The New York Times is reporting on the law enforcement practice of using money laundering laws and civil asset forfeiture to steal from law-abiding citizens without ever charging them with a crime.
The story begins with the plight of Iowa restaurateur Carole Hinders. For the non-crime of depositing less than $10,000 at a time, the IRS took $33,000 right out of her bank account.
Like many victims, Hinders has not been charged with any serious crimes. While the laws were justified on the grounds that they’d help catch drug traffickers, racketeers and terrorists, the truth is that federal agents are mostly going after everyday Americans, most of whom have no idea that they’re not conforming to byzantine reporting requirements.
The New York Times cites examples including “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.”
Other examples include alleged Silk Road head honcho Ross Ulrich and bitcoin entrepreneur Charlie Shrem. Both are in custody awaiting trial, Ulrich in jail and Shrem under house arrest, for allegedly failing to properly report bitcoin sales to the authorities.
A Costly Failure
The big problem with trying to catch criminals through their spending habits is that you’re looking for the proverbial needle in the haystack.
One huge problem with reporting requirements and money laundering laws, is that they force citizens to do the looking. Coercing ordinary citizens into doing the job of law enforcement is a pretty serious overreach. It’s also incredibly inefficient. That’s why The Economist deemed money laundering laws a costly failure. Compliance costs are estimated to be in the billions annually in Europe and North America, and so far evidence that all this reporting has even cut down on drugs, sex work, gambling or terrorism is scant.
Even when the needle in the haystack is shining brightly, as it was in the case of megabank HSBC, the feds will choose to ignore it, and focus on small, victimless crimes instead.
Even though multiple whistle-blowers came forward with allegations that proved correct that the bank was knowingly laundering millions for terrorist enterprises, the end result was a small fine. The $33,000 Hinders had taken from her is backbreaking. HSBC barely noticed their $1.9 billion.
The IRS has assured the New York Times that it would, going forward, steal money from people whose money “is believed to have been acquired illegally.” But that’s exactly what they were supposed to be doing the entire time. How is this, as they describe it, a “policy update?”
The laws are written so broadly that they rely almost entirely on individual judgment calls about whether business owners make deposits under $10,000 to evade reporting requirements. But this of course leaves open that there’s a very good reason to evade reporting requirements besides criminal activity, namely that it’s a huge hassle.
What’s needed isn’t an unclear and for-show money laundering laws policy update. These laws should be stricken from the books. First to go should be the Bank Secrecy Act, whose justification relies on three frankly insane ideas.
The first is that citizens owe it to their government to tell them where their money comes from and goes. The second is that forcing citizens to play cops will work to catch criminals. The third is that government agencies will make the right choices about who to prosecute and who to leave alone. All three are completely, plainly, demonstrably wrong.
Second, asset forfeiture must be stopped.
Stealing money and assets from citizens without charging them is a blatant violation of citizens’ rights. That the IRS and other agencies are stealing from law-abiding citizens who are engaging in profit-making, cooperative business activities is just salt in the wound. Even if these victims were criminals, the bare minimum for taking property must be charging the accused with a crime.
