BCL partner John Binns writes for City AM describing anti-money laundering laws as “a weapon of mass distraction: a hugely expensive, sophisticated and likely unstoppable behemoth, designed to serve aims that were not quite what we really wanted.”
Here is a short extract from the article*. If you wish to read the full article, please visit the City AM website here.
‘Sweeping laws push the burden on to businesses and ultimately consumers, who end up accidentally caught as collateral damage of anti-money laundering laws, writes John Binns.
Last week, Nigel Farage likened anti-money laundering laws to “a sledgehammer that misses the nut.” What we have actually created is a weapon of mass distraction: a hugely expensive, sophisticated and likely unstoppable behemoth, designed to serve aims that were not quite what we really wanted.
These laws are meant to stop financial crime by the back door, preventing people from dealing with its proceeds. They are also costly to industry, disruptive to customers, and yet they only rarely result in prosecutions.
Artificial intelligence (AI) experts might recognise anti-money laundering laws as an example of the ‘alignment problem’ – where a system or a machine designed to achieve a goal, because of its rules and incentives, achieves perverse results. The rules and incentives of anti-money laundering laws are all about “red flags” for “suspicious activity”: they require each regulated firm, in each country, to spot such flags, turn away customers, and make reports to law enforcement.
The first problem with the system is that it’s deliberately over-sensitive. Facing prosecution if they fail to report, and with legal protections for “good faith” mistakes, the incentives are all in favour of reporting, creating a huge number of false positives in the system. This is wasteful for industry (chiefly, though not only, the financial sector), but often disastrous for their customers, who can be left without access to banking services or to their money for months or even years on end.’
*This article was first published by City AM on 02 August 2023.