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Posts Tagged ‘money laundering’

It was only a few decades ago that there was no such thing as money-laundering laws. Instead, the focus of law enforcement was on the underlying criminal behavior (such as robbery) that generated ill-gotten gains. In recent decades, however, politicians around the world have passed hundreds of laws, created hundreds of agencies, and spawned several international bureaucracies and treaties. The theory is that crime could be discouraged by making it more difficult for bad guys to make use of any resulting loot.

In reality, though, money-laundering laws have been a huge failure. From a cost-benefit perspective, there is an overwhelming case that these laws should be radically revised if not totally repealed.

The current approach has significantly increased the expense of providing financial services, which is particularly burdensome for the poor and others at risk of not being able to utilize the financial system. These laws also have dramatically eroded privacy, forcing financial service providers and professional advisers to spy on customers and clients. To get a sense of what this means, here’s a blurb from a recent article in the U.K.’s Law Society Gazette.

…an official from the World Bank’s Financial Market Integrity Unit…described his research on the kind of large-scale money laundering that takes place globally. At the end of his presentation, which he admitted touched only tangentially on the role of lawyers, he said that his research showed that the overwhelming majority of lawyer participation in money laundering took place by deliberate action of the lawyer, and not through unwitting manipulation by the criminal. Then I intervened. If that was the case, if money laundering overwhelmingly involves crooked lawyers and not unwitting ones, then why do we have the gigantic and unwieldy money laundering legislation in place for lawyers, with its duty to report suspicious transactions without tipping off the client, which turns the lawyer into a police officer? Obviously, if a lawyer is deliberately involved in the laundering, there are existing laws and professional rules to deal with it. But why must the balance of the rule of law, which depends on a client being able to confide information to a lawyer, be upset for a problem that does not exist? That is when the audience applauded. …I think it is time to use more of our resources to push for exposure of the lie on which the money laundering legislation is based. There is no evidence that unwitting lawyers’ reports are making any difference. Give us the evidence or repeal the legislation.

From a utilitarian standpoint, these costs might be justifiable if they resulted in a substantial reduction in crimes against people and property. Unfortunately, there is no evidence that money-laundering laws have reduced criminal behavior (heck, they don’t even do a good job of intercepting criminal funds).

Yet politicians and bureaucrats every year seek more laws and more powers in hopes of somehow turning a sow’s ear into a silk purse. The latest example is from the Financial Action Task Force, a Paris-based bureaucracy filled with people who make very good salaries thanks to the existing plethora of laws and regulations. These bureaucrats now want to make tax matters a predicate offense for money laundering. And they want such laws to apply across borders, so a bank in New York could be held accountable if a French worker or investor didn’t fully comply with France’s oppressive tax laws. Or a bank in Miami could be guilty of an offense if it helps a Venezuelan family protect its assets from Hugo Chavez’s thugocracy.

So many costs, so few benefits. This video elaborates.

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The Washington Post has an interesting report about the huge amount of money that Fairfax County spends to go after gambling. The story cites critics who ask “why law enforcement spends valuable time and money on combating sports gambling. The answer is obvious – and explicit in the story: “…police in Virginia are allowed to keep 100 percent of the assets they seize in state gambling cases.” In other words, harassing the gambling business is a profit-making endeavor for police. And it also can be deadly since cops killed an optometrist during a SWAT arrest. The Institute for Justice has a powerful video on the dangers of “policing for profit,” and Fairfax County is just one bad example of how this lures cops into misallocating resources to fight behaviors that shouldn’t even be illegal.

It’s football season, and for millions of Americans that means betting season.

…It’s a crime that Fairfax County police take seriously. So seriously that in one recent gambling investigation, they spent — and lost — more than $300,000 in cash to take down a Las Vegas-based online bookie and his group of Fairfax-based associates.

…Police critics have long wondered why law enforcement spends valuable time and money on combating sports gambling. In Fairfax, the police rarely publicize their arrests, and the details of their investigations are little known outside the small corps of detectives in the money laundering unit. Unlike drug cases, police in Virginia are allowed to keep 100 percent of the assets they seize in state gambling cases, so other agencies or divisions receive no benefit. And the vast majority of those arrested are placed on probation.

“What a waste,” said Nicholas Beltrante, founder of the Virginia Citizens Coalition for Police Accountability, a group formed earlier this year in part to combat unnecessary police spending. “The police should be utilizing their resources for more serious crimes.”

Fairfax’s most notorious gambling investigation ended in disaster. In 2006, an undercover detective lost more than $5,000 while betting on NFL games with optometrist Salvatore J. Culosi — and when the detective called in a SWAT team to make the arrest, an officer shot Culosi once in the heart and killed him.

…Since 2004, the squad has seized about $1 million in cash and assets annually, but some of those cases landed in federal court, where money is divided among various agencies, Schaible said.

…One case from 2006, that of admitted bookmaker Kyle Peters, resulted in police seizing and keeping $566,940 from his bank accounts. Schaible said such funds are recycled “back into investigating cases. It’s helping us resolve these and fight further crime.”

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