It's commonly considered among professionals in the anti-money laundering (AML) field that AML is the ally of police. The reason for this is that AML systems feed data into the police and spy service, which then use this data to inform their investigations. But this concept ignores the reality of AML, which is that it costs money for private businesses to have staff that do AML. AML rules are free to the government but very expensive to the companies they apply to, and those costs are directly passed on to customers. So whether you pay taxes for police or higher prices due to AML, you, the public, are always paying.

A Better Use Of Everyone's Money: Expanding Police

An AML staff person at $60,000 a year, or a senior person at over $100,000 a year, is nearly the cost of a police officer. With many thousands of regulated Money Services Businesses, and then casinos, banks, securities dealers, real estate brokers, insurance companies, accountants, lawyers, and so many other businesses that are deputized into the anti-crime AML system, it's obvious that the money that would otherwise go to policing is sapped by AML compliance. Although no one knows the actual costs, one estimate puts the North American annual compliance costs at around $75 billion (CAD). Canada's share of that is about $7 billion.

If anti-financial crime police were hired, and the overall cost of that service was about the same as the Toronto Police Service (one of the most expensive in the country), $7 billion would buy about 35,000 police officers.

There's a degree of compliance costs that would be unavoidable, even if AML laws didn't exist, but the burden on businesses of attempting to combat financial crime would be enormously lessened with 35,000 police officers dedicated to combatting financial crime. I have a hard time believing that the mafia and international drug gangs operating in Canada would last long against a new financial police force that's equivalent to five times the size of the police force of Canada's largest city.

People who like the government ought to support a huge expansion of policing. These would be quality jobs, and they'd be focused on eliminating the real source of financail crime: criminals. Right now, businesses are largely powerless to stop crime, being confined largely to a block and report role. Tens of thousands of police officers would have the necessary resources to truly go after criminals and put a stop to their activities permanently, by arresting and imprisoning financial criminals.

Canada's reputation amongst other nations would instantly rise. Criminals would quickly know that they should do business elsewhere. Banks, MSBs, and other regulated entities would finally have the support they need, and their reports would be swiftly investigated.

Police in Canada are currently often understaffed, with officers working mandatory overtime, and other abusive workplace practices. They're also under-resourced technologically, and simply don't have the staffing to deal with tidal wave of frauds, international drug trafficking, and other problems that are at the root of money laundering. Where there's no crime, there's no illicit financial flows.

Reducing Crime Isn't Utopian

It may sound utopian to speak of no crime, when the history of people worldwide stands in such stark contrast to this pitch. But it's undeniable that a major expansion of police, dedicated to fighting the sort of crime that AML is aimed at, would be effective. Perhaps it wouldn't get crime down to zero, but it would be strong action, that would be almost certainly stronger than the current system of privatized costs in the form of AML rules. It's a system that's proven to be quite ineffective at stopping crime, and it's time to abandon the experiment in favour of a system that works.

I'm aware that there's recent concerns about policing and abuses in Canada, particularly toward marginalized people, and I'm sympathetic to this concern. There are of course a long list of abuses perpetrated by police forces in every place, but much of this can be mitigated by adopting practices from other countries where these issues are smaller. And if the expanded police force this blog post calls for where actually deployed against the sort of criminals that AML laws target, I think most of this problem would be eliminated. This wouldn't be about expanding policing in minority neighbourhoods, or against vulnerable people. It would be about putting a stop to the billions and billions in illicit money flows that are the result of sophisticated crime. Concerns about abuses can be addressed, and they'd be much easier to address with a large police force that's capable of investigating abuses within the ranks too, because there'd be enough staffing to do that while also dealing with the criminals. At least some part of this problem is actually due to understaffing rather than overstaffing, since administrators are faced with a tradeoff between investigating their own people vs. investigating criminals.

A Compromise

I mentioned above that hiring tens of thousands of police would appeal to people who like the idea of expanding the government and more public sector workers. But this concept would also appeal to businesses, which have to deal with the complexity and cost of attempting to comply with complex AML rules that change every year. All the tinkering in the world will not make these rules work, in the sense that organized crime will be afraid that their money will be seized. And there's no substitute to policing powers, which are backed up by the Criminal Code of Canada. Private people can never act in the same way as police can, and the police are equipped to use violent force against (violent) criminals, in a way that the private sector cannot (and will never be permitted to do). If transforming the full cost of AML compliance into police isn't attractive to people who would like to see less government, a compromise would surely be to halve the size of the new police force, and keep the savings. There's a balance between the current system and the maximal police version that would surely be a savings to everyone and much more effectively end complex crime in Canada in a way that tinkering with AML rules never will.

AML Rules Are Enormously Less Effective Than Police

The annual report of FINTRAC, the federal AML intelligence agency in Canada, for 2021-2022 notes that for the entire year the AML reports they receive only resulted in 1937 disclosures to law enforcement agencies related to money laundering. These numbers are tiny compared to the scale of this problem, and the expense of the compliance system. If the LexisNexis number of $7 billion per year in costs is accurate, that's about $3.5 million in private costs for every disclosure, let alone disclosures that lead to arrests! These are staggering figures. If LexisNexis has overestimated costs by 1000% then that's still a cost of $350,000 per disclosure. This money is surely better spent on direct policing.