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.