"although I know the illiberal prudes in the world, most notably the Great Finger Wagging Hypocrite Power, are all up tight about this"

You would think so, to listen to them but I don't think that's what it's about at all. The real reason the U.S. gets so upset about money laundering isn't drugs or even terrorism, it's taxes.

For years, the USG tried everything they could to crack open respectable tax havens such as Switzerland. They got nowhere. The Swiss always had a policy that they'd divulge account information to foreign governments when they were after someone who had done something that would have violated Swiss criminal law. But tax evasion in Switzerland is merely a civil violation so they would refuse to cooperate with tax investigations. But by waving the banner of drugs and terrorism, the USG and others have gotten many formerly reliable tax havens to fold.

This is most clear in Europe. The EU isn't desperate to eliminate banking secrecy because it's worried about Luxembourgian drug smugglers.

Take terrorism, for instance. Terrorism involves virtually no "money laundering" at all. The whole idea of money laundering is to suck cash that's been earned in the black economy into the formal banking system. But terrorism typically doesn't generate much in the way of illegal proceeds. On the contrary, it sucks money out of the formal banking system and spends in on illegal activity. Terrorism involves "money dirtying" not money laundering.

So all the banking crap in the Patriot Act and other anti-terrorism KYC rules does pretty much nothing to combat terrorism. Terrorists either don't use the banking system or use it in perfectly legitimate ways. If Cousing Abdulah wants to send Cousin Akmed $10,000, what of it?

The new rules do, however, make it much more difficult to avoid taxes. For every terrorist investigation that uses all this newly-collected information, I'd bet there's a hundred -- or more likely a thousand -- tax investigations.

The bottom line is that most Western governments would never have convinced even their own electorates to allow all this monitoring and information-gathering in the name of collecting more taxes. Fighting terrorism is a much easier sell -- and the same rules allow them to tighten the tax-collection screws as well. How convenient.

What Anon said. Well 90%, anyway, after all, the ideologues really do believe in their crusades.

No.
The money laundering rules in the US went into effect after the Mexican president's brother, the prez in this case being Salinas, the last truly unopposed of the PRI line, laundered a bunch of money into Europe through a certain US bank.
The Fed, after the truly amazing rape of Mexico that happened under this turd, finally clamped down on money running around as if nobody actually owned it.
Whatever's in the Patriot Act would just be adding on to the original infrastructure built by the Fed in response to this one economic and political crisis on our doorstep.
Note that the US's current account problem dates from the end of this Mexican president's term. The Mexican currency crisis that ensued was the first instigator of this problem, the next ones being the Russian crisis followed by the Asian collapse. In each case, the countries involved have been bailed out by being allowed to export into the US as much as possible, so as to make themselves whole. The process continues down to this day.
I know, because I was involved heavily in the implementation of the Fed's new rules, and this predated 9/11 by quite a few years.
Ideologues indeed. Try getting your facts straight next time.

pantom, interesting. Does this have anything to do with the increase in organized drug crime in Mexico? The war on drugs etc.

Well, Pantom, there are always multiple reasons for any policy. But the straight facts are that most governments are far more concerned about collecting tax revenue than they are about fighting crime.

"A recently issued report commissioned by the United Nations Office for Drug Control and Crime Prevention suggests that the size of the tax evasion problem is some multiple of the amount of the proceeds of all types of crime. One of the authors of the report, Jack A. Blum, recently testified before the US House of Representatives that ‘most of the world’s money laundering in offshore centres involves tax evasion.’ In its annual report for 1995–96, the multilateral Financial Action Task Force, based in Paris, estimates the size of the money laundering problem to amount to hundreds of billions of dollars annually. If most of this money involves tax evasion, governments and citizens alike should be concerned."

Note that tax evasion is specifically treated as a kind of money laundering.

http://www1.oecd.org/publications/observer/215/e-perez.htm

Note also that the article takes the same dim view of tax evasion as it does of tax avoidance. If tax evasion is some multiple of all types of crime put together, tax avoidance must be many additional multiples of that.

Further proof comes from the EU. As you'll recall, there was a big push a few years ago to eliminate banking secrecy, especially in Switzerland. The EU settled for a Swiss withholding tax instead. That, of course, makes no sense whatsoever if you're worried about criminal money laundering. It makes perfect sense, however, you're trying to discourage people from putting assets out of the reach of your tax authority.

As I wasn't much interested, I don't know if Salinas' brother got his money from drugs or mere government, or government-aided, corruption. But he wanted to do two things: get the money out of Mexico, and put it in a currency more reliable than the Mexican peso. Old story, something the well-off of Mexico do as a matter of course, and that U.S. banks catering to the rich facilitated as a matter of course. Salinas got greedy and did too much of it, thereby forcing the clampdown. I would venture a guess that this has inconvenienced some of the Mexican rich folks since then, but I've lost touch with the place and have no idea, really, if it has or hasn't. More ordinary rich folks would do it only partially for tax evasion, since in Mexico they really wouldn't have much to fear from the tax man really; most of their motivation would be to get their money into a "hard" currency. Of course drug lords would both do it for tax evasion and to hide their money, period. So saying that governments are clamping down mostly because of tax evasion would, statistically, mostly be true, and prove exactly squat. Double counting.
And tax evasion in most cases (not tax avoidance, which is a technical term for legal ways of avoiding taxation) would by definition have to involve money laundering, so once again you're involving yourself in tautologies that prove nothing. It would be supremely stupid if governments didn't treat tax evasion specifically as a form of money laundering.
As for the Swiss example, try invading the place. Even the Nazis weren't that stupid. (I wonder if Napoleon gave it a try? Interesting thing to check.) There's a reason they've been able to maintain their neutrality, and in the face of that, compromise is a perfectly logical position.

The text book example, Al Capone was nailed for tax evasion. The terror angle is bollocks of course, but organized crime usually partners up with tax evasion and laundering.

Just checked Wikipedia, Napoleon succesfully invaded Schweiz, and so did the Austrians and Russians in return. I don't think it would have posed much of a problem to the Nazis, more than Norway did anyway, but that wasn't a doodle either. If they would've they could've.

Pantom, I don't know what's gotten into you. Someone's been dosing your cornflakes or something.

And tax evasion in most cases (not tax avoidance, which is a technical term for legal ways of avoiding taxation) would by definition have to involve money laundering, so once again you're involving yourself in tautologies that prove nothing.

Utter and complete bollocks.

Money laundering is, properly, the process of integrating cash generated by illegal means into the formal banking system. The paradigmatic example is drug money. Sellers on the streets collect small bills for retail drug transactions. Their suppliers buy large quantities of drugs from cartels with cash. The cartels, having collected many millions of dollars in small bills, need to get that money into the formal banking system in order to use it to buy yachts and large villas in Miami. That process is called "money laundering." It turns dirty money into clean money. Money laundering, like in a laundry -- get it? Pretty clever, huh?

But tax evasion, and, god knows, tax avoidance, isn't money laundering. The money is generated through perfectly legal means. Its owner, however, neglects to tell the relevant taxing authority about it. If you inherit 100,000 Swiss francs from your Swiss grandmother and leave it in a Swiss bank earning interest, it's not money laundering. And it doesn't become "money laundering" because you neglect to report the income to your tax authority, even if you're supposed to.

It would be supremely stupid if governments didn't treat tax evasion specifically as a form of money laundering.

This is the fiscal equivalent of "Why do you hate America?" Of course tax authorities would like to label tax evasion as money laundering. It conjures up images of South American drug lords and teenage addicts. Nobody's in favor of "money laundering," right? But folks shaving their tax bill and drug cartels bringing heroin into America's suburbs actually have nothing to do with each other. The former causes a slight drop in government revenue. The latter leaves a trail of death and destruction and causes all sorts of awful knock-on effects, property crime, urban blight, the spread of disease, etc., etc. Equating the two is both intellectually dishonest and highly effective which, I believe, was my original point, more or less.

As pointed out above, the original problem was that the Swiss DID NOT equate money laundering and tax evasion. If you brought them evidence that the account holder had engaged in criminal activity, e.g., was a drug lord, they'd cooperate. If you brought them evidence that the account was being used to evade paying taxes, they would not. I guess the Swiss are "supremely stupid."

As for the Swiss example, try invading the place. Even the Nazis weren't that stupid. (I wonder if Napoleon gave it a try? Interesting thing to check.) There's a reason they've been able to maintain their neutrality, and in the face of that, compromise is a perfectly logical position.

Yes, it's a perfectly logical position, if you don't give a crap about "money laundering" and just want to collect taxes. I hardly know where to begin.

First, I don't believe invasion was on the table. IIRC, the threat was to restrict the activities of Swiss banks in the EU if the Swiss wouldn't deal. Second, I believe Luxembourg is a somewhat easier nut to crack. They, however, got the same deal that the Swiss did, as did Austria and Belgium.

Second, the withholding tax applies only to EU residents. I believe that, in fact, it only applies to EU citizens in practice. If you've got a non-EU passport, you're exempt from whithholding. In other words, South American Drug Lords are in the clear.

Here's a synopsis of the Swiss deal and the new EU rules.

http://www.swiss-advocate.com/de/eu-zinsbesteuerung.htm

Have a look at these new rules and tell me if they do anything whatsoever besides help the EU collect some extra tax money.

As further proof that the EU just doesn't care that much about traditional money laundering, I give you the 500 Euro note. Back when the Euro came on-line, Interpol and many others where aghast that the EU would issue such a large denomination currency as it would be an enormous boon to organized crime. But the EU didn't really care as it issued the 200 and 500 Euro notes actively hoping to replace the $100 USD bill as the currency of choice for, ahh, international cash transactions.

You see, the U.S. has something in excess of 300 billion USD circulating in the form of $100 bills. In excess of $200 billion of that is held outside of the U.S. To put it another way, the U.S. government got a 200 billion cash injection, in large part from organized crime.

The EU wanted their piece of that action and, it appears they're getting it. If they had really cared about fighting "money laundering" rather than revenue, they would never have issued these high denomination notes.