FC: Reason's Michael Lynch on plans to decrease financial privacy

[Declan McCullagh <declan () well com>]

**********

Date: Thu, 04 Oct 2001 10:32:44 -0500
Subject: Michael Lynch on financial privacy restrictions
From: Virginia Postrel <vpostrel () dynamist com>
To: Dave Farber <farber () cis upenn edu>, Declan McCullagh <declan () well com>

http://reason.com/ml/ml100401.html

Following the Money
The September 11th attack revives an attack on offshore banking

By Michael W. Lynch

The September 11th attacks have been put to all sorts of uses by interest
groups with preexisting agendas. Some of the claims are patently absurd:
Some legislators, for instance, are trying to push the Farm Security Act,
which protects such things as peanut butter sandwiches, as more necessary
than ever in the wake of an attack on American soil.

But it¹s the claims that appear reasonable that may prove to be the most
damaging to freedom in the long run. The inverse relationship between
laughability and lethality is easily explained: The serious claims deal with
government police powers, which are necessary to ensure our domestic
security but also contain the most potential for abuse. That¹s certainly the
case with the anti-terrorism bill Attorney General John Ashcroft has been
attempting to rush through Congress. It¹s just as true of money laundering
legislation that may be bundled into the anti-terrorism bill or considered
as a stand-alone package.

At first glance, anti-money-laundering efforts appear directly related to a
war on terrorist networks. To do their deeds terrorists must, after all,
spend money. And one of Bush¹s first acts was to freeze assets of suspected
terrorist funders and ask other governments to do the same. To date, 19
countries have frozen the accounts of 27 groups. This action may in time
prove to be overbroad, but the government already had the authority to
undertake it. The debate moving forward both in Congress and internationally
will have precious little to do with terrorism and plenty to do with the
boring but important issues of financial privacy and international tax
competition.

The Organization for Economic Cooperation and Development (OECD) has been
campaigning against countries it labels tax havens. Its high-tax members
resent their citizens' ability to park money offshore and therefore avoid
taxes. The OECD wants information exchange and tax harmonization, but was
unable to secure the backing of the Bush administration earlier this year.
Without the support of U.S. -- the world¹s largest tax haven by OECD
standards -- the initiative stalled. Then the Twin Towers fell.

The Financial Times weighed in with an article chiding the U.S. government
for hypocrisy and accusing the Center for Freedom and Prosperity, the
leading opponent of the OECD¹s efforts, of having a change of heart, since
it issued a memo expressing a desire to see those responsible for the World
Trade Center massacre brought to justice. Unnamed European Union officials
have been quoted saying they think the OECD effort is alive and kicking.
Said one EU official, "Politically it is now going to be very difficult to
defend the continuation of tax havens."

But "tax havens" should and must be defended. The issues of money
laundering, financial privacy, and tax harmonization are very distinct from
one another. Many countries considered tax havens are willing to work with
law enforcement officials to seize the assets of people who commit crimes
that are recognized by all involved. Piloting a plane into a skyscraper full
of people is such a crime. What some countries reject is treating all their
citizens as criminals, and turning over their financial information to
governments. Not a single country on OECD¹s tax haven hit list stands
accused of harboring al Qaeda money. The same can¹t be said of the U.S.
According to The Washington Post, some of the terrorists maintained nine
checking accounts at Sun Trust Bank in Florida.

This shows the limits of government snooping. U.S. financial transactions
and bank accounts are already heavily monitored, something I know from
personal experience. Shortly after I opened a checking account at a
Washington, D.C. branch of First Union roughly three years ago, it was
frozen by the corporate office because I fit a "criminal profile." I¹d
opened an account by phone and deposited "large" sums of money in it in a
high crime area. The large amount of money was two checks that totaled less
than $4,000 and were drawn on First Union accounts. The high crime area was
17th Street and Pennsylvania Avenue, which is almost yelling distance from
the White House¹s West Wing.

The government and banks are so busy snooping on everybody that they catch
virtually nobody. Like our intelligence officials who can¹t analyze all the
data they currently collect, U.S. financial snoops are buried under
paperwork. Out of 77 million reports that banks filed from 1987 to 1996, the
U.S. Treasury Department convicted a mere 580 people of currency transaction
violations.

Perhaps if the feds weren¹t so busy keeping track of us petty criminals, and
the international community wasn¹t so busy trying to insulate high-tax
countries from tax competition, they¹d be able to devote the necessary human
intelligence to figure out exactly where bin Laden and other al Qaeda
funders park their money. After all, they¹ve reportedly been pursing this
very issue for more than two years. According to the Post, al Qaeda doesn¹t
usually rely on traditional money-laundering techniques such as offshore
banks and large wire transfers. Unfortunately, that won¹t stop politicians
from going after such banks--and large numbers of law-abiding citizens.

Michael W. Lynch (mwlynch () reason com) is REASON's national correspondent.

--
Virginia Postrel (vpostrel () dynamist com)
Editor-at-large, Reason magazine
Author, The Future and Its Enemies
"Economic Scene" columnist, The New York Times
Contributing editor, D Magazine
http://www.dynamist.com | http://www.reason.com
(214) 219-5725 | (214) 219-1188 (fax)
--




-------------------------------------------------------------------------
POLITECH -- Declan McCullagh's politics and technology mailing list
You may redistribute this message freely if you include this notice.
Declan McCullagh's photographs are at http://www.mccullagh.org/
To subscribe to Politech: http://www.politechbot.com/info/subscribe.html
This message is archived at http://www.politechbot.com/
-------------------------------------------------------------------------