money laundering 88.
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This week the Israel Lawyers Association sponsored a conference about money-laundering legislation. There was a lively exchange of views between lawyers, who largely feel the law is too burdensome, and regulators, some of whom felt the law should be made stricter. The focus of the discussion was whether tax evasion should be a crime that "taints" money for the purposes of the statute.
Money-laundering laws are a bit unusual. They make a crime out of activities that appear to be innocent - moving money around in various ways - because these activities are disproportionately used to facilitate nefarious activities. They are the international financial system's equivalent of "anti-loitering laws," which are almost always intended to deter more-serious threats to public order.
One aspect of the legislation is that financial institutions have to take steps to prevent taking "tainted" money - money that was earned in the course of serious crime.
This is not an entirely new invention. Fencing stolen merchandise is also an apparently innocent activity that was long ago made criminal unless the perpetrator can demonstrate having been duped.
Right now the tainted-money list is limited in scope and includes revenue from illegal drugs and human trafficking, which are main businesses for organized crime.
That's for a good reason. A subsidiary crime has a high potential for over-deterrence, meaning punishing innocent transactions or over-punishing minor ones.
At the conference, lawyer Pinni Rubin said if spiriting away proceeds of fraud was automatically money laundering, a person whose real crime is forging a small check and taking the proceeds abroad could be liable for a more serious transgression, namely money laundering.
Rubin also asked whether the banks, and the lawyers, were the right parties to be engaging in law-enforcement activities. Hinting at the privacy issues involved, he asked, ironically, if the regulators also wanted to engage in covert surveillance of lawyers.
Regulators Yehuda Sheffer and Shoni Albeck had a different point of view. Sheffer said the law should be extended to include tax evasion. He acknowledged that tax evasion did not rank with drug dealing or human trafficking. But he said it was often the way gangsters are ultimately brought to justice, citing the example of Al Capone, the Chicago gangster who got away with murder but was put away for tax evasion.
I believe the analogy is artificial. It is true that gangsters are often nailed for tax evasion. Tax evasion is like money laundering in that it catches many criminals who are never nabbed for their primary crime. But that doesn't make it like the primary crimes themselves. Money-laundering statutes add an additional safeguard, but I don't see any justification for introducing a kind of double jeopardy.
Another problem is that the power of tax evasion is often a corollary of weak local enforcement. Capone was nabbed for tax evasion instead of his main crimes, mostly because murder in the United States is a state crime and tax evasion a Federal one - and Capone had friends in high places within the state. This effect is less important on the international level.
Because it is a derivative, or "shadow," crime, money laundering will undergo changes of definition from time to time. Not so long ago there were few safeguards, while in the last few years more were found necessary. However, in the current situation I think it is inappropriate to view tax evasion with the same seriousness as drug running or human trafficking.
Asher Meir is research director at the Business Ethics Center of Jerusalem, an independent institute in the Jerusalem College of Technology (Machon Lev).
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