Imagine a war — a war in which only innocents are harmed and the enemy escapes. That’s the war we are waging against money laundering. Money laundering laws sound appealing — after all, who doesn’t want to strip terrorists of their financial support? But the laws have to be effective and aimed at terrorists, rather than innocent people.
The House anti‐money laundering legislation approved with 412 – 1 votes on Oct. 17 will not advance the war against terrorism. Instead, it will advance the agenda of those who favor high taxes, by punishing countries that have low taxes. Low taxes, not terrorism, are the real target of this bill.
Bank secrecy laws are targeted as an obstacle to law enforcement. But law enforcement agencies already have the power to obtain financial records when there is sufficient reason to suspect someone of a crime. It was not a lack of legal powers that failed to prevent the terrorist attacks of Sept. 11. It was a lack of human intelligence. If there had been suspicion that Mohammed Atta and his accomplices were terrorists, their financial records would have been opened to law enforcement.
Section 301 of the anti‐terrorist bill has received a lot of attention because it is a dusted off Clinton‐era attempt to punish jurisdictions with low taxes, so‐called “tax havens.” The section describes criteria that the Treasury Secretary should use to identify jurisdictions of “primary money laundering concern.” Some of these criteria seem appropriate. But others have nothing to do with money laundering and everything to do with trying to punish countries that have low taxes.
For instance, the bill seeks to impose sanctions on jurisdictions that offer “special tax or regulatory advantages to nonresidents” or on countries “characterized as a tax haven or offshore banking or secrecy haven.” Yet at no point is a reason offered to explain why the lack of an income tax or of a capital gains tax facilitates illegal money laundering. Instead, the bill will just prop up Europe’s high‐tax welfare states by stopping the competition that comes from low‐tax jurisdictions.
The usual charge is that offshore jurisdictions are protecting drug dealers and terrorists with their secrecy laws. But nearly all “tax havens” have agreements with other nations to suspend privacy laws when investigating crimes such as murder, terrorism and drug running. It is also worth noting that Osama Bin Laden’s financial empire is reportedly operating out of places like Sudan, Kenya, Malaysia, and Middle Eastern nations, and that his agents used the banking systems of England where $88.4 million of his assets were recently frozen. Those nations are not tax havens.
The sad reality is that money‐laundering laws don’t seem to work. Financial transactions and bank accounts in the United States have been monitored for some time now. Unfortunately, this monitoring didn’t detect the nine SunTrust accounts used in Florida by the terrorists involved in the attack of the World Trade Center. Indeed, French laws monitoring bank accounts and illegal activities don’t stop Algerian terrorists living in France from regularly murdering people by placing bombs in subways.
Part of the problem is that money‐laundering laws force banks to spy on everybody, and this generates more than 10 million reports every year. This means that law enforcement is forced to look for a needle in a haystack. As a result, we have a costly system — perhaps $10 billion a year, according to the American Bankers Association, which yielded only 932 money‐laundering convictions in 1998 (the last year for which we have complete data). Lawmakers just voted to make the haystack bigger by approving a measure with more stringent requirements on American banks.
Rushing to enact laws that have tough‐sounding titles but provide no additional tools to combat terrorism is a mistake. Using it as a cover to hit another target — low‐tax jurisdictions — compounds the crime. Instead of passing useless or even harmful legislation, Congress should have relieve the banks, the FBI, and the Treasury Department from the burden of the current Bank Secrecy Act, which has proven useless and costly. Finally, the budget previously allocated to, in effect, violate the rights of innocent people, should have been reallocated to improve our deficient human intelligence capabilities.
The failure to stop the attacks of Sept. 11 was not due to a lack of bank regulation. It was due to a lack of counter‐terrorism intelligence.