Shostack + Friends Blog Archive


The Cost of Following The Money

[Update: There’s a fairly long clarification in the middle of the post, which expands on a sentence that was too brief to be understandable.]

One of the fond dreams of the counter-terror community is to be able to take Deep Throat’s advice, and follow the money. In “New Anti-Money Laundering Regulations and Compliance Solutions Announced,” Andrew Cochran points out that new products are spewing forth to help companies cope with these regulations:

Other regulations governing correspondent banking relationships, long awaited and debated in the international financial community, remain “very close” to issuance, but I understand that the community is still fighting the new burdens that these regulations will impose.

I also examined products offered by WorldCheck, Factiva, RDC, and others (many more than just two years ago (emph added-Ed)) in preventing money laundering and reporting suspicious transactions to regulators and law enforcement. Many are targeting the small- and medium-sized financial institutions which cannot afford to design an in-house solution. … The new insurance and pending correspondent banking regulations will create more markets for these vendors.

Remember, everyone who uses a bank is paying for these regulations and products. New software products that support companies aren’t going to be cheap. [update, 3 Nov: By this, I mean that the economics of selling and supporting products requires that a company have a certain level of sales, either in volume, or price per copy. To sell you a single app and support it, I have to charge my costs, plus. To sell you Word, Microsoft needs to charge you one-one-milionth of their costs. So, the products that are economically viable in this small market will not be cheap. There’s actually a good open source argument here, where companies come together to build the software. It’s not a source of competitive advantage, and that many companies use it help support the argument that whatever it happens to do is ‘commercially reasonable.’]

In closely related news, Ian Grigg points to an Economist article, “Looking in the wrong places:”

Yet all this effort has yielded depressingly few tangible results. America’s Treasury says more than 1,000 grand-jury subpoenas and more than 150 indictments have been handed down, although there has been nothing like that many convictions. In July, an American court sentenced a Yemeni cleric to 75 years in prison for conspiracy to support al-Qaeda and Hamas. In Yemen, “they call me the father of needy people,” he told the court, proclaiming his innocence.

These are easy to advocate for, because they’re unfunded mandates. It’s much harder to demonstrate that they do any good.

One comment on "The Cost of Following The Money"

  • So how effective is all this expensive and, to the customer, irksome, anti-terrorist money laundering stuff ?
    Not effective at all, according the United Kingdom Government:
    “22 Mar 2005 : Column 713W—continued
    Terrorist Assets
    Dr. Vis: To ask the Chancellor of the Exchequer how much money suspected of being linked to terrorist assets (a) worldwide and (b) in the United Kingdom has been frozen since 11 September 2001. [223023]
    Mr. Timms: Since 11 September 2001, 44 accounts totalling some £347,000 have been frozen in the UK. In total, 45 accounts, totalling some £378,000 are currently frozen by UK financial institutions. There is no global figure of the total assets frozen—monitoring frozen funds is a matter for individual jurisdictions.
    All organisations and individuals whose assets have been frozen in accordance with the UN Security Council Resolutions, associated EC Regulations and domestic legislation are listed, by HM Treasury instruction, on the Bank of England’s Financial Sanctions website. Asset freezing is an essential measure in countering the financing of terrorism by denying terrorists and their financiers access to funds across the world. Taking action not only freezes any funds in the UK but also creates a hostile environment to deter terrorists from using the UK’s financial system in future. ”
    £380,000 is a trivial percentage of the money flows passing through the United Kingdom’s financial sector, and not all of this may be down to the actual anti-money laundering regulations or software systems, but simply from arrests of suspects and searches of their homes and offices.

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