Barclays is pulling out of money transfers to some poor parts of the world. The Murph tells us that:
A number of the world’s largest banks have pulled back on operations in profitable emerging markets as international anti-money laundering rules tighten.
Barclays’ decision follows a similar action by HSBC in the wake of its record $1.9bn settlement with US authorities over money-laundering allegations.
The bank said its decision to close accounts was based on concerns about the checks used by companies to prevent criminal activity, not the countries involved.
“The risk of financial crime is an important regulatory concern and we take our responsibilities in relation to this very seriously,” Barclays said.
That\’s the defence of course. This is the prosecution:
I’ll be blunt. I don’t believe them. If they were worried about money laundering Barclays would pull out of Cayman, the BVI, Jersey and other locations where tax evasion and high level avoidance is rampant – all of it only possible because of the presence of the world’s major banks and the availability of corporate and trust secrecy that facilitates the movement of billions and even trillions of funds behind a veil of respectability, all in the pursuit of greed and excess.
But instead Barclays is pulling out of a sector where the average transaction is a few hundred pounds at most and people are literally dependent for their economic survival on such payments being made.
This stinks of pure hypocrisy and utter indifference on Barclays’ part – and they deserve to be more than roundly condemned for it. The world needs to hold them to account for the suffering they will cause.
So, money laundering regulations. All this know your customer sort of thing. Who is it, where did they get the money from, where\’s it going, is it a bribe, all this good stuff. All those regulations piled upon the banks by the well meaning bien pensants in recent years. These do cost money. And if they do cost more than the bank can usefully earn from the transaction then the bank will just stop doing such transactions. And there\’s a fixed cost to doing such work as well. It\’s not simply 1% or 0.1% of the stream of money. It\’s actually £x per transaction. So, given this we can now answer the point:
pulling out of a sector where the average transaction is a few hundred pounds at most
Yes: because the regulations mean that the fixed costs of a few hundred pounds transaction are too high for the bank to be able to charge a fee out of that few hundred pounds to cover the fixed costs. Whereas running a couple of million through Jersey (say) costs the same amount in fixed costs but those costs are obviously bearable as a percentage of the transaction.
Please note this is going to be true of any level of regulation at all. There will be fixed costs associated with such regulation. Said fixed costs will always bear more heavily on smaller transactions. Thus any system of regulation is going to, in percentage terms, fall hardest on those making small transactions. I\’m sorry to have to break this news but this is just the nature of the beast of fixed costs. And yes, if those fixed costs rise high enough then people will simply stop doing small transactions.
Now, whether there should be all this regulation or not is another matter. But please don\’t shout at people for the inevitable outcome of your own regulatory desires. Regulation to close down money laundering means the costs of legitimate money transfer will rise. And thus some amount of small sized transactions will be priced out of the market altogether. There\’s just no way to avoid this.