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January 01, 2002

First Thoughts on the New Money Laundering Act

by Roger Pilon

In 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, the Department of Justice in particular, rushed to Congress seeking more power, presumably to do what they had not done in the first place—protect American citizens. The quickly enacted USA Patriot Act (Patriot Act) is the result.

Some provisions of the Patriot Act—those dealing with information sharing, for example—appear unobjectionable. Other parts of the Patriot Act are more troubling. This article will 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 at first seem 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 financial means or the "property" to do so. The hard truth is that in recent years many a defendant has been rendered defenseless by U.S. forfeiture law.


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 simply on the basis of probable cause on the belief that it was somehow "involved" in a crime. Once probable cause has been established in cases involving innocent owner defense statutes (and before recent federal reforms), the burden then shifts to the owner of the property to prove the innocence of the property—these are in rem proceedings. Abuses of the law have been legion, particularly among law enforcement agencies that get to keep the property they seize. So appalling were those abuses that Rep. Henry Hyde (R-Ill.) led a modestly successful reform effort just two years ago. Unfortunately, the Patriot Act undoes some of that reform.

The "International Money Laundering Abatement and Anti-Terrorism Financing Act of 2001 (IMLAAFA)," 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 Department of Justice (DOJ), waiting for just the right occasion. September 11 afforded that occasion. Given the Act’s length and complexity, I will limit my discussion to two concerns—foreign offenses and bulk cash smuggling.

Foreign Offenses

Section 320 of the Act is 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, certain symmetry between domestic and foreign crimes that can hardly be taken for granted. 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 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 property 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 loses property "involved" with "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 has been convicted of a crime in a foreign court. With few of the tools or safeguards available to defendants in American courts, it would be nearly impossible for a person to 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 has the potential for 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. 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 Patriot 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 explicitly stating 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.

In Bajakajian, Hosep Bajakajian and his family attempted to leave the U.S. 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 in excess of $10,000 out of the country. At trial, Mr. Bajakajian pleaded guilty, but the government sought forfeiture of the entire $357,144 under a statute authorizing such treatment of any property "involved" in the crime of failure to report. Citing the Eighth 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 circumvent this "problem," and to enable the government to seize for forfeiture to itself the entire sum "involved," however large, Congress created a new crime, "bulk cash smuggling."

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 result from 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. Moreover, allowing for both criminal and civil proceedings to address the crime, the government may be attempting to exploit the Court’s unclear and confusing distinction in forfeiture cases between punitive and remedial sanctions, a reflection of its failure to come to grips with the confusion inherent in civil forfeiture law itself. 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?

The government clearly wants two things—information and, perhaps even more, the money. Thus, it has imposed these draconian sanctions in order to obtain information about currency coming in or out of the country, hoping that information will 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 in effect converts the money into contraband—no better than counterfeit currency, except that it will enter the government’s coffers as real currency.

Even if the money is untainted, as was the case in Bajakajian, the party attempting to take the money out of the country can still be in violation of the law against bulk cash smuggling. Ordinarily the term "smuggling" is reserved for contraband. Now, however, it appears 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 added 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 U.S. 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. There are many tools that would be useful in the war on crime and terrorism but not all are constitutional.


The irony of this is that the two measures discussed in this article, had they been in place on September 11, probably would have done little or nothing to protect us against the terrorist attacks. To the best of our knowledge, none of the terrorists committed a crime in or against a foreign country. Thus, no property they owned in this country would have been subject to seizure or forfeiture. Likewise, it does not appear that any of them was engaged in bulk cash smuggling. Given the low probability of being detected in light of the number of people and packages that pass through U.S. Customs every day, this measure will hardly drive terrorists either to report or transfer funds through channels that report. What these measures will do, however, is cost domestic and foreign financial institutions huge sums of money in record keeping expenses 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 vice president for legal affairs at the Cato Institute and director of Cato’s Center for Constitutional Studies.