Re: DBS, Privacy, Money Laundering nonsense.

[scoops <scoops@quiknet.com>]

At 12:43 AM 11/14/98 -0500, Robert Hettinga wrote in Response to Black
Unicorn:
>--- begin forwarded text
>
Scoops response:

Mr. Hettinga your comments on the federal abuses on money laundering
prosecutions are right on.  As an attorney I have seen time and time again
the mere *threat* of bringing a money laundering charge enough to make
innocent defendants take pleas.  We all know that the crime of money
laundering was invented to catch mafiosos and other scofflaws.  However the
gradual broadening of the intent of the statute now just catches ordinary
people in the course of either legal or illegal activities that involve a
bank -- or other financial institution.  A bookkeeper is accused of
embezzling $10,000 from his employer and puting the money in his checking
account.  Lets say he has a reasonable defense to his actions.  Was the
money laundering statute intended to cover this crime?  No.  Will a federal
prosecutor (or even state) lay on a money laundering charge?  Of course.
The deal is, if the guy loses, he gets six months on the embezzlement and a
*minimum* of five or seven years on money laundering.  So you tell me?
Does he plead even if he could beat the embezzlement rap?  Of course.

A quick story.  True unfortunately.  A guy sells parts for jet planes.
Expensive.  Usual tab $50,000 to $200,000.  One day he sends an invoice for
$100,000 instead of $10,000.  He's got no reason to immediately notice that
it's'wrong.  He uses the U.S. mail.  That's mail fraud.  He asks his
secretary to see what she can do.  That's conspiracy.  He gets fed up and
calls the buyer who he thinks is a dead beat.  That's wire fraud.  In the
middle of the mess he changes his bank account from Bank of America to
Wells Fargo.  That's money laundering.  The buyer complains to a U.S.
attorney.  A grand jury indicts.  He's looking at something like 40 years.
The man's nearly in a coma that something like this could happen.  It's
Alice in Wonderland.  Naturally, all his money is seized and he can't
afford a private attorney and gets a competent but not overly zealous
federal public defender.  If the man had actually stolen $100,000, with
restitution and if it was his first offense, he get maybe a couple years.
Maybe probation.  But he doesn't even have the money!  Naturally, after a
few months in a federal detention facility (he can't make bail because the
feds have his assets) he starts listening to the other horror stories of
other fish caught in the net.  He sees what happens to them.  You fight and
there's a 98% chance that you lose.  And if you lose you get the maximum.
But if you plead out, we're looking at a slap on the wrist -- say a year or
two.  In his mind he hasn't committed anything even remotely like a crime
and he feels he completely innocent.  But he also knows that he's already
been in jail for about 1/2 of his sentence.  He vows to leave Amerika as
soon as he's out.  He perjures himself.  Admits his guilt under oath.  He
shows remorse for his crime.  The feds drop everything except some offense
that he can get a "5 and 5" -- five months in, five months on house arrest
(ankle bracelet).  He takes a felony hit on his record.  He loses all his
licenses.  He's ordered to pay costs of  $50.  He's already been in 5
months.  He's released the next day after they strap on the bracelet.  His
life is ruined.  His business is dead.  He is bankrupt.  The feds won't
give any of the money back unless he sues them.  He's got no money for an
attorney.  He's done.  This is not fiction.  This happens hundreds of times
a day all over this country.  Oh, did I mention the fine?  Yeah, it's only
$5000.  But here's the latest twist in federal jurisprudence.  The
Assistant U.S. Attorney has been to a new training program to insure
compliance with paying fines and restitution.  In his plea agreement the
new criminal has agreed that in the event he does not pay the fine on
schedule, the feds may retry him on ALL the original charges and he waives
double jeopardy.  Unconstitutional you say.  Sure.  But that's not what the
Supreme Court says.  Amerika.  Love it or leave it.

>> But I simply cannot comprehend the breadth of the agreement
>> on this dbs conference, and depth of conviction, that DBS money
>> should be designed with the **deliberate objective** of being
>> untraceable, for purposes of law enforcement or taxation.
>
>In the case of some DBS advocates you are overstating the matter.  In the
>case of others, vastly understating it.
>
>> I have a lot of respect for you guys' intellect but I think
>> you're wrong on two fundamental points:
>>
>> 1.  Rule of law.  Money laundering is a critical piece in
>> organized crime. The democratic countries have banking laws.
>> Do you think these laws should be followed, or NOT?  (Scurrying
>> of feet as all the DBS readers avoid answering.)
>
>Well let's examine this.  The view that all democratic countries have
>banking laws really begs the question.  "What are the differences between
>said laws."  I can tell you with solid authority, they are many.
>
>I've often repeated this story here and elsewhere.  It's all a matter of
>public record.
>
>Set the way-back-machine to just after Reagan has entered office.  Ole Ron
>began to crack down on tax evasion and in particular offshore havens.
>Taxes would be cut, it was reasoned, but only if loopholes were filled and
>evaders rooted out.  (Those of us old enough to remember might even recall
>nodding at the sense of it).
>
>This policy was particular hard on certain Caribbean nations.  This was the
>time of operation Tradewinds (search for it in the congressional record)
>and other IRS black projects where the IRS actually violated local law to
>spy on foreign banks even going so far as to drug guards, steal the
>briefcases of banking executives, perform unwarranted searches, bribe
>foreign officials and all manner of nonsense to root out tax evaders which
>might also be U.S. citizens.  For a long while there was a project which
>opened and Xeroxed all the incoming mail at JFK which appeared to originate
>from offshore havens.  This wasn't in the 50's mind you, but the 80s.  It
>was acts like these which prompted the Swiss to strengthen their banking
>secrecy during the Second World War.  Just another day in the park in the
>U.S.  Just recently this year Mexico nearly indicted several U.S. law
>officials for breaking Mexican law during the investigation of several
>Mexican banks.  Clearly the practice hasn't abated much in the last 15
>years..   (Note also that today all these methods (except for drugging
>guards maybe) have their legal equivalents in the United States, which is
>in itself a powerful statement).  This continued for some time back when
>Ron was at the helm until the United States finally began to threaten to
>revoke the U.S. charters of certain banks it considered uncooperative.  At
>this point a visitor, unannounced, flew into D.C. and literally dropped by
>the White House with no press coverage or fanfare at all in the late
>evening.  That visitor was Margaret Thatcher and she proceeded to explain
>to Ron over the course of a few hours that if he kept it up many of the
>British Protectorates would literally have their economies crippled.
>
>Literally overnight the matter was dropped and the offshore centers left to
>quietly continue their business.
>
>So much for democratic countries with universal ideas about banking law, or
>the rule of "law and order" in banking regulation.
>
>This is but one example.
>
>So:
>
>Rule of Law - means little in the global-political scheme of things
>Democratic Countries Have Banking Laws - none of which are consistent or
>consistently applied
>
>Money Laundering is a Key Piece of Organized Crime -
>
>This begs a definition of Money Laundering.  "Concealing the proceeds of a
>criminal act" sounds legitimate, but consider that it has been held to
>apply to a store clerk who sold food stamps for cash and deposited the
>proceeds in his personal (non-anonymous) checking account:  Indicted in
>Federal Court for Money Laundering with a maximum possible term of 35
>years.  (This is a prosecutorial tactic to get a guilty plea to the basic
>theft charge).  Consider also that third parties often take it on the chin
>with the wide definition currently applied.  Case in point: Ma and Pa
>travel agency innocently accepts a deposit from notorious attorney of drug
>dealer.  Their entire holding account is seized including the deposits of
>some 700 other potential travelers.  After 7 years of fighting the seizure,
>the money is finally returned, without interest.  (Effectively halfing the
>value of the funds).  The business is ruined, its reputation in tatters.
>Ma and Pa fight it out in bankruptcy, lose their house, most of their
>retirement proceeds, etc.  In the process this case sets the precedent that
>any amount of illicit funds ($1) deposited in any size account ($500
>million) will render the entire account liable to seizure and permit it to
>be held in lieu of forfeiture hearings.  That can go on for 7 years or so.
>Money which is "laundered" has its title literally revert to the U.S.
>Treasury.  This means third parties who innocently accept these funds are
>liable for their return, even if they are passed on in the course of
>business.  Beginning to seem silly?  Money laundering is an invented
>offense.  It's definition in the United States has grown so broad so as to
>be laughable, if not so frightening.  Do not think that these are isolated
>incidents.
>
>So, money laundering in its commonly understood sense might be key to
>organized crime, but what passes for money laundering in the United States
>has little to do with it.
>
>Myth:  Money Laundering laws have a serious impact on organized crime.
>
>This is increasingly nonsense.  The United States spends close to
>$22,000.00 to seize $1.00 of illicit funds.  Money Laundering today is
>extremely sophisticated and enforcement doesn't catch the drug dealers, it
>catches professional money launderers.  Today if you are a drug lord you
>drop $30 million in cash with a professional launderer who cuts you a
>"clean" check for 85% of that figure or so on the spot and takes the risk
>of laundering the funds on his own.
>
>Myth: Money Laundering can be detected accurately and effectively and leads
>to drug and organized crime convictions.
>
>Nonsense.  Assume for sake of argument that you could detect 99% of
>fraudulent transactions with the measures in place (entirely impossible)
>and that your false positive rate was only 1% (also entirely impossible).
>SWIFT alone processes $2 trillion per day.  That's on the order of $600
>trillion per year, just in SWIFT.  (Add another $1.3 billion for CHIPS and
>$989 million for Fedwire daily.  Oh, don't forget the foreign exchange
>markets, oh and NYSE, oh and NASDAQ, oh and international letters of
>credit, oh and...)  The most sinister estimates of the global criminal
>economy (primarily drug money) run around $400 billion per year.  Your
>false positives will identify $6 trillion in naughty funds that are
>actually pure just in SWIFT.  Your correct hits will identify $396 billion
>in naughty funds in all systems worldwide.  In this example you will have
>15 times as many false hits as correct hits ignoring the lionshare of world
>financial systems.  This is under the very best of circumstances.  It's a
>losing game..  It's a game only the mathematically challenged or
>politically motivated will play.  In fact, money laundering is a tack on
>offense that is brought to bear after an arrest on other charges has been
>made.  The number of cases that originate with a money laundering
>investigation is vanishingly small.
>
>The payment system today eats up over 1.5% of the GNP primarily because of
>nonsense regulations like CTR's and other transaction reporting
>requirements which can cost up to $15 per transaction and (as we see above)
>have little if any effect on professional money laundering.  Given these
>numbers the degree of "fraud" in the world financial system is far better
>than in the credit card system, which has pretty much reached equilibrium.
>(Fraud accounts for about 5% of credit card costs.  Customer service
>accounts for about 15%).
>
>> There is a certain logic in the notion of having a legislative
>> process and laws.  Our laws in the U.S. weren't written by
>> angels up in heaven, but they are better than some other places.
>
>In the case of money laundering regulation I should say almost _no_ other
>places.
>
>> If DBS participants advocate that money laundering laws are
>> not to be followed, I'm sorry but YOU GUYS have the burden
>> of logically arguing your position.  So shut up and quit
>> raggin' on *me* about it.
>
>I would just like to see them applied with rationality.  It's fairly clear
>that that's too much to ask of the United States.  Interestingly enough
>it's typically multi-party systems of government that have a balanced
>approach to money laundering.  Perhaps this is because grandstanding with
>things like "the war on drugs" isn't as effective outside of a two party
>system.  Sheds new light on your comment about democracies and banking
>regulations.
>
>Some jurisdictions get along quite well without the nonsense perpetrated in
>the United States.  Like Switzerland.  Switzerland has one of the nicest
>things in a cash economy I have seen.  A freely circulated 1000CHF note.
>It's worth about $750.  (The United States phased out $500 bills long ago
>to deal with laundering).  In Switzerland you can drop a 1000CHF note at a
>restaurant and no one bats an eye.  In the U.S. you cant take a cab home
>from the International Terminal unless you have something smaller than a
>$50.  Somehow Switzerland has manage to survive without looting in the
>streets and rampant crime.  Luxembourg is in a similar situation.
>
>I tried to purchase a car some years ago outside of D.C. with cash.
>Completely legitimate transaction.  No interest nonsense for me to worry
>about.  No waiting for the car while the check clears.  Simple.  Right?
>The dealership called the police, convinced they were striking a blow
>against drug dealers.
>
>It's really gone too far.
>
>> 2.  Practicality.   Without at least a fig leaf of cooperation
>> with banking authorities and other police, DBS will not be
>> permitted.  Transactions denominated in DBS won't be enforceable
>> in courts, and fraud won't be a crime.  Reporting fraud in DBS
>> deal would be like reporting a fraud in purchase of heroin.
>
>Practicality?
>
>Of course any student of political science will understand that where
>government enforcement of contracts fails or falls short, organized crime
>tends to move in.  Reporting fraud in the purchase of heroin to the right
>enforcement cartel tends to be much more effective in rendering results
>than U.S. courts I'd wager.  Clearly, the United States would not benefit
>by forcing DBS underground.  Several jurisdictions will permit DBS and
>enforce it.  (I'm involved in the legislative process for one such law in a
>European jurisdiction now).  If you believe that DBS should be outlawed
>then you must agree that cash should be outlawed.  There is effectively no
>difference but velocity.
>
>> The principal reason for failure of electronic money, other
>> than cards used in physical establishments, is you can't trust
>> the seller to send you the goods.  That's why everybody is
>> using credit cards, and bearing the 2-3% charge for "insurance".
>>
>> You guys seem to think untraceable DBS will be accepted, if
>> only a good enough encryption algorithm can be found????
>
>1% of the GNP.  Instant 1% growth for changing a system of clearing.  Think
>about that for awhile.
>
>> I think your ideas have a fatal, logical weakness.  Without
>> any practical means to verify who got your money, or even
>> a legal *right* to enforce a contract, what good is dbs?
>> It's not even money.  It's more like a coupon or something.
>
>What you are missing is that all your arguments apply equally to cash.  Why
>is cash used if this is so?  Prove to me that you just gave me six $100
>bills.  You are, "without any practical means to verify who got your money
>or even a legal *right* to enforce a contract" if the transaction is larger
>than $500.
>
>If only we could be rid of this pesky cash would could eliminate organized
>crime forever.
>
>--- end forwarded text
>
>
>-----------------
>Robert A. Hettinga <mailto: rah@philodox.com>
>Philodox Financial Technology Evangelism <http://www.philodox.com/>
>44 Farquhar Street, Boston, MA 02131 USA
>"... however it may deserve respect for its usefulness and antiquity,
>[predicting the end of the world] has not been found agreeable to
>experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'
>