Will the Corporate Transparency Act reduce money laundering? Or is it just more box-checking whose impact on financial crime will remain a mystery?
It’s exciting when Congress passes AML laws—lots to talk about. We thought about the CTA when driving around town this week. Passing delis, barbershops, CrossFit gyms, and nail salons, wondering, “Do any of these owners know there is a new law requiring them to register with a small U.S. Treasury bureau none of them have ever heard of?”
It got us thinking: How will we know if the CTA works and reduces money laundering?
When we want to know if something new works, we compare the results of the new thing against the situation from before the new thing started. An easy example is weight loss and fitness. If you want to lose weight, you first weigh yourself. If you want to improve your deadlift, you first find out how much you deadlift.
Then, change your diet and workout routines. Measure again in 3 months. “Hey, I weigh less and deadlift more. Looks like my new diet and training routines worked.”
We don’t know if anything we do in AML works because the government has not established a baseline against which we can compare the “before and after” impact of new regs.
The measures we do have don’t tell us much about AML’s success or failure. Tracking SARs filed is interesting (we guess), but what does it tell us about whether AML regs are effective? If we file 3 million SARs, how should we know we shouldn’t be filing 4 million or just 1 million? No idea.
The AMLA 2020 requires DOJ to submit an annual report on the usefulness of BSA data. This sounds like progress. But as described in Jim Richards recent post (https://lnkd.in/gMEJYwfW) the DOJ’s response when called out for not complying with this requirement was basically, “Bye, Felicia.” We remain clueless about the effectiveness of everything.
Before introducing new regulations, the government, with input from the industry, should establish some money laundering benchmarks. For example, using federal and state investigation data;
▪ How many small businesses placed, layered, or integrated laundered funds in the past five years?
▪ Where were those businesses registered?
▪ Were the registered owners the ones engaged in money laundering?
And perhaps the most essential measure:
▪ How much money is laundered through US-based financial institutions annually?
We realize this, in particular, is a complicated figure to determine. But because it’s a complex figure to determine, it does not mean the government, along with help from “crowd research,” should not try. Otherwise, if we never know from where we start, how will we know how much progress we make (or not)? At some point, there will be no more boxes to check. What then?