Social Justice , Fall 2001 v28 i3 p121(32)
License to loot ? A critique of follow-the-money methods in crime control policy.
R.T. Naylor.
Full Text: COPYRIGHT 2001 Crime and Social Justice Associates
Taken to the Cleaners?
OVER THE LAST 1.5 YEARS, THERE HAS BEEN A QUIET
REVOLUTION IN THE THEORY and practice of law enforcement.
Instead of simply closing rackets that generate illegal income, the central objective has become to attack the flow of criminal profits after they have been earned. The justification is that taking away assets accumulated by criminals simultaneously removes the motive (profit) and the means (operating capital) to commit further crimes.
Prodded on first by the U.S., then by the Financial Action Task Force of the OECD, and more recently by the United Nations, the pursuit of the
"proceeds of crime" has been elevated to the status of a Crusade. A new crime -- money laundering -- has been put on the books of many countries. Various new reporting requirements have been imposed on financial institutions, which have been forcibly recruited into the struggle. In addition, law enforcement agencies now host special units responsible for arresting not malefactors, but bank accounts, investment portfolios, houses, cars, and even Rolex watches. These initiatives are closely related. Anti-money-laundering regulations require detailed information that helps to create a paper trail to aid tracing and seizing criminal money. They also create new offenses to justify such seizures.
(1)
To various degrees in various places, the new laws have undermined traditional presumptions in favor of financial privacy, muddled civil and criminal procedures, and opened previously confidential tax records to police probes. Particularly, though not exclusively, in the U.S. these laws have been accused of reversing the burden of proof, smearing citizens with the taint of criminality without benefit of trial, and converting police forces into self-financing bounty-hunting organizations.
Some might argue that this is a necessary and justifiable response to an overarching social evil. Some might agree in principle that such a strategy can help to deal with a very serious problem, but criticize its

worst abuses. However, some might suggest that the entire exercise is simply insane.
Clearly, these new legal initiatives are powerful weapons. It is reasonable to ask that they not be deployed unless and until their need has been unambiguously established, their objectives clearly delineated, and the public well informed of their actual (as distinct from nominal) purposes and of any "collateral damage" their use might entail. It should be convincingly demonstrated that any perceived failure of existing methods of crime control results from deficiencies of existing laws, rather than from deficiencies in the application of existing laws, that a crisis of sufficient order of magnitude exists to require radical alternatives, and that such alternatives have a good chance of being effective in rectifying those deficiencies.
Despite the rapid spread of anti-money-laundering regulations and assetforfeiture laws across the world, no one really knows how much criminal income and wealth actually exists, how illegal gains are distributed, or how (if at all) deleterious their impact on legitimate society really is. No one can say with any confidence what impact a follow-the-money strategy might have on its intended target, though there is more clarity regarding some of its pernicious side effects.
A Solution in Search of a Problem
Contemporary laws that facilitate the confiscation of criminally derived assets are of two main types. Some involve in personam procedures, in which an individual must be charged with a crime and that crime proven beyond a reasonable doubt, before specified property, also proven on criminal criteria to be the proceeds of that crime, can be seized.
Standard safeguards -- presumption of innocence, right to counsel, and protection against double jeopardy or disproportionate punishment -- apply. Other laws involve in rem procedures, whereby property can be seized if it can be established by civil criteria that the property was the proceeds of or means to commit a crime. Sometimes, as currently in
England or Canada, property can be frozen in advance of a trial and, if an individual is found guilty under criminal criteria, that property can be forfeited if it is judged, using civil criteria, that it is likely the proceeds of a crime. (2) However, in the more extreme versions, as in the U.S. today, there is no need to charge the owner with, let alone prove, a crime. Once probable cause to freeze property is established, the burden of proof is shifted onto the owner, who has no protection against double jeopardy or disproportionate punishment. (3)
Although both criminal and civil forfeiture have only recently assumed a prominent place in the roster of modern law enforcement methods,

they have deep historical roots. The obvious precursor of civil forfeiture is the medieval notion of deodand ("gift to God"). If an object (anything from a runaway horse to a flying ax-blade) was deemed to have done injury (usually fatal) to a person, the object itself was adjudged guilty and therefore subject to forfeit. Originally, the guilty property was destroyed in elaborate rituals, or used for compensation to kinsmen of the afflicted party. (4) Later the forfeited property began to be appropriated by the Crown. But, whatever the fate of the property, from very early times there were protests that the procedure really involved punishment of the owner without benefit of trial. Nonetheless, the fiction was maintained that property rather than a person was guilty, and that the procedure was accordingly remedial rather than punitive.
The spiritual antecedents of today's criminal forfeiture can also be found in early modern Europe. Anyone found guilty of treason was stripped of chattels and estate; the first became Crown property and the second reverted to the individual's liege lord. Later, that process was applied to all convicted felons, with the number of felony offenses rising pari passu with the Crown's need for revenue. Unlike modern criminal forfeiture, there was no need to establish any relationship between a specific crime and the lost property. A felony conviction could lead to loss of all chattels and estates, even those of completely legitimate origin.
In Britain, a third method by which assets could be seized in some ways would prove more influential in shaping modern proceeds-of-crime methodologies. The tasks of enforcing the Navigation Acts (which regulated trade within the British Empire) and of assuring collection of the customs duties and excise taxes were assigned to Vice-Admiralty and Exchequer courts. Ship captains were expected to prove that all taxes had been paid. If a ship and/or cargo lacked proper customs stamps or tax receipts, it could be impounded. Of course, the actual administration was not so tidy. Customs officials were rewarded with a share from confiscated cargoes. Corrupt officers collected kickbacks from merchants who sought to evade taxes, employed networks of paid informants, and falsified the value of seized inventories. (5) These abuses aside, the application of in rem procedures in this context seemed reasonable enough.
Deodands eventually died out and were formally abolished in Britain in the mid-l9th century. Forfeiture of estate, already de facto abandoned, was legally repealed in 1870, though it was maintained in cases of
"outlawry" (i.e., fleeing justice) for some decades further. What was left in Britain (and its colonies) was the device of enforcing tax law through in rem procedures in Exchequer Court. It would be left to Yankee ingenuity many decades later to combine the superstitious spirit of

deodands, the moral absolutism of forfeiture of estate, and administrative procedures created originally for fiscal purposes to give birth to the modern principles and practice of asset forfeiture.
The wave of Puritanism that swept North America in the early 20th century was a compound of many elements: a revolt by small-town and rural America against the decadence of the big cities, WASP racism against immigrants who were associated with offensive behavior
(Chinese with opiate use, Irish with whiskey, "Hindoos" or Mexicans with marijuana), the flexing of muscle by an emerging middle-class feminist movement that saw male vices as a threat to family values, and an emerging political reform movement denouncing saloons (which functioned as working men's political clubs) as centers of vote-buying and election-rigging. The consequence was a concerted effort to criminalize personal vice. Gambling, buying sex, using recreational drugs, and even the consumption of alcohol were criminalized; if they were already criminal offenses, the laws were more systematically enforced. No longer would cities be permitted to host "red light districts," in which otherwise legitimate citizens could temporarily sate their appet ites before returning to a world of respectability. Prominent industrialists and their yes-men from the economics profession, who saw in the curbing of personal vice a means of reducing workplace absenteeism and therefore raising productivity and profit, cheered all this on. (6)
In response, there was a dramatic change in the direction of law enforcement. For the first time, the main thrust of police action shifted from combating predatory offenses (robbery, extortion, embezzlement, and like practices at the expense of an unwilling public) to attacking market-based crimes (in which underground entrepreneurs attempted to service the forbidden consumption needs of a complicit public). Though both are simply lumped together in the criminal code, there is a profound difference between the two in economic nature and therefore in the appropriate attitude of the authorities to the profits derived therefrom.
A predatory crime leads to the forcible or fraudulent transfer of property that must be restored to the rightful owner when the crime is solved. A market-based crime, however, produces not misappropriated property, but income earned by selling to a willing consumer. (7) The focus of crime control also shifted from countering actions against the public
(where the afflicted public would fully support remedial action).
Instead, it became suppressing actions in which the public appeared in the same role (willing customer) as it did with respect to legitimate business, and in which the methods of assuring customer satisfaction
(free-market exchange) were basically no different from the behavior of

legitimate businesses.
Because there is no definable victim to whom restitution is due, the law enforcement apparatus had trouble articulating what should be done with the "proceeds" of market-based offenses. With an awesome leap of logic, the position was taken that, because both involved illegal activity, there was a close analogy between stolen property and illegally earned income, with the proviso that the victim in the second case was some abstract concept called "society." That permitted the law to stumble onto the notion of forcing guilty parties to forfeit their gains to "society" (or its guardians). Such a development was assisted in the U.S. by political and constitutional factors.
When the early 20th-century anti-personal-vice campaigns began, the
U.S. government faced a problem. Regulating such matters seemed, at first glance, to be beyond the powers of the federal government. The
Constitution granted each state, along with the federal government, the right to legislate criminal law, and it seemed to preclude a national police force. Yet state-by-state variations in prohibition laws would have rendered them unworkable. However, the Supreme Court ruled that the federal government had the power to regulate anything it had the power to tax. As a result, narcotics enforcement started in the 1890s as a revenue matter, with heavy taxes. Even when narcotics became explicit contraband in 1914, drugs were banned under a law written as a revenue statute. (8) Later regulations prohibiting alcohol were also drafted as revenue measures. Logically, then, the front-line troops in the vice wars were Treasury agents. In short order, they were invading hospitals and using addicts to run sting operation s to jail any doctors still willing to treat addicts as patients in need of a prescription rather than criminals seeking illegal self-gratification. Those Treasury agents achieved even greater glory in the booze war to follow. (9)
The result was that the U.S. became the first, and for a longtime, the only major country following British models to systematically confound issues of criminal code and revenue enforcement. Its Internal Revenue
Service operated, and still operates, simultaneously as a police force and a tax collection agency. It was a confusion of two distinct government functions that the U.S. would blithely export around the world in subsequent decades.
As a result, in rem forfeitures, something long central to the Treasury's kit of enforcement tools, played an important role in the vice wars.
However, during Prohibition, the primary target was not the "proceeds," but the "instrumentalities" of crime - stills, stocks of raw materials, inventories of liquor, and specially rigged vehicles to convey the merchandise to market. Yet, in all the heat of the booze war, seizure of

"instrumentalities" was confined to that part of the property actually used in the production, distribution, and sale of the banned substance. It would be quite different in the drug wars to follow. (10) The transition from fiscal enforcement to crime control would be complete once
America mobilized for a new Crime War in the 1970s and beyond.
The Specter Haunting America
During the early postwar decades, a specter haunted America. Indeed, there were two: the Bolshevik Menace and the Cosa Nostra.
Occasionally, opportunistic politicians would neatly combine them, claiming that the Mafia was a branch of the International Communist
Conspiracy. Though largely the product of the overactive imaginations of crime reporters looking for a hot story and law enforcement agencies eager for greater powers and budget hikes, the notion of a huge, vertically structured Mafia operating across the U.S. to monopolize rackets and use the resulting profits to infiltrate and corrupt the legal economy gained widespread acceptance. (11)
To be sure, there were legitimate concerns. Mafiosi types existed, even if an organized, pan-American Mafia conspiracy did not. The
Prohibition bonanza had given some mobsters the wherewithal to move into a number of legitimate sector -- construction, trucking, entertainment, and professional sports, especially -- along with taking control of some major unions. However, the cash resource generated by the vice rackets were grossly exaggerated for public consumption the profits that did exist were widely distributed among myriad small-scale operators. (12) Nor was there any evidence of a hostile takeover-bid for the Fortune 500 by some sort of Mafia Inc. Nonetheless, fears of
"organized crime" control of the legitimate economy provided the rationalization for reintroducing criminal forfeiture into the U.S. law enforcement apparatus.
In 1970, after Richard Nixon's "get tough on crime" presidential campaign three pieces of legislation quickly followed. One was the
Bank Secrecy Act. It imposed new reporting requirements on financial transactions, specifically or cash of more than $10,000 deposited in or withdrawn from financial institutions, and on imports and exports of more than $5,000 in cash or monetary instruments. The nominal objective was to create a paper trail to permit the tracing of tainted money and to undercut the effect of foreign bank secrecy laws in blocking investigations. By jettisoning the old presumption of financial privacy, the U.S. put itself at loggerheads with most of the world. As is often the case, in the forthcoming years the rest of the world knuckled under. (13)

The second "crime war" initiative was the Racketeer Influenced and
Corrupt Organizations (RICO) statute, by which the U.S. Justice
Department was supposed to strip mobsters of their control of legal businesses and unions. Conviction under RICO (of a "pattern of racketeering") was the prerequisite to forcing the criminal to forfeit his/her "interests" in a business obtained by racketeering. (14) Making such divestiture obligatory was both a throwback to the old principle of automatic forfeiture of estate in felony cases and a big step toward the mandatory sentencing now so much in vogue. (15)
The third initiative was the Continuing Criminal Enterprises Act (CCE), the so-called kingpins statute, intended to nail the bosses of drug trafficking organizations and to allow criminal forfeiture of their
"profits." As with RICO, all elements had to be proven beyond a reasonable doubt, and the sums and/or property targeted for forfeiture spelled out explicitly in the indictment.
Despite great expectations, very little resulted. With the Bank Secrecy
Act, for the next 15 years reporting requirements were widely ignored.
(16) Nor were the other two measures much more successful. Partly, it was confusion over the target. RICO permitted forfeiture of "interests," not proceeds or profits, and the courts (quite reasonably) ruled that illegally earned money was only forfeitable if invested in or used to take control of a legal enterprise. The CCE, moreover, specified only profits as forfeitable. Hence, the courts interpreted this to mean (again quite reasonably) that drug criminals could deduct costs from their income to establish the net amount subject to seizure by the state. Partly, it was a problem of inexperience -- U.S. prosecutors were hesitant to venture into the uncharted waters of criminal forfeiture. It was also a problem of police traditions: rewards were handed out for numbers of arrests, not for amounts of money seized. But all three obstacles would soon be overcome.
Criminal forfeitures remained rare, but civil forfeitures were a different matter. Commonplace in contraband and tax cases, they had begun to be used against funds suspected of criminal origin. The advantage is that under tax law, the burden of proof is almost always on the taxpayer to prove no arrears are due, and the IRS has the right to file "jeopardy assessments" that preemptively freeze the assets of a suspect that tax collectors claim may be about to escape their net. (17) The next logical step was the discovery that, supposedly, among the most effective ways to combat drug trafficking was to use jeopardy assessments against assets of alleged traffickers (18)
That had two unfortunate consequences. First, the IRS would find that chasing criminals was much sexier than chasing people who earned their

money legitimately but evaded taxes, therefore dissipating much of its resources into crime control rather than revenue collection. Second, law enforcement agencies would covet the IRS tools, particularly the broad powers of in rem forfeiture and the reversal of the burden of proof, things that made sense in tax cases, but represented a serious threat to due process when used as instruments of general crime control.
In 1970, the Drug Enforcement Administration (DEA) was authorized, on the Prohibition model, to seize illicit drugs and the equipment used to make and move them. A few years later, the Supreme Court greatly expanded this power in CaleroToledo v. Pearson Yacht Leasing Co. The fact that the lessor of a yacht left behind the butt of a single marijuana cigarette was determined to be sufficient grounds for the leasing company to forfeit the yacht, even though no one suggested the company had any involvement in or knowledge of the lessor's offense.
Then, in 1978, the DEA received statutory authority to use civil forfeiture against money obtained not simply from an actual drug offense, but that was potentially to be used for committing a future one.
During the 1980s, drug war hysteria succeeded in further expanding forfeiture, both criminal and civil. The most important change came with a 1984 law that permitted police forces to keep the proceeds of forfeiture and reinvest them in further police action. It was followed by the 1986 Money Laundering Control Act (now known as the "RICO of the nineties"). Though supposedly a drug war measure, soon almost every federal offense became an occasion to also lay money-laundering charges. At the same time, techniques used in tax enforcement were turned into broadly based crime control measures stripped of basic protections traditionally afforded to those accused of crimes. In revenue cases, whoever was in physical possession of the goods had to provide proof that all due taxes had been paid or else forfeit them. In marketbased crime cases such as drugs, however, there was no need to find the goods to justify a freeze. A passenger car, not a merchant ship whose sole purpose was to move goods to market, could be sei zed on suspicion it had been previously used for prohibited purposes. It was then up to the owner to prove a negative.
To further facilitate seizure, procedures for so-called administrative forfeitures (those done by default when uncontested) became much easier. In the past, any property worth more than $10,000 had to be adjudicated. But the threshold for automatic forfeiture in the event the owner failed to post a proper bond or respond within 20 days to the seizure was raised to $100,000. Furthermore, to discourage citizens from actually contesting the forfeiture, and forcing the government into the expense of a civil trial, law enforcement agencies began to initiate separate proceedings against each individual piece of property seized

from any one individual. That permitted the seizure of total amounts well in excess of the $100,000 threshold. It forced the owner to post a bond and to undertake a defense of each item (cash, cars, jewelry, boats, houses, planes, etc.) if he/she wished to avoid administrative forfeiture.
(19)
Meanwhile, the notion of using a proceeds-of-crime approach began to take root abroad. In 1982, in the wake of a series of assassinations of prominent public figures by "the Mafia," Italy passed its Pio La Torre
Law, popularly named after the murdered head of the Sicilian
Communist Party, who had campaigned for action on the financial front.
(20) This widely heralded (and generally misunderstood) law introduced to Italy two fundamental legal departures. It created a new crime, the
Mafia conspiracy, and opened the books of the Italian financial system to police probes. It waived bank secrecy in the event of a criminal investigation and allowed the courts to seize the assets of persons belonging to a "Mafia conspiracy," as well as those of any relatives or associates suspected of fronting for them. The two initiatives were linked: anyone guilty of Mafia conspiracy could lose the right to financial privacy and have their assets seized without any need by the state to demonstrate their participation in any specif ic criminal act. (21)
The law was intended to address certain fundamental underlying realities. Traditionally, the Mafia (which Italian investigators had long identified as a mode of behavior rather than an organization in any strict sense of the term) was seen as a Sicilian problem and a symptom of cultural isolation, social introversion, and economic backwardness.
During the 1970s, however, a new "entrepreneurial Mafia" allegedly emerged. This transformation was reputedly fueled by the burgeoning drug trade. Not only did a drive for wealth displace the traditional concern with "honor" among Mafiosi, but the availability of drugderived wealth permitted members to infiltrate deeply into the economy of certain southern areas (in Sicily and Calabria, reputedly, 15 to 20% of all economic activity came to be controlled by Mafia-linked firms and individuals), and to spread throughout Italy. Most alarming was the alleged tendency of Mafia entrepreneurs to take control of businesses offering legitimate goods and services, and to apply t o them criminal principles of operation. Given the supposed ability of Mafia-linked firms to tap great pools of underground cash, push down wages, corrupt government functionaries, and employ violence to drive out competitors, Mafia entrepreneurs were perceived to be a serious threat, not just to this or that local firm, but to the entire Italian economy. (22)
Therefore, the Pio La Torre law attempted to deal with the flow of new criminal money and the stock of accumulated criminal wealth. Against the ongoing flow, it hoped to deter mob money from taking control of

legal businesses, as well as stop legal money from moving into illegal activity where higher rates of tax-free return were available. Against the accumulated stock of criminally derived wealth, it was the hope of the intellectual author of the law that the threat of asset seizure would encourage not so much confiscation, but a rapid and massive asset transfer. Mafia money would shift from illegal businesses (including legal ones operated in illegal ways) into the strictly legal economy.
Moreover, it would shift from the ownership of assets like land and commercial property into passive financial holdings. The result would be that the money accumulated through criminal means could be made accessible to the legitimate economy through passive investments without bringing with it the threat of criminal takeo ver (and criminalization) of actual businesses. Most of these subtleties escaped the notice of North American enthusiasts for asset forfeiture.
The underlying theory of the Pio La Torre law could be subject to criticism on many points. (23) Did the theory exaggerate the amounts of criminal money pouring into the Sicilian economy? Did it put too much emphasis on the role of drug money in the transformation from "men of honor" to criminal entrepreneurs? Indeed, was the typical Mafioso really becoming a criminal entrepreneur, or did he remain essentially an extortionist, simply shifting, as the economy itself changed, from draining money out of agriculture and construction to milking the commercial and financial system as well? (24) In creating a Mafia conspiracy offense, was the new law in danger of accepting the fundamental American error of seeing the Mafia as an "organization" instead of a pattern of behavior? Further, how many of the murders that galvanized Italian public opinion in favor of the law were really attributable to a flood of underground wealth from drugs and other illegal economic activities, rather than the result of settling of accou nts between political factions, secret societies, and the intelligence services who simply hired Mafiosi on occasion to do the dirty deed? (25)
At the end of the day, in Italy asset seizure was conceived not as an end in itself, or just a deterrent in the standard sense of the term. Rather, the threat of seizure was to work as an incentive for a long-term change of economic behavior. These objectives differed widely from those espoused in the U.S. and in other countries following the American lead.
There, the principle was: find it and grab it. The main tool for doing so was not criminal forfeiture through the RICO statute or the CCE act, but a remarkable proliferation of laws permitting and facilitating civil forfeiture. It reached the point that the sheriff of every sleepy one-store town and the Customs chief of every grassy one-runway airport could use them for their own purposes, be they crime control or ego enhancement, be they harassing ethnic and political undesirables or

padding the local law enforcement budget.
Licensed to Loot?
Several factors drove U.S. law enforcement to its present fixation on the money trail. One was the apparent failure of traditional law enforcement strategies. During the late 1960s and the 1970s, the buzzword had been
"targeting-up." This theory held that it did little good to nail and jail easily replaced subordinates in hierarchically structured criminal organizations as long as mob bosses were still free to operate.
Therefore, the target became the top management. (26)
The only problem was that, in practice, jailing capos did not appear to make much difference either. Just as much cash seemed to be blown in illegal gambling dens; just as much weed was toked up in college dorms; and just as many otherwise prim and proper citizens abandoned wives and children in the dead of night to cruise the streets in search of forbidden carnal delights.
The evident resilience of the criminal marketplace might have persuaded some observers that the notion of crime controlled by a grand conspiracy of swarthy men with suspiciously difficult-to-pronounce names was largely Hollywood fiction. It might have suggested that the crime world is really populated by an anarchic and grasping collection of small-time operators, more intent on ratting each other out than on laying tribute at the feet of the local godfather. Instead of huge amounts of capital under the control of great criminal "cartels" that stash it in obliging financial institutions, perhaps most illegal profits are distributed in small amounts among a host of petty wheeler-dealers who keep the money in cash stuffed in socks under their beds, if they did not immediately fritter it away on booze, drugs, and flashy living. The appropriate deduction might have been that as long as a demand for illegal goods and services existed, someone would find it profitable
(since criminalization had driven the price up) to supply that demand.
Instead, the accepted explanation became that mob bosses were more easily replaced than had previously been thought, and even if they were not replaced, they had little problem running their businesses from prison. The head of the U.S. Drug Enforcement Administration put it squarely before Congress in 1978, the year his agency was given the right to proceed by civil forfeiture against "proceeds of crime" and funds supposedly destined for use in "narcotics" offenses:
We recognize that the conviction and incarceration of top-level traffickers does not necessarily disrupt trafficking organizations; the acquisition of vast capital permits regrouping and the incarcerated

trafficker can continue to direct operations. Therefore, it is essential to attack the finances that are the backbone of organized drug trafficking.
(27)
Such an approach favors the arrest and de facto jailing of the one presumably indispensable element: the money that provided the motive
(personal enrichment) and the means (investable capital) for further crimes. Law enforcement officials at home and abroad subsequently hammered upon this theme, repeating it with a vehemence that contrasted markedly with the lack of substantiation offered to support it.
(28)
The second reason for shifting attention to the money trail was the conviction that during the 1980s, the Western world was flooded with
"narcotics," and that the worldwide drug trade had raked in gross earnings of at least $500 billion per annum, of which the U.S. alone accounted for 100 to 120 billion dollars. (29) This conviction perhaps reached its apogee when the mass media reported with a straight face that Colombia's most media-genic narco-baron, the late Pablo Escobar, once had $400 million from U.S. cocaine sales stashed in the basement of a house. A pipe burst, the story continued, flooding the basement and ruining the cash before he could get it to safety abroad. Although
Escobar had created an organization capable of expeditiously moving huge amounts of cocaine one way, he was apparently unable to move cash back. The basement filled with just enough water to ruin the money, but not enough to wash through the neighborhood and alert the police; either the currency was largely counterfeit or the comm unity water supply was unusually corrosive, since genuine U.S. notes can survive months of nonstop soaking in ordinary tap water without any serious damage. (30)
These startling figures about mega-billions of dirty dollars seemed to be confirmed by hooded witnesses before televised congressional hearings.
After privately striking deals for sentence reductions, they went on to publicly dazzle their audience with tales of loading cash by the baleful into cargo planes en route to Panama, the Bahamas, or the like. The star performer in the 1980s was Ramon Milan-Rodriguez, a former money launderer for Colombian narcos, who wowed the U.S. Senate with tales of running sums of $200 million a month in and out of the U.S. and of managing a drug money-based investment portfolio of up to $10 billion.
(To further raise his credibility, Milian-Rodriguez also informed the enraptured senators -- infused with equal amounts of anti-Soviet venom and Israel-lobby election cash -- that international money laundering was a Communist plot and that the emerging Colombian heroin industry was controlled by the PLO.) (31)

Unlike the glory days of gambling, prostitution, and the numbers rackets, the sheer magnitudes involved seemed to demand that special preemptive attention be given to the money. Left to its own devices, the huge amount of criminal wealth would not only corrupt legal businesses, but also undermine the integrity of financial institutions, compromise the judicial system, threaten general prosperity, and, quite likely, subvert national security by exposing the victim country to the depredations of foreign-based crime "cartels." (32) For example,
Colombia's Medellin Cartel (whose members demonstrated their aptitude for criminal conspiracy by routinely murdering each other and competitively flooding the market for their product) was described by influential Washington Post columnist Jack Anderson as "a subterranean superpower that threatens U.S. security...." And he insisted that the U.S. government "call upon" all other countries to adopt emergency laws and treaties to confiscate drug money. (33)
Added to this presumably enormous take from drugs were the proceeds of a host of other rackets -- old ones like the flesh trade and new ones like the traffic in endangered species, stalwarts like rum-running and newcomers like nuclear materials smuggling, vintage businesses like loan-sharking and innovative ones like international securities fraud.
Police intelligence units, academic crime experts, and high-priced research institutes competed to churn out big numbers that reputedly represented the amount of ill-gotten gains. Their ultimate triumph came in 1996 with the construction of a world Gross Criminal Product of $1.1 trillion. (34)
Of course, there was (and is) lots of funny-money washing around the world economy. Most, though, comes not from peddling kiddie porn or designer drugs, but from tax and exchange-control evasion on money that is of legal origin. (35) Those frightening statistics about a deluge of
"narco-dollars" or a burgeoning world Gross Criminal Product really prove nothing more than that it is unnecessary to take the square root of a negative sum to arrive at a purely imaginary number. But in one sense, they did their job. Their objective was not to illuminate the shadowy world of crime so much as to enlighten politicians about the need for larger law enforcement budgets and more arbitrary police powers.
Therefore, those magic numbers assumed the status of religious cant, and were rarely revised, except heavenward.
A third reason for the new law enforcement approach lay in the triumph of the ideology of "fiscal restraint" -- Wall Street's term for a combination of tax cuts for the rich and cuts in government expenditures for the poor. At that time, a record-high U.S. budget deficit had resulted from out-of-control military spending and burgeoning tax evasion; in addition, drug consumption, and the presumed untaxed wealth of drug

barons, supposedly had hit its peak. Moreover, the principle of universality of access to public services (whereby all citizens have a right to have their basic needs met regardless of economic status) was under attack. In addition, there were demands for a rollback of economic regulation and the privatization of public functions. If
"consumers" were to be expected in the future to pay the full cost for hospitals, schools, and other services formerly considered a public responsibility, it took only a small shift to apply that principle to crime control. A senior official of the attorney general' s office clearly articulated this in 1982 before the U.S. Senate Judiciary Committee:
Official: The potential in this area is really unlimited. My guess is that, with adequate forfeiture laws, we could...
Senator: We could balance the budget.
Official: .... There clearly would be millions and hundreds of millions available.... (36)
A few years later, former Attorney General Richard Thornburgh triumphantly crowed, "it's now possible for a drug dealer to serve time in a forfeiture-financed prison after being arrested by agents driving a forfeiture-provided automobile while working in a forfeiture-financed sting operation." (37)
A fourth factor closely related to that shifting ideological climate was a change in the attitude to the causes of crime. For decades, academics and activists had urged, with some success, that the focus should be on eradicating the underlying socioeconomic factors that drove people to a life of crime. The new era of born-again free-marketeering, however, favored punishing individual evildoers. If crime resulted from social conditions, then governments would be obliged to intervene to correct them. If it resulted from individual malfeasance, the logical response was simply to punish and deter. Similarly, the government must correct the balance if economically motivated crime resulted largely from an imbalance of income and economic opportunity. If it was the work of bad people, there was no need to fundamentally alter the status quo distribution of wealth and power. Consequently, the criminal should be seen not as a complex product of psychosocio-economic conditions, but as a simple cost-benefit calculator. I t followed that crime could be addressed by merely tilting the likely outcome of such a calculation to reduce the potential profitability of the criminal's actions, and to incapacitate (by stripping away economic assets as well as by imprisonment) those who failed to heed the initial warning. (38)
These four factors can account for the enthusiasm with which the U.S.

embraced the follow-the-money doctrine. A fifth influence must be added to explain why it was so imperative for the rest of the world to follow suit.
On the Track of the Black Greenback
Around the world, the U.S. dollar is by far the most popular currency in legitimate commerce and, increasingly, in underground transactions.
Even if transactions on domestic retail black markets are done in local currency, U.S. notes, especially the $50 and $100 denominations, are greatly in demand for conducting covert wholesale transactions, for hiding international financial transfers, and for underground savings parked in a safety deposit box, stuck in a wall safe, or buried in a garden. The U.S. Federal Reserve estimated that by the late 1980s perhaps 75% (by value) of all $50 and $100 notes were in circulation outside the U.S. (39)
That presented a golden opportunity. The cost of printing a $50 or $100 note is a few cents. Therefore, exporting cash has been by far the cheapest way to finance U.S. federal government expenditures. As other countries suffer increases in black marketeering and tax evasion, as they watch their own currencies displaced, and, along with them, the ability of their national governments to finance public-works expenditures through the printing press, the benefit pours into the U.S. Treasury at a rate of 10 to 20 billion dollars per annum -- the amount in interest that the U.S. would otherwise have to pay on the equivalent amount of borrowed money. This neatly returns to U.S. government coffers a good chunk of the money it pays out in foreign aid donations to poor countries whose tax cheats and smugglers are particularly hungry for
U.S. dollars. The U.S. also gains indirectly from the fact that persons habituated to thinking of the physical greenback as their primary haven against political and financial uncertain ty would, by inference, come to see U.S. dollar deposits and investments in American securities as the most logical and desirable place to put their longer-term savings as well.
Furthermore, by raising the prestige of the U.S. currency, the greenback's role encourages more legitimate trade to be financed through dollar-denominated bank instruments. That reinforces the competitive position of U.S. banks and pays additional returns to the
U.S. in the form of increased "invisible" earnings on its international trade balance.
Simultaneously, the export of U.S. currency makes its own antilaundering initiative more difficult. (40) The simplest way to bypass
U.S. reporting requirements is to take cash, especially in highdenomination notes, load it into a suitcase or some commercial cargo
(outbound loads of U.S. bills have turned up in Monopoly boxes, the

lining of microwave ovens, and even cryogenic containers of bull semen), and fly, drive, or float it abroad. The greater the acceptability of the U.S. dollar internationally, the easier it is to exchange the dollars for other assets.
For decades, American exports of goods sagged relative to imports. The gap in the commodity trade account had to be covered by importing capital (much of it based on capital flight from, and tax evasion in, other countries) or by running a large and growing surplus in services -- the payments earned by U.S. consulting firms, insurance companies, banks, etc., all over the world. At the same time, the biggest growth sector in financial services has been "private banking," managing the portfolios of what is euphemistically called the "high net-worth individual."
Traditionally dominated by Swiss and British banks, by the 1980s it was a field the major U.S. banks were eager to exploit. However, its pesky anti-money-laundering rules made the U.S. the poorest of the major jurisdictions in terms of offering foreign clients privacy and confidentiality.
Therefore, the U.S. faced a dilemma. The U.S. dollar was supreme, meaning that the world's super-rich wanted to hold the bulk of their assets in U.S. dollar-denominated form. Yet banks of virtually any other major Western country could offer more discrete service, while still providing their clients access to a wide variety of dollar accounts and instruments. At that point, Senator John Kerry offered an amendment to a 1988 money-laundering law that required the U.S. Treasury to negotiate with other countries the imposition of rules similar to those in force in the United States. Senator Kerry was clear about the danger:
If our banks are required to adhere to a standard, including offshore, and other banks do not, and rush for deposits in those (U.S.) banks, we will have once again taken a step that will have disadvantaged our economic structure and institutions relative to those against whom we must compete in the marketplace. (41)
Therefore, instead of restricting the export of U.S. bank notes, which was so beneficial to the Treasury, or watering down the U.S. reporting rules to attract more foreign fund management business to U.S. banks, the strategy was to force other countries to impose on their own banks the administrative costs and competitive disadvantages of U.S.-style reporting rules. Initially, those reporting rules were demanded for all cash transactions conducted by foreign banks in U.S. dollars over the
$10,000 threshold. More recently, other countries have been pressed to adopt such rules for all cash deposits and withdrawals. (42)
It was not merely a matter of moral exhortation. Behind the Kerry

Amendment and subsequent appeals for other countries to come on board stood the threat of their banks being barred from using the
American-controlled international wire transfer (CHIPS) system, which would have crippled their international competitive position. Before the
U.N. General Assembly in 1996, President Clinton declared: "We will help nations to bring their banks and financial systems in conformity with international (sic) anti-money-laundering standards, and, if they refuse, apply the appropriate sanctions" -- namely, by excluding them from the U.S. market. (43) The U.S. State Department now hands out brownie points (in its annual "narcotics" report) to countries according to how well they have imitated American legal initiatives. Therefore, with the enthusiastic support of their police forces, country after country heard the message.(44)
Proceeds of Crime and the Seven Deadly Sins
Although police in other jurisdictions have continuously agitated, with increasing success, for improved forfeiture powers, no country yet matches the American record. Nor has any country given more evidence of the dangers of profligate use than the U.S., where asset forfeiture has become less a means of controlling economically motivated crime than another form of it. That manifests itself in seven particularly nasty ways.
The first is the creation of a contrived offense called "money laundering." Unlike the underlying crimes that generate the money, laundering consists of acts that are innocent in and of themselves. The problem is that money launderers do not pull guns or con widows and orphans out of their savings. Rather, they make deposits, draw checks, purchase ordinary bank instruments, and wire payments from place to place. Because money laundering involves standard transactions through the legitimate financial system to disguise the origins and destination of illicitly derived money, laws that forbid handling the "proceeds of crime" have had to criminalize everything from making a series of deposits, each small enough to circumvent a reporting requirement, to boarding an international flight with an undeclared bearer bond tucked away in an attache case. (45)
The result is that anti-money-laundering laws are a prosecutors' dream come true -- sweeping in scope, easy to prove, and carrying very heavy penalties, the threat of which can be used to bludgeon confessions, extract information, or extort property. Commercial frauds, currency counterfeiting, alien smuggling, and many other offenses have been prosecuted based on violations of money-laundering statutes. The focus shifts from the underlying acts (which genuinely invoke public opprobrium) to the methods used by the perpetrators to make off with the loot, thereby trivializing the real offense. (46) In addition, by

criminalizing the handling of illicit funds, the state effectively forbids all business dealings with persons who might turn out to be criminals.
Anyone who does so also runs the risk of facing criminal sanction. (47)
Not least, the hysteria over money laundering has permitted penalties to become grossly disproportionate. In the U.S., money-laundering charges usually carry much heavier consequences tha n do the underlying offenses. The potential sentences, too, can be compounded almost at the prosecutors' will. Therefore, the mere threat of money-laundering charges on top of, or instead of, those for the underlying offense can be enough to force a suspect to make a deal, for information or for property to be ceded in a civil settlement. If there were really a case to be made for harsher sentences, it would be far more honest to load them directly onto the underlying offense than to introduce them through the back door by additional charges of money laundering. However, if the real purpose is to shake down suspects or blackmail them into turning informant, the current approach makes sense.
The second deadly sin committed by the proceeds frenzy has been to indiscriminately burden the American, and, increasingly, the global financial system with reporting requirements that are at best useless and at worst pernicious. (48) The main role for financial institutions in the attempt to deter and detect money laundering is to provide information on which the law enforcement apparatus can act. Yet this raises serious questions about the efficacy of the reporting apparatus, the competence of bank personnel to make the required judgments, and the extent to which rights to privacy are routinely violated for little or no apparent gain. The requirements range from Currency Transaction Reports, in which financial institutions perform the relatively passive role of reporting large cash deposits or withdrawals, to Suspicious Transaction
Reports (STRs) and Know-Your-Client rules, which place institutions in the proactive role of police informant.
An STR is triggered when either a client or a client's transaction exhibit certain characteristics. Despite efforts to draw up lists of "objective" characteristics of transactions that fall into the "suspicious" category, the bank's decision is really based on subjective hunches that may be rooted in stereotypes. In Britain, for instance, a disproportionate share of STRs are filed on transactions made by visible minorities, even though they show a lower "hit rate" than do those filed on Anglo-Saxons. (49) They may also be the result of mass-media hyperbole.
Bank employees are trained to be on the alert for various forms of theft or fraud against an institution -- bum checks, forged letters of credit, bogus collateral, diverted loans, or counterfeit currency offered on deposit or in exchange. They also must be on guard against insider abuse -- theft or electronic-funds transfer fraud. Here, crime control and

the financial institution's interests coincide. However, to ask them to be alert to the deposit of illegally earned money is quite different.
Counterfeit currency, for example, is detected by physical characteristics. Bogus checks are picked up partly by physical characteristics and partly by the fact that the sums, provenance, or beneficiary make no sense. Both directly threaten the bank's financial position. However, illegally earned money offered on deposit looks and feels just like clean. Yet bank employees are expected to detect an act, money laundering, that poses no threat to the financial position of the bank (indeed, it brings in a lucrative form of business) and is deliberately designed to look as much like a regular transaction as possible.
None of this is meant to suggest that banks should not be alert to signs of illicit activity. Rather, how far are they expected to dig into their clients' affairs and how much of the job of the police can the banks be reasonably expected to do? (50) As conscripts on the front lines of the
"war on money laundering," there is a clear conflict of interest between the banks' role as profit-seeking institutions and their new law enforcement obligations.
The third sin is the muddling of civil and criminal procedures and the accompanying deterioration of citizen's defenses against arbitrary acts by the state or its agents. There is something fundamentally at variance with justice when the state or its agencies can proceed against a private citizen in actions with punitive effects while being required to meet only a civil standard of proof. Yet that is the main thrust of modern assetforfeiture practice.
The fourth sin is the threat the follow-the-money mania poses to the integrity of the fiscal system. Today, most government revenues derive from the direct taxation of income. They are premised on selfassessment and voluntary compliance -- i.e., on trust backed up by the threat of criminal sanction. Central to their success is the guarantee of confidentiality. Although revenue officials have long required the power to use confidential tax information in criminal proceedings designed to enforce tax law, the process is now being put in reverse. Police are given permission to fish through tax files in pursuit of evidence for criminal investigations and forfeitures. The American police are now seeking the authority to use tax files for purely civil forfeitures as well.
The greater the chances of information leaking, the greater the incentive for otherwise legitimate citizens to dissemble in their tax returns, or to move their money abroad using one of the rapidly proliferating offshore financial advisory services.
There is a delicious irony here. When the crackdown on supposed

proceeds of crime began, financial service firms offering offshore confidentiality and asset-protection packages were relatively few and catered mainly to the very rich. Today, competing financial advisory firms offering financial discretion and asset protection specifically advertise to a middle-income clientele the dangers of asset forfeiture as a good reason to use their services.
That the proceeds approach has warped law enforcement priorities is the fifth sin. In pursuing economically motivated crime, the logical targets for police action should be: (1) predatory offenses, since they usually involve force or its threat, (2) commercial crimes associated with particularly blatant forms of fraud, and (3) market-based crimes involving willing participants in a free-market transaction. Today, thanks to the lethal combination of moral absolutism and asset seizure, those priorities are being reversed.
Under pressure from the U.S. Justice Department, police forces are putting increasing effort into forfeitures. Police officers' performance bonuses and salary hikes have traditionally been based on how many arrests they make. Now they are just as likely to be rewarded for how much money or property they can grab and have forfeited. As a result, they increasingly prioritize actions according to the amount and type of assets they can seize. They conduct pre-raid planning sessions to determine what should be taken. Cash, jewels, cars, boats, and easily liquifiable commercial real estate have long been the favorites.
Generally, the police avoid seizing entire businesses, which are hard to resell, especially if there are other partners who might not be charged.
Furthermore, between the time of seizure and the time of the courtordered forfeiture, the police have to operate a seized business. At various times, police forces have found themselves in the intriguing position of running a porno cinema, a gambling den, and a Nevada brothel. (51)
Pressure to chase the money has also led police forces to literally become partners in crime. Arizona state troopers spent 18 months working undercover as couriers who drove 13 tons of marijuana from
Mexico in a "controlled delivery" operation in which every single gram hit the street. At the end, the police seized and added three million dollars to the state forfeiture fund, permitting the assistant attorney general to declare the operation "a success from a cost-benefit standpoint." (52) Not so happy was the outcome when U.S. Customs in
Miami chanced on a big cocaine shipment and decided to let it go. The plan was to follow the trail and then seize the money once the drugs were sold. They released the cocaine, but never found a trace of the cash. (53)

Simultaneously, the number of charges filed under laws that might lead to the imposition of fines paid to the public treasury has been reduced in favor of charges under laws where assets can be seized and shared among police and prosecutors. As a result, some police forces and prosecutors' offices run at a profit, with budgets well in excess of those they were formerly voted when they were subject to civic control. That produces another distortion. Although predatory crimes are generally specific to a locality, the various components of enterprise crimes take place over long distances; they might even be global. Yet the benefit from seizures can depend on an accident of geography -- a well-heeled dealer was nabbed driving through town -- rather than on actual need.
Some small-town forces are so flush with drug cash that they now boast fully-armed, state-of-the-art SWAT teams, though their previous experience with serious crime was an occasional Saturday night brawl in the local tavern. (54)
The chase for money also skews the choice of who gets prison time and who takes a walk, albeit somewhat lightened of cash and property.
Wealthy persons can plea bargain their way out by offering the police part of their property, while the poor get hard time. The wealthier the accused, the greater the chance is of this happening. This is a curious result indeed for a policy rationalized in public as the best way to make sure the kingpins of enterprise crime get their just deserts. (55)
In Canada, although seized assets technically go the federal treasury,
American-style policing-for-profit is making its appearance bit by bit.
The federal treasury shares the proceeds with provincial attorneys general, who are in charge of enforcing (federal) criminal law. In British
Columbia, police can apply to the provincial attorney general for permission to use forfeited assets for "special projects." Across the country, the federal government has set up Integrated Proceeds of Crime units that are financed by loans from the federal purse. Loan repayment is to come from the proceeds of seized property.
If the dedication of so much law enforcement energy to seizing assets is intended to bolster (or replace) police department budgets, the next step is for officers, in the interest of economic efficiency, to cut out the middlemen and vote themselves salary increases and bonuses by directly pocketing the results of seizures. Thus, corruption of law enforcement is the sixth sin. Deputies have been caught planting drugs and falsifying police reports to establish probable cause for seizure. In airports, Customs Service and police officers use "profiles" of drug couriers to target and shake people down for their money, concentrating overwhelmingly on ethnic minorities. Drug-sniffing dogs are used to pick up traces of cocaine on currency, thereby establishing probable cause, even though tests have shown that 80 to 93% of U.S. currency

carries enough drug residue (a minuscule amount) for dogs to pick up.
Some dogs are so well trained that they now react to the smell of the money, rather than drug residue, producing t he intriguing possibility that simply having cash in a wallet constitutes probable cause for it to be seized. (56) Black citizens in Washington, D.C., have been fleeced by beat cops for sums as little as $4.00, and compelled to post a $5,000 bond and hire a lawyer to protest the seizure. Meanwhile, studies by the
U.S. General Accounting Office have shown that forfeited property not used or sold by the police force itself is usually trashed or stolen -- often by the police. (57)
The seventh is the deadliest of all sins. The corrupting effects of the asset-forfeiture frenzy spread from the police to the entire justice system. Individual malfeasance is a problem, but it extends beyond that.
A New Jersey prosecutor, for example, used the power of his office to force accused persons to cede property, which was then sold for a tiny fraction of its market value to his friends and secret business associates.
The latter knew better than to rat out or cheat on the prosecutor, who threatened to plant cocaine in their cars if they crossed him. He was eventually charged with 30 counts of mail fraud, tax fraud, conspiracy, financial-aid fraud, obstruction of justice, and perjury. (58)
Far more invidious is a legal form of institutional corruption, which is exemplified by Operation Casablanca. In this sting operation, U.S.
Customs turned to a drug dealer, who was rewarded with a clean slate and a cut of whatever was seized, and put him to work to trap Latin
American bankers. The first target was a series of major Mexican banks.
Without the courtesy of informing the Mexican police forces or government that an undercover operation was underway in their territory, Customs sent the dealer to approach bankers and request their assistance in laundering drug money. Some middle-level managers at major Mexican banks took the bait. The result was a series of arrests and convictions, along with the forfeiture of hundreds of millions of dollars, a nasty diplomatic incident, and the (temporary) collapse of the stock prices of the targeted banks. Moreover, the sting added over seven million dollars to the coffers of the drug dealer-turned-undercover operative and turned the U.S. Customs special agent who directed the operation into a legend in his own mind. At a 1998 meeting of the
National Drug Intelligence Center, the agent crowed about his accomplishments. He had proved that in Mexico, "the banks, the government, and the Mafia -- they are all the same." He reminded his audience that they should never forget how Pancho Villa came across the border to loot law-abiding U.S. towns. It was thus necessary, he insisted, for the U.S. to go into Mexico "and kick ass."
While the Mexican drama was being played out, the same team turned

to bankers from Venezuela, with considerably less success. When the undercover operative mentioned drug money to representatives of
Venezuelan banks in Miami, he was promptly shown the door. So, the team decided on an alternative strategy: the dealer told the bankers that he wanted them to manage on his behalf millions in "hot money." The dealer presented himself as a Venezuelan businessman who was seeking to avoid the complications of dealing with the U.S. tax authorities.
When the banker agreed, she was arrested and charged with drug money laundering. A jury found her guilty, apparently assuming that "hot money" (a standard banking term referring to the propensity of funds to skip from place to place in response to everything from interest rate hikes to political instability) had a meaning similar to "hot goods." An appeals judge tossed out the case, denouncing it as government entrapment and expressing disgust at the use of an undercover op erative with a big financial incentive to coax legitimate citizens into selfincrimination. The judge declared that no sane jury could have convicted the banker. How many others languish in prison because they lack the financial means to fight through to the upper reaches of the court system, where something approximating justice might sometimes exist?
Thus, a law enforcement strategy that was called for to prevent huge sums of criminal liquidity from corrupting legal markets, undermining financial institutions, compromising the judicial system, threatening general prosperity, and subverting national security has itself become the threat -- to innocent property owners, financial efficiency, civil rights, due process, fiscal balance, and the integrity of law enforcement.
(59) Perhaps this "collateral damage" would be tolerable if there were no alternative. Fortunately, many alternatives exist, although they will be bitterly opposed by a law enforcement apparatus that is desperate to keep control of the "drug" cash to which it has become addicted. (60)
The Alternative Strategies
Unlike the U.S.-led approach, which opens funds to seizure by criminalizing actions that generate illegal money as well as its subsequent management, other countries have chosen to differentiate the two. Actions that generate illegal funds might be prosecuted under criminal law, while the money itself is treated as a financial policy issue.
(61)
The differences can be imputed in part to distinctions of cultural and legal traditions. Most likely, they can be attributed to the supply of capital. Rich Western economies can easily afford to attempt to neutralize the savings of criminals. Despite the best efforts to massage the numbers upward, the sums involved are trivial in relation to the

economy as a whole. That may not be the case in many poorer and weaker economies, which are desperate for capital accumulation regardless of the source of the money.
Developing countries that attempted to evolve alternative strategies generally started from the premise that illegally derived income and wealth behave differently from legal sources, with potentially serious antisocial consequences. Although the evidence is anecdotal, a few generalizations about such behavioral differences seem sustainable. (62)
First, where the threat of detection and loss produces an atmosphere of insecurity, illegal income is more likely than legal to be quickly consumed rather than saved or invested. In the West, this is a sociological oddity, manifesting itself in criminals' "here today, gone tomorrow" lifestyle. In poor countries plagued by a shortage of savings, it may be an impediment to indigenous economic development. Illegal income tends to be consumed in untraceable services, blown on entertainment that promotes prestige among peers, or used for highprofile (readily liquifiable) items like jewelry. If spent on basic goods, these will tend to be acquired in clandestine form -- stimulating the market for stolen or smuggled items.
If illegal incomes are saved, there are also behavioral differences. The money may be kept in stashes of high-denomination notes, preferably hard currencies like U.S. dollars, deutsche marks, or Swiss francs, provoking a sort of internal capital flight away from the domestic currency. It may also be hidden away in gold (often smuggled), orprestige items like valuable works of art, which are liquid, but whose value at the time of purchase is difficult for regulators to establish. It has a higher propensity than does legal money to hide abroad, promoting external capital flight. (63) In each case, the savings are kept out of the formal financial system and therefore are unavailable to the legal economy.
If illegal income is used to purchase assets, the preferences are likely to be antidevelopmental. If it goes into property, it is far more likely to be spent on urban luxury real estate, diverting resources away from things like low-income housing, or on rural land employed for prestige purposes like cattle ranching or horse breeding rather than food production. If the money is invested in operational businesses, the preferences are luxury services (which offer opportunities to skim and launder), professional sports (a source of prestige), or the entertainment sector. Present-day Bombay is as beholden as latter-day Hollywood to mob money for its huge film industry.
In general, criminal money concentrates on sectors from which it can be

quickly liquidated in times of crisis or need, or which generate extra political and social influence. Low on the list are basic primary or secondary industries that are the sine qua non of economic development.
Unless there is extra encouragement or protection, criminal money is unlikely to enter the formal capital market, where it can be put at the disposal of legitimate firms or the government.
If the sums of illicit money are small relative to the economy as a whole, as is the case in rich industrialized countries, the impact is purely at the enterprise level. If the sums become relatively large, particularly in countries with low per capita income, a perceived illegitimacy of government, or weak financial institutions, serious distortions can result.
Faced with these difficulties, governments of affected countries have often chosen to attempt to make illegal income behave more like legal, rather than to find, freeze, and forfeit it.
The policies have been many and varied. At times, they take the form of passive accommodation. In many countries with weakly developed or widely distrusted banking systems, parallel loan markets -- from de facto pawn shops to sophisticated multibranch money-brokerage houses
-- are tolerated. Until recently in some countries, these have played a role in agricultural and industrial lending that rivals that of the legitimate financial system. The source of the money is no secret. Cocadollars in Peru underpin everything from seed-money for farmers to finance regular food crops to working capital for foreign exchange houses in the big cities. (64) In some countries of Southeast Asia, big industrial loans are struck out of the windows of parked cars (at the
"curb market"), giving everyone from cigarette smugglers to tax evaders a chance to put their money to work for the good of the legitimate economy. The examples are legion. (65)
Some countries have actively sought to draw illegal cash hoards into the formal economy via banks or government securities. This is the role of bank secrecy laws in many jurisdictions. Although such laws gained notoriety for attracting criminal money, most infamously drug money, into a Caribbean or Pacific island haven for a quick wash job, most countries introduced bank secrecy laws to encourage the deposit of locally generated money, whether from the hoards of career criminals or the stashes of tax evaders, by offering protection from detection and seizure.
Some governments have offered criminals the option of buying bearer securities. The explicit objective is to attract illicit money to boost government finances. For that service, the criminals collect interest, courtesy of legitimate-sector taxpayers. Although the U.S. government in the 1980s abandoned the practice of funding public expenditures,

presumably including part of the costs of the "war on drugs," by offering interest-bearing sanctuary to criminal money in the form of bearer bonds, others still make it a regular practice. In the past, Sri Lanka,
India, and Pakistan frequently offered bearer bonds denominated variously in local currency, foreign exchange, and even gold, along with pledges that no questions would be asked about the origin of the funds and no impediments raised to the investor's ability to recover the principle plus interest. (66) A recent bearer bond issue by Pakistan led to sharp clashes with the U.S., which accused Pakistan of deliberately setting out to attract and launder the cash hoards of the world's drug kingpins -- apparently and conveniently forgetting that the U.S. itself issued bearer treasury bills until a mere 20 years ago. (67)
Such bearer securities do not really launder, much less amnesty, criminal money, even though they deliberately entice underground stockpiles by offering high interest. The bonds are bearer instruments. A laundry job logically requires for its completion that the owner of the funds be able to use them publicly and in his/her own name; amnesty, too, can occur only if the holder of funds is identified. Some countries have offered explicit amnesties. Some take the form of bank amnesties -
- underground money is deposited in designated bank accounts for a certain period, a laundry fee is paid to the state, and the registered depositor is then able to use the remaining funds without fear of seizure.
Others take the form of state-issued whitener bonds. Unlike bearer bonds, whiteners require that the purchaser identify him/herself and typically bear a lower rate of interest. Once the bonds mature, the money is vested, free and clear, in the hands of the investor. All such amnesties are directed at the money, not the i ndividual, who can still be prosecuted for the acts that generated the funds.
A third variant of amnesty offers some relief to the owner and a clean slate for the money. These apply to unpaid taxes. Tax amnesties have been used across the world. Although their institutional forms differ widely, the basic principle is the same. The delinquents (including criminals who have compounded their initial felony by tax evasion) step forward to reveal how much income has been hidden from the tax collector, pay a penalty that always works out to less than the normal tax load, and are left with the rest of the money and the previous (fiscal) offense forgiven. Much the same takes place in the form of capital flight amnesties, which attract money that has fled in defiance of exchange controls. The money is placed in state banks, invested in public debt instruments, or merely declared on its return. The government clips a certain percentage and pronounces the rest clean and clear.
There are countless variants on these techniques, but all urn counter to the current trend of finding, freezing, and forfeiting criminal money.

The desperate shortage of development capital so many poor countries experience explains why these countries have been so slow to follow the
U.S. in anti-money-laundering and asset-forfeiture schemes. Instead, they seek to coax illegal earnings to behave more like legal ones to assure that the funds are available for agricultural, industrial, or public purposes.
The U.S. posture of denouncing efforts of other countries to put the cash generated by illegal activity to legal use in a controlled fashion is particularly hypocritical. The world's most powerful economy, the U.S. is also the primary beneficiary of illegal funds fleeing other countries.
To be sure, most of the illicit funds attracted to the U.S. are the product of tax and exchange-control evasion by otherwise legitimately earned money. However, the flight of such funds from developing countries harms their social and economic fabric considerably more than the laundering of drug money harms the U.S. Demands that the rest of the world follow the U.S. model represent an attempt to apply a monoculture of crime control in circumstances where the economic and legal ecology render it at least inappropriate, if not downright damaging.
If the existence of international variations makes it more difficult for the
U.S. to enforce its own efforts, perhaps it is time for those efforts to take a different tack. Interestingly, there is a perfectly sound, and in many ways superior alternative available, even in the U.S.
The proceeds-of-crime frenzy has seriously threatened the integrity of the tax system. From its proper role as an instrument to serve the public finances, it has been twisted into a tool of general crime control.
Moreover, confidentiality, the sine qua non of a fiscal regime based on voluntary compliance and self-assessment, has been compromised by police probes. It is possible to use the tax code for the purposes it was intended, while attaining the moral objective of ensuring that at least some criminals do not profit from their crimes.
Tax codes provide for fines and forfeitures, interest and penalties, as well as the means to seize wealth using a reversed burden of proof. This reverse onus has legitimately been part of tax enforcement for centuries.
When most state revenues came from customs duties, it was normal for merchants to prove that their cargoes had met all payments rightly due.
Today, in the same spirit, a citizen with more income than is accounted for should be required to demonstrate that all outstanding tax obligations have been met. The origin of the income is irrelevant; what counts is the requirement that all citizens meet their fair share of the overall burden.
Although criminal law provides the final line of offense, most tax procedures are civil and most tax codes permit revenue authorities to freeze and seize assets. With tax charges, there is no need to trace

particular assets and impute them to any specific crime. All that is necessary is to demonstrate that someone's expenditures exceeded his or her reported income. When arrears, interest, and penalties are combined, the undeclared portion of their income will largely, and perhaps completely, vanish. Such tax procedures can go ahead without the need for individuals to incriminate themselves regarding the origins of the money. Unlike in rem forfeitures, when used for crime control tax actions do not attach to the person the stigma of a specific crime, while denying that person the right to a trial to ascertain the truth or falsehood of the charges. Yet, if the underlying theory of proceeds-of-crime is correct, the motive and the capital for further offenses will vanish.
The counter-case is sometimes made that using the tax code cannot strip criminals of all their ill-gotten gains, for it can only be applied against their illegal income at the marginal tax rate. Furthermore, if tax law is used, criminals would be permitted to deduct expenses to determine the net amount due, leaving most of the proceeds still in their hands.
However, there are several obvious rebuttals.
The argument that a criminal will likely be left with much of the profit intact could only be advanced by someone who has never tangled with revenue authorities intent on using their full powers. Once fines for failure to file or for filing false returns are added to interest charges on overdue balances, it is unlikely that any of the net income accruing to an enterprise crime will be left for the criminal to enjoy or reinvest. Such a procedure might bite deeply into legally earned net income as well. If it does not, perhaps the general tax rate structure is insufficiently progressive. Even if only actual profits or net income disappear, that is sufficient, if the theory underlying the proceeds approach is correct, i.e., to remove the economic motive from crime. To the extent that money is the determining factor in their behavior, profits, not "proceeds," motivate criminals and are the source of their enjoyment. No one looks forward to laying out money to cover the costs of running a business.
The objection to using tax code procedures against the proceeds of crime is partly due to the legacy of the origins of much law enforcement philosophy in the pursuit of predatory crime. As such, it has not come fully to terms with the fundamental commercial and financial differences that enterprise crime represents. In predatory offenses, courts can levy fines that go to the state and order confiscation of specific property that was the object of the crime, as a prelude to its restitution to the victim. With a predatory offense, the basic act (taking someone else's property) and the means by which it was done (force or fraud) are illegal. Moreover, the commission of the offense does not produce any value added to society -- the act simply redistributes existing wealth that the rightful owner obtained (presumably) by the

expenditure of legitimate after-tax income.
With an enterprise offense, the role of the courts should be quite different. There is a fundamental distinction between the underlying offense and the means by which it is carried out. The transfer from person to person of forbidden goods and services is inherently illegal -- that would be true regardless of whether drugs, for example, were given away or sold. But a market exchange among willing participants is inherently legal. Furthermore, there is value added by the provision of new goods and services. Most tax codes insist that all income earned is subject to tax regardless of whether it is of legal origin, clearly distinguishing between the civic responsibilities attached to the proceeds of enterprise versus predatory offenses. There is a fundamental contradiction between a fiscal system that insists that all illegally earned income be taxable, and a justice system that insists that all illegally earned income be automatically forfeitable to the state. In a predatory case, the court automatically handle s the issue of "proceeds" while dealing with the underlying offense, whereas an enterprise case involves two logically distinct processes. In such a case, the role of the criminal courts should be to weigh evidence of the underlying offense and, if appropriate, convict the entrepreneur. At that point, the revenue authority enters in a separate action to trace, freeze, and forfeit property equivalent to the unpaid taxes, plus interest and penalties, due on the net benefit the individual received from the transaction.
Using tax law, some have objected, legitimates criminal business by treating it like all other economic activity. This, too, is false. If the objective is really to attack the motives and the capital of crime
"cartels," it makes no difference whether the money is taken away using selective asset forfeiture or tax code means. It should not matter whether the ultimate beneficiary is the state treasury, legitimate creditors of the criminal, family members in need, or defense attorneys; the only persons or institutions that should be excluded from a division of the loot are the criminal and the law enforcement apparatus. Moreover, using tax law should be easier in another respect: judges and juries are likely to be more sympathetic to forcing someone pay overdue taxes, plus interest and penalties, to the government treasury to finance education and health care than to forcing that person to forfeit a BMW for some police officer to enjoy.
Another advantage of using the tax law is that there is no need for an artificial offense like "money laundering," or to criminalize a set of actions that is inherently legal and harmless. Even if those who handle the money for certain serious crimes are just as guilty as those who commit the underlying offense, that is an argument for redefining or clarifying the law with respect to the underlying offense to include the

money managers firmly in its ambit.
Eliminating the need to criminalize money laundering would also help to return a sense of balance to public debate. So contrived is the crime of money laundering that, to win public acquiescence, the popular imagination had to be stoked by conjuring up an image of great crime
"cartels" dripping filthy lucre as they rapaciously eyed the commanding heights of the legitimate economy. It took a big lie to create a phony offense and set law enforcement off on a dangerous and virtually useless chase for money rather than criminal offenders.
Hostage to a Hoax
Everyone agrees with the fundamental principle that criminals should not profit from their crimes. Yet, beyond that basic conviction, no real consensus exists on how large the problem of criminal money flows is, on why society is worse off when criminals, rather than legitimate business people, consume, save, or invest, or on the level of "collateral damage" society should be called upon to accept in the name of a war on criminal profits.
It is possible to find the occasional criminal who is, in all senses, filthy rich. The big question -- rarely posed and never answered -- is how representative that occasional underworld magnate is in relation to the criminal economy. Is it sensible to rewrite laws based on one or a few spectacular incidents, particularly when those laws potentially involve so much "collateral damage"? Shouldn't laws deal with a general antisocial trend, rather than the occasional aberration? Such questions are particularly serious since so many spectacular proceeds-of-crime busts have resulted from stings, making it impossible to determine a priori how much money would actually have been involved had not law enforcement agencies been egging on the process. Even though so many key questions remain unanswered, or even unasked, police forces around the world are being turned loose to find, freeze, and forfeit the presumed proceeds of crime based on little more than a vague assurance that this is the most resource-effective way to deal with economically motivated crime.
Thus, in 1998 the U.S. government's National Drug Intelligence Center
(NDIC) hosted the elite of U.S. law enforcement involved in antimoney-laundering efforts. Top people from Customs, the DEA, the FBI, the IRS, and the CIA were present, along with a host of bankers and prosecutors. Debates went on for three days on the operation of parallel currency markets, the impact of cyber-banking, and the insidious effects of international transfer pricing. Ultimately, the NDIC issued a limitedcirculation report on the deliberations. Its "key judgment" was that "the

most efficient and effective means to cause genuine damage to drugtrafficking organizations is to disrupt their financial infrastructures."
(68)
Perhaps the "key judgment" is correct, but perhaps not. Criminal money may pose a serious threat to the integrity of legitimate economic institutions. Serious crime groups might be adversely affected by current legislation and practices designed to take away the proceeds of their crimes. In both cases, the opposite may be the case. No evidence was presented to substantiate the key claim during the event. From the outset, it was merely assumed and then recycled in the guise of a conclusion. Not one presentation attempted to assess how the legal economy is threatened by the accumulation and laundering of criminal wealth. No objective assessment of the success or failure of the followthe-money approach was attempted. By elevating the idea that criminals should not profit from their crimes from a moral to an operational principle and selling asset forfeiture as the answer to crime control, the police had become prisoners of their own hype and the public hostage to a hoax.
After 15 years of progressive escalation of its use, no one has been able to determine with any confidence whether the proceeds-of-crime approach to crime control has had an impact on the operation of illegal markets or on the amount, distribution, and behavior of illegal income and wealth. The exercise rests on a series of inaccurate or unprovable assumptions and involves the commission of a series of sins against common decency and common sense. Even if a trend did exist for the accumulation of huge amounts of criminally derived wealth, and that criminal wealth was growing relative to the economy as a whole, the logic of deploying asset forfeiture as the primary weapon does not hold up to critical scrutiny. In the hands of law enforcement, the modern policy of attacking the "proceeds of crime" by finding, freezing, and forfeiting laundered money has been a great washout.
A law enforcement community addicted to drug cash has until recently had enough clout to block even modest changes in asset forfeiture laws that aimed to reduce some of the grosser abuses. For several years,
Republican Representative Henry Hyde pressed for amendments that would transfer the burden of proof onto the government, codify innocent owner protection, provide indigent owners with counsel, and oblige the government to pay interest if the claimant prevailed. (69) The reactionary Hyde's concern was not to defend the human rights of the class most affected by police abuse, but the property rights of middleclass, suburban Americans. To win over the police lobby to this minimal list of reforms, he added clauses that expanded the list of crimes for which forfeitures applied and eliminated doubts that total proceeds,

rather than net profits, were the target. Initially, the reform effort failed in the face of the law enforcement counterattack. (70) For a time, Hyde put his energies into more pressing matters , such as leading the abortive move to impeach Bill Clinton.
However, in the spring of 2000, modest reforms were introduced. They slightly strengthen innocent owner protection, provide indigent owners with counsel, and oblige the government to pay compensation if the claimant prevails. But they come at a high price. The police won an expanded list of crimes for which civil forfeiture could apply, the right to demand total proceeds instead of net earnings from alleged crimes, and the right to seize an entire bank account even if the funds are totally innocent, provided supposedly criminal funds (no matter how small a sum) once ran through that account. Worse, it is very possible that the reformers have played their best hand and that the specter of forfeiture will haunt U.S. and, increasingly, world justice for ages to come. And when the misplaced and misbegotten follow-the-money fad fails to make a perceptible dent in the incidence of market-based crime, the police will agitate for even tougher laws. This article is an updating of two earlier works: "The Proceeds-of-Crime Approach to Crime Control
Policy: A Critical Appraisal," done for the Nathanson Centre for the
Study of Organized Crime and Corruption at York University, Toronto, and "Washout: A Critique of Follow-the-Money Methods in Crime
Control Policy," in Crime, Law & Social Change 32(1999). The author would like to thank Margaret Beare, Alan Block, Francisco Thoumi, and
Mike Levi for comments and criticisms.
NOTES
(1.) See, for example, United Nations, Commission on Narcotic Drugs,
Countering Money Laundering, Vienna, August 15, 1997.
(2.) For the Canadian statute, see 35-36-37 Elizabeth II Chapter 51
Section 420.17.
(3.) There is a growing critical literature on the use of asset-forfeiture laws in the U.S. See especially David Fried, "Rationalizing Criminal
Forfeiture," Journal of Law and Criminology 79,2 (1988); Steven
Kessler, Civil and Criminal Forfeiture: Federal and State Practice (New
York: Clark, Boardman and Callaghan, 1994); and Leonard Levy, A
License to Steal: The Forfeiture of Property (Chapel Hill: University of
North Carolina Press, 1996).
(4.) This practice is commonly traced back to the injunction in the Book of Exodus (21:28) that, "If an ox gore a man or a woman that they die, then the ox shall surely be stoned and its flesh shall not be eaten. But the

owner of the ox shall be quit."
(5.) For some of these abuses, see Eric Blumenson and Eva Nilsen,
"Policing for Profit: The Drug War's Hidden Economic Agenda,"
University of Chicago Law Review 65 (Winter 1998: 143-149). There is an excellent summary of this article entitled "The Drug War's Hidden
Economic Agenda" in The Nation (March 9, 1998).
(6.) This is well analyzed by Stephen Fox in his Blood and Power:
Organized Crime in Twentieth Century America (New York: Penguin,
1989). On the forces behind Prohibition, see Mark Thornton, The
Economics of Prohibition (Salt Lake City: University of Utah Press,
1991). See also the excellent treatment by Mike Gray. Drug Crazy: How
We Got into This Mess & How We Can Get Out (New York: Random
House, 1998).
(7.) These distinctions were addressed in R.T. Naylor. "From
Underworld to Underground: Enterprise Crime, 'Informal Sector'
Business, and the Public Policy Response," Crime, Law & Social
Change 24 (1996). They were elaborated in Naylor, "Washout," Crime,
Law & Social Change 32 (1999) and in Margaret Beare and R.T.
Naylor, "Major Issues Relating to Organized Crime: The Economic
Context," Law Commission of Canada (April 1999). Their fullest development is in Naylor, "Economic Crime and Criminal Law: The
21st Century Challenge," a paper prepared for the Department of
Justice, Ottawa, August 25, 2000.
(8.) Ethan Nadelman, Cops Across Borders: The Internationalization of
U.S. Criminal Law Enforcement (University Park: Pennsylvania State
University Press, 1993: 93).
(9.) Gray, Drug Crazy (1998: 45, 78, 88).
(10.) Judy Osborne, Specter of Forfeiture (Frazier Park, CA: Access
Unlimited, 1991: 73).
(11.) For a critical survey, see R.T. Naylor, "Mafias, Myths, and
Markets: On the Theory and Practice of Enterprise Crime,"
Transnational Organized Crime 3,3 (Autumn 1997).
(12.) See, for example, the account of the puffing of illegal gambling figures by Robert Lacey in his biographical study, Little Man: Meyer
Lansky and the Gangster Life (Boston: Little, Brown, 1991:206).
(13.) See, especially, Berta Esperanza Hemandez, "RIP to IRP -- Money
Laundering and Drug Trafficking Score a Knockout Victory over Bank

Secrecy," North Carolina Journal of International Law and Commercial
Regulation 18 (1993).
(14.) See Jeff Atkinson, "Racketeer Influenced and Corrupt
Organizations," Journal of Criminal Law and Criminology 69,1 (1978).
(15.) In United States v. L'Hoste, 1980, the Fifth Circuit Court confirmed that RICO forfeiture is mandatory on conviction (Fried,
"Rationalizing Criminal Forfeiture," 1988:335). Mandatory sentencing is a development that has gone far to undermine the traditional capacity of judges to tailor punishment to the circumstances of the offender, and has produced a series of legal atrocities.
(16.) John Villa, "A Critical View of Bank Secrecy Act Enforcement and the Money Laundering Statutes," Catholic University Law Review
37 (1988: 489).
(17.) See the critical dissection of IRS procedures by David Burnham, A
Law Unto Itself: The IRS and the Abuse of Power (New York: Vintage
Books, 1989).
(18.) Going one big step further, in the early 1980s, the IRS was granted the right to arbitrarily impose a "tax" of 50% on cash carried by couriers the IRS believed to be working for drug traffickers. The presumption was that if they had possession of the cash, they were the beneficial owners (New York Times. December 21, 1982).
(19.) Osborne, Specter (1991: 60-61).
(20.) On the political impact of the criminal violence, see Alexander
Stille, Excellent Cadavers: The Mafia and the Death of the First Italian
Republic (New York: Pantheon, 1995).
(21.) On the genesis and objectives of the Italian law, see the opinions of its intellectual author, Pino Arlacchi, "Effects of the New Anti-Mafia
Law on the Proceeds of Crime and on the Italian Economy," Bulletin on
Narcotics 34,4 (1984).
(22.) See especially, Pino Arlacchi, Mafia Business: The Mafia Ethic and the Spirit of Capitalism (Oxford: Oxford University Press, 1986:
17). There is also a hysterical account of the rise of the new Mafia in
Claire Sterling, Octopus: How the Long Reach of the Sicilian Mafia
Controls the Global Narcotics Trade (New York: Simon & Schuster,
1990).
(23.) See Judith Chubb, The Mafia and Politics: The Italian State Under

Siege (Ithaca, N.Y.: Cornell University Press, 1989), for an examination of the various interpretations of the Mafia phenomenon.
(24.) The most searching criticism of the "model" underlying the Pio La
Torre law is by Diego Gambetta, The Sicilian Mafia: The Business of
Private Protection (Cambridge, MA: Harvard University Press, 1993).
(25.) It was hardly a secret that Italian politics had less to do with electoral contests between legitimately structured, publicly functioning parties than with acts of corporate corruption, conniving by the Vatican, and underground plots by a bizarre amalgam of crooks, spooks, and secret parapolitical organizations. Even the Pio La Torte assassination may have been a contract hit instigated by those seeking to silence his opposition to the deployment of NATO cruise missiles in Sicily, rather than initiated by Mafia bosses to stop his agitation for a financial attack on Mafia wealth. There is a huge literature on the bizarre vagaries of
Italian politics in the 1970s and 1980s. See, for example, Philip Willan,
Puppetmasters: The Political Use of Terrorism in Italy (London:
Constable, 1991).
(26.) Margaret Beare, Criminal Conspiracies: Organized Crime in
Canada (Toronto: Nelson Canada, 1996: 191).
(27.) Cited in Kessler, Forfeiture (1994: 140). In 1984, no less prestigious a body than the President's Commission on Organized Crime concurred in that opinion. "Without the ability to freely utilize its illgotten gains, the underworld will have been delivered a crippling blow."
President's Commission on Organized Crime, The Cash Connection:
Organized Crime, Financial Institutions, and Money Laundering
(Washington, D.C., 1984).
(28.) "We can strip the entrepreneurs of their illegal profits," not just current but past, claimed the chairman of the House of Representatives
Foreign Affairs Committee in 1990. International Drug Money
Laundering: Issues and Options for Congress (Washington, D.C., 1990:
6). In Italy, too, the minister of the interior declared two years later, "We must hit them where it hurts most -- in the pocket." Financial Times
(December 1, 1992).
(29.) These numbers were, of course, fictional. Francisco Thoumi, with the United Nations Drug Control and Crime Prevention Office, recently referred to them as "statistical pornography," designed purely to entice.
For an interesting dissection of how the drug trade numbers are concocted an manipulated, see Peter Reuter, "The Mismeasurement of
Illegal Drug Markets: The Implications of Its Irrelevance," in Exploring the Underground Economy, Susan Pozo, ed. (Kalamazoo, Mich.: W,E.

Upjohn Institute, 1996).
(30.) After hearing senior Canadian police officers angrily offer this story as proof that the crime world was awash with cash, the author submitted a U.S. note to the test of two months of total immersion
(unlike the basement scenario, where most of the bills would not likely come in direct contact with water) and detected not the slightest deterioration.
(31.) U.S. Senate, Committee on Governmental Affairs, Permanent
Subcommittee on Investigation, Drugs and Money Laundering in
Panama (Washington, D.C., January 28, 1988).
(32.) For the most hyperbolic example of this kind of "reasoning," see the late Claire Sterling's Crime Without Frontiers: The World-Wide
Expansion of Organised Crime and the Pax Mafiosa (London: Little,
Brown, 1994). For a critique, see R.T. Naylor, "From Cold War to
Crime War: The Search for a New 'National Security' Threat,"
Transnational Organized Crime 1,4 (1995).
(33.) Washington Post (September 18,1989). For a dissection of the myth of the "Medellin Cartel," see Rensselaer Lee III, The White
Labyrinth: Cocaine and Political Power (New Brunswick, N.J.:
Transaction Publishers, 1989), and Francisco Thoumi, Political
Economy and Illegal Drugs in Colombia (Boulder, CO: Lynne Rienner,
1995).
(34.) It is fascinating, and a little depressing, to observe that the number games remain just as egregious, but have gotten progressively worse since the exposure, nearly 30 years ago, of their fraudulent nature in
Max Singer's "The Vitality of Mythical Numbers," The Public Interest
23 (1971). Singer demonstrated that the amount of property crime attributed to heroin addicts in New York was perhaps 10 times as much as could properly be attributed to them.
(35.) This is the main theme of R.T. Naylor, Hot Money and the Politics of Debt(New York: Simon & Schuster, 1985, and Montreal: Black Rose
Books, 1994).
(36.) Testimony of Jeffrey Harris, Deputy Associate Attorney General,
"Drug Enforcement Administration Oversight and Authorization," U.S.
Senate, Judiciary Committee, Subcommittee on Security and Terrorism,
1982. Cited in Fried, "Rationalizing Criminal Forfeiture" (1988: 363fn).
(37.) Cited in Nicholas de Feir, "Asset Forfeiture: How Far Can U.S.

Courts Go?" International Financial Law Review (March 1992).
(38.) Cf. Michael Brake and Chris Hale, Public Order and Private Lives
(London: Routledge, 1992).
(39.) Federal Reserve Bulletin (March 1987); Globe and Mail (August
22, 1988); Wall Street Journal (February 5, 1987, and October 10,
1990); Financial Times (April 12, 1995); Case Sprinkle, "The Case of the Missing Money," Journal of Economic Perspectives 7,4 (Fall 1993).
(40.) See, for example, U.S. General Accounting Office, Money
Laundering: U.S. Efforts to Fight It Are Threatened by Currency
Smuggling (Washington, D.C., March 1994).
(41.) U.S. Senate, Committee on Banking, Housing, and Urban Affairs,
Subcommittee on Consumer and Regulatory Affairs, Drug Money
Laundering Control Efforts (Washington, D.C., 1990: 3).
(42.) Of course, the rate at which countries succumbed to U.S. pressure was highly variable. Australia, partially for its own reasons, introduced such reporting requirements for all currency instruments, not just U.S. ones, and for both foreign and domestic transactions, within a year of the Kerry Amendment as part of the process of creating AUSTRAC, a
U.S.-style financial police agency. Brazil capitulated in 1992, establishing a U.S. $10,000 rule for movements in and out of the country. The government stated its hope that the new law would be as useful as the U.S. Bank Secrecy Act in combating money laundering
(FinCEN, Trends, Fall 1992). The Brazilian government is undoubtedly right. The rules will be just as useful.
(43.) Banker 146 (October 1996: 71).
(44.) Cf. Margaret Beare and Frederick Martens, "Policing Organized
Crime," Journal of Contemporary Criminal Justice 14,4 (1998).
(45.) Charles Intriago, International Money Laundering (London:
Eurostudy Publishing, 1991: 55).
(46.) Money Laundering Alert (January 1999; July 1999).
(47.) Villa, "A Critical View" (1988: 497-500).
(48.) See especially Hernandez "RIP to LRP," and Mike Levi,
"Regulating Money Laundering: The Death of Bank Secrecy in the
U.K.," British Journal of Criminology 31,2 (Spring 1991).

(49.) The National Crime Intelligence Service reported that British whites make up the majority of "organized crime" groups operating in
Britain (The independent, August 3, 2000).
(50.) Villa, "Critical View" (1988: 502).
(51.) Bureau of Justice Assistance, Asset Forfeiture -- The Management and Disposition of Seized Assets (Washington, D.C., November 1988:
3); Royal Canadian Mounted Police, National Drug Intelligence
Estimate (Ottawa, 1988-1989: 110).
(52.) Pittsburgh Press (February 27, 1991).
(53.) Thanks to Jack Blum for information on this incident.
(54.) See Sunday Times (August 2, 1992), for how the police force of
Little Hampton, Rhode Island, became the richest per capita in America with all the latest gadgetry and fancy buildings, even though it was a village effectively without crime.
(55.) Levy, License to Steal (1996: 128-129).
(56.) Globe and Mail (November 15, 1994).
(57.) Susan Meeker-Lowry, "Asset Forfeiture," Z Magazine (January
1996).
(58.) F.E.A.R. Chronicles 3,2 (March 1996).
(59.) Many of these outrages were documented by the Pittsburgh Press in a series of articles on forfeiture in 1991, and have continued to be documented by an organization called FEAR--Forfeiture Endangers
American Rights. See their website, www.fear.org.
(60.) When some states began to use controlled-substance taxes to add further charges against drug traffickers, law enforcement fought against the principle, seeing in it the first step to resurrecting the states' prior claim to illegal profits. The Boston police superintendent, for example, insisted, "We would fight all the way any attempt by the state to take a cut of that money." Bulletin of Justice Assistance, Asset Forfeiture
Bulletin (December 1989: 4).
(61.) See Naylor, "From Underworld to Underground" (1996).
(62.) Apart from Naylor, "From Underworld to Underground," there have been remarkably few systematic efforts to dissect the behavioral

differences (and their consequences) between legal and illegal money flows. For one exception, see Thoumi, Political Economy and Illegal
Drugs in Colombia.
(63.) On the impact of capital flight, see Donald Lessard and John
Williamson, Capital Flight and Third World Debt (Washington, D.C.:
Institute for International Economics, 1987).
(64.) See Edmundo Morales, Cocaine: White Gold Rush in Peru
(Tucson, Ariz., 1989).
(65.) See Naylor, "From Underworld to Underground," for some of these examples.
(66.) The best analysis is by Mushtaq Khan in his Potential Use of the
Black Economy: The Case of Bearer Bond Schemes in Pakistan
(Islamabad, 1989).
(67.) On the latest in a series of such efforts, see Raja Asghar, "Pakistan
Offers No-Questions Dollar, Pound Bonds" (Reuters, October 2, 1998).
(68.) National Drug Intelligence Center, Conference Report -- Money
Laundering: U.S. Vulnerabilities, Product No. 99-PO314-001,
December 1998, "for official use only." The author of this article attended the conference, which took place that spring.
(69.) See Representative Henry Hyde, Forfeiting Our Property Rights: Is
Your Property Safe from Seizure? (Washington, D.C.: Cato Institute,
1995). A political reactionary, Hyde inevitably focused his concern on
"property rights" rather than civil rights.
(70.) Money Laundering Alert (July 1997).
R.T. NAYLOR is a professor at McGill University (Department of
Economics, 855 Sherbrooke Street West, Montreal, Quebec, Canada
H3A 2T7; e-mail: tnaylor@po-box.mcgill.ca). He is the author of seven books, including Hot Money and the Politics of Debt (1994) and Patriots and Profiteers: On Economic Warfare, Embargo Busting, and Stare-
Sponsored Crime (1999), and co-author of Financial Havens, Banking
Secrecy, and Money Laundering, commissioned by the U.N. Crime
Control and Drug Prevention Office (1998). His most recent work is
Criminal Finance and the Financing of Crime (Cornell University Press,
2002).
Article A84214355

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