By Jon Matonis
Tuesday, May 7, 2013
When people hear the term money laundering today, they
envision the most evil of acts, in which gangsters process satchels of
cash through a fabricated company to show it as business revenue. Words
and semantics are very important in this post-9/11 world, and as far as
creating a negative connotation, that parlance has been extremely
At its essence,
money laundering is the act of concealing money or assets from the
state to prevent its loss through taxation, judgment enforcement, or
blatant confiscation. However, as the late J. Orlin Grabbe
wrote: "Anyone who has studied the evolution of money-laundering
statutes in the U.S. and elsewhere will realize that the 'crime' of
money laundering boils down to a single, basic prohibited act: Doing something and not telling the government about it."
one's wealth is interwoven with the history of trade and banking which
has existed since the dawn of commerce. Sterling Seagrave's Lords of the Rim
describes how some 2,000 years before Christ, merchants in China would
hide their wealth from rulers who would simply take it from them and
subsequently banish them. This concealment involved moving the wealth
and investing it in remote provinces or outside China.
part rumor, the plausible tale of Mafia gangsters running huge amounts
of cash from extortion, prostitution, gambling and bootleg liquor
through existing Laundromats accounts for the phrase money laundering.
during this period, Al Capone was convicted in October 1931 for tax
evasion, which is what earned the prosecutor's conviction rather than
the predicate crimes that generated his illicit income. Capone's episode
inspired Meyer Lansky, the mob's accountant, who structured elaborate
international and Swiss financial facilities for safely securing money
and vowed never to suffer Capone's fate.
Lansky is credited
with designing one of the first real laundering techniques, the use of
the "loan-back" concept, which disguised allegedly illegal money within
"loans" provided by compliant foreign banks. The money could then be
justified as revenue and a tax deduction for interest expense obtained
in the process.
Without any method of tracking cash or bank
activity, Congress passed the Bank Secrecy Act in 1970, heralding the
age of transaction reporting, including the Currency Transaction Report
(Form 4789), the Report of International Transportation of Currency or
Monetary Instruments (Form 4790), and the Report of Foreign Bank and
Financial Accounts (Form TD F 90-22.1). In the United States, the Money Laundering Control Act formally made money laundering a federal crime.
Internationally, the elements of the crime of money laundering are set forth in the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances and Convention against Transnational Organized Crime. Also, the Financial Action Task Force on Money Laundering, founded in 1989 on the initiative of the Group of Seven industrialized nations, is an intergovernmental organization whose purpose is to develop policies to combat money laundering and terrorism financing.
From President Roosevelt's 1933 seizure of personal gold to the Nazi confiscation of Jewish wealth to the recent deposit theft
at Cyprus banks, asset plundering by governments has a long and
colorful tradition. Protecting wealth from oppressive regimes continues
to this day.
It's highly political and also a matter of
perspective whether protection from confiscation is a justifiable
activity. Government access to wealth is at the heart of the issue and
it matters not if it's hiding money or cleaning money.
the artificial crime of "money laundering" had to be invented, mainly
because more direct and traditional methods of enforcing certain laws
yielded little result. Think of it as driving without a light bulb above
the license plate being a felony because thieves might drive away in the
night. All must participate in illuminating the way to be tracked. More
than anything, this is a clear sign of regulatory desperation.
Money laundering has been called the thoughtcrime
of finance. Isn't it really just banking with someone's possibly
nefarious intentions attached to the act? It's like buying a drive-thru
donut in a stolen vehicle. The theft of the vehicle may have been
illegal and immoral but the act of purchasing a donut is not. Money
laundering is not pre-crime
but post-crime. And, it's difficult to identify the victim, other than
the bank shareholders that must expend millions of dollars for the
proactive compliance required as the state's deputized enforcers.
money laundering is guilt by association. If the monetary flows
resulting from associated businesses are deemed illegal, then the
banking activity is defined as money laundering. But, in the absence of
victimless crime laws against drugs, gambling, and prostitution, the
majority of banking labeled as money laundering would simply be banking.
According to the International Money Laundering Information Bureau,
"Money Laundering is also the world's third-largest industry by value."
Apparently, it happens in every country in the world. Well, breathing
by humans also happens in every country in the world. If money
laundering is actually the third-largest industry in the world then it's
either being calculated wrong or it's too easily defined.
In his Rolling Stone article "Gangster Bankers: Too Big to Jail," Matt Taibbi mocks
the anti-money-laundering regime as being hypocritical because large
commercial banks like HSBC receive a light slap on the wrist and the
blind-eye treatment as smaller fish are routinely scooped up in the net.
Taibbi correctly distinguishes between an arrestable class and an
unarrestable class. However, he misses the point of the law's
arbitrariness in the first place. Thank you for the analysis, Mr.
Taibbi, but dispensing enforcement of an immoral law more evenly is not a
solution for justice.
Even as the money-laundering laws are said to exist for the fight against terrorism or drugs or gambling, the cashless utopia is simultaneously being thrust upon us as the monetary architecture of the future. Expect ever more increasing thoughtcrime enforcement as the international money flow tightens.