The Global Cost Of Anti-Money-Laundering Efforts

Global efforts to prevent money laundering are both ineffective and incredibly expensive to maintain — and poor countries are the ones hit hardest by that cost, according to a commentary for Bloomberg.

At best, the global anti-money-laundering (AML) system “snares just a fraction of 1 percent of criminal income flows,” wrote Charles Kenny, a senior fellow at the Center for Global Development. Citing numbers from a 2006 study, Kenny said global money-laundering transactions are at least 2 percent of global GDP, or roughly $1.5 trillion. Actual money laundering convictions worldwide involve at most hundreds of millions of dollars, and in the U.S., the amounts seized in AML efforts is less than 0.2 percent of all laundered money.

“A system that misses all but a fraction of a percent of criminal financial flows is almost guaranteed to miss terrorism finance in particular, which involves very small sums,” Kenny wrote, noting that no known AML prosecutions have involved terror financing.

But AML efforts still cost money: an estimated $7 billion annually in the U.S. alone for implementing AML regulations from the international Financial Action Task Force (FATF). The cost is disproportionately more in smaller countries such as Mauritius, which has 1.3 million people and 25 government officials working on AML implementation — more AML bureaucrats than the country has opticians — and that’s not counting bank staff who carry out customer investigations.

FATF rules are also why Somalian expatriates can no longer send money home. Last week, the last U.S. bank that allowed remittances to Somalia, Merchants Bank of California, cut off the $160 million to $180 million in money transfers, citing potential liability if a transfer was linked to terrorism.

However, there’s no evidence that was the case, Kenny wrote: “Most [remittances] were being used to support schooling, housing, food, and other living costs for Somalis. The country is one of the poorest in the world and remittances are equal to about one-third of the country’s GDP.”

Remittances worldwide totaled $582 billion in 2014, with $435 billion — 75 percent of the total — going to developing countries. That amount is three times larger than official developmental assistance, according to the World Bank.