S. Anti-Money Laundering Laws

The United States has long enlisted banks and other financial institutions in the country’s efforts to deter and detect crime. Anti-money laundering (AML) laws and related obligations affirmatively require banks to provide the government with detailed information about possible suspicious activity. The costs of complying with these obligations are significant, as are the penalties for failure to comply. Inadequate AML compliance can expose a bank to monetary penalties, cease-and-desist orders, and even closure. Over time, these obligations have consistently expanded in scope, and have led to the growth of an international network through which other countries and their banks facilitate these monitoring efforts.
Despite the centrality of AML laws to banking, the costs of bank compliance and international law enforcement, core issues—such as, the efficacy of these laws in detecting and deterring crime, whether the current legal obligations are well designed to achieve desired aims, whether there may be more effective ways of achieving similar or better outcomes, and the unintended consequences of the current regime—remain largely unexplored. This dearth is particularly striking given the centrality of AML to financial innovation, the structure of the financial system, and an array of timely policy debates. For example, efforts to transfer value in ways not easily detected by the current AML regime are among the forces driving the creation and spread of cryptocurrencies. The banking industry often cites the high costs of AML compliance in trying to explain why so many Americans remain unbanked or under-banked. And the question of who should assume AML responsibilities, if anyone, is a central to current debates about whether the United States should create a central bank digital currency.
The course will be a deep dive into AML laws and the institutions that have grown up around them. We will explore the origins and evolution of AML laws, how they work, how they facilitate law enforcement and may affect the form and frequency criminal activity, how they shape banking and the structure of the regulated financial system, how they have contributed to recent innovations, and the collateral consequences, good and bad, that flow from the regime as it currently exists. The aim will be to understand what is and to explore what might be—mindful of the fact that the types of changes that may be warranted could vary depending on the outcome variable one seeks to maximize.
Students will be required to attend and participate in each of our class sessions. For most sessions, I will have a co-teacher, Anil Kashyap, an economist at Chicago Booth who will be joining in-person when possible and via Zoom when it is not. The class will also feature a number of outside speakers, each of whom will help illuminate a different facet of the current system. Students will have the option of writing six short response papers over the course of the semester or submitting just two response papers and writing one longer essay. Those who opt for the longer essay will have the option of writing on one of the topics we propose or a topic of their choosing. Subject to consultation with Professor Judge, students may also seek to write an even longer research paper and earn one additional credit for supervised research