RUTHFULLY YOURS

The indictment of former House Speaker Dennis Hastert provides a good opportunity to weigh in on a subject that is especially apt for a blog called “Ordered Liberty”: over-criminalization. It is one that has gotten a good deal of attention on the right and the left — even bringing Rand Paul and Al Sharpton together, notwithstanding their disagreements on most everything else.

The ever-more sweeping regulation of human activity and concomitant diminution of liberty are elements of the “democratic despotism” problem foreseen by Alexis de Tocqueville, as Roger Kimball eloquently observes (see, e.g., here).

Students of the criminal law learn early on the difference between malum in se and malum prohibitum — i.e., conduct that is wrong in and of itself (e.g., murder, theft) versus conduct that is considered wrong only because we have chosen to legislate against it. The structuring of cash transactions is an excellent example of the latter.

There is nothing inherently wrong with dealing in cash or, to get to the specifics of Hastert’s case, withdrawing one’s own money from a financial institution in order to spend it as one chooses. Even if one desires to engage in conduct that is condemnable (whether or not criminal), the act of withdrawing money for purposes of carrying out the condemnable act is not itself inherently wrong.

Such conduct gets swept into the net of criminality because it is closely related to actual wrongs. One of the biggest concerns plaguing drug traffickers and racketeers is unexplained wealth. Crime is usually a cash business because paper trails get crooks convicted. They are a prosecutor’s dream because (a) they are irrefutable (once investigators figure out a money laundering scheme, it’s a cinch to show that cash moved from points A to B to C and so on), and (b) the paper usually comes in the form of reliable financial records (prosecutors don’t need to rely on the testimony of accomplices of dubious credibility). So “structuring” is a crime created by statute in order to force racketeers and drug traffickers to create a paper trail.

The way it works is: If a person conducts a cash transaction involving more than $10,000 with a financial institution, the bank is required to fill out a “currency transaction report” (CTR) providing information about the owner of the funds. So let’s say I’m a cocaine distributor and I need $50,000 to pay my supplier for the next shipment. I don’t want a paper trail showing I withdrew $50K – it might be used later to prove my connection to the drug transfer. To avoid this, I might go to six different banks, or go to the same bank six different times, and each time withdraw a little over $8K until I had amassed the $50K.

The structuring law imposes the obligation to complete the CTR on the bank. (The person caught structuring is convicted for causing the bank to fail to file a CTR.) This gives the bank the incentive to police structuring. Banks do this, among other ways, by compiling “suspicious transaction reports.” In effect, this lowers the $10K threshold: the bank will alert law-enforcement regarding cash transactions involving less that $10K if it suspects the withdrawals (or deposits) might be part of a bigger transaction the customer is attempting to conceal.

There are myriad problems with this regulatory system. It drives up the bank’s administrative costs — an unfunded mandate that ultimately gets passed along to customers in various ways and, in the aggregate, is burdensome on the economy. Defenders rationalize that this is a small price to pay for keeping a world-class financial system clean – for preventing it from being exploited by crooks. Structuring also enables the government to pry into private, non-criminal transactions. Defenders reply that it is only a reporting requirement; it does not criminalize the transaction, so if you’re not up to no good you have nothing to worry about. But this, of course, reverses our traditional law-enforcement paradigm, in which the government must first develop reasonable, articulable suspicion of wrongdoing before demanding information — usually through a court-supervised process.

There will be strong differences of opinion, especially between libertarians and progressives, about whether this is a defensible compromise of liberty in the name of order and security. As a former prosecutor who has used the structuring law, I can attest that it is an extremely effective tool for investigating and convicting major criminals. That advances the order we must have if liberty is to thrive. I can only make this claim, however, as to individual cases; I do not pretend to have done an overall cost/benefit analysis of whether enough serious criminals have been sidelined and discouraged to justify the burdens.

This much, however, can incontestably be said: In creating the crime of structuring, Congress did not tailor its statute (Section 1956(a)(1)(B)(2)) to the underlying serious criminality it was attempting to address. There is nothing in the statute that requires the government to prove that the proceeds of the structured cash transactions are somehow connected to drug trafficking, racketeering, or other unlawful activity specified by statute.

This is the over-criminalization problem in a nutshell, and it far transcends money-laundering and structuring. Congress identifies activity that is not ostensibly wrong but can facilitate wrong when it occurs — as it often does — in a particular (criminal) context. Congress cites that context as the pretext for criminalizing the activity, but it does not make that context part of the new criminal statute. Therefore, activity that is not inherently wrong becomes wrong in all instances, not just the peculiar instances that caused it to be criminalized in the first place.

There are many sensible reasons for wanting to avoid creating records of cash transactions. It is, after all, one’s own money; one should presumptively be able to move it and spend it as one chooses – it’s none of the government’s business. If one spends the money on something criminal, the government is free to investigate that, and use the cash transfer as evidence; if the government has developed reasonable suspicion that one is up to no good, it can subpoena the bank for one’s account records. But why should the government not have to develop and show cause for its suspicions before burdening the bank and its customers with reporting requirements? And if the answer is that racketeering and drug trafficking are scourges, shouldn’t a criminal structuring statute require some nexus between the structuring and the facilitation of racketeering or drug trafficking?

Look what happened to Hastert. He was plainly involved in some deeply embarrassing episode and was extorted for hush money — not by the mafia but by someone involved in the embarrassing episode. Now sure, extortion is a crime, but Hastert was the victim, not the culprit. He could have gone to the police but he decided paying the hush money was more beneficial to him than exposure of the embarrassment. That is a rational choice even if we tut-tut that it is not an admirable choice. It is not a crime to be victimized. In fact, being victimized is routinely regarded as a cause not only for sympathy but for deference: the government will frequently forgo a prosecution of the culprit if the victim does not wish to cooperate in the investigation.

Instead, Hastert is facing a multiple felony indictment based on paying to prevent the revelation of something he did not want revealed, and misleading the FBI about whether he’d been a victim of a crime he did not want to report and had no legal obligation to report.

I am not, by the way, condoning lying to the FBI. To the contrary, we are fortunate to live in a nation where no one is required to submit to an interview by police; if one chooses to speak, one has an obligation to do so truthfully. I am simply highlighting that whenever Congress criminalizes conduct that is not inherently criminal, it increases the breadth of human activity that used to be free but is now subject to criminal investigation; thus the likelihood of “process crimes” committed during investigative processes that should not have happened in the first place is also heightened.

Note that — as we are frequently reminded in connection with the feds’ systematic non-enforcement of the immigration laws — investigative resources are finite. Every second and dollar spent investigating conduct that is not inherently criminal are time and money lost to the thwarting of much more serious crime.