First Thoughts on the New Money Laundering Act


In his Crisis and Leviathan, Robert Higgs documented a pattern repeated often in American history: the growth of government and loss of liberty during times of crisis. The current crisis following the September 11 terrorist attacks is no exception. Looked at coldly, those attacks constituted a massive government failure to do the one thing, more than any other, that government is created to do—protect us from such attacks. Yet rather than first carefully examining the reasons for the failure, government officials, and the Justice Department in particular, rushed to Congress for more power, presumably to do what they hadn't done the first time. The quickly enacted Patriot Act is the result.

Some provisions of the act—those dealing with information sharing, for example-appear unobjectionable. Immediately after the attack it was clear that numerous agencies already had substantial parts of the terrorist picture; but no single agency had put together a picture complete enough to give us adequate warning. Perhaps that was due to the intelligence community's notorious turf concerns; perhaps it was due to legal impediments. If the latter, let's hope these changes work, and that measures like the Privacy Act protect citizens from unwarranted disclosures of personal information now more widely disseminated within the government.

Other parts of the Patriot Act are more troubling. Of those, I've been invited to address certain of the money laundering provisions, especially as they involve the power of government to seize assets for forfeiture to the government. Although such property measures may seem at first to be less important than measures aimed at the person, a moment's reflection should suffice to reveal the connection between person and property. In fact, one would be hard pressed to defend one's person without the wherewithal to do so. The hard truth is that in recent years many a defendant has been rendered defenseless by our forfeiture law.

By way of background, the nation's civil asset forfeiture law, both federal and state, has long constituted a legal backwater. Coming to life during Prohibition, then exploding as an adjunct of the War on Drugs, this bizarre area of our law enables officials to seize property of all kinds on the basis simply of probable cause to believe that it was somehow "involved" in a crime. Where possible (and before recent federal reforms), the burden then shifts to owners to prove the innocence of their property—these are in rem proceedings—but that is possible only in cases involving statutes that provide for an innocent owner defense. Abuses of the law have been legion, not least because law enforcement agencies get to keep the property they seize. So appalling were those abuses that Rep. Henry Hyde (R-IL), chairman until recently of the House Judiciary Committee, led a reform effort that reached fruition, modestly, just two years ago. Unfortunately, the Patriot Act undoes some of that reform.

Styled the "International Money Laundering Abatement and Anti-Terrorism Financing Act of 2001," Title III, like other parts of the Patriot Act, is aimed at suspected terrorists, but its language reaches far more broadly. It is a very long and complex piece of legislation, parts of which have clearly been sitting on the shelves of DOJ, waiting for the right occasion. September 11 afforded that occasion. Given the act's length and complexity, I will limit my attention to two concerns, both of which leap out on first impression. I hasten to add that these thoughts are subject to revision with more reflection and actual experience.

Foreign Offenses

Section 320 of the act looks especially troubling. In summary, it authorizes the government to seize assets "within the jurisdiction of the United States, constituting, derived from, or traceable to, any proceeds obtained directly or indirectly from an offense against a foreign nation, or any property used to facilitate such an offense, if the offense involves" controlled substances, murder, kidnapping, robbery, extortion, destruction of property by means of explosives or fire, or fraud, or any scheme or attempt to defraud, by or against a foreign bank as defined by the International Banking Act of 1978 if the crime (a) is punishable in that nation by death or imprisonment for more than a year and (b) is punishable by imprisonment for more than a year if it were committed in the United States.

Plainly, the aim is to seize assets only in cases involving crimes that would be treated similarly in the United States. That assumes, of course, a certain symmetry between domestic and foreign crimes, which can hardly be assumed. Murder, to say nothing of fraud, may be murder, wherever it is committed, but the legal elements of a particular charge, however denominated, may vary considerably from one country to another.

More important, however, is a problem that takes us to the core of forfeiture law—and beyond. Section 320 amends, and hence is otherwise governed by, section 981(a)(1)(B) of title 18. Thus, here, too, as with the domestic applications, no crime need be proven beyond a reasonable doubt before seizure occurs or forfeiture follows. Rather, proof by a simple preponderance of the evidence is sufficient. (Prior to the recent reform a mere probable cause standard was sufficient.) Moreover, that "proof," as in the domestic context, can rest not only on the self-serving testimony of witnesses with interests adverse to those of the owner but, in this context, on evidence that would never be admitted in an American court, even for a probable cause showing—evidence based on warrantless searches, brutal investigative techniques, and more.

Thus, not only does a crime not have to be proven by the standard test before a person looses property "involved" with the "crime" but the evidence purporting to show that a crime has been committed could be worthless, and this could be the case whether or not the person had been convicted of a crime in a foreign court. With few of the tools or safeguards available to defendants in American courts, just how would a person mount a defense against a charge that his or her assets were involved in a crime in a foreign country? From the government's perspective, this measure may make perfect sense. From the owner's perspective, it is a Kafkaesque nightmare. From years of painful experience we know the difficulty of defending against a domestic forfeiture action. The difficulty here is exponentially greater.

In short, full faith and credit between states regarding state proceedings may be appropriate in the United States (yet even here it can raise difficulties). It is quite another matter for American courts to credit the proceedings of foreign courts, to say nothing of crediting evidence gathered by foreign governments, as our government attempts to seize a person's assets for forfeiture to itself. And that is especially so in the case of countries in which the alleged crimes of alleged terrorists are likely to have occurred.

Bulk Cash Smuggling

The second part of the act that raises serious concerns takes us from the civil to the criminal side of forfeiture and involves the creation, from whole cloth, of a new crime—"bulk cash smuggling." Section 371's findings make it clear, without saying so, that this part is meant to overturn the 1998 Bajakajian decision (524 U.S. 321): "in cases where the only criminal violation under current law is a reporting offense, the law does not adequately provide for the confiscation of smuggled currency. [Note the circular use of "smuggled."] In contrast, if the smuggling of bulk cash were itself an offense, the cash could be confiscated as the corpus delicti of the smuggling offense." Say this for the government: at least it's not disguising its true aim.

When Hosep Bajakajian and his family attempted to leave the country in 1994, taking with them some $357,144 of legally obtained cash, they were stopped by U.S. Customs agents at the Los Angeles International Airport and charged with having failed to report that they were taking currency out of the country in excess of $10,000. At trial, Mr. Bajakajian pleaded guilty, but the government sought forfeiture of the entire $357,144 under a statute authorizing that treatment of any property "involved" in the crime of failure to report. Citing the Eight Amendment's Excessive Fines Clause, the U.S. district court judge ruled that forfeiture of more than $15,000 for such a crime would be grossly disproportionate and hence unconstitutional. The government lost on both of its appeals. Justice Thomas, writing for the Supreme Court's majority, upheld the Ninth Circuit's contention that "The crime is the withholding of information, not the possession or the transportation of the money." To address that "problem," and to enable the government to seize for forfeiture to itself the entire sum "involved," however large, Congress has now created a new crime, "bulk cash smuggling." It is bootstrapping, plain and simple.

In summary, under the new law, "whoever, with the intent to evade a currency reporting requirement under section 5316, knowingly conceals more than $10,000 in currency or other monetary instruments" and transports or attempts to transport such currency in or out of the United States shall be guilty of a currency smuggling offense. Conviction subjects the offender to imprisonment for up to five years. In addition, in imposing sentence, the court "shall order that the defendant forfeit to the United States, any property, real or personal, involved in the offense, and any property traceable to such property." Moreover, forfeiture can follow upon either a criminal conviction for failure to report or a civil judgment determined under a preponderance standard.

What this amounts to is a transparent attempt by the government to put its finger on the scales of justice by denominating a new offense when in reality it's the same old crime—failure to declare. In providing for both criminal and civil proceedings to address the crime, moreover, the government may be attempting to exploit the Court's hopelessly confused distinction in forfeiture cases between punitive and remedial sanctions, a reflection of its failure to date to come to grips with the confusions inherent in civil forfeiture itself. (I have discussed those issues more fully in R. Pilon, "Can American Asset Forfeiture Law Be Justified?" 39 N.Y.L. Sch. L. Rev. 311 (1994).) Properly understood and applied, all legitimate sanctions are remedial; only some are punitive. In that connection, one can only wonder how Mr. Bajakajian's forfeiture of his entire proceeds, as would happen under the new statute's civil forfeiture provisions, would have been merely remedial: What wrong would that sanction have remedied?

Let's be candid: The government wants two things—information and, perhaps even more, the money. Thus, it imposes draconian sanctions in the hope of getting information about currency coming in or out of the country, hoping that that information may lead to additional information about the sources and purposes of the money. Never mind that the money may by untainted either by its origins or its intended uses. And never mind that the owner may have perfectly legitimate reasons for wanting to keep its transportation secret. The owner's failure to inform the government about such transportation will convert the money, in effect, into contraband—no better than counterfeit currency, except that it will enter the government's coffers as real currency. If the now illicit transportation is discovered, therefore, the government will end up with both the information and the money.

If the money should be untainted, that would be the Bajakajian case, except that now Mr. Bajakajian has committed a separate crime—bulk cash smuggling. Ordinarily the term "smuggling" is reserved for contraband. Now, however, you can "smuggle" your own legal currency in or out of the country. The government need not prove the money was ill-gotten or that you intend to use it for an illegal purpose—only that you failed to inform the government about its transport.

Here too, from the government's perspective, the new law makes perfectly good sense. In fact, Justice Kennedy, writing in dissent in Bajakajian, repeatedly likened Mr. Bajakajian's failure to declare to "smuggling." And he went on to discuss the difficulty of proving money laundering: The government "was unable to adduce affirmative proof of another crime in this particular case," he noted sympathetically, but chillingly, adding that "because of the problems of individual proof, Congress found it necessary to enact a blanket punishment." Thus, whether Mr. Bajakajian had been taking $357,114 out of the country or $3 million, it would all have been subject to forfeiture. For what? For failing to fill out the Customs form.

Under the new law, of course, the government will be able to "adduce affirmative proof of another crime"—bulk cash smuggling. The only question is whether the Court will see through this ruse. The question it should ask is not whether this change in the law will give the government a useful tool in the war on crime—it will in those relatively few cases in which real criminals are caught—but whether that tool is consistent with the Eighth Amendment's prohibition of excessive fines. After all, not everyone seeking to quietly transport his own currency in or out of the country is a terrorist. And many tools would be useful in the war on crime—the thumbscrew, say, and the rack-but not all are constitutional.


The irony of all this is that the two measures just examined, had they been in place on September 11, would probably have done little or nothing to protect us against the terrorist attacks. To the best of our knowledge, none of the terrorists had committed a crime in or against a foreign country. Thus, no property they had here would have been subject to seizure and forfeiture. And it does not appear that any of them was engaged in bulk cash smuggling. Given the low probability of being detected for that in light of the numbers of people and packages that pass through Customs every day, this measure will hardly drive a terrorist either to report or to transfer funds through channels that report. What these measures will do, however, is cost domestic and foreign financial institutions huge sums for record keeping and reporting, while ensnaring, along with a few of the guilty, a good number of perfectly innocent people. That's no way to fight terrorism.

Roger Pilon

Roger Pilon is the Vice President for Legal Affairs and Director of the Center for Constitutional Studies at the Cato Institute.