Patriot Act Troubles............

Why the War on Money-Laundering is Another Lost Cause
I recently received a letter from a company, which manages one of my mutual funds. The letter informed me that the fund is sharply increasing its management fees to cover its compliance costs with the USA PATRIOT Act and related anti-money-laundering legislation.
That letter got me wondering. Do anti-money laundering laws actually benefit us in any material way? Even ignoring concerns about civil liberties eroding away as politicians fight the War on Laundering, it turns out the answer is very little, if anything.
First, a little background: In 2003 (the latest statistics available), U.S. financial institutions spent about US$3 billion on anti-laundering compliance efforts. That figure doesn't include the billions more annually in taxpayer dollars expended to fund investigations and prosecutions of money launderers, investigate "suspicious transactions," etc.
What benefits are we receiving for this expenditure? Very little. The latest statistics from the U.S. Department of Justice - again from 2003 - show that total money-laundering seizures and forfeitures amount to only about US$700 million each year. Moreover, the number of money-laundering related criminal convictions is actually going down.
One might think these figures prove that the War on Laundering has been "won." Hardly. The International Monetary Fund (IMF), estimates the aggregate size of money laundering in the global economy is anywhere from 2%-5% of the world's gross domestic product (GDP).
Applying this figure to the U.S. GDP of US$11 trillion (again, from 2003) generates an estimate of annual laundering activity in the United States between US$220 billion and US$550 billion.
This means that in 2003, the Department of Justice seized only 0.3% (US$700 million of US$220 billion) of the funds laundered in the United States.
One reason why the Laundering War has failed is because the way that money laundering is investigated. Leads for money laundering investigations come from "suspicious activities reports" (SARs) submitted by financial institutions to the U.S. Treasury's financial intelligence unit, the Financial Crimes Enforcement Network (FinCEN).
Since 2003, civil and criminal enforcement of SAR reporting rules has greatly intensified. Numerous banks have been fined millions of dollars for not reporting transactions that FinCEN deemed suspicious. Some banks have even set quotas (like parking tickets from traffic cops) for increased numbers of SARs to be filed each reporting period. Not surprisingly, that's led to a huge spike in filings - more than doubling from 2003 to 2006. Financial institutions file more than 1.1 million SARs each year.
However, the overwhelming majority of these reports were for innocent activity. Indeed, of the nearly 700,000 SARs filed in 2004, fewer than 900 were actually passed on to a law enforcement agency for follow-up. In other words, 99.87% of SARs don't lead to a criminal investigation.
What does this analysis tell us? First, it reveals that the War on Laundering is a complete failure, a waste of time and taxpayer money. Second, it reveals that the SAR apparatus set up to fight this "war" is a farce, and totally useless for its intended use. Third, it demonstrates that the government is allocating massive resources to analyze completely innocent financial transactions.