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Dirty money: the gateways and gatekeepers
By: Kendall Coffey
July 14, 2008
Money laundering has staggering dimensions. According to the International Monetary Fund, between two percent and five percent of the world’s gross domestic product represents dirty money which, for 2007, would equate to between a trillion and 2½ trillion U.S. dollars. Fortunately, in this country, the sleazier fistfuls of dollars rarely penetrate the traditional banking system today as a result of laws such as the Money Laundering Control Act of 1986, and the collective efforts of law enforcement, regulators, bankers, and community leaders.
Although the cash-filled briefcases of past decades no longer fill bank accounts in South Florida, the shattering atrocities of 9/11 launched a new wave of federal efforts to combat money laundering in its more elusive forms. The terrorists who move small sums to cause enormous devastation have the ability to completely sidestep banks by using unlicensed money transmitters and even Informal Value Transfer Systems, such as the “hawala,” to move money across oceans without leaving any paper trail. Legislating at light speed, Congress passed the U.S.A. Patriot Act in 2001 which, among many other things, fundamentally revised banks’ responsibilities, focusing on their roles as “gateways” for dirty money.
Already obliged to file suspicious activity reports (SARs) identifying potential criminality observed through normal banking practices, banks now have investigative functions requiring them to establish anti-money laundering programs, appoint compliance officers, develop comprehensive internal policies, ongoing employee training, and verification through an independent auditing process. The direct burdens of these requirements are enormous and the collateral consequences may be even more serious. Locally, one small bank reports that the million-dollar cost of its compliance program is enough to eliminate most of its profits even in a good year. Another South Florida bank reports that its compliance staff has increased tenfold since the Patriot Act, which not only adds millions to its costs but also consumes major attention from senior management. Meanwhile, many billions of dollars in deposits are moving overseas increasing the costs of funds for borrowers in the U.S. And as we confront a slumping economy and a real estate crisis fueled by poor sub-prime lending, Monday morning quarterbacks can fairly ask whether some of the enormous banking and regulatory resources concentrated upon Patriot Act compliance should have been focused on loan quality.
In addition to the burdens on banking gateways, the money laundering authorities are intensifying their focus on the so-called “gatekeepers,” such as lawyers, accountants and other professionals. Although the feds lack the direct regulatory authority over lawyers or CPA’s that they enjoy concerning banks, they can nonetheless hold even more terrifying power when they utilize the criminal laws to arrest and prosecute professionals. Most gatekeeper cases do not spark controversy because prosecuting an attorney or accountant who becomes an active accomplice in money laundering — for example, a lawyer who conceals piles of cash he removed from a drug dealer’s secret safe — is an imperative in a society where no person is above the law. In the latest attorney prosecution, however, the money laundering charges brought against Ben Kuehne, a brilliant and widely admired South Florida attorney, has sent shock waves across the legal community.
Its ramifications reach all the professions. Kuehne’s alleged crime consisted of giving legal advice to his client, the renowned Miami lawyer Roy Black, concerning funds being paid for Black’s representation of drug kingpin Fabio Ochoa. According to Kuehne’s extensive written legal opinions, these funds were legitimate because they came from the honest members of Ochoa’s family who conducted honest businesses. Even if Kuehne was wrong, and even if his legal advice was faulty, the attempt to criminalize the giving of professional advice, especially to an eminently respectable client, could spell trouble for every attorney, accountant, financial advisor and Realtor involved in a transaction infected by some portion of the world’s trillion plus dollars of dirty money.
Even if misplaced at times, aiming the federal bull’s eye at gateways and gatekeepers undeniably provides important public benefits. And yet there is scant evidence that the financial and human costs are being sufficiently studied, an examination that should be undertaken by the gate-watchers — Congress and the White House. These important questions require a meaningful cost-benefit analysis. For example, while bankers can abundantly document the direct costs of Patriot Act compliance (the indirect costs are exponentially greater), the regulators should be called upon to document the additional benefits — criminal arrests and frozen bank accounts — that result from the new requirements, as opposed to prosecutions and seizures available under pre-existing laws and regulations. Along the same line, in view of the paralyzing effect that gatekeeper prosecutions have on other professionals, the government should be prepared to justify any attempts to expand the criminal liability beyond the clearly marked limits of existing prosecutions.
Just as importantly, there should be a view from the top concerning the most productive utilization of the inevitably limited financial and human resources to combat money laundering. For all the regulations and mountains of resulting paperwork, the domestic terrorism cases prosecuted in the 9/11 era, like most of the major narcotics prosecutions, have resulted from the old-fashioned assets of intelligence gathering — informants and undercover agents. To date, no member of al Qaeda has been snagged by reading one of the hundreds of thousands of SARs filed each year. If human assets are the key to improving our intelligence capabilities — both here and abroad — the new presidential administration and Congress should be examining whether our resources are better spent expanding our intelligence networks than trying to turn bankers into investigators or respected lawyers into criminals.
Kendall Coffey is a former U.S. attorney for the Southern District of Florida. He is a partner in the Miami law firm Coffey Burlington.