The World Spends $200 Billion a Year Fighting Money Laundering. Why Doesn't It Work? Notes on Odd Lots, $100 Bills, Handbags and Carousel Fraud

Contents

1. What this episode is about
2. Key points
3. Further thoughts
4. A number repeated for thirty years: how much should I trust it?
5. So much money, so many reports. Why doesn’t it work?
6. Why does something everyone knows is harmful keep going?
7. Further reading
8. One thing to take away

Cherish it like a brother, its courtesy name is Square-Hole. Lose it and you are poor and weak; gain it and you are rich and thriving. It flies without wings and runs without feet.

— Lu Bao, On the God of Money (Western Jin, late 3rd century; my translation)

What this episode is about

The September 20 episode of Bloomberg Odd Lots went out under the title “Introducing: Bloomberg Money.” Hosts Tracy Alloway and Joe Weisenthal brought on British journalist Oliver Bullough, who wrote Everybody Loves Our Dollars, a book about the dollar and crime, so it’s no surprise the whole hour is about money laundering: how criminal proceeds turn into money you can spend, and why the enormous sums spent to stop it achieve so little.

It opens with Tracy remembering their tour of the Chicago Fed’s cash facility. About $2.4 trillion of US currency is in circulation, and 85% of it is in $100 bills, yet both hosts say they only ever take twenties out of the ATM. Joe admits the last time his pockets were full of hundreds was after an unlicensed poker game in New York, where he “didn’t lose all my money,” and then walked home. I liked that aside, because it sets up the question the rest of the episode chases: people use less cash every year, but more and more $100 bills get printed. So where are they?

Key points

1. The size estimate is a 1990s guess that hasn’t moved in thirty years. The standard figure is 2% to 5% of global GDP, and with world GDP around $100 trillion, that works out to $2 to $5 trillion a year. The range traces back to Michel Camdessus, head of the IMF in the late 1990s, and even then it was a rough estimate. Bullough draws an uncomfortable inference from it. Over thirty years governments have stacked rule upon rule against laundering, and the share still hasn’t fallen, so at most all that effort kept the criminal economy from growing faster than the economy as a whole.

2. Roughly $200 billion a year in compliance produces a pile of reports no one reads. It started with the US Bank Secrecy Act of 1970, and after the Paris G7 created the Financial Action Task Force in 1989, the regime went global. LexisNexis puts global anti-money-laundering compliance (the checks and filings banks do to stay within those rules) at about $200 billion a year. Bullough says that would end world hunger and give everyone clean water, with about $50 billion left over. Suspicious activity reports were meant to be real-time intelligence for law enforcement, but most countries don’t have enough people to read them, so the reports sink into a black hole. A bank that misses something faces a fine north of a billion dollars, while a bank that gets it right gets nothing, which makes filing more the bank’s best strategy.

3. Most of the money never touches a bank. Bank cases get the headlines, like Danske Bank, which was accused of moving about $130 billion over several years for suspicious Russian clients. But global cash smuggling runs to hundreds of billions every year, and trade-based laundering (moving money by buying and selling goods), per Global Financial Integrity in Washington, is about $1 trillion a year. The line I’d hold on to is the last one: regulators watch banks because bank money shows up in a spreadsheet.

4. Goods are money. Suppose $50 billion of cocaine enters the US each year. Then something worth $50 billion has to flow back for the cartels’ books to balance. Part of it is cash, roughly $25 billion smuggled into Mexico annually, and the rest of the hole gets filled with things America makes well, like Caterpillar and John Deere tractors. In Europe it’s luxury handbags heading to China. The simplest version is a $1 million watch: wear it on the plane, sell it at the other end, and the money has crossed the border, while customs only asks you to declare cash above $10,000. Near the end Joe names the metric: “dollar value per unit of spatial volume.” A $100 bill, a Rolex and a jewel share it.

5. The Vancouver model: cash and drugs each travel one leg. Chinese citizens can move only $50,000 a year out of the country, so wealthy Chinese abroad need cash, and Western drug gangs happen to have piles of it. Brokers match the two. Canadian police watched a baffling scene: gamblers were handed bags of banknotes outside casinos, then walked in and lost it all. Zoom out, though, and it makes sense. One payment changes hands in Canada, another in China, and the drug shipments across borders settle the difference. Bullough says the Medici bank worked the same way: deposit in Florence, collect in Bruges, no gold crossing the Alps, with the transfers hidden in the paperwork of the silk and wool trade. Today’s version just adds a layer: collect cash on the street, convert it to stablecoins (crypto tokens pegged to a currency like the dollar), and buy goods across borders.

6. Carousel fraud: conjuring 20% out of thin air. Within an EU country, goods are charged VAT, but between countries they aren’t, and that gap is the whole trick. You import goods from Ireland into the UK, paying no VAT. You sell them to a second UK shell company you control, charging 20% VAT. The second company exports the goods back to Ireland and claims the 20% back from the Treasury. Meanwhile the first company, which owed that VAT, vanishes, hence the official name, missing trader intra-community fraud. There’s no ceiling on the take, so gangs have no reason to fight over turf and cooperate instead, and in practice thousands of shell companies cycle goods back and forth. The UK eventually crushed it with a multi-agency effort, so the fraud moved to the continent, where it now runs about €50 billion a year. The insurance adjusters who unpicked it describe it the way a physicist talks about the inside of the sun.

7. The paradox of banknotes: low demand, record supply. Cash is used in about 9% of UK transactions and about 13% in the US, yet close to $2.5 trillion is in circulation. That’s over $7,000 per American, while surveys find the average adult holds around $430 on hand or at home, an order of magnitude less. The Fed estimates about 65% of dollar notes are abroad, but that only pushes the question one step further out. Bullough’s comparison sticks: imagine streaming booming while VHS production hits a record every year. You’d want to know who’s watching. So why keep printing? Seigniorage, the income a government earns from issuing money. Cash in circulation is an interest-free loan to the government, and $2.5 trillion is about 6% of nearly $40 trillion in US debt. One country quitting big bills achieves nothing, because the euro has a €200 note, criminals just switch currency, and the quitter loses income. The €500 note was nicknamed “the Bin Laden,” since everyone had heard of it and no one had seen it, and after the Paris attacks Europe announced it would stop printing it.

Further thoughts

A number repeated for thirty years: how much should I trust it?

Financial news is full of “a multi-trillion-dollar market.” The bigger and rounder the number, the more it looks like a fact. This episode gave me a way to take one apart.

Step one, trace the source. The 2%–5% ends at one official’s estimate from the late 1990s. Step two, check it against something measurable. Bullough sets $430 of cash held per adult against $7,000 in circulation per person, a gap big enough to sink the official “store of value” explanation. Step three, consider the other reading. A share unchanged for thirty years can mean anti-laundering failed; it can also mean no one has measured again and the figure has been passed along for thirty years. The two readings lead to different conclusions: one says the policy doesn’t work, the other says we don’t know.

I treat “total addressable market” slides in company presentations the same way: find the source, find a measurable cross-check, think of one reason it could be distorted. If it survives all three, I let it into a valuation.

So much money, so many reports. Why doesn’t it work?

Everyone has seen this at work: a department that’s always busy and has nothing to show for it. The episode’s answer sits at the bottleneck.

The anti-laundering pipeline has three stages: banks produce reports, law enforcement reads them, prosecutors bring cases. Money and staff pour into stage one, but stage two is where it jams, and adding capacity upstream of a bottleneck only makes the pile higher. So Bullough’s fix is fewer reports, each one read, with prosecutions feeding back into the system so laundering gets more expensive.

In investing, whenever a company announces a big push into something, whether it’s R&D, compliance or capex, I first ask who receives the output next and whether that stage has capacity. Bank compliance spending is one example: the money gets spent, the fine risk stays, because the asymmetry of heavy penalties for misses and no reward for catches hasn’t changed.

Why does something everyone knows is harmful keep going?

The $100 bill sustains cartels in Colombia and Mexico; the harm stays there and the seigniorage stays in the US. The City of London ran on the same structure for decades: profit here, cost elsewhere. Tracy added at the end that stablecoin reserves go heavily into US Treasuries, one more channel financing the government, one more reason regulators may be slow to crack down.

When I look at a status quo that “everyone says should change but never does,” I list two things: who collects from it, and who bears the harm. When those sit in different countries or different agencies, the status quo lasts a long time, and it takes collective action like an international agreement to move it, so a statement from one country alone I treat as noise for now.

Further reading

• Bloomberg Odd Lots, 2026-09-20, “Introducing: Bloomberg Money,” with Oliver Bullough
• Oliver Bullough, Everybody Loves Our Dollars
• Andrew Bailey’s 2009 speech on the “paradox of banknotes,” given as Chief Cashier of the Bank of England
• Kenneth Rogoff on phasing out large-denomination notes, The Curse of Cash (2016)
• Global Financial Integrity’s estimates of trade-based money laundering

One thing to take away

To find where a system is stuck, check whether anyone reads what it produces.

Here’s something I’ve tried: pick one thing you produce on a regular schedule, a weekly report, a monthly reconciliation, the roundup you post to the family group chat, the minutes for a club meeting. Find someone who received the last one and ask: “Which part of it did you use?” Keep the parts they can name. Leave the rest out of the next one and see if anyone asks for it.

Raw Markdown

This article is an educational discussion of investment method. It is not advice to buy or sell any individual security, offers no target prices, and does not analyze any current holding. Investing carries risk; make your own decisions or consult a qualified professional.