
The Cost of Dirty Money - crunchiebones
https://www.bloomberg.com/graphics/2019-dirty-money/
======
gyaniv
It's just a list of previous cases of money laundering and the fines to the
entities (mostly banks) involved.

Would be nice if for example they mentioned the overall impact of the illegal
transactions on the entire systems, or maybe changes or actions that those
banks made (other then paying fines).

Basically, I feel like this misses either (or both) the overall, total impact
of 'dirty money', the global scale of it, it's effect, etc. (because only the
bigger cases that were caught were mentioned, it's interesting to see how big
the phenomenal). And also I would like to understand what is being done to
stop or prevent other and future instances.

~~~
candiodari
It makes the point that governments "punish" these crimes with the velvet
glove on. None of those fines are anywhere close to the point they'd endanger
even one yearly profit of these institutions.

Now try being suspected of tax cheating as a smaller company and see how
governments punish that (not "convicted" mind you, "suspected", meaning you
likely did nothing wrong, and even if you did there's a decent chance it's an
accident/lack of knowledge/... rather than outright fraud). Let's see
government limit themselves to not endangering even one year's profitability
then.

~~~
sokoloff
I think it's unreasonable to consider fining a bank based on the yearly
profits of the bank. If a bank does hundreds of billions of dollars of
transactions globally and several hundred million of those are tainted, the
sanctions in question should be based on the tainted transactions, not the
annual revenue or profits.

If a small bank does $100M of tainted transactions and a large bank does the
same, they should be fined the same, IMO.

Your point about the small company is not an analog in my opinion. If you have
$500K in profits and a tax cheating penalty of $1MM, it does not follow that
the precedent is that tax penalties are 2x annual profits, but rather that tax
penalties are proportionate to the tax cheating. If another company has a tax
fraud of 50x the scope and 1000x the profits, their tax fraud fine should be
50x yours, not 1000x yours.

~~~
magpi3
> If a bank does hundreds of billions of dollars of transactions globally and
> several hundred million of those are tainted, the sanctions in question
> should be based on the tainted transactions, not the annual revenue or
> profits

If the penalty is meant to be a deterrent, then it should hurt. Otherwise it
will not be a deterrent. You have to consider the bank's annual profit if you
want it to hurt.

~~~
leetcrew
depends on your philosophy regarding fines/punishment. personally I think
punishments, particularly fines, should be proportional to the damage done to
society, not jacked up as high as you feel is necessary to discourage the
behavior. I don't think a large bank that does $50mm in illegal transactions
did any more harm than a small one that did the same volume.

also, as we see in criminal law, setting huge penalties doesn't work very well
if you can only get a few convictions. it just turns into a game of hot potato
where everyone still does the illegal thing to stay competitive and some
unlucky firm occasionally gets stuck holding the bag.

a free society should strive for reasonable penalties that are consistently
enforced.

~~~
Retra
>I don't think a large bank that does $50mm in illegal transactions did any
more harm than a small one that did the same volume.

The large bank can continue to do damage if they are caught, while the small
one cannot. Thus they definitely do more harm, and at the very least will be
perceived to have effective immunity from the law.

If you only fine thieves proportional to the value of the stolen goods, then
all you're doing is saying it's ok to steal so long as you are sufficiently
wealthy. (And if you became wealthy through theft... then you've made a
legitimate living through damage to society.)

~~~
sokoloff
We could also be saying that we (as a society via our laws) try to curtail
stealing by setting penalties at a level such that the expected value from
thievery is negative.

You don't need the equivalent of capital punishment for stealing and, by
extension, don't need to take away _all_ of a caught thief's money, just a
sufficient multiple of their stealing to make it unattractive to enter into a
career of it.

~~~
Retra
That is essentially what I'm saying. The complication is that you can't
reliably measure EV for certain acts. (E.g., What is the dollar-value loss for
murder? How much should you fine someone for doing it?) In this case, to
calculate the dollar-value loss for creating a subset of society which is
above the rule of law which uses wealth as a barrier to entry... the penalty
needs to take that into account.

So the point is not simply that you need to defer thieves from entering a
career of it, but that you need also to deter thieves from considering it as a
one-time option for when their quarterly earnings are due, and that you need
to do so sufficiently well that even a highly skilled thief with a multi-
million dollar company salary won't consider it. So either it can't just be
fines (asset seizure/prison, maybe for repeat offenders) or those fines must
be legitimately severe as measured by the one committing the act.

------
TrolTure
I find the amount of money in these cases so staggeringly high that I can't
imagine that a vast portion of 'those in power' are not complicit in some
ways. There is simply no way to mix this amount of money back into the system
without lots of people of statute being involved.

~~~
weliketocode
Have you worked at a big company, let alone a big bank?

When you have 100k+ employees, it's immensely difficult to keep tabs on every.
single. thing. that's happening.

If a bank sees asset flows into the trillions, even $1bn of tainted
transactions is less than 0.1%.

Do you or 'those in power' know 99.9% of what happens at your company?

~~~
peterlk
> When you have 100k+ employees, it's immensely difficult to keep tabs on
> every. single. thing. that's happening.

Tough. You want the big bucks? You gotta solve hard problems. Big companies
shouldn't be able to whine or excuse their way out of problems because those
problems are hard. If they're too hard to solve, pull an HP and split your
company into lots of smaller companies.

------
wand3r
“Dirty” money is such an expansive term that encapsulates huge sums and many
distinctly different schemes. The Guardian actually stated that the influx of
cash from crime syndicates propped up the banks and significantly contributed
to some banks financial health—- thus helping during the economic crisis. This
money is part of the economy and it is hard to entirely crack doen on it less
risking unforeseen issues.

[https://www.theguardian.com/global/2009/dec/13/drug-money-
ba...](https://www.theguardian.com/global/2009/dec/13/drug-money-banks-saved-
un-cfief-claims)

------
cm2187
I'd keep in mind three things.

First, the direct consequence of tightening controls on payments to prevent
money laundering is that you are tightening the control of government on
anything happening in a society. I don't think any libertarian leaning people
at least should be ok with this level of control. Like how would cannabis
would have ever been legalised if a parallel, illegal market didn't exist to
the point that the consensus moved toward legalisation.

Second, as a private company, how to you go about ensuring that every single
one of your customers is legit. Any paper you are given can be forged. Any
explanation can be made up. You don't have police investigation powers. A car
salesman has no way to check that you are not buying a car with profits from a
ponzi scheme. Banks are becoming increasingly invasive in term of questions
and documents they require, but this is an impossible task. Even auditors
don't spot fraud every time (see Patisserie Valerie in the UK for a recent
example).

Third, in a 200,000 employees organisation, how do you ensure that every
single one of your employees is honnest. At that scale it is just
statistically impossible to not have a fraud somewhere. So how do these calls
to bankrupt the company with fines if anything wrong happens (that I read in
other comments) makes sense?

~~~
someguydave
Agreed. Regulating “dirty money” is equivalent to regulating speech, and is
therefore unconstitutional.

~~~
mindslight
The parallels are strong:

\- Lazily creates an appearance of addressing a problem by going after a
sometimes-associated activity

\- Collateral damage to activities that aren't necessarily wrong, but that
upset some group

\- Only affects the little guy (to the major players, it's just a cost of
doing business)

\- Creates a purportedly-neutral cover on what is essentially political
persecution

\- Based on the God delusion that assumes some ambient authority is capable of
passing correct judgment on every situation

~~~
someguydave
Don't forget:

\- Rationalizes the creation of a massive bureaucracy to control (and
centralize) what beforehand was considered normal and local in scope.

\- Rationalizes universal surveillance by unaccountable individuals in federal
bureaucracies against the entire population. This can and has been abused in
the case of bank disclosures required by anti-money laundering laws:
[https://www.msn.com/en-us/news/politics/us-arrests-
treasury-...](https://www.msn.com/en-us/news/politics/us-arrests-treasury-
employee-accused-of-leaking-bank-records-on-manafort-gates/)

(Note that the so-called "suspicious activity reports" she leaked were merely
transactions that met some criteria like being above a threshold amount).

------
temp1928384
Having worked at a payments company and helped evaluate anti-money laundering
(AML) software with ex-commercial bank compliance people, I should not have
been surprised but still was of how manual and subjective the entire AML
investigative process is.

At a high level, it's just a bunch of business rules that trigger a massive
number of alerts that you then have analyst review one by one (and clear 99%+)
without any more action. When you do come across something, you file a
Suspicious Activities Report (SAR) to the gov't among other things.

Very clear to me there's a market for a SaaS with some AI/ML/automation
capability to reduce false positives and more easily investigate cases. The
bar is very low.

------
eeeeeeeeeeeee
It's insane how small those fines are as a percentage of the amount laundered.
There really doesn't seem to be any reason a bank should even bother, or at
the very least, look the other way. And rarely do people ever go to jail over
this sort of thing.

And these are only the ones we know about.

------
kaptain
Planet Money had a great podcast on this topic.
[https://www.npr.org/templates/transcript/transcript.php?stor...](https://www.npr.org/templates/transcript/transcript.php?storyId=654792142)

------
jwr
One thing to keep in mind is that this story is from Bloomberg, who came up
with "The Big Hack" story that proved to be completely unsubstantiated, and
yet has never been retracted.

------
zaroth
The graphics would have been a lot more fun if there was some sort of gauge or
running totals of the cumulative amount of fraud versus the cumulative fines
and prison time.

------
jokoon
From a political standpoint, I don't understand how the world is still
tolerating such thing, and why it's not part of the public debate. I can
understand why it exists, but I'm a little worried to see how widespread and
out of control this has become.

I just fear this has the potential to influence and topple governments (even
the "solid" ones). People complain about money in politics, but when I see
this, I see unchecked capitalism slowly obsoleting governments, because
financial power is not under the control of institutions anymore. Money flies,
there and there, and governments seem to be completely clueless and unable to
work on fighting it.

Worse, citizens don't even seem to pay attention. Money is truly invisible.

~~~
ur-whale
To try and give you a partial answer, you may want to consider the fact that
money is essentially equivalent to freedom.

Giving governments absolute oversight of the flow of money and of a detailed
accounting of who owns what is therefore equivalent to implementing a planet-
scale fine-grained surveillance state. Yay.

Is that a world you'd want to live in?

Or more interestingly, if you're a government official that also happens to be
a half decent human being (I'm told they do exist), wouldn't you carefully
consider how much control you'd like a government to have over so-called
"dirty money" vs having every single penny a citizen spends/owns recorded in a
database?

Or if you even want to be milder about it, where do you draw the line between
total government control of money flows and privacy?

This whole conversation around "dirty money" is the exact same old "won't you
think of the children" bogeyman that's being bandied about every time the
government wants to restrict freedoms and uses basic citizen's cowardice to
entice them to make the trade of less freedom for more security.

[edit]: by the way, you are very correct when you say that citizens aren't
paying attention. With increased fine-grained control of money, one of their
absolute basic freedoms is being not just eroded, but plain old erased.

And no one is talking about it or debating it. Find me _one_ mainstream
politician in the anglo sphere that even has this problem on his radar.

~~~
jokoon
You're just serving the libertarian agenda, and I'm having none of it.

Money is not freedom. Money is a tool to trade goods. I was talking about how
a minority of fraudsters are hiding their money to not be taxed, and to escape
scrutiny, and you're arguing for less government.

~~~
ur-whale
>You're just serving the libertarian agenda, and I'm having none of it

You appear to be operating on faith (smells libertarian therefore it's bad)
rather than arguments, I guess having a conversation is pointless.

Another thing: there is a vast difference between hiding money to avoid the
taxman (something that falls under the "civil disobedience" category,
especially when said taxman is exerting unchecked power) and hiding money that
was earned committing crimes that _actually_ hurt people (slave trafficking,
dictators, etc...).

But the standard discourse served to the unwashed masses is more than happily
co-mingling the two issues because it once again is very useful in scaring the
flock straight.

~~~
jokoon
> there is a vast difference between

Both are illegal.

You're trying to equate a major crime with civil disobedience. Big financial
interests are far from the public interest, so I can't follow your argument of
civil disobedience.

> taxman is exerting unchecked power

There are so many who argue about money corrupting politics, inequality
rising, but I'm not trying to have this argument with you. I just want to tell
you that you're exposing yourself as defending big financial interests,
against the public interests.

I've already had some back and forth with people like you who try to defend
the act of evading taxes, and I can warn you: you will never convince me.
Let's agree to disagree.

~~~
ur-whale
>I've already had some back and forth with people like you who try to defend
the act of evading taxes, and I can warn you: you will never convince me.
Let's agree to disagree.

If your debating strategy is to self-proclaim as close-minded and incapable of
intelligent conversation, far be it from me to try and stop you :)

And anyways, at some point, if you dig deep enough in people's politics, you
always hit the same bedrock: either you're a collectivist and essentially an
enemy of individual freedom, or you always give priority to individual freedom
before that of the group.

I suspect it's a genetic thing, and you are correct: trying to change one's
genetic makeup is pointless via argumentation is basically pointless. Born a
sheep, always a sheep.

~~~
jokoon
If you really think that things are so black and white, then so be it, don't
need to tell people they're sheeps.

------
naringas
from somekind of "Free Market" standpoint, how can there even be "dirty"
money? isn't money just money?

I sense some kind of double standard

~~~
perlgeek
A totally free market would be one without any regulations or laws, that can't
have "dirty" money.

But nearly all actual markets have some kind of regulation, and thus the
potential for dirty money.

~~~
AnthonyMouse
> But nearly all actual markets have some kind of regulation, and thus the
> potential for dirty money.

It is possible to have a wide variety of regulations without having monetary
ones. Money is fungible. If you dump mercury in the river, you get fined or
put in jail. It doesn't matter if the money you have to pay the fine with is
the profit from the dumping or not, it only matters that it would bite enough
to prevent anyone from doing it to begin with.

In particular, you don't need banks to investigate customers or know anything
about them, and asking them to causes all kinds of otherwise avoidable
problems. The people who should be investigating criminals are law
enforcement, not corporations. And if the criminals use banks, well, _then_
you can go to the banks and seize their money etc., after you've proven their
crimes to the satisfaction of a judge. Instead of having Paypal do it
preemptively because it's easier to screw over many innocent small businesses
than deal with regulators when 2% of them cause problems.

~~~
perl4ever
If banks don't need to be concerned with criminal activity by their patrons,
does the same apply to pawn shops? Casinos? Scrap metal dealers?

~~~
AnthonyMouse
None of those things are law enforcement agencies. And a casino is just a type
of bank here.

Though the others may have their own reasons to want to know who their
customers are, since a lot of property isn't as fungible as money and
possession of stolen property is a crime in most places.

Notice how nobody even suggests for things to work that way in other cases
where the business is accepting money rather than goods, e.g. businesses that
sell sandwiches or jeans or flatware should hardly be under these types of KYC
requirements.

If you can buy $1000 worth of apparel without identifying yourself, why can't
you have a bank account with $1000 in it?

~~~
perl4ever
You don't seem to be engaging with my point; perhaps I didn't make it clear.

There are other businesses besides banks, of which I gave some examples, that
attract criminal activity. We don't say "they may have their own reasons" to
scrutinize their customers and leave it at that, because self-interest doesn't
cure the problem. If you don't regulate scrap metal dealers, then the profit
motive will lead them to cheerfully take material stripped by thieves, which
encourages destruction and theft. Similarly with pawn shops.

~~~
AnthonyMouse
The profit motive is exactly why such regulations are useless. The dealer will
harass every honest customer in case one of them are the type to report them
for not checking, and then pay pennies on the dollar for the copper pipes
ripped out of a building which they _know_ were stolen because both parties to
the transaction are aware they're profiting from participating in criminal
activity.

And the dealer may not even need to be in on it. If the thief lies and says
the material was found in a dumpster at a construction site, or that it has
been collecting dust in their basement for twenty years, and there isn't any
way to trace a generic pile of metal back to where it actually came from, what
does it matter that you take their name?

Which is why cities like Detroit are full of buildings that have had their
pipes stripped out. The deterrent isn't the scrap metal dealers, it's that the
thief goes to jail if caught in the act, so it only happens in places where
people reach a level of desperation that isn't present in most other places.

And regulating pawn shops is even sillier, because the thief could just sell
the stolen goods on Craigslist or at a swap meet or a hundred other
alternatives.

These types of criminals are most commonly caught directly by the victims --
because they're the ones with the best incentive to actually do the catching.
The people with the second best incentive are law enforcement. Deputizing
disinterested third parties, much less ones with an active conflict of
interest, is largely useless and generally does more harm than good.

------
chkaloon
Fines are minuscule relative to the transaction amounts, and no jail time for
execs. I'm shocked, SHOCKED, that this has had no effect.

------
imglorp
I'll stand and take my downvotes like an adult, because everyone loves to hate
on misapplied tech, but this is exactly the use case blockchain currency would
be most useful for. Anyone can audit the complete trail of funds from source
to holding to destination.

The challenge would be to get banks on board, because they're making so much
off this ill gotten flow. Once there, their profit (interest and fees) would
also be transparent to everyone, another reason they'd hate this scheme. But
it would be good for taxpayers, governments, and honest bank consumers.

~~~
xchaotic
The cases you see at Bloomberg are well evidence, lack of tech is not a
problem here.

It's a bit like CCTV - the crimes were recorded Blockchain or not.

But they were not prevented, and Blockchain isn't going to help with that.

~~~
HandsAtTheReady
> The cases you see at Bloomberg are well evidence, lack of tech is not a
> problem here.

From TFA "From about 2007 until 2012, Banamex USA, a Citi subsidiary,
processed more than $8.8 billion in transactions with almost no oversight.".

> The cases you see at Bloomberg are well evidence > the crimes were recorded
> Blockchain or not

imglorp suggested "Anyone can audit the complete trail of funds from source to
holding to destination.". Was this evidence you mention publically auditable
(i.e. what imglorp's suggesting would help)?

> Blockchain isn't going to help with that

It's at least plausible that a publically auditable log would have helped spot
these issues.

