Foxes in the Financial Henhouse; Anti-Money Laundering Surveillance Has Done Little but Eliminate Banking Services
Byline: Richard Rahn
To whom would you be willing to trust with all of your financial and tax information: close family members or the U.S. government and foreign governments, including Russia?
For the last several decades, global liberty-haters have dreamt that all financial privacy would be eliminated. They have sought out a variety of excuses to act as Peeping Toms peering into your bank accounts. In the 1980s, their big push was to enact "anti-money laundering" legislation, with the claim that it would make catching drug dealers and other assorted criminals easier. The United States passed its first anti-money laundering law in 1986 -- despite the fact that no one could objectively define money laundering, because it is not an action but an "intent" to act unlawfully.
In 1989, at the G-7 summit in Paris (before Russia joined and made it the G-8), it was decided to create an international organization dedicated to combating money laundering -- duplicating the efforts of the International Monetary Fund (IMF) and the Organization for Economic Cooperation and Development (OECD) which already had the responsibility. The new organization was called the Financial Action Task Force on Money Laundering (FATF). Over time, the task force expanded its membership to include some corrupt governments such as Russia (which is alleged to engage in money laundering). By the way, a Russian government official, Vladimir Nechaev, is now president of the task force.
As a result of all the global anti-money laundering regulations, total compliance costs for financial institutions are now in the hundreds of billions of dollars. Basic banking and other financial services have been reduced and even eliminated for tens of millions of people around the world. Have all of these regulatory costs done any good? In an effort to answer that basic question, the Center for Law and Globalization (a partnership of the University of Illinois College of Law and the American Bar Association) published a report in January, "Global Surveillance of Dirty Money." The authors had the full cooperation of the IMF and FATF, yet the conclusions were damning. One of the authors of the report, Terence Halliday, stated: "We find that the current system is pervasive and highly intrusive but without any evidence of tangible effect." The authors were quoted in The Wall Street Journal as saying the IMF and FATF have built a "Potemkin village" and a "paper reality" based on "a plausible folk theory," rather than data and evidence of what works.
Bad ideas never stop governments. Rather than reverse course, they tend to double down. The U.S. Congress passed legislation in 2010 enabling the Treasury Department to create the Foreign Account Tax Compliance Act (FATCA) -- slated to go into effect (after several delays) on July 1. Basically, the act requires foreign financial institutions to report to the Internal Revenue Service about any U. …