Archive for the ‘Money Laundering’ Category

Beginning in the 1970s and 1980s, the federal government (as well as other governments around the world) began to adopt policies based on the idea that crime could be reduced if you somehow could make it very difficult for criminals to use the money they illegally obtain. So we now have a a bunch of laws and regulations that require financial institutions to spy on their customers in hopes that this will inhibit money laundering.

But while the underlying theory may sound reasonable, such laws in practice have been a failure. There’s no evidence that these laws, which impose heavy costs on business and consumers, have produced a reduction in criminal activity.

Instead, the only tangible result seems to be more power for government and reduced access to financial services for poor people.

And now we have even more evidence that these laws don’t make sense. In a thorough study for the Heritage Foundation, David Burton and Norbert Michel put a price tag on the ridiculous laws, regulations, and mandates that are ostensibly designed to make it hard for crooks to launder cash, but in practice simply undermine legitimate commerce and make it hard for poor people to use banks.

Oh, and these rules also are inconsistent with a free society. Here are the principles they say should guide the discussion.

The United States Constitution’s Bill of Rights, particularly the Fourth, Fifth, and Ninth Amendments, together with structural federalism and separation of powers protections, is designed to…protect…individual rights. The current financial regulatory framework is inconsistent with these principles. …Financial privacy can allow people to protect their life savings when a government tries to confiscate its citizens’ wealth, whether for political, ethnic, religious, or “merely” economic reasons. Businesses need to protect their private financial information, intellectual property, and trade secrets from competitors in order to remain profitable. Financial privacy is of deep and abiding importance to freedom, and many governments have shown themselves willing to routinely abuse private financial information.

And here are the key findings about America’s current regulatory morass, which violates the above principles.

The current U.S. framework is overly complex and burdensome… Reform efforts also need to focus on costs versus benefits. The current framework, particularly the anti-money laundering (AML) rules, is clearly not cost-effective. As demonstrated below, the AML regime costs an estimated $4.8 billion to $8 billion annually. Yet, this AML system results in fewer than 700 convictions annually, a proportion of which are simply additional counts against persons charged with other predicate crimes. Thus, each conviction costs approximately $7 million, potentially much more.

By the way, the authors note that their calculations represent “a significant underestimate of the actual burden” because they didn’t include foregone economic activity, higher consumer prices for financial services, lower returns for shareholders of financial institutions, higher financial expenses for unbanked individuals, and other direct and indirect costs.

And what are the offsetting benefits? Can all these costs be justified?

Hardly. David and Norbert point out that we’re all paying more and getting very little in return for the higher burdens.

The original goal of the BSA/AML rules was to reduce predicate crimes, such as illegal drug distribution, rather than money laundering itself. Judged by this standard, very little empirical evidence suggests that the rules have worked as designed. In fact, even though BSA/AML rules have been expanded consistently throughout the past four decades, it remains difficult to discern any net benefit of the overall BSA/AML regulatory framework. Even though there is no clear evidence that the rules materially reduce crime, the BSA/AML bureaucracy began relentlessly expanding internationally—primarily through the Financial Action Task Force (FATF)—more than two decades ago. One comprehensive study reports that even though the FATF proceeds as if these rules have produced only public benefits, “[t]o date there is no substantial effort by any international organization, including the International Monetary Fund, to assess either the costs or benefits of” this regulatory framework. In fact, BSA/AML regulations have been sharply criticized as a costly, ineffective approach to reducing crime. …compliance costs are high for financial companies, with a disproportionate burden falling on smaller firms…, where hiring even one additional employee can lower the return on assets by more than 20 basis points. Other research suggests that the increasing compliance burden in the banking industry is at least partly responsible for the trend toward consolidation and the disappearance of smaller banks. …an American Bankers Association (ABA) publication highlights a small bank that reports it has to dedicate more than 15 percent of its employees to compliance-related tasks. An ABA survey also suggests that the cumulative cost associated with compliance has caused banks to offer fewer services and raise fees, thus harming consumers. …the BSA/AML regime has been a highly inefficient law enforcement tool. At the very least, a high degree of skepticism about further expansion of these and similar requirements is in order. Given the billions of dollars spent annually by the private sector on the existing elaborate and costly AML bureaucracy, a serious data-driven cost-benefit analysis of the existing system is warranted.

If anything, I think they’re being too nice.

The cost-benefit analysis already exists. The laws and regulations don’t work.

Let’s expand our look at the issue. The Wall Street Journal notes that the current approach has myriad negative consequences as banks sever relationships with customers (in a process called “derisking”) because they don’t want to deal with the hassle, expense, and liability of money-laundering red tape.

…financial firms, faced with strict penalties over counterterror and anti-money-laundering rules, have severed accounts of thousands of customers in recent years over fears of heightened risk. The consequences of shuttered accounts were detailed this week in a Wall Street Journal investigation showing how money-transfer firms whose bank accounts have been closed have been pushed out of the global banking system. In addition, nonprofit organizations operating in Syria and Lebanon have faced challenges after losing their bank accounts. …In February of this year, more than 50 nonprofits asked the U.S. Treasury to publicly affirm that nonprofit organizations aren’t inherently high risk. …Two studies by the World Bank in late 2015 found that money-service businesses—which include money transmitters—and foreign banks were both seeing account closures at increasing rates.


This process has made life much more difficult for people and businesses seeking to engage in legitimate commerce.

Not to mention that the government abuses the enormous powers it has accumulated, as we can see from the Obama Administration’s odious “Operation Choke Point.”

Another report from the WSJ explains that the rules actually make it harder for law enforcement to monitor the people who might actually be doing bad things.

U.S. banks have closed thousands of accounts held by people and organizations considered suspicious, high-risk or difficult to monitor—including money-transfer firms, foreign banks and nonprofits working abroad. Closing accounts for fear their customers may be up to no good evicts from the financial system the innocent as well as those the U.S. government would most like to watch, a consequence not anticipated by Washington. Comptroller of the Currency Thomas Curry this month acknowledged the potential danger. “Transactions that would have taken place legally and transparently may be driven underground,” he told an international conference of bankers and regulators in Washington. …Fearing steep financial penalties for failing to spot a wayward customer, many banks now shun anyone who looks risky. That leaves ostracized companies to seek alternatives—such as toting bags of cash overseas—a practice that allows hundreds of millions of dollars to leave the global banking system… “The whole flow of money goes underground, and that becomes counterproductive to the original purpose of being able to track” it, said Dilip Ratha, head economist of the World Bank’s unit that studies remittances. “It’s a bit paradoxical.” U.S. officials said they didn’t intend banks to close whole categories of customer accounts.

So potential bad guys are harder to track.

And financial institutions waste lots of money (which translates into higher costs for consumers).

Risky accounts should be managed, officials said, not avoided altogether. …Western Union said it now spends $200 million a year watching for suspicious activity… J.P. Morgan Chase & Co….now has about 9,000 employees dedicated to anti-money-laundering and has cut off thousands of customers viewed as higher-risk. …Jaikumar Ramaswamy, a Bank of AmericaCorp. compliance executive and former federal prosecutor, said, “I’m surprised at how much of my time is spent not focusing on the guilty but chasing the innocent.” Instead of looking for needles in haystacks, he said, the system demands banks “turn over every piece of hay.”

The good news is that some nations are looking to adopt a more rational approach, as evidenced by this Bloomberg report from 2015.

The U.K. government said it will look to relax anti-money laundering controls as part of a plan to save British companies 10 billion pounds ($15.4 billion) over the next five years. …The government said it wants to protect the country without putting “disproportionate burdens” on legitimate businesses. …“This new review is about making sure the rules we have to protect our strong financial services industry from abuse are not unintentionally holding back new and existing British business,” Business Secretary Sajid Javid said. “I want firms to come forward and tell us where regulation is unclear or its enforcement ineffective.”

Though, as reported by the Times, the U.K. government has a bizarrely inconsistent approach to these issues. Even to the point of threatening to steal people’s property unless they can somehow prove that it was purchased with innocent money.

People who amass suspicious quantities of wealth in Britain will be ordered to prove that it was not obtained through corruption, under proposals being considered by the Home Office. New “unexplained wealth orders”, which would reverse the burden of proof to compel the recipient to justify the source of the questionable cash.


Here’s a novel idea. Why doesn’t law enforcement engage in actual, old-fashioned police work. In other words, instead of having costly burdens imposed on everybody, governments should use the approach which historically has successfully reduced crime – i.e., policies that increase the likelihood of apprehension and/or severity of punishment.

But don’t hold your breath waiting for that to happen.

Instead, we actually get politicians and policy makers coming up with schemes to expand the burden of money laundering laws. Some of them want to ban the $100 bill, or perhaps even ban cash entirely. All so government can more closely monitor the private financial choices of innocent people.

If you want more information, here’s a video I narrated on this topic for the Center for Freedom and Prosperity.

Last but not least, let’s return to the Heritage study, which includes this very important warning about a very risky and dangerous treaty that may be considered by the U.S. Senate.

…the willingness to impose costs on the private sector and to violate the privacy interests of ordinary people should be less in the case of information sharing for tax purposes than for the purposes of preventing terrorism or crime. Moreover, tax-information-sharing programs are quite often a veiled attempt to stifle tax competition from low-tax jurisdictions. Tax competition is salutary and limits the degree to which governments can impose unwarranted taxation. …The U.S. Senate is currently considering the “Protocol Amending the Multilateral Convention on Mutual Administrative Assistance in Tax Matters,” which would impose a wide variety of new information-reporting requirements on financial institutions to help foreign governments collect their taxes. A second treaty—worse than this protocol—is the follow-on OECD treaty known as the “Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information.” This follow-on treaty implements both the protocol and the 311-page OECD “Standard for Automatic Exchange of Financial Account Information in Tax Matters.” Together, the protocol, the Multilateral Competent Authority Agreement, and the OECD Standard constitute the three main parts of a new automatic information-exchange regime being promoted by the OECD and international tax bureaucrats. If the U.S. ratifies the protocol and implements the new OECD standard, Washington would automatically, and in bulk, ship private financial and tax information—including Social Security and other tax identification numbers—to Argentina, China, Colombia, Indonesia, Kazakhstan, Nigeria, Russia, and nearly 70 other countries. In other words, foreign governments that are hostile to the U.S., corrupt, or have inadequate data safeguards, would automatically have access to private financial (and other) information of some U.S. taxpayers and most foreigners with accounts in the U.S.

A truly awful pact. And keep in mind it also would be the genesis of a World Tax Organization.

P.S. Since we closed by discussing the intersection of tax and money laundering, I should point out that statists frequently demagogue against so-called tax havens for supposedly being hotbeds of dirty money, but take a look at this map put together a few years ago by the Institute of Governance and you’ll find only one low-tax jurisdiction among the 28 nations listed.

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

P.P.P.S. But when you look at the real-world horror stories that result from these laws, you realize that the current system on money laundering is no laughing matter.

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For all his faults, you have to give President Obama credit for strong convictions. He’s generally misguided, but it’s perversely impressive to observe his relentless advocacy for higher taxes, bigger government, more intervention, and limits on constitutional freedoms.

That being said, his desire to “fundamentally transform” the United States leads him to decisions that run roughshod over core principles of a civilized society such as the rule of law.

Consider, for instance, the Obama Administration project, known as “Operation Choke Point,” to restrict banking services to politically incorrect businesses such as gun dealers.

It doesn’t matter than these companies are engaged in legal activities. In pursuit of its ideological agenda, the White House is using regulatory bullying in hopes of getting banks to deny services to these businesses.

For more information, click here to read about recent efforts to end this thuggish initiative. Also, here’s a very short video explaining the topic.

Well, there’s an international version of Operation Choke Point.It’s called “de-risking,” and it occurs when banks are pressured by regulators into cutting off banking services to certain regions.

The Wall Street Journal has a column on this topic by two adjunct professors from Fordham Law School.

…a widespread trend in banking called “de-risking.” Reacting to pressure by various government regulators…, banks are rejecting customers in risky regions and industries. Throughout 2014 J.P. Morgan Chase dropped more than 100,000 accounts because they were considered risky… Between 2013 and 2014, Standard Chartered closed 70,000 small and medium-size business accounts, and ended hundreds of relationships with banks in Latin America and Central Europe. …In yet another form of de-risking, the European Central Bank reports that banks have steadily cut their correspondent relationships—that is, the other banks they work with in sending money around the globe. HSBC alone closed more than 326 correspondent bank accounts between 2010 and 2012. …the banks’ actions are understandable. They face unprecedented regulatory penalties, unclear legal standards, high litigation costs and systemic risks to their business. In 2012 HSBC settled with the Justice Department, paying $1.9 billion in fines for such failings as “ignor[ing] the money laundering risks associated with doing business with certain Mexican customers.” …A bank with a single mistaken customer relationship could be put out of business. Banks have concluded that they will be punished anytime money reaches criminals, regardless of their own efforts. It’s better to drop all supposedly risky customers.

The authors explain that there should be “safe harbor” rules to protect both banks and their customers. That’s a very sensible suggestion.

And there are easy options to make this happen. I’m not a big fan of the Financial Action Task Force, which is an OECD-connected organization that ostensibly sets money-laundering rules for the world. Simply stated, the bureaucrats at FATF think there should be no human right to privacy. Moreover, FATF advocates harsh regulatory burdens that impose very high costs while producing miserly benefits.

That being said, if a nation is not on the FATF blacklist, that should be more than enough evidence that it imposes very onerous rules to guard against misbehavior.

Unfortunately, bureaucrats in the United States and Europe don’t actually seem interested in fighting money laundering. Or, to be more precise, it appears that their primary interest is to penalize places with low tax rates.

Many Caribbean jurisdictions, for instance, are being victimized by de-risking even though they comply with all the FATF rules. And this means they lose important correspondent relationships with larger banks.

To address this issue, the Organization of American States recently held a meeting to consider this topic. I was invited to address the delegations. And since other speakers dealt with the specific details of de-risking (you can watch the entire event by clicking here), I discussed the big-picture issue of how low-tax jurisdictions are being persecuted by harsh (and ever-changing) demands. Here are my remarks, with a few of my PowerPoint slides embedded in the video.

Now for the most remarkable (and disturbing) development from that meeting.

Many of the Caribbean nations offered a rather innocuous resolution in hopes of getting agreement that de-risking is a problem and that it would be a good idea if nations came up with clear rules to eliminate the problem.

That seems like a slam dunk, right?

Not exactly. The U.S. delegation actually scuttled the declaration by proposing alternative language that was based on the notion that other countries should put the blame on themselves – even though these nations already are complying with all the FATF rules! You can read the original declaration and proposed changes by the U.S. by clicking here, but this is the excerpt that really matters.

Wow, what arrogance and hypocrisy by the Obama appointees. These jurisdictions, most with black majorities, are suffering from ad hoc and discriminatory de-risking because the Administration doesn’t like the fact that they generally have low taxes.

But rather than openly state that they favor discrimination against low-tax nations, the political hacks put in place by the Obama White House proposed blame-the-victim language, thus ensuring that nothing would happen.

P.S. Perhaps the most surreal part of the experience is the strange bond I felt with the Venezuelan delegation. Regular readers know I’m not a fan of the statist and oppressive government in Caracas. But the Venezuelan delegation apparently takes great pleasure in opposing the position of the U.S. government, so we were sort of on the same side in the discussion. A very bizarre enemy-of-my-enemy-is-my-friend situation.

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Politicians hate cash.

That may seem an odd assertion given that they love spending money (other people’s money, of course, as illustrated by this cartoon).

But what I’m talking about is the fact that politicians get upset when there’s not 100 percent compliance with tax laws.

They hate tax havens since the option of a fiscal refuge makes confiscatory taxation impractical.

They hate the underground economy because that means hard-to-tax economic activity.

And they hate cash because it gives consumers an anonymous payment mechanism.

Let’s explore the animosity to cash.

It’s basically because a cashless society is an easier-to-tax society, as expressed by an editorial from the U.K.-based Financial Times.

…unlike electronic money, it cannot be tracked. That means cash favours anonymous and often illicit activity; its abolition would make life easier for a government set on squeezing the informal economy out of existence. …Value added tax, for example, could be automatically levied. …Greece, in particular, could make lemonade out of lemons, using the current capital controls to push the country’s cash culture into new habits.

And some countries are actually moving in this direction.

J.D. Tuccille looks at this issue in an article for Reason.

Peter Bofinger of the German Council of Economic Experts…wants to abolish the use of cash… He frets that old-fashioned notes enable undeclared work and black markets, and stand in the way of central bank monetary policy. So rather than adjust policy to be more palatable to the public, he’d rather leave no shadows in which the public can hide from his preferred policies. The idea is to make all economic activity visible so that people have to submit to control. Denmark, which has the highest tax rates in Europe and a correspondingly booming shadow economy, is already moving in that direction. …the Danmarks Nationalbank will stop internal printing of banknotes and minting of coins in 2016. After all, why adjust tax and regulatory policy to be acceptable to constitutents when you can nag them and try to reinvent the idea of money instead?

By the way, some have proposed similar policies in the United States, starting with a ban on $100 bills.

Which led me to paraphrase a line from the original version of Planet of the Apes.

Notwithstanding my attempt to be clever, the tide is moving in the wrong direction. Cash is beginning to vanish in Sweden, as reported by the New York Times.

…many of the country’s banks no longer accept or dispense cash. Bills and coins now represent just 2 percent of Sweden’s economy, compared with 7.7 percent in the United States and 10 percent in the euro area. This year, only a fifth of all consumer payments in Sweden have been made in cash, compared with an average of 75 percent in the rest of the world, according to Euromonitor International. …Cash machines, which are controlled by a Swedish bank consortium, are being dismantled by the hundreds

Though the article notes that there is some resistance.

Not everyone is cheering. Sweden’s embrace of electronic payments has alarmed consumer organizations and critics who warn of a rising threat to privacy and increased vulnerability to sophisticated Internet crimes. …The government has not sought to stem the cashless tide. If anything, it has benefited from more efficient tax collection, because electronic transactions leave a trail; in countries like Greece and Italy, where cash is still heavily used, tax evasion remains a big problem. Leif Trogen, an official at the Swedish Bankers’ Association, acknowledged that banks were earning substantial fee income from the cashless revolution.

What matters, by the way, is not the degree to which consumers prefer to use alternatives to cash.

That’s perfectly fine, and it explains much of what we see on this map.

The problem is when governments use coercion to limit and/or abolish cash so that politicians have more power. And (gee, what a surprise) this is why the French are trying to crack down on cash.

Writing for the U.K.-based Telegraph, Matthew Lynn mentions the new policy and France and also explores some worrisome implications of this anti-cash trend.

France is banning the use of cash for transactions worth more than €1,000…part of a growing movement among academics and now governments to gradually ban the use of cash completely. …it is a “barbarous relic”, as some publications loftily dismiss it. The trouble is, cash is also incredibly efficient. And it is a crucial part of a free society. There is no convincing case for abolition. …When it comes to creeping state control, it is no surprise to find the French out in front. …A cashless economy would be far easier to both tax and control. But hold on. Is that something we really want? In reality, cash is far too valuable to be given up lightly. In truth, the benefits of abolition are largely oversold. While terrorists and criminals may well use cash to buy weapons, or deal in drugs, it is very hard to believe that they would not find some other way of financing their operations if it was abolished. Are there really any cases of potential jihadists being foiled because they couldn’t find two utility bills (less than three months old, of course) in a false name to open an account?

Amen. Banning cash to stop terrorists is about as foolish as thinking that gun control will thwart jihadists.

In any event, we need to consider trade-offs. Chris Giles highlighted that issue in a piece for the Financial Times.

…an unfortunate rhetorical echo of Maoist China. It is illiberal… Some argue there would be beneficial side effects from abolishing notes and coins through the regularisation of illegal activities. Really? …Cash would have to be abolished everywhere and the BoE does not have those powers, thankfully. The anonymity of cash helps to free people from their governments and some criminality is a price worth paying for liberty.

Though I suppose we should grudgingly give politicians credit for cleverly trying exploit fear to expand their power.

But never forget we’re talking about a bad version of clever. If they succeed, that will be bad news for freedom.  J.D. Tuccille of Reason explains in a second article why a growing number of people prefer to use cash.

Many Americans happily and quietly avoid banks and trendy purchasing choices in favor of old-fashioned paper money. Lots of business gets done that way…the Albuquerque Journal pointed out that over a third of households in the city either avoid banks entirely (the “unbanked”) or else keep a checking account but do much of their business through cash, check-cashing shops, pawn shops, money orders, and other “alternative financial products” (the “underbanked”). A few weeks earlier, the Kansas City Star reported a similar local situation… In both cities, the phenomenon is growing. …Twenty-six percent cite privacy as a reason for keeping clear of banks – bankers say that increased federal reporting and documentation requirements drive many customers away. “A lot of people are afraid of Uncle Sam,” Greg Levenson, president and CEO of Southwest Capital Bank, told the Albuquerque Journal. …It’s a fair bet that those who “have managed to earn income in the shadow economy” and want to keep their income unreported to the feds and undiminished by fees are heavily overrepresented among the unbanked. …most people aren’t idiots. When they avoid expensive, snoopy financial institutions, it’s because they’ve decided the benefits outweigh the costs.

Very well said, though I’d augment what he wrote by noting that some of these folks probably would like to be banked but are deterred by high costs resulting from foolish government money-laundering laws.

More on that later.

Let’s stay with the issue of whether cash should be preserved. A business writer from the U.K. is very uneasy about the notion of a society with no cash.

…tax authorities have become increasingly keen on tracking everything and everyone to make absolutely certain that no assets slip under their radars. The Greeks have been told that, come 2016, they must begin to declare all cash over €15,000 held in safes or mattresses, and all precious stones, gold and the like worth more than €30,000. Anyone else think there might be a new tax coming on all that stuff? …number-crunchers…are maddened by the fact that even as we are provided with lots of simple digital payment methods we still like to use cash: the demand for £20 and £50 notes has been rising. …They are maddened because “as untraceable bearer instruments, it is not possible to locate where banknotes are being held at any one time”… Without recourse to physical cash, we are all 100% dependent on the state-controlled digital world for our financial security. Worse, the end of cash is also the end of privacy: if you have to pay for everything digitally, every transaction you ever make (and your location when you make it) will be on record. Forever. That’s real repression.

She nails it. If politicians get access to more information, they’ll levy more taxes and impose more control.

And that won’t end well.

Last but not least, the Chairman of Signature Bank, Scott Shay, warns about the totalitarian temptations that would exist in a cash-free world. Here’s some of what he wrote in a column for CNBC.

In 2010, Visa and MasterCard, bowed to government pressure — not even federal or state law — and banned all online-betting payments from their systems. This made it virtually impossible for these gambling sites to continue operating regardless of their jurisdiction or legality. It is not too far-fetched to wonder if the day might come when the health records of an overweight individual would lead to a situation in which they find that any sugary drink purchase they make through a credit or debit card is declined. …You might think then that the person can always pay cash and remain outside the purview of these technologies. This may be the case for the moment, but we are well on the road to becoming a cashless society. …there is…a sinister risk…a cashless society would certainly give governments unprecedented access to information and power over citizens.

And, he warns, that information will lead to mischief.

Currently, we have little evidence to indicate that governments will refrain from using this power. On the contrary, the U.S. government is already using its snooping prowess and big-data manipulation in some frightening ways. …the U.S. government is becoming very fond of seizing money from citizens first and asking questions later via “civil forfeiture.” Amazingly, the government is permitted by law to do this even if it is only government staff members who have a suspicion, not proof, of wrongdoing. …In recent years, it made it increasingly difficult for companies to operate or individuals to transact by adding compliance hurdles for banks wishing to deal with certain categories of clients. By making it too expensive to deal with certain clients or sending the signal that a bank should not deal with a particular client or type of client, the government can almost assuredly keep that company or person out of the banking system. Banks are so critically dependent on government regulatory approval for their actions… It is easy to imagine a totalitarian regime using these tools to great harm.

Some folks will read Shay’s piece and downplay his concerns. They’ll say he’s making a slippery slope argument.

But there are very good reasons, when dealing with government, to fear that the slope actually is slippery.

Let’s close by sharing my video on the closely related topic of money laundering. These laws and regulations have been imposed supposedly to fight crime.

But we’ve slid down the slope. These policies have been a failure in terms of hindering criminals and terrorists, but they’ve given government a lot of power and information that is being routinely misused.

P.S. The one tiny sliver of good news is that bad money laundering and know-your-customer rules have generated an amusing joke featuring President Obama.

P.P.S. If politicians want to improve tax compliance in a non-totalitarian fashion, there is a very successful recipe for reducing the underground economy.

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I don’t like former House Speaker Dennis Hastert. But not because of any personal interactions. I don’t think I’ve every even been in the same room as him, much less ever met him.

But I know that he did nothing to restrain the reckless expansion of government when he had power during the Bush years. Indeed, he fought against those who tried to throw sand in the gears.

So I’ll admit a certain Schadenfreude now that he’s in legal trouble. But I’m also irked. He’s being charged with something that shouldn’t be a crime, while getting (at least so far) a free pass for the bad things that he has done.

As is so often the case, Tim Carney has the right perspective. Here’s some of what he wrote for the Washington Examiner.

If the the stories that have leaked in the media are true, the true sin Hastert committed is unspeakable, but possibly unprosecutable. There is one aspect of the Hastert scandal, however, that reflects a problem that is more troubling than “structuring” bank withdrawals… How in the world could a school-teacher-turned lawmaker afford to pay, reportedly, $3.5 million in hush money?

Tim answers his own question, citing the government’s corrupt ban on incandescent light bulbs.

Hastert monetized his public service into a lucrative lobbying career — largely by increasing government. One telling episode begins in May 2007. Hastert at that time was a chief cosponsor of the “light bulb ban,” the law that effectively outlawed the traditional incandescent bulb, forcing consumers to buy more expensive fluorescent bulbs and LEDs. …in March 2008, Hastert joined Polybrite “as a strategic advisor,” according to a company press release. A year later, after he had joined K Street lobbying firm Dickstein Shapiro, Hastert officially registered as a lobbyist for Polybrite… Hastert’s first lobbying work for Polybrite…was his job to try to get stimulus money for Polybrite.

Hmmm… I wonder is Polybrite was part of the $27 bulb stimulus scandal?

But nanny-state light bulbs are just the tip of the iceberg. Here’s another example.

Ethanol subsidies were another Hastert special. In the first three months of 2015, the ethanol industry lobby group, Fuels America, paid Dickstein Shapiro $60,000 for ethanol-mandate lobbying by Hastert and another lobbyist. All the House members Hastert had rewarded with committee assignments, earmarks and co-sponsorships were now taking phone calls from their former commander on behalf of green-tinted subsidy sucklers. This is part of how Washington turned a school teacher into a millionaire.

In other words, Hastert is a poster child (along with Harry Reid, Bob Dole, and countless others) for the proposition that Washington is basically a giant scam operated for the benefit of insiders who get rich by taking money from earners and producers and giving it to those with political connections.

Which is my message in this video from the Center for Freedom and Prosperity.

But now let’s return to the main topic. Hastert wasn’t charged with being a sleazy insider who used connections to pillage money from taxpayers and steer it to corrupt clients.

Instead, he’s being charged with violating “money laundering” laws that shouldn’t even exist. Here’s some of what Warren Coats (a colleague on the Editorial Board of the Cayman Financial Review) wrote on this topic.

Mr. Hastert is being charged with violating our Anti Money Laundering (AML) laws. These laws allow arresting and convicting people for moving money (as Mr. Hastert was doing) that the government thinks was the proceeds of crime (not the case with Mr. Hastert, his crime was failing to report what he planned to with his money), when they are not able to prove that there was a crime in the first place. As far as I know, paying a blackmailer (which is what Mr. Hastert apparently did) is not a crime, though demanding and receiving such money is. The United States has pushed such legislation and the new bureaucracies needed to enforce it all over the world at the cost of billions and billions of dollars (that could have been used for poverty reduction or other more pressing things) with very little if any benefit to show for it. Charging Dennis Hastert with AML violations is a rare exception. Wow, what a benefit for such intrusions into our private lives. I consider AML laws more than a costly waste of money. They are another expansion of the arbitrary power of governments that can be used for good or ill with limited oversight.

For more information, here’s the video I narrated on why it’s inefficient and intrusive to require banks to spy on their customers.

I suppose the bottom line is that Dennis Hastert is a bad person who did bad things, so he deserves some payback. And that’s exactly what he’s getting.

But I can’t help but wish he was punished for the right reason.

P.S. Like most fans of the New York Yankees, I’m not a big fan of the irrelevant quasi-Major League team on Long Island.

But I confess my allegiances are just an accident of birth, family, and geography.

However, I now have a policy reason to dislike the Mets.

The New York Mets have become the first sports team to join the nationwide anti-gun campaign, aligning with celebrities like Piers Morgan and Chicago Mayor Rahm Emanuel to back today’s National Gun Violence Awareness Day. Sponsored by the Michael Bloomberg-backed Everytown for Gun Safety, people with some 200 organizations are wearing orange to draw attention to the issue. According to the group, the Mets even dressed in orange to show their support.

It’s both amazing and disappointing that there were no real Americans on the team who refused to participate in this attack on the Constitution.

To offset this bad news, here’s some anti-gun control humor to brighten your day.

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Earlier today, I gave a speech to some folks at London’s Institute of Economic Affairs about the failure of global financial regulation.

I touched on some predictable themes:

The absence of cost/benefit analysis for regulatory initiatives.

The failure of anti-money laundering laws and their harmful impact on the poor.

How one-size-fits-all Basel rules led to imprudent risk and misallocation of capital.

How anti-tax competition schemes impose high costs on the financial system (which get passed on to financial consumers).

One thing I noticed, though, is that I didn’t get overly passionate when discussing these topics. I didn’t even get that worked up when talking about the OECD’s dangerous plan to create something akin to a World Tax Organization.

But I did get rather agitated when talking about how money-laundering rules and regulations have led to disgusting and reprehensible examples of so-called civil asset forfeiture.

This happens when a government decides to steal the property of citizens simply because they think it may have been involved in illegal activity.

Politicians and bureaucrats often use the failed Drug War as their rationale, but the activity doesn’t actually have to be illegal. I specifically cited the horrific example of the government stealing $35,000 from some folks in Michigan for no other reason than money from the family grocery business was generally deposited in amounts under $10,000.

I’m sure such government actions have a negative economic impact, but this is a case where the moral argument should take precedence.

Simply stated, all decent and humane people should stand united against thuggery by government.

And in an example of serendipity, after finishing my speech, I turned on my computer and came across more evidence against civil asset forfeiture.

Here are some truly disturbing passages from a report in the Detroit Free Press that showed up in my Twitter feed.

Thomas Williams was alone that November morning in 2013 when police raided his rural St. Joseph County home, wearing black masks, camouflage and holding guns at their sides. They broke down his front door with a battering ram. “We think you’re dealing marijuana,” they told Williams, a 72-year-old, retired carpenter and cancer patient who is disabled and carries a medical marijuana card. When he protested, they handcuffed him and left him on the living room floor as they ransacked his home, emptying drawers, rummaging through closets and surveying his grow room, where he was nourishing his 12 personal marijuana plants as allowed by law.

All this sounds horrible – and it is, but it gets worse.

They did not charge Williams with a crime… Instead, they took his Dodge Journey, $11,000 in cash from his home, his television, his cell phone, his shotgun and are attempting to take his Colon Township home. And they plan to keep the proceeds, auctioning off the property and putting the cash in police coffers. More than a year later, he is still fighting to get his belongings back and to hang on to his house. “I want to ask them, ‘Why? Why me?’ I gave them no reason to do this to me,” said Williams, who says he also suffers from glaucoma, a damaged disc in his back, and COPD, a lung disorder. “I’m out here minding my own business, and just wanted to be left alone.”

Why him? Well, one local attorney has a good idea of what’s really happening.

“It’s straight up theft,” said Williams’ Kalamazoo attorney, Dan Grow. “The forfeiture penalty does not match the crime. It’s absurd. …A lot of my practice is made up of these kinds of cases — middle-aged, middle-income people who have never been in trouble before. It’s all about the money.”

Just to be clear, Mr. Grow is emphasizing the utterly perverse incentive structure that exists when cops are allowed to steal money from citizens and use it to pad their own budget.

This system needs to be reformed.

And the second bit of serendipity is that a new report from the Institute for Justice showed up in my inbox. It explains why civil asset forfeiture should be abolished. And while the report focuses on the venal actions of the IRS, this reform should apply to all government agencies at all levels of government.

Civil forfeiture is the government’s power to take property suspected of involvement in a crime. Unlike criminal forfeiture, no one needs to be convicted of—or even a charged with—a crime for the government to take the property. Lax civil forfeiture standards enable the IRS to “seize first and ask questions later,” taking money without serious investigation and forcing owners into a long and difficult legal battle to try to stop the forfeiture. Any money forfeited is then used to fund further law enforcement efforts, giving agencies like the IRS an incentive to seize.

Here’s how IJ suggests that this type of abuse can be halted.

The surest way to prevent innocent people from losing money unjustly would be to end civil forfeiture and replace it with criminal forfeiture. Short of that, removing the financial incentive to seize, raising the standard of proof to forfeit and enacting other procedural reforms would help protect people from losing their bank accounts when the government has little or no proof of criminal wrongdoing.

While the Institute for Justice does great work, I don’t think they should have opened the door to halfway reforms.

Heck, even the two people who helped start up the Justice Department’s asset forfeiture program now say it should be abolished.

P.S. The Princess of the Levant is also in London, so I’m being forced to engage in tourist activities.

We took a ride on the London Eye, which wasn’t cheap but offers very good views of Big Ben, the House of Commons, Westminster Abbey, and other historic sites.

As far as I’m concerned, though, London is too cold and dreary. The only good tourism involves a warm beach in the Caribbean.

P.P.S. To close on a humorous note, here’s some anti-gun control humor with a rather pointed message.

Definitely worth adding to my collection.

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I don’t particularly care how people vote, but I do care whether they believe in freedom.

That’s why I periodically share stories that should convince everyone to believe in the libertarian philosophy of small government, individual liberty, and personal responsibility.

The stories that get me most agitated are the ones that involve innocent people being robbed by bureaucrats.

And when I say robbed, I use that word deliberately.

Such as the case of an elderly couple who had their hotel stolen by government.

Such as the case of the family grocer who had his bank account stolen by government.

Such as when the government wanted to steal someone’s truck because a different person was arrested for drunk driving.

Such as when the government tried to steal the bond money a family collected to bail out a relative.

Such as when the government seized nearly $400,000 of a business owner’s money because it was in the possession of an armored car company suspected of wrongdoing.

Such as when the government sought to confiscate an office building from the owner because a tenant was legally selling medical marijuana.

Such as when the government killed a man as part of an anti-gambling investigation undertaken in hopes of using asset forfeiture to steal other people’s cash.

With all this background, you can probably guess I’m going to add to that list.

And you’re right. We have a report from the New York Times that has me frothing at the mouth. I can’t imagine any decent person not being outraged by this example of big government run amok.

For almost 40 years, Carole Hinders has dished out Mexican specialties at her modest cash-only restaurant. For just as long, she deposited the earnings at a small bank branch a block away — until last year, when two tax agents knocked on her door and informed her that they had seized her checking account, almost $33,000. The Internal Revenue Service agents did not accuse Ms. Hinders of money laundering or cheating on her taxes — in fact, she has not been charged with any crime. Instead, the money was seized solely because she had deposited less than $10,000 at a time, which they viewed as an attempt to avoid triggering a required government report.

In other words, this is an example of two evil policies – asset forfeiture laws and money laundering laws – coming together in a vortex of we’ll-screw-you-over-even-if-you’re-law-abiding statism.

And you can forget about the Constitution’s presumption of innocence.

Ms. Hinders said in a recent interview. “Who takes your money before they prove that you’ve done anything wrong with it?” The federal government does. Using a law designed to catch drug traffickers, racketeers and terrorists by tracking their cash, the government has gone after run-of-the-mill business owners and wage earners without so much as an allegation that they have committed serious crimes. The government can take the money without ever filing a criminal complaint, and the owners are left to prove they are innocent. Many give up.

Of course, much of tax code enforcement is based on the upside-down premise that taxpayers are guilty and have to prove themselves innocent.

But that still doesn’t make it right. And the IRS is just the tip of the iceberg. Stealing is now a common practice by all sorts of bureaucracies at all levels of government.

The practice has swept up dairy farmers in Maryland, an Army sergeant in Virginia saving for his children’s college education and Ms. Hinders, 67, who has borrowed money, strained her credit cards and taken out a second mortgage to keep her restaurant going. Their money was seized under an increasingly controversial area of law known as civil asset forfeiture, which allows law enforcement agents to take property they suspect of being tied to crime even if no criminal charges are filed. Law enforcement agencies get to keep a share of whatever is forfeited. Critics say this incentive has led to the creation of a law enforcement dragnet, with more than 100 multiagency task forces combing through bank reports, looking for accounts to seize.

Here’s just one horrifying example of how this process works.

 In one Long Island case, the police submitted almost a year’s worth of daily deposits by a business, ranging from $5,550 to $9,910. The officer wrote in his warrant affidavit that based on his training and experience, the pattern “is consistent with structuring.” The government seized $447,000 from the business, a cash-intensive candy and cigarette distributor that has been run by one family for 27 years. …the government seized $447,000, and the brothers have been unable to retrieve it. …Mr. Potashnik said he had spent that time trying, to no avail, to show that the brothers were innocent. They even paid a forensic accounting firm $25,000 to check the books. “I don’t think they’re really interested in anything,” Mr. Potashnik said of the prosecutors. “They just want the money.” …“We’re just hanging on as a family here,” Mr. Hirsch said. “We weren’t going to take a settlement, because I was not guilty.”

Still not convinced about the venality of big government? Here’s another nauseating example.

Army Sgt. Jeff Cortazzo of Arlington, Va., began saving for his daughters’ college costs during the financial crisis, when many banks were failing. He stored cash first in his basement and then in a safe-deposit box. All of the money came from paychecks, he said, but he worried that when he deposited it in a bank, he would be forced to pay taxes on the money again. So he asked the bank teller what to do. “She said: ‘Oh, that’s easy. You just have to deposit less than $10,000.’” The government seized $66,000; settling cost Sergeant Cortazzo $21,000. As a result, the eldest of his three daughters had to delay college by a year. “Why didn’t the teller tell me that was illegal?” he said. “I would have just plopped the whole thing in the account and been done with it.”

By the way, some of you may be thinking that these terrible examples are somehow justifiable because the government is stopping crime in other instances.

But that’s not true. Experts who have looking at money laundering laws have found that there’s no impact on genuine criminal activity. But lots of costs imposed on innocent people.

Which probably explains why the first two directors of the Justice Department’s Asset Forfeiture Office now say the laws should be repealed.

If you want more information, here’s my video on the government’s costly and failed war on money laundering.


By the way, the government also abuses people in ways that have nothing to do with money laundering or asset forfeiture.

And there are more examples where those came from.

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If you ask me about the most wasteful department in the federal government, I’ll state that there are lots of good choices, but if forced to identify the best candidate for elimination, I’ll go with the Department of Housing and Urban Development.

If you ask me about the entitlement program most in need of reform, I’m tempted to say all of them, but ultimately I’ll argue that we should first fix Medicaid by devolving it to the states, accompanied by block grants as a transitional funding mechanism.

But if you ask me to identify the most evil and despicable thing that government does, I have no hesitation in picking asset forfeiture, which is the horrifying practice of bureaucrats stealing private property simply because they think the owners may have some connection with criminal activity.

*Such as when the government wanted to steal someone’s truck because a different person was arrested for drunk driving.

*Such as when the government tried to steal the bond money a family has collected to bail out a relative.

*Such as when the government seized nearly $400,000 of a business owner’s money because it was in the possession of an armored car company suspected of wrongdoing.

*Such as when the government sought to confiscate an office building from the owner because a tenant was legally selling medical marijuana.

*Such as when the government killed a man as part of an anti-gambling investigation undertaken in hopes of using asset forfeiture to steal the gamblers’ cash.

*Such as when the government tried to steal $17,000 from a motorist even though they never charged him with a crime, much less convicted him of any offense.

If you click the links and read those disgusting examples of thieving government, you’ll agree that all decent and human people should be libertarians.

And if you need more evidence that asset forfeiture should be eliminated, John Yoder and Brad Cates, the first two directors of the Justice Department’s Asset Forfeiture Office, have a column in today’s Washington Post, and they unambiguously disown the bureaucracy they created and the evils it has spawned.

As two people who were heavily involved in the creation of the asset forfeiture initiative at the Justice Department in the 1980s, we find it particularly painful to watch as the heavy hand of government goes amok. …Asset forfeiture was conceived as a way to cut into the profit motive that fueled rampant drug trafficking by cartels and other criminal enterprises, in order to fight the social evils of drug dealing and abuse. Over time, however, the tactic has turned into an evil itself, with the corruption it engendered among government and law enforcement coming to clearly outweigh any benefits.

They then describe how the program metastasized.

The idea seemed so simple: Seize the ill-gotten gains of big-time drug dealers and remove the financial incentive for their criminality. After all, if a kingpin could earn $20 million and stash it away somewhere, even a decade in prison would have its rewards. Make that money disappear, and the calculus changes. Then, in 1986, the concept was expanded to include not only cash earned illegally but also purchases or investments made with that money, creating a whole scheme of new crimes that could be prosecuted as “money laundering.” The property eligible for seizure was further expanded to include “instrumentalities” in the trafficking of drugs, such as cars or even jewelry. Eventually, more than 200 crimes beyond drugs came to be included in the forfeiture scheme.

I’m especially glad they include the government’s foolish and costly anti-money laundering laws as they discuss government run amok.

A big problem is that these laws create perverse incentives for abusive behavior by bureaucracies.

This all may have been fine in theory, but in the real world it went badly astray.  …As time went on and states got into the forfeiture game, the uses became more personally rewarding for law enforcement. …Law enforcement agents and prosecutors began using seized cash and property to fund their operations, supplanting general tax revenue, and this led to the most extreme abuses: law enforcement efforts based upon what cash and property they could seize to fund themselves, rather than on an even-handed effort to enforce the law. …the old speed traps have all too often been replaced by forfeiture traps, where local police stop cars and seize cash and property to pay for local law enforcement efforts. This is a complete corruption of the process, and it unsurprisingly has led to widespread abuses.

Here’s the bottom line.

…civil forfeiture is fundamentally at odds with our judicial system and notions of fairness. It is unreformable. …our forfeiture laws turn our traditional concept of guilt upside down. Civil forfeiture laws presume someone’s personal property to be tainted, placing the burden of proving it “innocent” on the owner. What of the Fourth Amendment requirement that a warrant to seize or search requires the showing of probable cause of a specific violation? Defendants should be charged with the crimes they commit. Charge someone with drug dealing if it can be proved, but don’t invent a second offense of “money laundering” to use as a backup or a pretext to seize cash. …Civil asset forfeiture and money-laundering laws are gross perversions of the status of government amid a free citizenry. …it is unacceptable that a citizen should have to “prove” anything to the government. …if the government has proof beyond a reasonable doubt of guilt, let that guilt be proclaimed by 12 peers.

Amen. Our Founding Fathers gave us a Constitution to protect us against this kind of petty tyranny. Our presumption of innocence shouldn’t be eroded just because some bureaucrats are greedy to steal private property.

For more information, here’s a must-watch video on asset forfeiture from the Institute for Justice.

And here’s my video on intrusive and pointless anti-money laundering laws.

And there’s another video at this link if you want to see a horror story that combines asset forfeiture and anti-money laundering nonsense.

Moral of the story: These laws should be repealed as soon as possible.

P.S. A few days ago, I predicted the Scots would vote against independence by a 56-44 margin. The final results were 55.3-44.7 against independence. That’s almost as good as my prediction for the 2010 mid-term elections.

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