I’ve never been more in favor of money laundering than after reading British journalist Oliver Bollough’s new book, Everybody Loves Our Dollars: How Money Laundering Won. That might sound odd, and is certainly not what the author intended, so let me explain.
The marvel that is large-scale supply chains and the global division of labor involving literally billions of people is all coordinated by money changing hands and price signals informing people about the minute-by-minute relative scarcity and desire for various goods and materials. It’s an elaborate human exercise in information exchange and mutual desires compared to what production is possible where, how much, for whom, and in what proportions—though nobody in this vast chain of cooperation needs to know almost any of these ultimate values. Per the old Lionel Robbins definition, economics is the study of “human behavior as a relationship between ends and scarce means which have alternative uses.”
Coordinating scarcity, and weighing up self-reported wants—subject to the resources that can be marshaled for it—is what we do here. As monetary economies, we use money as an informationally-efficient stand-in for reputation, trust, and value—virtues that, up until yesterday in human commercial affairs, constituted the bulk of economic transactions. To accept money in exchange for goods and services, we don’t need to inspect your tax return or know who your parents were. Its very purpose is to abstract away prior transactions, and instead of putting faith its wielder’s good character allows for value exchange between parties that otherwise might never have cooperated.
The virtue of monetary exchange is that I don’t need to vet you, figure out what values you hold, what god you pray to, or which politician you voted for; the neutral medium itself (and its subjectively-assessed future purchasing power) clears the transaction.
It’s against this deep, metaphysical, praxeological, economic-collaboration background that “know-your-customer” laws become economically illiterate: It’s precisely because you don’t know your customer that you’re using money. If you did, you’d be trading in favors or delayed reciprocity or on familial bonds, because then you can directly advance goods and services and not have to resort to money. The point and purpose of money is to be outside of the trust or value-based systems necessary for sustaining nonmonetary transactions. That’s why monetary scholars invoke no-questions-asked criteria for monetary assets. If you have to ask questions, and—by extension—permission, it is no longer money.
Being upset about money laundering, then, becomes a cue for not understanding the purpose of money. Every other error in Bullough’s quite entertaining and well-researched book follows downstream from that point.
A Conflict of Visions: It’s All a Value Judgement
When Bullough gets to cryptocurrencies, he’s already appalled. He sees no point to them but mindless speculations and he, reliably, finds their supporters “so annoying with their evangelical insistence that cryptocurrencies will radically improve the world [that] I don’t want to encourage them by even looking in their direction.” He thankfully sidesteps most routine accusations hurled at Bitcoin, though calls it “environmentally disastrous.” (Did I Groundhog-Day myself back to 2021, or 2017?).
Instead, he discusses the stablecoin Tether, and its controversial founder Paolo Ardoino bragging about Tether’s ability to get around regulations, sanctions, or anti-money laundering (AML) regulations: Ardoino, writes Bullough, was “essentially confessing to everything that police agencies accuse his company of.” And:
Ardoino boasts that USDT is an efficient tool for financing trade, since cargoes can be paid for cheaply and instantly. Intelligence analysts meanwhile say that Russian authorities are using the cryptocurrency to evade the sanctions put on their financial system after the full-scale invasion of Ukraine and to trade oil unimpeded. (p. 185)
Imagine the pearl-clutching shock at someone trading unimpeded. We certainly can’t have that.
As an author—speaking to other pearl-clutching intellectuals—Bullough certainly thinks it’s a gotcha: If your primary interest is in value flowing around the world cheaply and quickly, Tether is a good thing; if, on the other hand, you want to stop criminals keeping their wealth, you will think it is extremely dangerous.
Since the first statement is correct—the purpose and astonishing achievement of an efficient monetary system and gains from trade is precisely that—I guess, then, that the sanctity of the monetary system and freedom of exchange trumps whichever pre-crime surveillance apparatus and sting operation against Bad People™ can be facilitated?
Hence, a conflict of visions: Bullough wishes to dethrone the monetary system and repurpose it for control of what may or may not take place in trade; I wish for money to be neutral and unencumbered, such that it maximally does its social job of coordinating value exchange across time and place—for all 8 billion-plus people, criminals, the financially oppressed, and the unbanked alike, rather than just the permissioned few who pass some regulatory banking hoop and whose transactions you (or some government committee) approve of.
Plus, do we really believe that the Russian government wouldn’t bomb Ukrainians if high-tech components necessary (and the sanctions-evading payments thereto) couldn’t have been shipped? Is it really because fraudsters and child molesters and murder-for-hires—or the scam artists, fraudsters, and sex traffickers that open the book—or other horrendous people can launder their proceeds through the financial system that they do bad stuff?
AML and Monetary Control
As the book comes along, we’re treated to entertaining tales of failures, and head-shaking anecdotes for how ostensibly well-intentioned efforts to make economic life harder for criminals backfires and end up perpetrating racism and entrenching privilege. Bullough’s tale takes us on a journey from small Pacific islands to small European countries and to the Federal Reserve (dollar cash being the original money-laundering tool), as well as back in time to the origin of the Bank Secrecy Act. It’s animated by a sycophantic tale, where governments doing things together can make great improvements to the world.
To add insult to injury, the expense—to the tune of tens of billions in needless compliance costs for banks and, many times, through hurdles (read: frozen bank accounts) and unrealized gains from trade—are borne not by the criminals but by us regular folks.
Of course, Bullough’s intention with the book was to show all the ways in which bad people get around angelically motivated AML obstacles—and, on both accounts, that failed. It instead convinced me that AML regulation does nothing to stop bad transactions (while inconveniencing and damaging the rest of us). It also highlighted that, if you actually want to stop crime, you should do that where criminal acts were committed—not downstream by polluting and burdening the workings of the monetary system.
What AML surreptitiously inserts is a locus of control: which goods or services may be exchanged, and by whom. If men were angels—with excellent values and good intentions—there wouldn’t be much of an issue: All the things I believe are good will be allowed, and the ones I don’t have a hard time. But if men are not angels, we’re back to the dispute over what is good. Think weed stores or cryptocurrency transactions, religious books, or a right to privacy.
Per the very obvious implications of that famous James Madison line, we cannot entrust men with that central position governing what can and cannot be done with money. If your concept of money transmission is diligently checking funds’ origins—one step, two step, infinite hops back—you’re not actually processing money or upholding a monetary system, you’re enforcing an Orwellian version of permissioned credit, a trust-based inspection which makes East German border guards seem tame in comparison. “Money laundering” truly is the catch-all excuse for digging deep into a fellow man’s pockets, undermining his liberty and spitting on his dignity. It’s untoward for a free, modern society.
