Money trail

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"Money trail", is a catch phrase used to describe any evidence that money, or their equivalents, were passed between two parties. Money trails are left behind when funds are passed through something called a money loop. Unlike money laundering, that tries to wash funds to make them appear clean, money loop funds tend to start clean. However, they become dirty because they were used for a questionable purpose. The term dark money refers to funds that may have been passed into a money loop and not reported to election committees and voters.

Both money laundering and a money loop leave a money trail.

Etymology[edit]

Further information: Follow the money

Money trail is associated with the phrase "Just follow the money trail". This essentially means if you want to look for the motivation behind an action, look to see who stood to profit. A political scandal involving the President of the United States in the 1972 helped make the phrase famous when two reporters following a trail of clues uncovered the Watergate scandal.

A money loop involves the flow of money in both directions. One party tends to want something from the government, and an official wants something in return. This is also called a kickback. Money loops are different than other forms of political corruption. Political corruption when an outright demand for money is made, is called pay to play. Either you pay the money or can't get a building permit, license etc.. Political corruption that allows an illegal activity, is called making a bribe or paying protection money.

Money loop can also be traced to political corruption in the United States. A loop hole is a legal technicality that allows a questionable practice to continue. A supposed loop hole in campaign laws in the 1990s and early 2000s allowed an unlimited funding of political campaigns using issue only ads. The money to pay for the advertisement is termed soft money. The sponsors claimed their ads were legal since they didn't mention one of the eight magic words. The combined phrase soft money loop hole was shortened to just money loop.[1] During the 2012 elections another supposed loop hole called the independent expenditure allowed unlimited funding into campaigns a second time.

Politicians and the money loop[edit]

Politicians have the ability to influence governmental spending, its actions and its failure to act. There are many clear legal ways to interact and influence politicians including:

  • Writing a letter, or sending an e-mail;
  • Lobbying for legislation and changes;
  • Making a campaign contribution;
  • Volunteering to help a candidate get elected;
  • Donating to a candidate's party.

Within certain limitation, in many countries these types of interaction between the people of the country and the government is encouraged. However, when citizens exceed the law of the land many countries react swiftly. This helps these countries ensure their governments are for the people.

In the words of former US Supreme Court Justice John Paul Stevens:

"In a functioning democracy the public must have faith that its representatives owe their positions to the people, not to the corporations with the deepest pockets."[2]

History[edit]

Hypereides, an ancient Greek writer, 2300 years ago describes "an environment in which influence peddling conducive to the well-being of the polis was allowed to flourish." [3] The polis, or rather the city, that Hypereides referred to was Athens, the Greek capital.

Cash passing hands to obtain anything from government officials has had a long modern history. One place infamous for its corruption is the State of Illinois. Prosecutors obtained convictions against 1,000 public officials and businessmen between 1970 and 2009. Included in the list were 19 judges, and 4 governors.[4]

An analysis regarding the convictions in Chicago demonstrates the difficulty of following the money trail. Payments to influence politicians in the modern age typically come in the form of a campaign contribution. No matter how payment is made, witnesses are not willing to talk, there is a lack of hard evidence, and no real proof that the payment was made in connection with an official's action. Both the bribe payer and the bribe recipient have plenty of reasons to keep quiet and to hide or destroy any evidence of the transaction. It is extremely difficult to prove the "quid pro quo."

To obtain more recent convictions, the Federal Bureau of Investigations frequently used an undercover agent. This was a person wired to record conversations and prepared to hand over envelopes filled with cash if the official demanded it. The problem with this type of operation is it takes a long time to set up, and the official that is corrupt may have been extorting funds, or giving favors, for a long time before getting caught. This said, in the Illinois study, once charges were laid against an official, the conviction rate owing to having sent in an undercover agent was very high. Many officials have served, or are still serving time in jail. Which may mean, that Illinois is not more corrupt than other places, rather they have a strong team of law enforcement agents to find and convict corrupt officials.

At the national level in the United States, and in particular the 2012 election cycle, the regulations on money in Washington D.C. were relaxed when limits on certain types of spending were lifted. This was mainly due to US Supreme Court rulings that viewed the right to free speech to be more important than the need to contain spending.

Money loop effect[edit]

Over 100 years ago President Theodore Roosevelt observed:

"There is no enemy of free government more dangerous and none so insidious as the corruption of the electorate."

Many witness the money flowing along the trail going to and from government officials. However, few do anything about it. There are risks. On the other hand, not doing something about it has long term effects. A study conducted regarding 33 African nations has shown, corruption discourages private investment. Everything from a neighborhood, its people, and the country as a whole suffers the consequences. Corrupt government tend to allocate the public's money towards large projects where the incentives and ability of politicians to reap more money is greater. Further, when a project can generate income or rent, the politicians stands to collect a share long into the future.[5]

Who rides the money trail?[edit]

Just like in the Wild West, riding the money train can be a long journey that often leads nowhere. The intention of the individuals involved is to make sure there are no footprints to follow. Since those involved in corruption tend to be powerful, riding the trail can be dangerous. One trail rider in 2008 was whisked away and "lost" for 14 days.[6] That one was lucky. Other trail riders that got too close, were not heard from again.[citation needed]

Riding the trail is serious business for many[who?]. In Great Britain following the trail is described as a “modern Bletchley Park"[by whom?]. Bletchley Park is where British intelligence intercepted communications that foiled the Axis military planning during World War II. Tracking the financial footprints left by today’s terrorists, proliferators, drug kingpins, and other adversaries can thwart attacks, disrupt logistical and financial support networks, and identify unknown operatives.[7]

In the United States two big trail riders are the US Federal Bureau of Investigation[8] and the US Internal Revenue Service. A third governmental group called the US District Attorney coordinates the efforts of both groups, and prosecutes the cases before a judge. Non-governmental trail riders include organizations like GLAD and attorneys like Mary Bonauto who dig to learn the names of those who rode the trail before and attempted to cover their tracks. This type of trail rider typically presses for disclosure and documents to reveal who stepped on the wrong side of the law.

Finding footprints on the money trail[edit]

When bribes or kickbacks are given in the form of physical cash, it needs to be transported and spent. Sometimes this leads to it being found. For example, a random check of luggage loaded aboard an aircraft revealed US$1.9 million in cash in the bag of one politician and it was suggested that it was an illegal campaign contribution for his presidential election.[9] Many countries have laws in place to report when a large amount of cash is received or withdrawn from a bank. In the United States it is called the Money Laundering Control Act.

Sometimes the amounts of money that flow to government officials reaches into the billions of dollars. Footprints caused by movements of money of this size may seem hard to miss, however, there always seems to be a ready group willing to assist. Frequently the funds are transferred out of the country. Tracking them once in another country is more difficult, however, disguised as they may be, much of it appears to eventually come to light. One term coined for money like this is black money. An apparent contraction of black market and money.

The favored destination for many years has been Switzerland. Switzerland's banking laws, that favor protecting the privacy of the bank account holder, have attracted monies from around the world. Perhaps the toughest trail riders of all, the US Internal Revenue Service has been searching for footprints on this trail and money that escaped taxation.

Hiding footprints in this manner works as follows:

  • a numbered account is opened hiding the person's name;
  • monies are moved either by bank transfer, check or physically taken to one of several branches around the world;
  • use of the money is maintained by taking out a loan against the deposited amount; and
  • the bank becomes wealthy since it suffers no risk when lending the money back.

In 2009, an estimated 52,000 US citizens had numbered accounts. The IRS initially wanted all the names and data. On August 19, 2009, after continued pressure, the Swiss banks agreed to disclose information about approximately 4,450 American account holders suspected of evading taxes to the United States.[10] However, like many trails, this one ended in a dead end when the Swiss later refused to comply with the agreement.

Unfortunately for trail riders, this may have made their task more difficult since the alert may have caused many to move accounts to other countries. For the United States, this is no small problem. According to a staff subcommittee meeting in 2008, tax haven banks cost American tax payers an estimated $100 billion annually.[11]

In some cases it is not the trail that is noticed, rather it is the net effect upon a government official's wealth. For example a rather candidate of modest means, who then earns a known salary in office, somehow manages to become very wealthy. Exactly what the official did, and how the official became wealthy isn't clear. The term for this is illicit enrichment. Laws vary among countries when this is found.

The money loop and campaign disclosure[edit]

To help close the money loop down, some countries have implemented strong regulations regarding the use of funds during political campaigns. These laws were intended to help bring to light the names of individuals and groups that made large contributions to campaigns. In turn, the theory has been that the elected official can be watched closely to see if a particular favor is extended in return.[12]

Disclosure, in theory, helps create the footprint leads to more convictions for anyone that tries to use the money loop. However, in practice it may have just shifted how monies are passed. In the United States, owing to the rise of political action committees it seems the Supreme Court has opened the door wide so, money can be indirectly funneled to a candidate in an unlimited amount with little question.

Volunteers on the money trail[edit]

There usually is a good chance someone other than the two parties involved in a money loop becomes aware of transactions. A few individuals speak up about this and select one of four main routes:

Informer[edit]

Passing on information to law enforcement authorities provides a simple quick route to at least tell someone who may be able to act upon the information. However, in most countries it isn't exactly clear which group is the correct one. Information needs to first be classified as to what type it is:

  • If it involves monies used in an election: it is usually the campaign commission with a copy to the governments attorney. In the United States, there are 93 US District Attorney offices. See External links below.
  • If it involves monies used for bribers and kickbacks or defrauds the government by overcharging etc.: many countries have an sections of their police force specifically charged with fighting corruption. Alternately, or copy to the government attorney.
  • If it is information that may effect tax liability: many government revenue departments are highly interested. Bribes are usually not reported as income and campaign donations cannot be deducted from income taxes when used for an illegal purpose. In the United States the party reporting the fraud can get a percentage of money recovered. The Internal Revenue Service has a simple form to fill out and mail in. See External links below.

Bounty hunter[edit]

A bounty hunter is someone that takes a more active role regarding the information they learn. In some countries they are allowed to take the party to court using a special type of suit called a qui tam. In a qui tam lawsuit they represent the interests of the government. The government's attorney may or may not take over the case or assist. The bounty hunter gets to keep a portion of certain types of penalties accessed against a guilty party.

Flag raiser[edit]

Both of the above routes may expose the party to risk. For this reason there are laws to protect informers and bounty hunters. These are called whistleblower laws. An alternative that for some is safer is to just post the information on the Internet or to give it to a reporter.

Networker[edit]

This type of response is to gather information and share with others and to work as a group. Groups working together help to convince a government office that doesn't respond.

See also[edit]

References[edit]

  1. ^ Special interest groups, De Anza College, by Blake Respini, page 38, referenced February 18, 2012
  2. ^ So How Did We Get Into This Mess? Observations on the Legitimacy of Citizens United, 105 Nw. U. L. Rev. Colloquy 203 (2011), by Alexander Polikoff, April 2011
  3. ^ Perfume from Peron's: The Politics of pedicure in Anaxandrides Fragment 41 Kassel-Austin, University of Illinois, by Andrew Scholtz, referenced February 18, 2012
  4. ^ Curing Corruption in Illinois: Anti-Corruption Report Number 1, University of Illinois at Chicago Department of Political Science, lead author Thomas J. Gradel, February 3, 2009
  5. ^ Corruption and growth in African countries: Exploring the investment channel, lead author Mina Baliamoune-Lutz, Department of Economics, University of North Florida, pages 1,2
  6. ^ Reporter lost for 14 days found in police custody, China Daily, by Zhang Lei (Xinhua), December 16, 2008
  7. ^ Leveraging financial intelligence to combat transnational threats, Stein program on Counterterrorism and Intelligence at The Washington Institute for Near East Policy, by Dr. Matthew Levitt, Winter/Spring 2011
  8. ^ FBI raids Abramoff-linked congressman’s home, NBC News, Joel Seidman April 19, 2007
  9. ^ The Daily Mail, by The Associated Press, February 3, 2012
  10. ^ Combating offshore tax evasion: Why the United States should be able to prevent American tax evaders from using Swiss bank accounts to hide their assets, Southwestern Journal of International Law, Vol. 17, page 102, by Carolyn Michelle Najera
  11. ^ UBS Strikes a deal: The recent impact of weakened bank secrecy on Swiss banking, University of North Carolina Law Journal, by Carolyn B. Lovejoy, page 435, February 2, 2010
  12. ^ Disclosure, Credibility, and Speech, University School of Law, by Michael D. Gilbert, page 6, October 29, 2011

External links[edit]