#47 The Burdens of Regulation

The Bank Secrecy act of 1970 was implemented to mandate cooperation between financial institutions and the United States government to detect and/or prevent tax evasion and money laundering. This is more colloquially known as AML/KYC or anti-money laundering/ know your customer regulation.

As apart of this new regulation, the $10,000 FBAR and CRR reporting thresholds were set. This meant that all financial institutions had to file reports on individuals who’s daily aggregate volume met or exceeded that of $10,000.

Unfortunately as we know, the continuous effects of inflation have driven the relative purchasing power of $10,000 to a much lower level in the present day. In fact, the 2020 equivalent purchasing power for $10,000 in 1970 is now approximately $65,000.

Thus, a once inconvenient, albeit understandable regulation for financial oversight increasingly becomes more cumbersome as the relative value of the $10,000 reporting threshold becomes more significant. What was once a more reasonable threshold for reporting financial activity, is now a drop in the bucket for any movement of financial assets.

This places more stress on institutions to maintain reporting requirements, more stress on government entities to investigate daily reports, and more stress on individuals for complying with audits.

It’s not just the time and attention burden of these requirements that is significant, however, as more and more transactions fall under reporting requirements due to the decreases in relative purchasing power, more investigations must happen. These investigations carry a heavy cost for both the private sector and the public sector.

One study suggests that in 2019 the costs of AML reporting requirements for just the financial servicing companies in the US and Canada were upwards of $31.5 Billion, increasing on average 16% over the previous two year period.

We need not wonder why these costs continue to increase, and in fact, the noose of total financial surveillance grows tighter with every dollar printed until this regulation is either repealed or abolished outright. But as we know, governments have no incentive to be held accountable for deficit spending and burdens they place upon the private sector that inhibit investment into productive activities that benefit society as a whole.


Book of the Month:

The Ethics of Money Production by Jorg Guido Huulsman

-“Hoarding per se might be pathological, but it does not deprive other people of what is rightfully theirs. And in particular it does not prevent the efficient operation of the economy”

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