybe a year at most. If that money has been sitting in an account for that long, nobody gives a shit where it originally came from. Like, if you had $100,000 for a down payment, they’re not checking the last twenty years of your paystubs to make sure the math checks out.

The only thing they really are interested in is knowing this money didn’t just appear out of nowhere because you got a personal loan from someone or because you got a conventional loan from a lender that hasn’t reported it to a credit reporting agency yet, and which would affect the decision to underwrite your loan.

If you’ve just been holding on to large sums of literal cash dollar bills for the last 40 years, that is such a comically ridiculous financial decision I don’t even know what to tell you.

The point of a down payment is to make it so the borrower has an incentive to not default on the loan, because the borrower would lose the down payment.

If the down payment is actually borrowed money as well (like suppose you get a credit card advance for the money), then the borrower won’t lose anything if they stop paying the loan, and there is increased risk that the loan defaults.

My main issue is that all the AML/KYC/KYB barriers we have to deal with never seem to be subject to efficiency tests, all the studies I read and the few audits of these system seem content with it's likely better than doing nothing... but never measure the lost opportunities in trade/business they cause.

In a way it's the same hopless fight against so-called piracy for movies/games. The motivated actors who want to break the law find ways to do it at a large scale, mostly without consequences... and the honest people are just hindered when they want to use their content (even lose access to it when DRMs rely on the existence of the developer/publisher and their goodwill to maintain it way past the time when that media was able to generate revenues).

It's strange to see otherwise smart people correctly identify the "think of the children" fallacy in E2E encryption or net neutrality issues, but fail to identify the same exact fallacy when network traffic is measured in dollars and not bits.

I don't know what to tell you - but my experience was that it is the most careless and obvious criminals that get caught. Some even being very rich, rich enough to afford solid defense teams, and rich enough to stay in court for a long time. These were also the very same type of people that would cry to the media about unfair treatment, witch hunts, etc.

But, as for why these agencies go after the money: It is much easier to prove money laundering, rather than the actual crime itself. Many of cases I worked on focused on companies that illegally harvested regulated natural resources, used unreported employees, and did not report their sales / trades. Off the market, under the table.

We co-operated with other regulatory agencies around the world, and I can tell you - in the more corrupt parts of the world, the effects can be devastating on the community: No honest companies can compete against the ones that operate illegally, dire working conditions, less tax funding to the local community. What happens is that these actors eventually become local monopolies, and start operate semi-legally, but that's what the community is stuck with. If you report those companies, you end up losing your own job - should the company go down. And since these players don't care about regulations anyway, whatever natural resources they harvest, can risk being wiped out.

And to re-iterate: It is easier to follow the money. Usually in these cases, where there's smoke, there's fire.

Ideally, access to the financial system and secrecy of financial transactions should be protected by constitutions in the same way as secrecy of correspondence and right to privacy. Unfortunately, most constitutions were written in the age when it was a given, since most people relied on physical cash and were was no need to explicitly protect this right.

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.

After you pay your W2 income taxes for the year, your income for the year is no longer taxable.

edit: I guess I can't argue with the holy writ of wikipedia, but it's how they got Al Capone.

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.