Tuesday, November 1, 2005 ~ 11:10 a.m., Dan Mitchell Wrote:
Anti-money laundering laws are a stupid way to fight terrorism. The Economist is hardly a left-wing, anti-business magazine, so it is particularly noteworthy that it has an article explaining how anti-money laundering laws – and specifically laws and regulations against terrorist financing – are a gross misallocation of resources. There also is a story behind the story on this issue. High-tax nations such as France and Germany are using the money laundering issue as a way of attacking financial privacy in places like Switzerland and the Cayman Islands, even though so-called tax havens actually have better track records in blocking dirty money. Indeed, the Economist points out that money laundering is more common in places like New York City and London:

The private sector bears the major burden of the effort to choke off funding for terrorists. … Millions of prospective and current customers are hampered by tougher compliance standards. … The compliance costs for financial institutions are substantial. … The total cost of complying with anti-terror financing regulations is difficult to determine… According to a global study of about 200 banks last year by KPMG, those interviewed increased investments on anti-money-laundering activities by an average of 61% in the prior three years. …Yet all this effort has yielded depressingly few tangible results. America's Treasury says more than 1,000 grand-jury subpoenas and more than 150 indictments have been handed down, although there has been nothing like that many convictions. … Many experts, both in government and the private sector, admit that the chances of detecting terrorists' funds in a bank sufficiently far in advance of a planned attack that it can be prevented are incredibly small. "In my view, it's hardly worth the effort," says one banking industry official in Europe. Critics note that a number of terror attacks have occurred this year—in Saudi Arabia, Jordan, Russia, Egypt, Britain, Bali (again), not to mention Iraq—and they often seem to involve very little money. … international regulators keep layering on new laws and recommendations in an effort to keep pace. The result is what Mr Passas calls a "regulatory tsunami". … experts admit that big financial centres such as London and New York—by virtue of the huge money flows going through them—are probably still major hubs for laundered funds and terror financing. … For KPMG's Mr Dillon, the resources already spent on the effort have handed a victory to the terrorists. "The cost to our global economy is so large, they've already had the effect they wanted," he says. "The increasing costs of compliance and technology are a form of terrorism. We're damaging ourselves."