De­stroy­ing fi­nan­cial pri­vacy

Overzeal­ous money laun­der­ing rules sub­ject the in­no­cent to sus­pi­cion

The Washington Times Daily - - OPINION - By Richard W. Rahn Richard W. Rahn is chair­man of Im­prob­a­ble Suc­cess Pro­duc­tions and on the board of the Amer­i­can Coun­cil for Cap­i­tal For­ma­tion.

Do you want your rel­a­tives, friends, busi­ness com­peti­tors and gov­ern­ment bu­reau­crats to know pre­cisely how much wealth you have, in what form, and how you spend all of your money? Most peo­ple were ap­palled when they learned the ex­tent of mon­i­tor­ing of tele­phone and elec­tronic com­mu­ni­ca­tions by the var­i­ous in­tel­li­gence agen­cies. But what is even more shock­ing is the ex­tent to which var­i­ous gov­ern­ment or­ga­ni­za­tions mon­i­tor and, in many cases, re­strict fi­nan­cial free­dom, and seize as­sets with­out crim­i­nal con­vic­tion. De­spite the lim­ited tech­nolo­gies to mon­i­tor and con­trol fi­nan­cial trans­ac­tions at the time, the Amer­i­can Found­ing Fathers clearly saw the dan­ger of a gov­ern­ment that could ex­am­ine and med­dle in peo­ple’s fi­nan­cial af­fairs. The right to pri­vacy can be found in the Bill of Rights, specif­i­cally in parts of the Fourth and Fifth Amend­ments to the U.S. Con­sti­tu­tion.

In an ex­cel­lent re­port, “Fi­nan­cial Pri­vacy in a Free So­ci­ety,” Her­itage Foun­da­tion schol­ars Nor­bert Michel and David Bur­ton de­tail the ongoing abuses of the ba­sic right of fi­nan­cial pri­vacy in the United States and else­where. “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.”

The gov­ern­ment ar­gues that it must col­lect fi­nan­cial data and then share it with many do­mes­tic and for­eign gov­ern­ment or­ga­ni­za­tions in or­der to stop tax eva­sion, money laun­der­ing, drug deal­ing, other as­sorted crim­i­nal­ity, and ter­ror­ist fi­nance — all of which sounds good at first glance, un­til one looks at what re­ally hap­pens. If you think that the war on drugs has been a fail­ure, look at the war on money laun­der­ing, tax eva­sion and ter­ror­ist fi­nance for an even big­ger fail­ure.

First, money laun­der­ing is a crime of in­tent, rather than ac­tions, in which two dif­fer­ent peo­ple can en­gage in the same set of fi­nan­cial trans­ac­tions, but if one has crim­i­nal in­tent he or she can be charged while the other per­son is home free. Such vague law is both ripe with abuse and dif­fi­cult to prove. There are al­most infinite ways to laun­der money, so those rel­a­tively few who are con­victed tend to be the less clever. Iron­i­cally, the more com­plex the tax law be­comes, the eas­ier it be­comes for those who want to in­vest the time and re­sources to evade full pay­ment of taxes. Most ter­ror­ists spend very lit­tle money. Rent­ing a truck and buy­ing a few knives is never go­ing to show up on a ter­ror­ist money watch ac­tiv­ity, and even mak­ing bombs is rel­a­tively in­ex­pen­sive.

Mr. Michel and Mr. Bur­ton pro­vide ex­ten­sive data demon­strat­ing that the at­tack on fi­nan­cial pri­vacy by gov­ern­ments is largely a waste of money — many bil­lions spent to ob­tain few and very costly con­vic­tions. It is also a prime ex­am­ple of the tyranny of good in­ten­tions. It was not un­til 1986 that “money laun­der­ing” and many other al­leged fi­nan­cial crimes were made ex­plic­itly il­le­gal — and the gov­ern­ment pro­vided the power to seize a per­son’s as­sets on the mere sus­pi­cion of wrong­do­ing rather than con­vic­tion.

Two decades ago, Judge John Yoder wrote: “When I set up the As­set For­fei­ture Of­fice, I thought I could use my po­si­tion to pro­tect cit­i­zens’ rights, and tried to en­sure that the U.S. De­part­ment of Jus­tice went af­ter big drug deal­ers and big-time crim­i­nals, rather than mi­nor of­fend­ers and in­no­cent prop­erty own­ers. To­day overzeal­ous gov­ern­ment agen­cies and pros­e­cu­tors will not think twice about seiz­ing a yacht or car if they find two marijuana cig­a­rettes in it, re­gard­less of where they came from. I am ashamed of, and scared of, the mon­ster I helped cre­ate.” Judge Yoder and his suc­ces­sor as head of the As­set For­fei­ture Of­fice, Brad Cates, have writ­ten ex­ten­sively and worked hard, be­cause of the abuses, to abol­ish the prac­tice and le­gal­ity of as­set for­fei­ture at both the fed­eral and state lev­els — with some suc­cesses. Un­for­tu­nately, Judge Yoder passed away this past Fri­day. His voice for lib­erty and rea­son will be sorely missed.

The fi­nan­cial in­for­ma­tion that gov­ern­ment agen­cies now rou­tinely col­lect is widely shared, not only with other do­mes­tic gov­ern­ment agen­cies, but in­creas­ingly with for­eign gov­ern­ments — many of which do not pro­tect in­di­vid­ual lib­erty and other ba­sic rights. The Or­ga­ni­za­tion for Eco­nomic Co­op­er­a­tion and De­vel­op­ment has been push­ing for an in­for­ma­tion ex­change agree­ment, whereby the U.S. would, as Mr. Michel and Mr. Bur­ton note: “au­to­mat­i­cally, and in bulk, ship pri­vate fi­nan­cial and tax in­for­ma­tion — in­clud­ing So­cial Se­cu­rity and tax iden­ti­fi­ca­tion num­bers — to … nearly 70 coun­tries,” many of which are hos­tile to the U.S.

In­for­ma­tion shar­ing among gov­ern­ments is clearly ap­pro­pri­ate in the cases of ter­ror­ism and vi­o­lent crime, but not in cases of po­lit­i­cal speech or peace­ful protest, gam­bling, ho­mo­sex­ual be­hav­ior and tax eva­sion. In­for­ma­tion should only be shared in cases of dual crim­i­nal­ity; that is, where the in­for­ma­tion be­ing re­quested re­lates to what is a crim­i­nal of­fense in both coun­tries. For in­stance, coun­tries should not be re­quired to en­force tax law vi­o­la­tions that are not crim­i­nal vi­o­la­tions un­der their own laws.

More abuses of ba­sic rights are oc­cur­ring on a daily ba­sis by gov­ern­ment of­fi­cials con­cern­ing fi­nan­cial pri­vacy than on po­lit­i­cal speech — but both need to be stopped.

IL­LUS­TRA­TION BY GREG GROESCH

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