Dirty Money, Foolish Laws
How not to fight money laundering.

By John J. Miller & Ramesh Ponnuru
October 11, 2001 4:50 p.m.

he money-laundering bills now moving through Congress are illustrations of the dangers of lawmaking during a crisis: Old agendas that couldn't be enacted get a new lease on life, even if they clearly have nothing to do with the crisis, simply by being tacked on to a bill that ostensibly addresses it.

In this case, the old agenda is the campaign by European governments and American tax-law enforcers against "tax havens." For the purpose of this campaign, a tax haven appears to be defined as a country that has lower taxes and stronger privacy laws than the government of France would like and is weak enough to attack. The Organization for Economic Cooperation and Development (OECD) has spearheaded the campaign for sanctions on the tax havens. By its criteria, America and other industrialized countries ought to be on the target list — but they're not, because the OECD knows better than to take them on. It would prefer to punish poor Caribbean islands and set the precedent for going further.

Defenders of the tax havens, led by Andrew Quinlan of the Center for Freedom and Prosperity and Daniel Mitchell of the Heritage Foundation, had been able to get the Bush administration to brush off most of the OECD agenda — until 9/11. Now we're being told that we have to crack down on tax havens in order to go after money laundering. But most of the states that pose a problem for investigations of money laundering are not tax havens, according to a subdivision of the OECD itself.

Quinlan and Mitchell object to three of the Senate bill's criteria for determining whether a state is a "primary money laundering concern." (Mitchell details his case in a memo with the unfortunate title "Sneak Attack on Administration's International Tax Policy.") If a state is so certified, a Treasury secretary would be able to take steps ranging from regulation to prohibition of certain financial transactions between Americans and institutions in that state.

How does a state get on the suspect list? One way is to offer tax breaks or financial privacy to nonresidents. Surely, however, the important question is whether the state will pierce its privacy laws when presented with evidence of a crime. That's better accomplished through mutual legal assistance treaties than sanctions. And the logic of including tax breaks would suggest, again, that America should be a target state.

Another way a state can become a target is by having a high volume of financial transactions relative to the size of its economy. If applied consistently, this would be bad news for New York City and, for that matter, South Dakota.

Third, a state can be a suspect if it "is characterized as a tax haven or offshore banking or secrecy haven by credible international organizations or multilateral expert groups" — in other words, if the OECD thinks its taxes are too low. This has zilch to do with fighting money laundering.

The House version of the bill takes superficial steps to avoid these problems. For example, it takes the words "tax haven" out of the previous quote. But it still gives the OECD a green light to go after anything it calls a "secrecy haven." (And all countries have some laws on secrecy.)

The administration knows these provisions are bad, but it seems disinclined to do anything about it. Democratic senators John Kerry and Carl Levin are leading the charge against tax havens, and for this White House "bipartisanship" increasingly seems to mean giving the Democrats what they want.

A Hasert Flip-Flop
Freshman Republican Melissa Hart of Pennsylvania wanted to amend the Labor-HHS spending bill to cut federal funding for schools that distribute the "morning-after pill" to minors. An amendment to that effect has passed the House with wide margins before. Speaker Hastert promised her she would get to offer the amendment.

But the appropriators threatened Hastert that they would bring down their own spending bill if the amendment were offered a disruption that always horrifies House leaders. Rather than call the appropriators' bluff, Hastert got Hart, as a personal favor, to drop the amendment. So many promises get broken the morning after.

Worth Reading
Will Saletan calls for a propaganda war… Richard Nadler makes the case against high-speed rail… and Ron Bailey evaluates the anthrax threat.