All in the mind

I have a daily Google alert that sends me anything containing the phrase “money laundering”, and earlier this month it sent me down the rabbit-hole of reading about “mental money laundering”.  It’s not – as sometimes happens – the simple adoption of the phrase by an unrelated subject; there is actually something in it that is of relevance and interest to MLROs and other AML-ers.

There is a sphere of behavioural science that looks at how mental accounting – i.e. our propensity to treat money differently depending on, for instance, where it came from or how we intend to use it – affects decision-making.  This goes against the perceived wisdom (much beloved of those who oppose AML efforts) that money has no smell – that there is not good money or bad money, dirty money or clean money, but just money.  Rather, recent research shows that we treat money more frivolously if we came by it easily – a win on the lottery, perhaps, or finding a tenner in the street.  Indeed, I remember my mother winning an outside bet on a horse in the Grand National and calling it her “mad money” – and spending some of it on a tennis racquet for me, which was certainly not part of her usual strict household budget.

Money that we come by unethically falls into the same “mad money” category.  Numerous experiments have demonstrated that people are more generous with money they’ve earned deceitfully (perhaps because they know, in their heart of hearts, that they don’t really deserve to keep it).  So what to do if you’ve acquired some money in an underhand manner but don’t want to feel that uncomfortable pressure to give it away?  Why, you indulge in a spot of mental money laundering.

In a series of experiments, researchers set up a game in which participants were incentivised to lie.  They then offered all participants (the honest ones and the liars) the opportunity to donate to charity – and the ones who had taken the incentive to lie gave more generously.  A subset of those who had taken the incentive were entered into a lottery, where they “won” exactly the same amount as they had gambled.  When they were then offered the opportunity to donate to charity, they were less generous than those who had taken the incentive but not gambled – which suggests that, in their minds, they had taken the stain of dishonesty from the money by putting it through the lottery.  The same effect was observed when those who had lied were offered a chance to pool their money with that of honest people – their subsequent pattern of donation (matching that of the honest people) suggested that they now considered their pooled money to be cleansed.

In short, if a firm launders money for a client, they are providing a double service: they are both laundering the money and improving the client’s mental wellbeing.  How very marvellous.

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8 Responses to All in the mind

  1. patersonloarn says:

    The idea of ‘mad money’ is incredibly useful for a project I’m working on. Thank you so much!

  2. Fraudsters Diary says:

    I find this absolutely fascinating and it goes a long way to explaining the largesse enjoyed by bad people who simply cant buy enough ‘bling’ with the proceeds of crime.

    • People’s attitude to money is always fascinating. I think a lot comes from upbringing and early example: my mother always told me to make sure I had my own money so that I wasn’t ever reliant on a husband (like she was – along with much of her generation) and it was formative advice. And as an adult I have noticed that the world is split into two types of people: those who recognise the concept of “enough”, and those who do not. For the latter, they can be as rich as Croesus and will never be satisfied.

  3. Gareth Marklew says:

    Interesting stuff. I know there are behavioural economic theories which suggest that people tend to assign greater values to their losses than to their gains (which can help explain why people committing tax fraud may find no inherent contradiction in condemning benefit fraudsters): I wonder if that feeds into it too: the fact the gain from the illicit behaviour is seen as less valuable is another encouraging factor for people to spend it frivolously, but were someone to take it away from them it would be seen as a loss, and valued more highly, at which point having put in the effort to launder it, it’s not seen as dirty anymore.

    • I had to read this a few times, Gareth, but I think you’re right: people do indeed assign greater value to a loss than to a gain, and this may well feed into their varying attitudes towards money they have come by legitimately or easily or criminally.

  4. Fiona Davies says:

    I just love the way you articulate these things. This also supports the thinking as to why many highly corrupt leaders ( PEPS) believe they are helping the people in their ” generous ” giving back to society, after bleed they own countries dry …

    • Welcome to the blog, Fiona, and thank you for your comment. Yes, corrupt PEPs may well genuinely convince themselves that their donations are generous and laudable, when they are simply returning to their people what is rightfully theirs!

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