8/01 Indictment of Money Laundering Laws

UNITED STATES vs. THE PEOPLE: An Indictment of Money Laundering Laws
Judge Brad Cates

There are very few who would argue that criminals should be allowed to keep the fruits of their criminal activity. The loot from the bank robbery, the ransom from the kidnapping, or the Jaguar bought with the proceeds from a drug deal, are all fairly forfeit to the government.

Thus, asset forfeiture has a 1000 year history of acceptance and development in English jurisprudence. Its use was specifically authorized in the United States Constitution, and the first forfeiture law was written by the first Congress in 1789.

Of course, even drug dealers occasionally have legitimate income or rich uncles, and it is necessary to prove that a particular Jaguar was indeed purchased with actual drug money. This process of tracing and identifying particular assets has developed into a body of law one can generally call “money laundering.”

Of the nearly ten years I spent as a federal prosecutor in the Reagan-Bush years, my four years as the Director of the Justice Department Asset Forfeiture Office was especially productive. Chasing ill gotten assets to the far corners of the world, developing multinational treaties, and working with the Congress to write new and tough laws, seemed at the time so fruitful. Nowadays however, with even the Democratic politicians on board the anti-crime bandwagon, Congress rolls out new and tougher anti-money laundering legislation each election year, always decrying the ineffectiveness of the existing laws.

But now I fear, what scourge have we released upon the land? Is it necessary to mug the Constitution in order to save it? Why must we strip away our inherent rights to privacy as free Americans in order to punish the guilty few? Where did the train jump the track, and the whole process take on a life of its own, totally divorced from the protections of the Constitution?

Prime Minister William Pitt aptly summarized the English Common Law prohibition against government searches of private homes: “The wind may blow through it, the storms may enter, the rains may enter, but the King of England can not enter, all his forces dare not cross the threshold of the ruined tenement.”

America’s Founding Fathers wrote this Law into our own Constitution as the Fourth Amendment: “The right of the People to be secure… against unreasonable searches and seizures shall not be violated.”

While virtually no one, including the founding fathers, espouses the idea that a criminal should be able to keep his criminal assets, the cornerstone of our Constitution, and our liberty, or our right to privacy, is the Fourth Amendment. An impartial judge must be presented probable cause to believe that a particular crime has been committed before he may issue a warrant to allow agents of the state to search a specific place for specific evidence. The warrant must “particularly describe the place to be searched,” the Constitution says.

Although most believe that this right to privacy is inherent in the entire fabric of the Constitution, the Fourth Amendment is perhaps the most specifically articulated bedrock of the right. An American citizen owes no explanation to his servant, the government, as to why he chooses to be secretive. He may close the curtains to his bedroom because he so chooses — no justification is necessary, and no presumption may be drawn therefrom.

We as a society have been slow to comprehend the insidious and pervasive ways in which the government now intrudes into our financial and other affairs without any evidence of wrongdoing or judicial warrant. While this intrusion is primarily justified in the name of the war on drugs, its overwhelming power is only now being brought to bear because of the cheap and easy sophistication of computers.

The Department of the Treasury has created a little know big brother apparatus known as “FinCen,” the Financial Crimes Enforcement Network. FinCen has developed a “profile” by which to categorize citizens, and they require bank personnel to report on the activity of our citizens. Over 100 million of these informant reports compulsively prepared by banks have been computerized and categorized by FinCen.

Citizens have every right to expect that their financial transactions should be private. These reasons include asset management strategies, reading and video choices, and health needs purchases. But more basically, an American owes no explanation of his desire to protect his privacy. It is no one else’s business!

One would assume that lawyers, priests, doctors, internet providers and bankers, among others, would be under legal and moral obligation to protect the confidences and interests of their clients. In a democratic society, a system of checks and balances exists to help keep the government in check. The above mentioned professions and businesses should have a duty to the client, the citizen, not to become secret agents and spies for the state. Ask yourself, would Joseph Stalin or Thomas Jefferson be more likely to implement the secret informant system?

Having answered that question, FinCen requires the banks to spend $10 billion a year to provide “money laundering” profile reports on their customers-detailed reports produced without benefit of probable cause or search warrant.

In 1998, 932 “money launderers” were convicted. That at a cost to the banks and their customers of $10 million per conviction, not to mention the many millions more of public tax money per conviction in mission costs. Even if this gross invasion of financial privacy were justified, is the cost? One must understand that most of these convicted are run of the mill white collar criminals or drug dealers, who, by even putting one dollar in a bank, became “money launderers.” Obviously, most prosecutors are going to throw in a money laundering count for good measure into many criminal cases.

In justification of their ever increasing budgets, U.S. government bureaucrats estimate that $3.2 trillion is laundered worldwide annually, but that only $400 million was confiscated in 1999 from regular cases — 1/8th of one percent. Admittedly, every now and then hundreds of millions will be taken in a specific case, such as a stock fraud restitution, but these types of seizures should not be included in the normal statistics. So, with, statistically speaking, absolutely no deterrent effect, FinCen’s web site wonders why “As soon as law enforcement learns the intricacies of a new laundering technique and takes action to disrupt it, the launderers replace the scheme with yet another, more sophisticated method.” Yes, and they may be surprised to know that when you learn that your neighbor keeps peering into your bedroom window you are apt to devise different curtains.

On another subject, how about the mail? Maybe you write love letters, or business strategies, and perhaps you would be offended if government agents at the post office read them. It is not difficult, you know. Envelopes can be steamed open, or, well, I guess there are several methods.

But alas, in the new millennium, when you’ve got mail, it tends to be electronic. Email traffic, just like paper envelopes, telephone calls, and bedroom curtains can all be easily compromised. But shouldn’t our lawmakers seek ways to strengthen our privacy, and seek ways to ensure that neither government agents, industrial spies, nor nosey people intrude into our privacy?

However, instead of rushing to our defense, Congress ponders unleashing new intrusions into our expectations of electronic privacy. Wouldn’t it be better to keep it simple, and constitutional: if they want something, they have to get a very specific warrant first.

The government seems to now believe that it must randomly monitor all banking and electronic activity in order to develop probable cause. This is turning the Constitution upside down! No doubt, if the police randomly searched all the houses in your neighborhood (yes, your very neighborhood) they would obtain evidence with which they could obtain probable cause arrest warrants. But this is not what the Constitution allows.

Likewise, even if the state has probable cause that a drug lab exists in your neighborhood, it can’t get a warrant to search all the houses — the warrant must specify only the one specific house. There can be no warrants to search all the houses in a neighborhood, even if there is reason to believe that the suspect has contraband in one of them.

The FBI has written a new computer program appropriately called “Carnivore,” presumably because it is designed to consume all the traffic of an internet provider in order to search for probable cause of such crimes as money laundering. They want to turn your internet provider into a new informant. Excuse me, but I thought I paid my provider to confidentially handle my mail, not spy on me for the government.

Now the FBI justifies this by saying that they promise to not peek at other people’s mail, but, I’m sorry, the “trust me” defense just isn’t what it used to be after the White House email fiasco, Waco, and such. Also, as further justification, the FBI says that “Criminals use computers to send child pornography to each other using anonymous, encrypted communications,” presumably invoking a unique exception to the Constitution about which I am unaware to justify warrantless searches.

Rumor has it that similar exchanges of pornography can also occur in private homes. Be that as it may, the FBI cannot constitutionally sift through all the ISP’s traffic flow in order to read a particular criminal subject’s mail, any more than they rummage through all the houses in his neighborhood.

As with the futility of the drug war’s money laundering crusade, what the Feds will find is that in most cases their spying efforts will be futile in any event. As with money laundering, serious criminals will figure ways to beat the system by encrypting the data, or frequently changing their email addresses. But the Feds have thought of this, and they are trying to stop the sale of encryption devices made in America, the types of devices made and sold freely in Europe! How long will it take before the code of the Carnivore is freely posted on the internet by hackers or others? So in the end, the only people snagged by this system will be as a result of the collateral damage done to the Constitution.

On the subject of spies, we read that the CIA and NSA are enhancing the ability of their facilities in Germany and elsewhere so as to read the electronic mail of all our European friends and allies. If this were tailored to ferret out terrorist activity or nuclear proliferation, perhaps our friends would understand. Certainly our nation needs to have a strong and effective intelligence apparatus. Despite the end of the cold war, the world is not necessarily a kinder and gentler place, terrorists and saboteurs do exist, and rouge pariah nations such as North Korea do plot chaos.

The European Parliament states however that “within Europe, all e-mail, telephone, and fax communications are routinely intercepted by the United States National Security Agency.” Press accounts indicate that a major purpose of Echelon, the NSA’s data collection system, is to monitor money laundering activity.

The Foreign Intelligence Surveillance Act prohibits the NSA from deliberately intercepting the transmissions of U.S. citizens either domestically or internationally without establishing that probable cause exists to believe the target is a foreign government agent committing espionage or other crimes.

We all understand that with no cold war to fight, agencies are searching for reasons to keep the budget money flowing. Money laundering certainly has as good a ring to it as any. But the law requires that the crime being monitored must be committed by an agent of a foreign government. NSA should avoid getting politically twisted into being an arm of the police.

As Congressman Bob Barr, a former federal prosecutor and CIA analyst, said “Echelon gives every appearance of a program that is far broader than it ought to be and poses serious questions about constitutionality.”

With this new capacity, NSA can now look into the bank accounts of Austrian citizens for example, accounts which are strictly anonymous and protected under Austrian law, to see if some of them are money launderers. It also lets them monitor the private banking transactions that American citizens or companies may have with English, Austrian, or German banks.

The NSA walks a thin line between the needs of intelligence gathering and the prohibitions and norms of first world nations. Let’s hope they have the wisdom to stay out of the law enforcement business, and confine their collection and data sharing to instances of foreign agent or terrorist activity.

The U.S. has now entered into treaty obligations with the European Community to cooperate in money laundering investigations by monitoring and exchanging private banking data on Americans and others. This is of course subject to constant political and economic manipulation.

For example, the Russian government recently decided that the owner of the only independent television station in Moscow had committed some unspecified crimes and was laundering money. Maybe they should have alleged child pornography for good measure. Surely it was a coincidence that he was a leading member of the Moscow Jewish community, and that his station was the only one to criticize the war in Chechnya.

The authorities seized his home, as it was the product of money laundering they said, and officially requested the Swiss authorities to seize all of his European bank accounts. Being dutiful agents of the new European Communities anti-money laundering cabal, they quickly complied.

But alas, the Russian investigation was officially closed after two weeks for lack of any evidence, and coincidently the editorial policy of the television station changed and the owner flew to Spain. Then, mysteriously, the Russian government decides he is again a dangerous criminal, and issues a warrant to again arrest him and his assets. Dutifully, the Europeans have complied — although still no particular crime is alleged other than the generic “money laundering.” Rather makes you feel dirty that we were all a part of that, at least in the sense that our Treasury Department continually presses for a more expansive treaty network to facilitate such “cooperation.”

Hearing speakers at a recent symposium sponsored by the Holocaust Memorial Museum in Washington led me to conclude that there are remarkable similarities between German laws of the 1930’s, and “modern” money laundering legislation. Participants at the “Confiscation of Jewish Property in Europe, 1933-1945: New Sources and Perspectives” symposium repeatedly cited the strict adherence to procedure and form practiced by the Nazi bureaucrats of the Justice, Customs, and Finance Ministries. Citing the need to prevent smuggling, illegal currency manipulation and transfer, stock fraud, export of national treasures, nonpayment of (special Jewish levy) taxes, transmittal and receipt of illegal radio telecommunications, and collaboration with foreign governments, the Nazi officials increasingly enacted and enforced full reporting, disclosure, and surveillance laws. Once the officials knew everything about any particular businessman, it was not hard to find evidence of at least one crime, and thus, very legally and properly, commence forfeiture proceedings.

The U.S. Secretary of the Treasury recently announced that he and the Financial Ministers of Europe were developing a list, and a plan of sanctions, to punish any nation that chooses to exercise its sovereignty to protect the privacy of their banking system. These sanctions will include economic and political ostracization measures, even to include a hold on clearing those nations’ banking transactions in London or New York. This seems a rather self righteous plan by rich nations, most of which have no fourth amendment protections, to invade the privacy of their own, and American, citizens.

The plan also calls for amending the U.S. money laundering law so that the activities of foreign citizens doing perfectly legal activity in their own country could be punished in the U.S.

I am proud of being an American, but this pompous disregard of foreign sovereignty and international law is absurd. Imagine if Iran, using the same tactic, proclaimed it a crime in Iran for anyone, anywhere in the world, to publish anything questioning the deity of Allah? The principle of law would not be dissimilar, however. Even now the German Government is seeking authority to arrest people in the U.S. who operate German language web sites hosting information favourable to “fascist” views.

As distinguished Washington economist Dr. Richard Rahn has written “These proposals illustrate how far U.S. government officials will go. Not only are they willing to violate the civil liberties of U.S. citizens, they also believe that foreign jurisdictions should have no right to provide their citizens protection from the far reaching hand of U.S. law enforcement.”

The Supreme Court unanimously decided a recent Florida case declaring, “The question is whether an anonymous tip that a person is carrying a firearm is, without more [evidence], sufficient to justify a police officer’s stop and frisk of that person. We hold that it is not.”

In another case argued recently, the Supreme Court will decide on the correctness of the 7th Circuit Court’s ruling that “individualized suspicion” of criminal activity must be present before state troopers can stop motorists so that police dogs can sniff for drugs. The practice of random stops, Chief Judge Richard Posner said “violates the driver’s privacy in an effort to find some evidence of a crime.”

And in the most encouraging case, last month the Supreme Court ruled that unusually sophisticated external surveillance of a dwelling would require a warrant.

If the Congress will choose to follow the lead of the reasoning in these three cases, any number of intrusive electronic and financial monitoring and interception practices would be stopped overnight.

In summary, we have taken the losing war on drugs and married it to its sexy first cousin asset confiscation and money laundering. The resulting child is a severe deformity of the Constitution and our rights to privacy. It is better that ten so-called money launderers go free than that even one innocent American’s electronic and other mail and financial accounts are rummaged through. As it is, the rights of 250 million Americans are being compromised in the hope of catching a handful of criminals. In mere economic terms alone, the cost to the public and private sectors are many hundreds of times more than the assets recovered in any event.

Let’s get our law back on track here. We should support the police in catching real criminals who are committing real crimes. We should not turn the country, or the world, into a federal police state on the alter of “money laundering.”

Brad Cates,
Attorney, Dallas, Texas
International Business Consultant, West Fork, Arkansas

Brad Cates was the Director of the U.S. Department of Justice Asset Forfeiture Office, and a federal prosecutor. He was also Chief Administrative Judge of the U.S. Department of the Interior, and a state legislator and Senior Assistant Attorney General. He attended the University of Arkansas and UNM law schools.