The Kafkaesque World of Financial Reporting and Asset Forfeiture

November 7, 2014 – More and more today, living in the United States feels like living in a Franz Kafka novel. Hardly a week goes by without a mention of some innocent person who is arrested and/or imprisoned for violating an unconstitutional law, an arcane regulation, or simply being in the wrong place at the wrong time. For completely innocuous conduct, they find themselves at the mercy of an uncaring, unfeeling bureaucratic apparatus that chews them up and spits them out. AssetForfeiture1

Someone must have been telling lies about Joseph K., for without having done anything wrong he was arrested one fine morning.

-Franz Kafka, The Trial

If you’re not familiar with Kafka’s novel, The Trial, I highly recommend that you read it, even just the first few pages. It’s out of copyright, so it’s available for free on the Internet. The conversation between Josef K. and his arresting officers, and K.’s dealings with the court system and the bureaucracy, are so similar to the experiences that so many modern-day Americans have that it’s almost as though Kafka had a crystal ball to see into the future. Kafka

Take for example the case of Carole Hinders, which was recently publicized in the New York Times. Mrs. Hinders runs a restaurant that accepts only cash, cash which she then deposits into her bank account. But her pattern of deposits ran afoul of the IRS, which seized the $33,000 in her checking account. Mrs. Hinders, like many people in this country, didn’t realize just how easily the government can seize all of your hard-earned money. Yet one day she woke up and found herself the target of a government seizure.

In an ostensible effort to combat money laundering, drug trafficking, racketeering, etc., every cash transaction greater than $10,000 must be reported via a currency transaction report (CTR) to the Treasury’s Financial Crimes Enforcement Network (FinCEN). If you regularly deposit less than $10,000 into your account, the bank may assume that you are “structuring” your deposits to avoid CTR reporting, and will file a suspicious activity report (SAR) with FinCEN. That evidently is what happened to Mrs. Hinders. And if FinCEN, IRS, or some other government agency decides that you’re guilty of structuring, they can seize all your money and you have to fight tooth and nail to get it back.

If you attempt to defend yourself by keeping your money out of banks completely, you’ll face a higher cost of doing business. Plus if you have to deal with non-bank money services businesses such as Western Union to make payments to suppliers or employees, those businesses are also obligated to file SARs and CTRs, so you can’t escape the reporting requirements. And if the police stumble upon your huge pile of cash, they’ll seize it, claim that it was ill-gotten, and force you to prove that you obtained it legally. That’ll cost you quite a bit of money to hire lawyers to win that case. No matter what you do, the government can get you if they have a mind to. KafkaTheTrialSmall1

Because the Money Laundering Control Act of 1986 released banks from liability for reporting “suspicious” transactions to law enforcement, there is no reason for banks not to report your transactions to the government. They cannot be held liable for reporting too much of your information, but they could be prosecuted by the government for reporting too little information, if the government decides that suspicious activity was taking place and was not being reported. So to cover their own derrieres and keep from going to jail, banks report as much information on you as they can.

I remember some of the hearings I staffed for Dr. Paul’s monetary policy subcommittee in 2007 or 2008 that dealt with the problem of too much information being reported. But the “problem” to FinCEN was not that they didn’t need or want all that information, but rather that they didn’t have enough staff and funds to sift through all the information being given to them by banks. They had no problem whatsoever with the absolute lack of financial privacy afforded to bank customers.

Until Americans confront the bogeymen of terrorism, money laundering, human traffickers, or whatever other excuse the government uses to trample our rights, cases like Mrs. Hinders’ will continue to occur. Innocent Americans will find themselves railroaded by a mammoth bureaucracy and have to navigate a labyrinthine legal system in order to clear their names or retrieve their money, with no guarantee of success. They may even find themselves languishing in a prison system that prefers to lock the doors and throw away the key than to ensure that justice is done. Forcing innocents like Mrs. Hinders to suffer such abuses should not be tolerated in our society.

It’s time to end overarching government intrusion, restore financial privacy, and ensure that these injustices never occur again.


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