Do they want banks to obey the law or not?

This is an interesting little test here.

Barclays’ decision to ignore the pleas of Olympic gold medallist Mo Farah and cease trading with 100 money transfer firms has taken a fresh twist after one of them took legal action against the bank.

So, there are rules in place to make sure that banks don’t facilitate money laundering etc.

Of course, such rules are bureaucratic and expensive, especially when the bank’s customer is an FX booth or a money remittance service. The whole damn point of the latter being that you turn up with cash at a both in one country and then someone else can walk away with cash from a booth in another. This is the point and purpose of the systems.

But the bank’s liable here. No, not specifically or just because someone might be money laundering. But because they’ve got to be able to prove that no one is (this is what got HSBC that American fine of billions. Not that anyone proved they’d been moving drug money, but HSBC could not prove that it had the paperwork showing that it had followed the bureaucratic rules).

So what is it that the campaigners want? That the banks break the law by not monitoring these transfers sufficiently?

11 thoughts on “Do they want banks to obey the law or not?”

  1. Which is why these regulations/laws should not exist. If there is reasonable suspicion of criminal activity, the police should be able to apply for a warrant to inspect transactions. But making banks into pre-emptive policemen is not just for divers reasons.

    You can’t have global capitalism without the free international movement of money for all.

    Plus, there seems to be little evidence that these regulations reduce either the availability of drugs (which should not be illegal anyway) or the capacity of terrorists to fund themselves, any more than the occasional proud “we seized… street value of $x” raids do.

    And just to be entirely personal, having just had both my personal and business account debit cards cloned somehow, and thus both accounts cleared out (luckily there was not much in either at the time), and finding anecdotally how many people say “that happened to me too” I wish they’d put more effort into getting on top of that problem rather than wasting time on some Somalian sending money to the old country.

  2. I think the issue here is – as you hint – Yankee Doodle regulators going rogue.

    Closing down the money transfers is unfortunate, but that’s what happens as a result.

  3. In answer to your question Tim: what the campaigners want is for the banks to incur ridiculous costs and still fail to meet regulatory requirements in order to provide a vital – vital I tell you – social service that they didn’t even know existed until they read about it in the papers a few weeks ago.

  4. Should banks just regard large regulatory fines/damages claims as a cost of doing business, particularly non US banks in the US? They seem to come up pretty regularly. Either banks are incapable of obeying the law, or regulators are making things up as they go along. Either way banks should make provisions in good years for the fines they’ll pay in bad. A bit like insurers reserve for losses that have arisen but which they don’t yet know about.

    PS AFAIK, if some crook cleans out your bank a/c, that’s the bank’s problem, not yours. They borrow from you, they have to pay you back.

  5. The banks should be entirely responsible for the transfers yet not monitor them in any way. I think that is fair.

  6. @Luke:

    “Either banks are incapable of obeying the law, or regulators are making things up as they go along.”

    I think it’s actually a different variation in that the banks are subject to laws which are both draconian and nebulous, thereby open to regulatory and political fiat.

    As domestic US banks employ lobbyists to manage and restrain said regulatory and political fiat, they are less encumbered by such regulations.

    Although non-US banks with US branches / wholly-owned subsidiaries are allowed to employ lobbyists on a restricted basis (under the Foreign Agents Registration Act) they are unlikely to be as successful as domestic banks due to pro-American bias.

    This whole situation has been exacerbated by the use of extra-territorial legal action by agencies of the US government (mainly the IRS) against Switzerland’s oldest private bank Wegelin & Co which had no US presence. The bank was effectively closed by the IRS for actions which were not illegal in Switzerland.

    With the introduction of FATCA expect the “Berlin Wall” around US Banks to grow higher as non-US banks reject customers tainted by a US birth or residence (even historic) in an attempt to avoid the burden of FATCA compliance.

  7. Does anyone really still use money transfer companies? Most people I know, want to shift cash around the world use the chinese & pakis. Cheaper, more reliable, just as quick. Ask your local newsagent or takeaway.

  8. HSBC didn’t fall foul of some technical regulation. It was moving billions in cash from Mexico to the US without regard to where they came from, in flagrant contravention of anti-money-laundering laws.

    The US authorities do like to extract money from foreign companies, but in this case HSBC could and should have obeyed the law in the first place.

  9. Paul B, to be fair to the US regulators ( and slightly contradicting myself) JP Morgan is doing its bit to get US govt debt down.

  10. ‘HSBC didn’t fall foul of some technical regulation. It was moving billions in cash from Mexico to the US without regard to where they came from, in flagrant contravention of anti-money-laundering laws.”

    It did fall foul of a technical regulation, the regulation requiring them to have the correct documentation for the said transfers.

  11. BiS: I’d assume that Somalia is lower on Chinese and Pakistani businessmen than most of the developing world, since ‘not being murdered’ is a generally expressed preference.

    PaulB: what you’re describing *is* a technical regulation. The only reason it’s illegal to move large quantities of cash without documenting where they come from is insane government control-freakery, all tied in with the Stupid And Pointless War On Some Things That People Enjoy Smoking Or Snorting.

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