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Archive for the ‘Financial Privacy’ Category

Ever since the bureaucrats at the Organization for Economic Cooperation and Development launched their attack on so-called harmful tax competition back in the 1990s, I’ve warned that the goal has been to create a global tax cartel.

Sort of an “OPEC for politicians.”

Supporters of the initiative said I was exaggerating, and that the OECD, acting on behalf of the high-tax nations that dominate its membership, simply wanted to reduce tax evasion. Indeed, some advocates even said that the effort could lead to lower tax rates.

That was a nonsensical claim. I actually read the various reports issued by the Paris-based bureaucracy. It was abundantly clear that the effort was based on a pro-tax harmonization theory known as “capital export neutrality.”

And, as I documented in my first study on the topic back in 2000, the OECD basically admitted the goal of the project was to enable higher taxes and bigger government.

  • Low-tax policies “unfairly erode the tax bases of other countries and distort the location of capital and services.”
  • Tax competition is “re-shaping the desired level and mix of taxes and public spending.”
  • Tax competition “may hamper the application of progressive tax rates and the achievement of redistributive goals.”

The OECD’s agenda was so radical that it even threatened low-tax jurisdiction with financial protectionism if they didn’t agree to help welfare states enforce their punitive tax laws.

At first, there was an effort to push back against the OECD’s tax imperialism – thanks in large part to the creation of the pro-competition Center for Freedom and Prosperity, which helped low-tax jurisdictions fight back (I almost got thrown in a Mexican jail as part of the fight!).

But then Obama got to the White House and sided with Europe’s big welfare states. Lacking the ability to resist the world’s most powerful nations, low-tax jurisdictions around the world were forced to weaken their human rights laws on privacy so it would be easier for high-tax countries to track and tax flight capital.

Once that happened, was the OECD satisfied?

Hardly. Any victory for statism merely serves as a springboard for the next campaign to weaken tax competition and prop up big government.

Indeed, the bureaucrats are now trying to impose minimum corporate tax rates. Let’s look at some excerpts from a report in the U.K.-based Financial Times.

…large multinationals could soon face a global minimum level of corporate taxation under new proposals from the OECD… The Paris-based organization called…for the introduction of a safety net to enable home countries to ensure their multinationals cannot escape taxation, even if other countries have offered them extremely low tax rates. …The proposals would…reduce incentives for countries to lower their tax rates… The OECD said: “A minimum tax rate on all income reduces the incentive for…tax competition among jurisdictions.”

Sadly, the Trump Administration is not fighting this pernicious effort.

Indeed, Trump’s Treasury Department is largely siding with the OECD, ostensibly because a one-size-fits-all approach is less bad than the tax increases that would be imposed by individual governments (but also because the U.S. has a bad worldwide tax system and our tax collectors also want to reach across borders to grab more money).

In any event, we can safely (and sadly) assume that this effort will lead to a net increase in the tax burden on businesses.

And that means bad news for workers, consumers, and shareholders.

Moreover, if this effort succeeds, then the OECD will move the goalposts once again and push for further forms of tax harmonization.

I’ll conclude by recycling a couple of videos produced by the Center for Freedom and Prosperity. Here’s my analysis of the OECD.

By the way, the OECD bureaucrats, who relentlessly push for higher taxes on you and me, get tax-free salaries!

And here’s my explanation of why tax competition should be celebrated rather than persecuted.

I also recommend this short speech that I delivered earlier this year in Europe, as well as this 2017 TV interview.

Last but not least, here are two visuals that help to explain why the OECD’s project is economically misguided.

First, here’s the sensible way to think about the wonky issue of “capital export neutrality.”

Yes, it would be nice if people could make economic decisions without having to worry about taxes. And sometimes people make inefficient decisions that only make sense because they don’t want governments to grab too much of their money.

But the potential inefficiencies associated with tax planning are trivial compared to the economic damage caused by higher tax rates, more double taxation, and a bigger burden of government spending.

Now let’s consider marginal tax rates. Good policy says they should be low. The OECD says they should be high.

Needless to say, people will be less prosperous if the OECD succeeds.

That’s why I fight on this issue, notwithstanding personal attacks.

P.S. Senator Rand Paul is one of the few lawmakers in Washington fighting on the right side of this issue.

P.P.S. If you want even more information, about 10 years ago, I narrated a three-part video series on tax havens, and even a video debunking some of Obama’s demagoguery on the topic.

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I’m not a big fan of so-called anti-money laundering (AML) requirements.

And things are getting worse because these laws and rules increasingly are part of a Byzantine web of extraterritorial mandates – meaning nations trying to impose their laws on things that happen outside their borders.

Bruce Zagaris, a lawyer with special expertise in international legal issues, just wrote a study on this issue for the Center for Freedom and Prosperity Foundation.

Here’s how he frames the issue.

From the introduction of anti-money laundering laws in 1986, the United States government has led international efforts to prevent and prosecute money laundering…the U.S.’s unilateralism in the financial enforcement arena has alienated smaller jurisdictions and led to a substantial increase of costs for cross-border transactions. This article examines the trade-offs of the U.S.’s unilateral approach and argues for a rebalancing of the expanding financial enforcement regime. …under the “territorial” theory of extraterritorial jurisdiction, the U.S. has proactively asserted that it has the right to regulate criminal acts occurring outside the U.S. as long as they produce effects within the United States. …A criminal statute which Congress intends to have extraterritorial application may reach a defendant who has never even entered the U.S. if s/he participated in a conspiracy in which a co-conspirator’s activities occurred within the U.S.

In part, this is a problem of the United States trying to dictate policy in other nations.

But what goes around, comes around. As Bruce explains,the European Commission is trying to coerce American territories into changing their policies.

On February 13, 2019, the European Commission blacklisted 23 jurisdictions for their weak regulation of AML/CTF policy, increasing the level of oversight that European banks would have to overcome in conducting business with said jurisdictions. The list included four U.S. territories – Puerto Rico, Guam, American Samoa, and the Virgin Islands… The U.S. Treasury Department immediately and swiftly condemned the blacklist, noting that it had “significant concerns about the substance of the list and the flawed process by which it was developed.” The Treasury further stated that it did not expect U.S. financial firms to pay any heed to the blacklist.

All this cross-border bullying would be bad news even if the underlying laws were reasonable.

But Bruce concludes by explaining that this is not the case.

The result of over-aggressive application of extraterritorial jurisdiction by the U.S. and the EU for anti-money laundering and prosecution of financial institutions and officials, together with the use of informal organizations, such as FATF, to establish new AML/CFT standards, has led to increasing exclusion of countries (called de-risking) and other depositors, especially in small jurisdictions. It has also led to substantial increase of costs for cross-border transactions, as financial institutions must increase AML due diligence, including Know Your Customer, Customer Due Diligence, and the requirement to report suspicious transactions, as well as be subject to prosecution and regulatory enforcement actions. National laws and international standards should have a cost-effect requirement, especially as they continually impose new requirements on the private sector and impede normal commerce and privacy.

All this extraterritoriality has economic implications.

Richard Rahn, in a column for the Washington Times, opines about the CF&P report.

…rarely do government leaders fully think through the effects of their actions — extraterritorial application of law being a prime example. …Noted legal scholar Bruce Zagaris, who specializes in international financial crime, has written a new paper for the Center for Freedom and Prosperity Foundation… the United States has proactively asserted it “has the right to regulate criminal acts by non-U.S. citizens occurring outside the U.S., as long as they produce effects in the U.S.” As can easily be seen, such a definition is a never-ending slippery-slope, which is causing great conflicts among governments. As a result of the increasingly expansive view of U.S. courts to take cases and enforce judgments extraterritorially, courts and legislatures in other countries are also asserting extraterritorial enforcement authority.

Richard explains why this is bad news for those who care about economic growth.

…It is difficult enough for businesses and individuals in any one jurisdiction to understand all the laws and regulations that apply to them, but once governments begin to extend their laws and regulations to foreign jurisdictions, the global financial and legal system begins to melt down. Laws and regulations are often in conflict, so those who are engaged in multiple legal jurisdictions are increasingly at risk — which causes them to rationally de-risk by withdrawing investment from those entities least able to defend themselves. The result is slower world growth and job creation. …Clear global rules need to be established as to when extraterritorial application of laws is justified and not justified. Issues like dual criminality in tax, anti-money laundering and terrorist finance need to be addressed to bring some rationality and fairness to the system. And finally, procedures need to be established so that any jurisdiction can challenge a rule that does not meet a reasonable cost-benefit test.

I’ll close by making two points.

First, politicians and bureaucrats claim that laws and regulations against money laundering are designed to fight crime. Don’t believe them. Money laundering is mostly a problem in “onshore” nations. The real motive is to undermine financial privacy so governments can track – and tax – capital around the world.

Second, American politicians and bureaucrats are playing with fire. The more we try to bully other nations to enforce our bad tax laws, the greater the risk that other governments no longer will use the dollar as a reserve currency. That would be costly to the U.S. economy.

P.S. Senator Rand Paul is one of the few heroes on this issue.

P.P.S. Click here for a good summary article on why laws should be limited by borders.

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When I write about the benefits of trade, I periodically point out that America has a trade deficit because it has a foreign investment surplus.

And since investment is a key driver of economic growth and rising wages, that’s a good outcome.

It basically means that foreigners who earn dollars by exporting to America are helping to finance America’s future prosperity by then plowing that money back into our financial markets (see this video for more details).

That’s the good news.

The bad news is that politicians are making cross-border investment more difficult.

They are using tax and regulatory policies to hinder the flow of money, just like they use protectionist policies to hinder the flow of goods and services.

A new report from the Center for Freedom and Prosperity, authored by Bruce Zagaris, explains this unfortunate development. He starts by explaining some of the bad policies imposed by Washington.

The ever-growing complexity and reach of the U.S. tax system impinges on the ability of U.S. taxpayers to live abroad, work abroad, open bank accounts abroad, or conduct business abroad. …These developments create a challenging environment, with taxpayers being subject to onerous – and sometimes conflicting – requirements. The complex array of obligations put taxpayers in legal jeopardy as governments threaten to impose sanctions on investors and businesses… The U.S. has even proactively prosecuted individuals and companies for cross-border tax activities that do not violate American laws. …The paperwork and reporting requirements for cross-border economic activity are extensive. …The icing on the cake of intrusiveness and costly compliance is the Foreign Account Tax Compliance Act.

FATCA is horrid legislation, perhaps the single worst part of the internal revenue code.

And bad policy from the U.S. has given other nations an excuse to adopt similar bad rules – aided and abetted by statist international bureaucracies such as the European Commission and Organization for Economic Cooperation and Development.

The difficulties caused by extraterritorial taxation are exacerbated by similar moves by other nations, often implemented as a response to aggressive policies by the United States. … the OECD has developed compliance and enforcement initiatives. …extraterritorial tax rules also are impinging on corporations. …The EU has taken a series of aggressive steps to impose tax on cross-border transactions. …Overly aggressive tax compliance and enforcement initiatives erode globalization, impede the ability of normal commerce and the movement of people, capital, and goods, and threaten privacy.

I especially like Bruce’s conclusion. All of the rules that stifle and hinder cross-border investment only exist because politicians have adopted bad tax laws.

Most of the policies reviewed above are only necessary because governments not only tax income, but also impose extra layers of tax on income that is saved an invested, exacerbated by decisions to impose such tax laws on income earned outside national borders. In a neutral, territorial tax system that taxes economic activity only one time, such as the Hall-Rabushka flat tax, almost all international tax conflicts disappear.

Amen. If we had a flat tax, there would be no case to be made for these bad policies.

Writing for the Washington Times, Richard Rahn of the Institute for Global Economic Growth cites this new study as he warns that an ever-expanding web of global tax rules is throwing sand in the gears of the global economy.

Global economic growth, particularly foreign investment, is slowing. One reason is likely the growing complexity of engaging in cross-border financial transactions. Major companies, banks and other financial institutions have been required to pay, in some cases, multi-billion-dollar fines to various governments for some alleged tax or other violation. The question is: Why is this occurring when virtually all of these institutions have compliance officers, tax lawyers, accountants, auditors, etc.? Much of the problem seems to stem from the ever-changing regulations and laws among countries, which are increasingly impossible to understand and comply with, even by the most sophisticated businesses. …The Center for Freedom and Prosperity Foundation has just published an important paper by the highly regarded international tax lawyer Bruce Zagaris, titled “Why the U.S. and the Worldwide Tax Systems Have Run Amok.” …Overly complex and even incomprehensible rules govern many international wealth and business transfers, as well as very onerous reporting requirements for people that have foreign interests. …In his paper, Mr. Zagaris details the problems caused by FATCA and a number of other international tax-related rules and regulations. Many of the rules and regulations would never meet basic cost-benefit analysis. They create much pain for little or no gain.

I would modify that last sentence.

The only “gain” from all these tax rules is a comparatively small amount of additional tax revenue for politicians (Obama originally promised $100 billion annually from FATCA and the actual law is projected to collect than $1 billion per year).

Yet there is great pain imposed on the private sector.

Moreover, laws to hinder cross-border capital flows are especially disadvantageous for the United States, as illustrated by this chart from Bruce’s report.

Sadly, damage to the productive sector of the economy is not something that politicians lose sleep over.

After all, they wouldn’t be imposing risky extraterritorial policies if they actually cared about what’s best for the nation.

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I’ve written repeatedly about how anti-money laundering (AML) laws are pointless, expensive, intrusive, discriminatory, and ineffective.

And they especially hurt poor people according to the World Bank.

That’s a miserable track record, even by government standards.

Now it’s time to share two personal stories to illustrate how AML laws work in practice.

Episode 1

Last decade, I wrote an article for a U.K.-based publication that focused on the insurance industry. I didn’t even realize they paid, so I was obviously happy when a check arrived in the mail.

The only catch was that the check was in British pounds and various charges and conversion fees would have consumed almost all the money if I tried to deposit the money in my local bank.

But that wasn’t too much of a problem since I had an upcoming trip to give a speech in England.

I figured I would swing by the British bank where the magazine had an account, show them my passport, and get my cash.

Oh, such youthful naiveté.

Here’s what actually happened. I stopped by a branch and was told that I couldn’t cash the check because anti-money laundering rules required that I have an address in the U.K. (my hotel didn’t count).

Needless to say, I was a bit irritated. Though I didn’t give up. In hopes that my experience was an anomaly (i.e., a particularly silly teller with a bureaucratic mindset), I stopped at another branch of the bank.

But that didn’t work. I got the same excuse about AML requirements.

And I was similarly thwarted at a third branch. By the way, the tellers sympathized with my plight, but they said the government was being very strict.

So I figured the way to get around this regulatory barrier would be to sign the check and have a friend deposit the money in her account and then give me some cash.

But her bank said this was also against the AML rules.

Fortunately, we got lucky when we went to another branch of her bank. A teller basically acknowledged that government’s rules made it impossible for me to get my money and she decided to engage in a much-appreciated act of civil disobedience.

This episode was annoying, but the silver lining is that I was in the U.K. to speak at an international economic crime conference in Cambridge on the topic of money laundering.

So I began my speech a day or two later by pseudo-confessing that I had just violated the nation’s silly and counterproductive laws on money laundering (I said “this may have happened to me” to give me some legal wiggle room since the audience was dominated by government officials, and I didn’t want to take any risks).

Episode 2

Today, I had my second incident with anti-money laundering laws.

I have a friend from the Caribbean who now operates a small Dubai-based business and he asked me if I could use Western Union to wire some money to an employee in the Dominican Republic.

I’ve done this for him a couple of times in the past (it is far cheaper to send money from the U.S.), so I stopped by a branch this morning, filled out the paperwork and sent the money.

Or, to be more accurate, I thought I sent the money.

As I was walking out, I got a text from Western Union saying that they put a hold on the transfer and that I needed to call a 1-800 number to answer some questions.

So I made the call and was told that they blocked the transfer because they were trying to “protect me” from potential consumer fraud.

It’s possible that this was a potential reason, but I immediately suspected that Western Union was actually trying to comply with the various inane and counter-productive AML laws and regulations imposed by Washington.

My suspicions were warranted. Even though I explained that I wasn’t a victim of fraud and answered 10 minutes of pointless questions (how long did I know my friend in Dubai? when did I last see him? what would the employee use the money for?), Western Union ultimately decided to reject the transfer.

Why? I assume because AML laws and regulations require companies to flag “unusual transactions,” and financial institutions would rather turn away business rather than risk getting some bureaucrat upset.

So my unblemished track record of being a successful “money launderer” came to an end.

But here’s the real bottom line.

Other than wasting about 30 minutes, I didn’t lose anything. But a small business owner will now have to pay $150 more for a transaction, and an employee from a poor country will have to wait longer to get money.

In some sense, even Western Union is a victim. The company lost the $20 fee for my transaction. But that’s probably trivial compared to the money that they pay for staffers who have the job of investigating whether various transfers satisfy Uncle Sam’s onerous rules.

Even my “successful” example of money laundering in Episode 1 was costly. I lost about two hours of my day.

And if I wasn’t for the nice teller who decided to break the law, I probably would have lost out on about $100. Perhaps not worst outcome in the world, but now think about how poor people suffer when they suffer similar losses thanks to these policies.

Remember, by the way, all these costs aren’t offset by any benefits. There is zero evidence that AML laws reduce underlying crime rates (which was the rationale for these laws being imposed in the first place!).

P.S. You may not think AML policy lends itself to humor, but here’s an amusing anecdote involving our former President.

P.P.S. Some folks on the left use AML arguments to justify their “war on cash,” and they’re pushing to restrict cash as an interim measure.

P.P.P.S. Leftist politicians frequently accuse so-called tax havens of being sanctuaries for dirty money, but those low-tax jurisdictions have much better track records than onshore nations.

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Beginning in the 1980s, money-laundering laws were enacted in hopes of discouraging criminal activity by making it harder for crooks to use the banking system. Unfortunately, this approach has been an expensive failure.

Amazingly, some politicians actually want to make these laws even worse. I wrote last year about some intrusive, expensive, and pointless legislation proposed by Senators Grassley, Feinstein, Cornyn, and Whitehouse.

Now there’s another equally misguided set of proposals from Senators Rubio and Wyden, along with Representatives Pearce, Luetkemeyer, and Maloney. They want to require complicated and needless ownership data from millions of small businesses and organizations.

David Burton of the Heritage Foundation has a comprehensive report on the legislation. Here’s some of what he wrote.

Congress is seriously considering imposing a beneficial ownership reporting regime on American businesses and other entities, including charities and churches. …the House and Senate bills…share three salient characteristics. First, they would impose a large compliance burden on the private sector, primarily on small businesses, charities, and religious organizations. Second, they create hundreds of thousands—potentially more than one million—inadvertent felons out of otherwise law-abiding citizens. Third, they do virtually nothing to achieve their stated aim of protecting society from terrorism or other forms of illicit finance. …Furthermore, the creation of this expensive and socially damaging reporting edifice is unnecessary. The vast majority of the information that the proposed beneficial ownership reporting regime would obtain is already provided to the Internal Revenue Service.

Richard Rahn criticizes this new proposal in his weekly column.

…what would you think of a member of Congress who proposes to put a new regulation on the smallest of businesses that does not meet a cost-benefit test, denies basic privacy protections and, because of its vagueness and ambiguity, is likely to cause very high numbers of otherwise law-abiding Americans to be felons? …Some bureaucrats and elected officials argue that the government needs to know who the “beneficial owners” are of even the tiniest of businesses in order to combat “money-laundering,” tax evasion or terrorism. …Should the church ladies who run the local non-profit food bank be put in jail for their failure to submit the form to the Feds that would give them the exemption from the beneficial ownership requirement? …Given how few people are actually convicted of money-laundering, the overwhelming evidence is that 99 percent of the people being forced to submit to these costly and time-consuming proposed regulations will not be guilty of money-laundering, terrorism or whatever, and thus should not be harassed by government.

Writing for the Hill, J.W. Verret, an expert in business law from George Mason University Law School, highlights some of the serious problems with this new regulatory scheme.

Legislation under consideration in Congress, the Counter Terrorism and Illicit Finance Act, risks tying entrepreneurs’ hands with even more red tape. In fact, it could destroy any benefit some small businesses stand to gain from the tax reform legislation passed last year. It would require corporations and limited liability companies with fewer than 20 employees to file a form with the Treasury Department at the time of formation, and update it annually, listing the names of all beneficial owners and individuals exercising control. …Given the substantial penalties, this will impose a massive regulatory tax on small businesses as they spend money on lawyers that should go toward workers’ pay. …It is unlikely someone on a terrorist watch list would provide their real name on the required form, and Treasury will probably never have sufficient resources to audit names in real time.

Professor Verret explains some of the practical problems and tradeoffs with these proposals.

…some individual money laundering investigations would be easier with a small business registry available. But IRS tax fraud investigations would be much easier with access to taxpayers’ bank account login information — would we tolerate the associated costs and privacy violations? …How is the term “beneficial owner” defined? How is “control” defined? As a professor of corporate law, I have given multiple lectures on those very questions. What if your company is owned, in part, by another company? Or there is a chain of ownership through multiple intermediary companies? What if a creditor of the company, though not currently a shareholder or beneficial owner, obtains the contractual right to convert their debt contract into ownership equity at some point in the future? …for the average small business owner, navigating those complexities against the backdrop of a potential three year prison sentence will often require legal counsel. Companies affected by this legislation should conservatively expect to spend at least $5,000 on a corporate lawyer to help navigate the complexities of the new filing requirements.

Needless to say, squandering $5,000 or more for some useless paperwork is not a recipe for more entrepreneurship.

So how do advocates for this type of legislation respond?

Clay Fuller of the American Enterprise Institute wants us to have faith that bad people will freely divulge their real identities and that bureaucrats will make effective use of the information.

It is time to weed out illicit financing and unfair competition from criminals and bad actors. …Passing the House Financial Services Committee’s Counter Terrorism and Illicit Finance Act should be a priority for the 115th Congress. …Dictators, terrorists and criminals have been freeriding on the prosperity and liberty of the American economy for too long. Officials at FinCEN are sure that beneficial ownership legislation will exponentially increase conviction rates. We should give law enforcement what they need to do their jobs.

Gee, all that sounds persuasive. I’m also against dictators, terrorists, and criminals.

But if you read his entire column, you’ll notice that he offers zero evidence that this costly new legislation actually would catch more bad guys.

And since we already know that anti-money laundering laws impose heavy costs and catch almost no bad guys, wouldn’t it be smart to figure out better ways of allocating law enforcement resources?

I don’t know if we should be distressed or comforted, but other parts of the world also are hamstringing their financial industries with similar policies.

Here’s some analysis from Europe.

…a new reportfrom Consult Hyperion, commissioned by Mitek, reveals that the average UK bank is currently wasting £5 million each year due to manual and inefficient Know Your Customer (KYC) processes, and this annual waste is expected to rise to £10 million in three years. …Key Findings…Inefficient KYC processes cost the average bank £47 million a year…Total costs for KYC processes range from £10 to £100 per check…In the UK, 25% of applications are abandoned due to KYC friction… The cost of KYC checks is much too high, placing too much reliance on inefficient and error-prone manual processes,” said Steve Pannifer, author of the report and COO at Consult Hyperion.

And here’s an update from Asia.

Anti-money laundering and know-your-customer compliance have become leading concerns at financial institutions in Asia today. … we estimate that AML compliance budgets across the six Asian markets in this study total an estimated US$1.5 billion annually for banks alone. …A majority of respondents (55%) indicated that AML compliance has a negative impact on their firms’ business productivity. …An additional 15% felt that AML compliance actually threatens their firms’ ability to do business. …Eighty-two per cent of survey respondents saw overall AML compliance costs increasing in 2016, with one third projecting that costs will rise by 20% or more.

The bottom line is that laws and regulations dealing with money laundering are introduced with high hopes of reducing crime.

And when there’s no effect on criminal activity, proponents urge ever-increasing levels of red tape. And when that doesn’t work, they propose new levels of regulation. And still nothing changes.

Lather, rinse, repeat.

Here’s the video I narrated on this topic. It’s now a bit dated, but everything I said is even more true today.

Let’s close with a surreal column in the Washington Post from Dana Milbank. He was victimized by silly anti-money laundering policies, but seems to approve.

I did not expect that my wife and I would be flagged as possible financiers of international terrorism. …The teller told me my account had been blocked. My wife went to an ATM to take out $200. Denied. Soon I discovered that checks I had written to the au pair and my daughter’s volleyball instructor had bounced. …I began making calls to the bank and eventually got an explanation: The bank was looking into whether my wife and I were laundering money, as they are required to by the Bank Secrecy Act as amended by the Patriot Act. …the bank seemed particularly suspicious that my wife was the terrorist… The bank needed answers. Did she work for the government? How much money does she make? Is she a government contractor? …a week later they came back with a new threat to freeze the account and a more peculiar question: Is my wife politically influential?

Sounds like an awful example of a bank being forced by bad laws to harass a customer.

Heck, it is an awful example of that happening.

But in a remarkable display of left-wing masochism, Milbank approves.

The people who flagged us were right to do so. …Citibank, though perhaps clumsy, was doing what it should be doing. “Know your customer” regulations are important because they prevent organized-crime networks, terrorists and assorted bad guys from moving money. Banking regulations generally are a hassle, and expensive. But they protect us — not just from terrorists such as my wife and me but from financial institutions that would otherwise exploit their customers and jeopardize economic stability the way they did before the 2008 crash.

I guess we know which way Milbank would have responded to this poll question from 2013.

But he would be wrong because money-laundering laws don’t stop terrorism.

We’re giving up freedom and imposing high costs on our economy, yet we’re not getting any additional security in exchange.

And I can’t resist commenting on his absurd assertion that money laundering played a role in the 2008 crash. Does he think that mafia kingpins somehow controlled the Federal Reserve and insisted on easy-money policies and artificially low interest rates? Does he think ISIS operatives were somehow responsible for reckless Fannie Mae and Freddie Mac subsidies?

Wow, I thought the people who blamed “tax havens” for the financial crisis deserved the prize for silliest fantasies. But Milbank gives them a run for their money.

P.S. You probably didn’t realize you could make a joke involving money laundering, but here’s one featuring former President Obama.

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I haven’t written in any detail about “jury nullification” since late 2010 and it’s time to rectify that sin of omission.

Nullification occurs when a jury votes not guilty because a law is either unjust or wrongly applied, not because a defendant is actually innocent. And I know that’s what I would do if I was on a jury and the government was persecuting someone for engaging is self-defense or getting nabbed by a revenue camera.

The bottom line is that Walter Williams is right when he says that it is immoral to obey bad laws.

Let’s review some expert opinions.

Writing on the editorial page of the New York Times, a former prosecutor urges jury nullification.

Earlier this year, prosecutors charged Julian P. Heicklen, a retired chemistry professor, with jury tampering because he stood outside the federal courthouse in Manhattan providing information about jury nullification to passers-by. …The prosecutors who charged Mr. Heicklen said that “advocacy of jury nullification, directed as it is to jurors, would be both criminal and without constitutional protections no matter where it occurred.” The prosecutors in this case are wrong. The First Amendment exists to protect speech like this — honest information that the government prefers citizens not know. …Jury nullification is not new; its proponents have included John Hancock and John Adams. The doctrine is premised on the idea that ordinary citizens, not government officials, should have the final say as to whether a person should be punished. As Adams put it, it is each juror’s “duty” to vote based on his or her “own best understanding, judgment and conscience, though in direct opposition to the direction of the court.” …Nullification has been credited with helping to end alcohol prohibition and laws that criminalized gay sex. Last year, Montana prosecutors were forced to offer a defendant in a marijuana case a favorable plea bargain after so many potential jurors said they would nullify that the judge didn’t think he could find enough jurors to hear the case.

A column in the Washington Post by Professor Glenn Reynolds at the University of Tennessee argues that juries have an obligation to rein in bad prosecutors.

Despite the evidence, those responsible for convicting you may choose to let you go, if they think that sending you to jail would result in an injustice. That can happen through what’s called “prosecutorial discretion,” where a prosecutor decides not to bring or pursue charges against you because doing so would be unfair, even though the evidence is strong. Or it can happen through “jury nullification,” where a jury thinks that the evidence supports conviction but then decides to issue a “not guilty” verdict because it feels that a conviction would be unjust. …Prosecutorial discretion is regularly applied and generally regarded as a standard part of criminal justice. …So-called jury nullification, on the other hand, gets far less respect. Though it is clearly within the power of juries to refuse to convict whenever they choose, judges and prosecutors tend to view this practice with hostility. …there has been a massive shift of power toward prosecutors, the result of politics, over-criminalization, institutional leverage and judges’ failure to provide supervision. It’s time to redress the balance.

By the way, Glenn has proposed ways (see postscript of this column) of addressing this imbalance, which is tied to over-criminalization.

And here’s another column in the Washington Post arguing in favor of jury empowerment.

As I tried cases, I gained enormous respect for the seriousness with which jurors approached their work. …These jurors had no problem convicting anyone of a violent offense, if the government proved its case. For drug crimes, however, it was a different story. …they frequently voted “not guilty” in nonviolent drug cases, no matter how compelling the evidence. …When I started teaching law, I published an article in the Yale Law Journal situating these D.C. jurors in a long line of jurors…who refused to convict American patriots of sedition against the British crown; jurors who acquitted people guilty of violating the Fugitive Slave Act; and jurors who would not punish gay people for “sodomy” for having consensual sex.

Amen. Juries should pursue justice, not act as rubber stamps when prosecutors act as cogs for an unjust regime.

Now let’s look at a real-world example, as reported by the New York Times.

As much as chocolate and watches, Switzerland is known for bank secrecy. …it also made Swiss banks targets for an assault by the United States government… Bank Frey was among the very few to defy the legal onslaught. And Mr. Buck…was the bank’s public face, responsible for landing and then managing American accounts. That put Mr. Buck in the government’s cross hairs. In 2013, a federal grand jury indicted him for conspiring to help Americans avoid taxes. …But things didn’t go as prosecutors had planned… The crux of the defense was that the responsibility to pay taxes and declare income did not rest with Mr. Buck. It was his clients who had decided not to pay taxes. He was under no obligation to tattle… Prosecutors branded him as a crucial cog in an international tax-evasion scheme. …Then it was Mr. Agnifilo’s turn. …“Stefan Buck has nothing whatsoever, nothing whatsoever, to do with the choice that an American taxpayer makes” to not declare offshore assets. …The jury deliberated for a little more than a day. …the verdict: not guilty.

The story doesn’t mention jury nullification, but I’m assuming – from a technical legal perspective – the prosecutors had an open-and-shut case against Mr. Buck. After all, he did “conspire” to help Americans protect their income from the IRS.

But the jury decided that conviction would be absurd because a Swiss person on Swiss soil has no obligation to help enforce bad U.S. tax policy. So they voted not guilty because that was the only moral choice.

And the good news is that this is becoming a pattern.

In October 2014, one of UBS’s top executives, Raoul Weil, went on trial in Florida. Federal prosecutors accused him of helping clients hide billions. Mr. Weil’s lawyers argued he had no knowledge of or responsibility for what had happened. The jury deliberated for barely an hour before acquitting him. The same week, a Los Angeles jury acquitted an Israeli banker who faced similar accusations. The Americans’ pursuit of foreign bankers no longer looked invincible.

The even-better news is that these nullification decisions by juries may now lead to some “prosecutorial discretion.”

The Justice Department had now lost the three cases it had tried against foreign bankers who helped Americans avoid taxes. Dozens more cases are pending. Those who represent accused Swiss bankers say they expect Mr. Buck’s verdict to embolden defendants and to cause prosecutors to think twice before bringing new charges.

In other words, the bad law will still exist but hopefully will have little or no impact because prosecutors are less likely to file charges and juries won’t convict when they do.

That’s a victory for liberty, though it surely would be best – as we discussed just a few days ago – if politicians repealed the bad laws that make unjust prosecutions possible.

P.S. I’ve confessed mixed feelings about potential nullification in cases of vigilante justice.

P.P.S. In my younger days, I assumed that cops and prosecutors were the good guys, helping to maintain an orderly society. I still think that most of them want to do what’s right, but I also now realize that our Founding Fathers were very wise to include strong protections for defendants in our Constitution. Simply stated, some cops and some prosecutors are bad and those bad apples are why I favor strengthening the Fourth Amendment and have become more skeptical of the death penalty.

P.P.P.S. Even if you’re a law-abiding person, you should support civil liberties.

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The late Mancur Olsen was a very accomplished academic economist who described the unfortunate tendency of vote-seeking governments to behave like “stationary bandits,” seeking to extract the maximum amount of money from taxpayers.

I’m not nearly as sophisticated, so I simply refer to this process as “goldfish government.”

Tax competition is a way of discouraging this self-destructive behavior. Politicians are less likely to over-tax and over-spend if they know that jobs and investment can migrate from high-tax nations to low-tax jurisdictions (borders can be a hassle, but they are beneficial since they presumably represent a limit on the reach of a government’s power).

This is why I’m a big fan of so-called tax havens.

I want politicians to be afraid that the geese with the golden eggs may fly away. This is one of the reasons why “offshore” nations play a very valuable role in the global economy.

But it’s important to realize that there’s also a moral argument for tax havens.

Ask yourself whether you would want the government to have easy access to your nest egg (whether it’s a lot or a little) if you lived in Russia? Or Venezuela? Or China? Or Zimbabwe?

Ask yourself whether you trust the bureaucracy to protect the privacy of your personal financial information if you lived in a country with corruption problems like Mexico? Or India? Or South Africa?

Here’s a story from France24 that underscores my point.

Turkish President Recep Tayyip Erdogan declared Sunday that businessmen who move assets abroad are committing “treason”, adding that his government should put an end to the practice. “I am aware that some businessmen are attempting to place their assets overseas. I call on the government not to authorise any such moves, because these are acts of treason,” Erdogan said in televised comments to party members in the eastern town on Mus.

Allow me to translate. What Erdogan is saying is “I don’t want escape options for potential victims of expropriation.” For all intents and purposes, he’s basically whining that he can’t steal money that is held offshore.

Which, of course, is why offshore finance is so important.

Professor Tyler Cowen elaborates in a Bloomberg column.

I’d like to speak up for offshore banking as a significant protection against tyranny and unjust autocracy. It’s not just that many offshore financial institutions, such as hedge funds registered in the Cayman Islands, are entirely legal, but also that the practice of hiding wealth overseas has its upside. …offshore…accounts make it harder for autocratic governments to confiscate resources from their citizens. That in turn limits the potential for tyranny.

Tyler looks at some of the research and unsurprisingly finds that there’s a lot of capital flight from unstable regimes.

A recent study shows which countries are most likely to use offshore banking, as measured by a percentage of their gross domestic product. …The top five countries on this list, measured as a percentage of GDP, are United Arab Emirates, Venezuela, Saudi Arabia, Russia and Argentina, based on estimates from 2007. In all of those cases the risk of arbitrary political confiscations of wealth is relatively high. …When I consider that list of countries, I don’t think confidential offshore banking is such a bad thing. …consider some of the countries that are not major players in the offshore wealth sweepstakes. China and Iran, for instance, have quite low percentages of their GDPs held in offshore accounts, in part because they haven’t been well integrated into global capital markets. …Are we so sure it would be bad for more Chinese and Iranian wealth to find its way into offshore banks? The upshot would be additional limits on the power of the central leaders to confiscate wealth and to keep political opposition in line.

So what’s the bottom line?

Simple. People need ways of protecting themselves from greedy government.

From the vantage point of Western liberalism, individuals should be free from arbitrary confiscations of their wealth, connected to threats against their life and liberty, even if those individuals didn’t earn all of that wealth justly or honestly. There is even a “takings clause” built into the U.S. Constitution. On top of these moral issues, such confiscations may scare off foreign investment and slow progress toward the rule of law.

By the way, the moral argument shouldn’t be limited to nations with overtly venal governments that engage in wealth expropriation. What about the rights of people in nations – such as Argentina and Greece – where  governments wreck economies because of blind incompetence? Shouldn’t they have the ability to protect themselves from wealth destruction?

I actually raised some of these arguments almost 10 years ago in this video from the Center for Freedom and Prosperity.

P.S. There’s lots of evidence that politicians raise tax rates when tax competition is weakened.

P.P.S. Which is why I’m very happy that Rand Paul is leading the fight against a scheme for a global tax cartel.

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