LET'S COME CLEAN

Pursuing Money Rather Than Criminals Creates More Problems Than It Solves

During the last 15 years there has been a revolution in law enforcement.
Instead of just closing rackets, the focus has shifted to grabbing criminal
profits. Country after country has criminalized "money laundering," and
police forces now host special units, not for pursuing malefactors, but for
arresting bank accounts, cars, houses and even Rolex watches.

The result, to various degrees, has been to undermine traditional
presumptions in favour of financial privacy, muddle civil and criminal
procedures, subvert guarantees against self-incrimination, and open
confidential tax records to police probes. In this pursuit of the "proceeds
of crime," Canada's Bill C-22 -- currently awaiting a third reading in the
House of Commons -- is only the latest manifestation.

The new legislation does three things. First, it introduces trans-border
controls on money movements. Anyone failing to declare a sum greater than
$10,000 risks having the money seized, then having to convince the
government of its innocent origins or face the prospect of its permanent
loss. Second, it brings in Mandatory Suspicious Transaction Reports in which
financial managers must detail confidential information about clients
without clients' knowledge or consent. Third, it creates an analysis centre
to scan the information, again without notification to targeted citizens.

Make no mistake, this is a legal revolution. There is a world of difference
between the traditional practice of using a money trail reactively, as
evidence in a case already under investigation, and using it proactively, to
provide a reason, however vague, to initiate an investigation. And there is
a universe of difference between making transaction records the object of
police attention compared to searching for and seizing the actual money.

The logic used to defend the new powers is that Canada, like the rest of the
world, is supposedly awash with criminal money that can degrade our economic
institutions and subvert our democracy. Supposedly, the world drug economy
alone has an annual turnover of $500-billion (U.S.), while the world's Gross
Criminal Product has been reckoned at over a trillion. Traditional law
enforcement tools have failed to curb the great transnational cartels of
crime. Hence the need to focus where they are most vulnerable. Grabbing
criminal assets reputedly takes away both the motive (profit) and the means
(operating capital) to commit more crimes. But to do so, the police need
stronger powers and more information.

It is an intriguing theory, flawed by only one thing. There is not a shred
of evidence to support it.

Take the much-cited $500-billion in narco-money reputedly coursing through
the world's financial veins every year. That figure was created a decade ago
by United Nations officials who deliberately set out to find a number that
would catch public attention. About the same time, the U.S. component of the
drug economy was put at $100-billion to $125-billion. That figure, too, has
been repeated countless times in the years that followed, while a more
credible calculation by the Rand Corporation suggesting that the actual
value might be as low as $20-billion has been pointedly ignored. In reality,
no one has a clue how much criminal money exists, and whether it is rising
or falling.

As to the idea that seizing assets will curb crime, it suffices to note U.S.
experience. There police forces actually get to keep what they seize,
permitting some to operate without municipal scrutiny of their budgets. So
they shifted attention from dangerous criminals to wealthy ones. Since the
money taken must be used for police purposes, small towns whose idea of
violent crime is a Saturday night fistfight at the local saloon, can now
equip themselves with state-of-the-art weaponry and surveillance equipment.

Yet the money chase has not made the slightest dent in crime rates in the
United States. Quite the contrary. The United States remains by far the most
lucrative market in the world for criminal goods and services; and it
continues to jail, every year, a higher percentage of its population than
any major country except Russia.

Despite the evidence, the Canadian government seems determined to follow the
U.S. lead. In 1988 it criminalized "money laundering" and permitted the
police to start grabbing assets. Then it set up special Proceeds-of-Crime
units, funded by a loan from Treasury Board repayable out of whatever the
units could seize. Then it began turning the money over to provincial
governments to finance law enforcement. Now comes Bill C-22, whose sole
virtue is probably that it cannot possibly do what it is expected to do.

The trans-border controls create a system of reports about cash and other
paper wealth at a time when the smart money already moves in and out with
debit cards, and when emerging systems of electronic money are about to
render the system irrelevant.

The Mandatory Suspicious Transactions Report has been a failure almost
everywhere it has been tried. It is virtually impossible to draw up an
objective list of "suspicious" characteristics, leaving the matter to the
hunches of bank clerks.

And it is all completely unnecessary. There is no magic bullet of crime
control. No matter how many secret financial dossiers the police compile,
crimes will continue to be solved the old-fashioned way -- by officers
painstakingly sifting evidence, pounding the pavement, cultivating
informants and, from time to time, just getting lucky.

Nor is there any need for a crime called "money laundering." Anyone who
earns (or knowingly helps to move) money that needs laundering has already,
by definition, committed an offence under the criminal code. Creating a
standalone offence called money laundering to target economically motivated
crime makes as much sense as creating a crime called "driving the getaway
car" for bank robbery cases.

Nor is there any need to turn the police loose to hunt down criminal assets.
All the powers and the skills necessary to do so are already in the hands of
the revenue authorities, who have a far better record of grabbing illegal
earnings than police.

Still, the very irrelevance of the new law constitutes its main danger. When
it becomes clear that it has produced minimal results the rationalization
will be not that the entire exercise was misplaced, but that the law is not
tough or sweeping enough.