Notes on a non-profit indicted for bank fraud

From the article:

White collar prosecutions are structurally difficult because they frequently depend on intent. It is difficult to prove intent beyond a reasonable doubt, as it frequently depends on subjective mental states which we cannot directly observe. This problem is discussed in the literature including in book-length treatments.

There exist ways to overcome this difficulty as a prosecutor.

The classic one is waiting for the criminal to violate Stringer Bell’s dictum on the wisdom of taking notes on a criminal conspiracy. You then introduce their notes into evidence. They will frequently contain explicit statements demonstrating mens rea (a legal concept of a “guilty mind”). The register of those statements will be less guilty and more gleeful. Crime is awesome! Wow I sure hope the government never reads this! Because we are committing so much crime right now!

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As Bits about Money has covered frequently previously, the anti-moneylaundering (AML), Know Your Customer (KYC), and related regulatory edifices function in a subtle manner. They do not simply proscribe conduct and rely on perfect enforcement by the financial industry. To achieve the overall objective of stochastically interdicting crime, the regs are designed to force criminals into repeated unpalatable tradeoffs. One is “You can choose making money, or you can choose never interacting with banks, but it is very difficult to choose both.”

We then follow the criminal into the bank. “By the way, lying to a bank is a crime. It doesn’t matter what you think while you’re doing it. It doesn’t matter why you did it. It doesn’t matter if you’re a sinner or a saint. It doesn’t matter if it is a big lie or a little lie. It doesn’t matter if the bank believes you. Lying to a bank is a crime. And everything you say to a bank will be recorded for decades. It will be routinely forwarded directly to law enforcement if the forward-deployed intelligence analysts we force the bank to hire believe there is even a tiny chance law enforcement will find it useful.”

Al Capone infamously went down for the tax evasion because it was easier to prove than the murders. Drug smuggling is sometimes difficult to prove, but the smugglers will want their money in the regulated financial system. The mandatory questionnaire at account opening will ask “Why are you requesting this account?” They will probably not write down “Drug smuggling!”, because a wag who tries doing so will quickly realize this does not successfully result in a bank account. So they will write any other answer. Now they have lied to a bank.

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Why do these indictments, and hundreds more, rhyme so much? Why can we employ these charges to such devastating effect against the rich and powerful, even those in positions of public trust, even those with allies who still love them? Because we maintain textbooks of how to make these cases and make them stick.

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For example, we in the financial industry are obliged to file Suspicious Activity Reports (SARs). These are basically three-ish page memos. Combined with statutory tools such as those discussed above, these memos will giftwrap charges and convictions. They get saved by the Financial Crimes Enforcement Network (FinCEN) for decades and some small fraction of the four million filed every year will eventually be read by a public servant.

The bank pays the screening vendor which fires the alert, the bank pays the intelligence officer who reviews it, the bank pays the senior compliance analyst to spend a few hours collecting data from various employees and web applications into a single coherent narrative. And then the public pays the prosecutor to copy/paste the SAR into an indictment. (Accept this as a slight exaggeration, but if you can’t name a paragraph lifted from a SAR into a federal criminal indictment, you will be able to in about five minutes.)

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One critique is that this regime is functionally an end-run around the Fourth Amendment. Civil libertarians have made this point for decades, but never with the economy of phrase as the U.S. Immigration and Customs Enforcement (ICE) internal magazine Cornerstone’s article The Currency Transaction Report: Controversial To Some—Essential To All.

Why is the CTR so useful to law enforcement, ICE?

ICE: ICE special agents utilize CTRs to establish links between individuals and businesses, and to identify co-conspirators and potential witnesses. This information is often utilized to meet the 'probable cause' requirement necessary to obtain search, arrest and seizure warrants.

Is this surveillance regime narrowly tailored?

ICE: ICE conducts approximately 1 million record checks of BSA data each year.

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Which brings us to the Southern Poverty Law Center (SPLC).

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There are a variety of ways for the DOJ to get the CEO’s email. It may have been attached to a SAR, and therefore filed automatically with FinCEN. The other way, of course, is to pivot from a SAR (or any other reason to open an investigation) to a request that the bank produce records. Subpoenas are not strictly required; that document exists to exonerate the bank. A financial institution, concerned it is falling under negative government attention, might proactively offer to share what they know.

In any event, the feds got what they needed.

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And now the data product you’ve been waiting for: the SPLC Extremist Files. Like the OFAC list, it’s available for free on their website, but there do exist screening providers which will happily charge you for it. Part of that work is for scraping, part of that work is for e.g. matching names to e.g. charity EIN numbers, etc. Your screening vendor will happily tell you, though, that the data product they’re selling you is really SPLC’s considered judgement, packaged in a way that makes it easy to include into your pipelines.

Why would you buy this data product? In part, it is because the financial industry broadly considers the SPLC an extraordinarily trustworthy non-profit. It is widely believed that if they say you’re a Nazi, you’re a Nazi, and we don’t want to do business with Nazis. Financial institutions, like other firms in capitalism, have broad discretion (with some specifically enumerated exceptions) in choosing who they do business with.

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Now, a quiz: do you think Compliance at a bank is neutral on “Can the bank delegate transaction-level decisioning authority, in any part of the business, however small, to an entity under federal indictment for bank fraud? Does the answer change if they are convicted of bank fraud?”

Edits, since I have a bad habit of posting before I read to the end:

There's a very long history with much more about major US political events and their effects on industry. It leads to a coalition of non-profits calling for Facebook to ban Trump from running political advertising in 2021.

Wiley Coyote Charities, an IRS-recognized 501c3 non-profit organization in a universe not too far from our own, has chased its hated nemesis for years. The orange road runner is tantalizingly close. Focused and untiring, perceiving himself close to ultimate victory, Wiley Coyote Charities salivates. This time, this time for sure, he will be sated. He will be free.

Wiley Coyote Charities speeds past a sign reading “Danger: Plausible Non-Partisanship Ends.” The only danger is to that blasted bird.

Wiley Coyote Charities is, to the appearance of observers of the race, now running over two miles of clear blue sky. He has not yet looked down. We know what will happen when he does. Blame the road runner all the way down.

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On the SPLC specifically, I don’t really specialize in charity effectiveness ratings, but so I am not accused of hiding the ball: I think they achieved a meaningful and historic victory in the cause of righteousness many years ago. They have dined well on that reputation for a very long time.

To those who think their mission remains critical and more intrinsically noble than simply the pursuit of political power for their favored coalition, I will say this. If the coyote has a noble mission on his back, he owes it to the mission to let the damned bird go, before he takes that mission off the cliff with him.

Relevant xkcd: https://xkcd.com/2347/