Financial technology blogger Patrick McKenzie has written a recommended series in two parts (first, second) on the sorts of Know Your Customer (KYC) and anti-money-laundering programs under which “the financial system has been deputized to act as law enforcement.” One of his recurring themes is that these and related laws are “not straightforward in how they achieve their goals.”

Take for example the laws against lying to banks. These are extremely stringent federal laws, barbed with stiff criminal penalties. You might assume the main aim of these laws is to keep people from swindling banks themselves. McKenzie explains how they fit into the wider goal of pulling financial institutions into the service of law enforcement:

[Lies told to banks] will be recorded with exacting precision, for years, by one of the institutions in society most capable of keeping accurate records and most findable by agents of the state.

This means that if your crime touches money, and much crime is financially motivated, and you get beyond the threshold of crime which can be done purely offline and in cash, you will at some point attempt to interface with the banking system. And you will lie to the banks, because you need bank accounts, and you could not get accounts if you told the whole truth.

The government wants you to do this. Their first choice would be you not committing crimes, but contingent on you choosing to break the law, they prefer you also lie to a bank.

That may be a shocking way of putting it. But as McKenzie explains, your decision to lie on a bank form — again, whether or not the bank itself was harmed in any way — will tend to make prosecutors’ job a whole lot easier than if they had to prove out an underlying substantive crime. (He adds the obligatory example of Al Capone getting nailed for tax evasion.) “Particularly in white collar crime, establishing complicated chains of evidence about e.g. a corporate fraud, and mens rea of the responsible parties, is not straightforward.” If prosecutors can show lying to a bank, however, they may get to pile up a separate wire charge fraud for every transaction, often adding up to an intimidating cumulative penalty.

Which prosecutors will take notice of, and then say that in lieu of them prosecuting you for all of that and winning, you should probably take the plea deal….

You will see this over and over and over again in federal indictments: two pages of backstory about the crime‑y part of the crime, and then ten pages of an exacting reconstruction of how the money was moved and which lies in particular were told about the money movement. …[These tools for prosecutors] are an explicit goal of the KYC regime even if it doesn’t say that on the tin.

There’s much more of interest in McKenzie’s posts. I’ll plan to return with other highlights.