The Economist: Unintended Effects of Rules Aimed at Stopping Financial Crimes

As the old saying goes, everyone pays the cost of crime. Costs include direct losses and indirect regulations. The Economist explains that banks are “lending less and shedding customers” due to “strict new rules on capital and liquidity” and avoiding high-risk customers and sectors. Poorest nations are most affected. “Banks in Africa, eastern Europe, Latin America and the Caribbean have been dropped by the Western correspondent banks they relied on to clear dollar and euro transactions,” the article explains. “The result is that one set of international policy goals, designed to choke off flows of dirty money, is undermining another, equally important set of goals, designed to foster development through increased remittances, financial inclusion and support for fragile states.” Governments are cracking down on funds associated with money-laundering, drugs, human trafficking and terrorism, but the rules hurt remittance firms and NGOs, and in turn, increased reliance on cash contributes to more crime. The article suggests that regulators find a way to separate suspicious activity from occasional simple mistakes made by good institutions. The Economist concludes that blocking clean money is just as challenging as letting dirty free flow. – YaleGlobal