I am about to shut down for a fortnight’s holiday – my next blog post will be on Monday 18 June – but I thought I would like to leave you with a clever idea to mull. No, it’s not my clever idea: it’s one from a recently-published book called “Radical Markets: Uprooting Capitalism and Democracy for a Just Society” by Eric Posner (a law professor at the University of Chicago) and Glen Weyl (an economist at Microsoft). I’d like to claim that I picked it up for holiday reading but honesty demands that I admit to reading a review of it in The Economist.
As the MLROs among you will know, one of the most vexed aspect of AML is “source of funds” and its even more complicated and opaque cousin “source of wealth”. (The former is the money used for one particular transaction; the latter is a client’s wealth in general.) Most AML legislation requires that, for high risk clients at least, firms “take adequate measures” or “make reasonable efforts” to ascertain source of funds for each transaction, and source of wealth in general – with the aim being to ensure that they are not accepting the proceeds of crime (often, money stolen from the public purse by corrupt leaders). As you can imagine, getting clients to tell the whole story is tricky enough – after all, can you remember the original source of all of your assets? And getting them to prove the entire story with documentary evidence is nigh on impossible. But Posner and Weyl have come up with a suggestion – albeit conceived with a different purpose in mind – which could be interesting…
In their book, the pair look at the difficulty of getting people – particularly wealthy people – to declare all of their assets, as a precursor to being able to tax them efficiently. And this is their suggestion (as explained in the book review in The Economist – I shall now admit that I have read only the review, not the book itself…): “Every individual would put a value on each item she owned, down to the last pencil (potentially a laborious exercise), and would be taxed on her total declared wealth. The twist: she must stand ready to sell any item at its declared value, should a buyer emerge. To see off interested purchasers, she would have to set the value high, and thus incur a hefty tax that would compensate society. If she set the price low, to minimise her tax burden, her assets would be bought up.”
Might such an approach work during source of wealth enquiries? I’ll leave you with that (slightly mischievous) thought as I disappear from view for a fortnight.