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|Part of the Politics series|
"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.
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. 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
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 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."
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."  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.
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
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."
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.
Finding footprints on the money trail
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. 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.
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. 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.
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
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.
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.
- Campaign finance
- Clean Elections
- Dark money
- Iron triangle (US politics)
- Independent expenditure
- Political action committee
- Political corruption
- Qui tam
- Special interest groups, De Anza College, by Blake Respini, page 38, referenced February 18, 2012
- 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
- Perfume from Peron's: The Politics of pedicure in Anaxandrides Fragment 41 Kassel-Austin, University of Illinois, by Andrew Scholtz, referenced February 18, 2012
- 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
- 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
- The Daily Mail, by The Associated Press, February 3, 2012
- 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
- 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
- Disclosure, Credibility, and Speech, University School of Law, by Michael D. Gilbert, page 6, October 29, 2011