11 votes

Notes on a US non-profit indicted for bank fraud

6 comments

  1. [2]
    Cycloneblaze
    (edited )
    Link
    I come to wonder about McKenzie's moral position, reading this piece. It's very clear that he disapproves of the SPLC's actions pressuring banks and corporations to discontinue services to...
    • Exemplary

    I come to wonder about McKenzie's moral position, reading this piece. It's very clear that he disapproves of the SPLC's actions pressuring banks and corporations to discontinue services to alt-right figures generally and Trump specifically. With the lengthy discussion in the first half of how the financial compliance apparatus handily creates evidence for prosecutions, he almost sounds a bit disappointed that they were stupid enough to trip the bear traps and get caught in an inevitable conviction.

    But lest ye think that his objection is only a patronising "come on now" for sloppiness in an intentionally dangerous legal regime, the second half of the piece describes in detail his disdain for the SPLC's aims and tactics. It seems mostly disconnected from any discussion of bank fraud - except to support the claim that "This looks like retaliation for the SPLC coordinating a coalition to interfere with Trump political fundraising" by proving the second half of it. It's hard to read this part of the piece as other than laying groundwork for the SPLC to be formally accused of violating various campaign finance provisions - he helpfully bolds that part, near the end.

    I would rather tell you a different story, about how the SPLC formed a coalition to gain account- and transaction-level decisionmaking capability at tech companies, financial infrastructure firms, and banks through a coordinated pressure campaign.

    Parts of this story are abundantly reported in public. Parts are extremely well understood in the organizations that the SPLC’s coalition repeatedly persuaded, cajoled, or threatened (pick your favorite verb for the moment).

    Some parts of the story are original public interest reporting. What is the public interest in candidly recounting the exercise of power over Nazis? Because they did not stop once they achieved power over the Nazis.

    This is sort of the thesis statement for the rest of the article. I read it as: you can cleanly separate neo-Nazis from Trump as leader of the Republican party, and it's at least illegitimate to exercise this kind of financial power over the latter. Naturally I disagree on both points.

    I think the (very long) story recounted up to the end of the piece creates an impression of influence that the actual facts don't support. Namely: the SPLC’s coalition put a lot of pressure on banks and tech companies, but the crescendo of their influence is really in the part where Trump's accounts with JP Morgan were closed - for which McKenzie isn't even willing to credit this coalition, saying "Industry participants do not perceive themselves as having highly weighted the opinions of coalition participants during these few days." How much power did this coalition actually, factually, exercise over Trump or his political allies? How much power did they even exercise over Nazis - McKenzie recounts that mainly having happened in the wake of Charlottesville, and "sometimes proactively", "sometimes after receiving communication from activists".

    There's a bit of sleight of hand at points here. McKenzie goes on about SPLC and its allies targeting right-wing figures and using their influence with the same compliance apparatus to cut off said figures' financial activities, largely because of their speech.

    Industry participants characterize the coalition participants as asserting that speech was inseparable from conduct. Free speech concerns were dismissed and, industry participants report, mocked, including with the dismissive rendering “freeze peach.”

    Note the conflation here of committing incitement (illegal), spreading hate/oppression (probably bad), and lying while being a politician (Tuesday).

    Okay, but SPLC is not the government. McKenzie labours the point that they stand out from the other bodies having influence in the compliance pipeline in not being the government! Which means there's nothing wrong with them targeting figures based on their speech! You can disagree with who they choose to target and why (and oh boy, does McKenzie disagree) but you can't say that the act of it was invalid.

    The amount of rhetorical questions and conclusions left unsaid in this piece gets to be grating, although I've read a few other articles by McKenzie and that's not unique to this one. A couple examples stuck out:

    The coalition, across a wide variety of documents, more consistently describes itself as having only influence when having power would require accountability, and more consistently describes itself as having power when addressing audiences presumptively sympathetic to the aims towards which that power was deployed.

    "Of course you, the reader, know better now, don't you?" It's obvious the lack of sympathy the author has for these aims.

    Change the Terms (CTT) was a coalition, to its friends, a conspiracy, to its enemies, and an unincorporated association, to a geek with an unhealthy interest in LLC formation. (The only fact I’ve ever retained about unincorporated associations is that they are jointly and severally liable for acts of the members.)

    Meaning that, of course, any legal consequences for the SPLC as a member of CTT will also rain down on CTT's other members. McKenzie spends a fair few words immediately after this explicitly linking the SPLC to the coalition and its other members.

    Bits about Money does not generally recommend particular providers of financial services, including of screening data products. As an editorial decision: we anti-recommend the SPLC blacklist. It is unfit for purpose in financial services and obviously so. We have no position as a publication as to whether it is valuable for other uses.

    Creating distance between yourself and your statements on a one-man newsletter by giving the name of the publication and talking about "editorial decisions" is a neat rhetorical trick. The publication is just you, Patrick. You, personally, have a position on how valuable the SPLC's extremist list is both in the financial compliance apparatus and in making value judgements generally. I can guess that it's not good.

    Another thing that stuck out: McKenzie repeatedly reminds the reader that the coalition's efforts are supposedly "non-partisan" in a tone that's downright snotty. As I count it he calls them non-partisan ten times, sometimes sarcastically, and he quotes any member of this coalition saying they are non-partisan once. I don't think it's risible to say that opposing Donald Trump in particular can be a non-partisan effort, but to the author it's a lie as severe as bank fraud.

    The impression that I am left with at the end of the piece, which is only reinforced by the "Does Bits about Money have a political agenda?" section, is that McKenzie is personally opposed to the Change the Terms coalition's pressure to get Trump severed from his political contributions. He variously characterises their tactics and methods as gauche and naive. He basically states outright that they're partisan to a degree that makes them illegitimate as a charity. He is offended by coalition members' conduct towards industry professionals in their private meetings, and creates the impression that the stark rhetoric they used was cynical and empty, preying on moral sympathies for political (that is, anti-Trump) ends. He repeatedly describes them as trying to suppress speech.

    But does he think that it was unjust? That poor little Donald Trump didn't deserve this pressure campaign from the big bad progressive coalition? That would affect my estimation of McKenzie quite a bit. Remember, as it stands right now, Trump won that battle. The retaliation for the pressure campaign has come and to hear McKenzie tell it, it was not only earned but deserved.

    13 votes
    1. skybrian
      (edited )
      Link Parent
      My impression is that he’s playing investigative journalist but his sources in the industry won’t talk on the record and he’s limited to evidence that’s been published on the Internet. At the end...

      My impression is that he’s playing investigative journalist but his sources in the industry won’t talk on the record and he’s limited to evidence that’s been published on the Internet. At the end of the piece he gets across that he tried to get some of the non-profits to respond to him but they ignored him. But instead of just saying that he puts it in a snarky way.

      His sympathies don’t seem to be with Trump, but with the companies that were getting pushed around by pressure tactics from outsiders. (From their point of view.) He summarizes his article at the very beginning, but without telling you who he’s talking about, perhaps to create some suspense:

      A claim which will be more surprising: some regulated financial institutions have delegated authority for account- and transaction-level decisioning to a non-profit.

      That is, they rely on SLPC’s list to decide whether to debank people and organizations.

      Another: that non-profit includes a private intelligence agency, which runs covert assets, publishes intelligence estimates, develops target lists, and communicates them to decisionmakers.

      Still another: the non-profit organized a coalition of the willing as an outgrowth of its intelligence agency. The willing non-profits, that is. The coalition engaged in a years-long campaign to coerce financial infrastructure and other firms to give them the ability to direct accounts to be closed. The infrastructure built to do this against domestic terrorists was applied to an American politician’s fundraising efforts, and no one seemed to think that was odd.

      That is, they were pressured into using SLPC’s list, which effectively gave the SLPC the power to deny transactions and close accounts. And then the nonprofits used that power to not just go after Nazis but anyone that they don’t like. (He doesn’t really substantiate that.)

      It seems like McKenzie believes financial regulation should work differently, somehow. It shouldn’t be up to SLPC to decide who to debank. Perhaps the concept of an “accountability sink” applies here? Without providing proof, he seems quite sure that in some places, financial institutions have written code that automatically denies accounts to anyone on SPLC’s list:

      As a longstanding financial infrastructure enthusiast and practitioner, I am confident that SPLC screening is used on an advisory basis in very many sectors of the financial industry. It is also used in a delegated authority fashion for some products at some firms, in the fashion that Amazon used to. In the delegated-authority cases, an SPLC hit kills an account application or transaction as cleanly and automatically as an OFAC hit does.

      He very vaguely alleges that SLPC now has enormous power, just from updating their list:

      And, again, you are reading the tip of the iceberg. There is much more use of the SPLC list in the financial industry, in much more important products than workplace giving.

      For example, I would guess Stripe somehow uses it? McKenzie isn’t going to speak for Stripe, though.

      In short he’s making a procedural argument. The current procedures suck.

      Please, we beg you, do not ask Compliance to run a parallel criminal justice system. We will do it if you force us to, but you will not like the outcome.

      But assuming that debanking sometimes needs to happen, I wonder how it’s supposed to work?

      The issue is that the current procedures are a sort of shadow justice system. It evolved as the result of organizations making expedient decisions rather than someone designing it from scratch to make individual decisions fairly. Justice is expensive, so companies mostly don’t do it. They outsource and automate their decision-making whenever it’s allowed.

      Maybe the actual government should produce this list using a system that also protects the rights of people who might get put on the list unfairly? But that’s certainly not going to happen during the Trump administration.

      3 votes
  2. DefinitelyNotAFae
    Link
    Someone needs an editor. Which maybe he has because he says "we" a lot, but isn't paying them. I easily could have missed something in reading this because it's way too long to try to make its...

    Someone needs an editor. Which maybe he has because he says "we" a lot, but isn't paying them. I easily could have missed something in reading this because it's way too long to try to make its point.

    I think it's interesting how he mostly condemns SPLC by implication: Conflating things he doesn't like with the "crimes" they're charged with, framing Jan 6 as an accidental riot rather than something incited and intentional, and his snarky little commentary in the post script where he just comes off as bitter that no one deigned to reply to provide him with a comment.

    Postscript to my fellow communications professionals

    Just following up on my emails. Do I have the correct addresses? Emails to the team alias and your personal work accounts, formatted correctly, did not bounce; emails to incorrect guesses for the team alias did.

    Passive aggressive

    Common Cause: I asked you to comment on whether you have ever nominated the account of an FEC-registered entity for negative decisioning, and told you I had written evidence of you doing so on at least one occasion. I welcome your future comment, perhaps on when you started that practice and when or whether you have ceased. We could compare notes.

    Very passive aggressive

    Email is my preference, but since the SPLC specifically is well-resourced to pursue the other way to deliver a response if it desires, I’ll save everyone 6 billable minutes: tell them “to Kalzumeus Software, LLC’s registered agent.” The Internet and I will read it attentively.

    The tone is very revealing to me

    To the as-yet uncontacted coalition members, that meeting can be an email: “How about ‘We categorically deny ever directing any company to interfere with fundraising of a political opponent.’ ?” “Approved. Next topic?” Unless you doubt that is true, in which case, book the non-partisan conference room for workshopping the language.

    If you don't respond quickly it's because you can't give the above statement that I wrote for you. Because CRIMES!

    Don’t worry, I am a reasonable professional. Most journalists haven’t worked in a comms department. I have, and so gave all parties contacted several business days to answer very simple questions.

    I don't know why they didn't respond to this during an indictment, it's so reasonable /s

    That tone exists throughout, it's just not as transparent, and basically makes the case that this is retaliatory not regulatory in the process but frames it as obviously true and that the "coyote" is essentially guilty of crimes even if not the ones the JD is actually talking about.

    SPLC is trusted not just by banks but by education, law enforcement, all sorts of organizations. Maybe they're doing crime somehow. Idk. But I doubt sincerely it's relevant to the administration who was going to target them from the start, regardless of whether they jaywalked or planned a coup.

    11 votes
  3. [2]
    skybrian
    (edited )
    Link
    From the article: [...] [...] [...] [...] [...] [...] ... ... 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...

    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!

    [...]

    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.

    [...]

    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.

    [...]

    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.)

    [...]

    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.

    [...]

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

    [...]

    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.

    ...

    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.

    ...

    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.

    ...

    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.

    2 votes
    1. updawg
      Link Parent
      I just want to share with the world how much fun I am having committing no crimes, to the best of my knowledge. Wow, it's amazing how great things can be when you don't commit crime. I feel fully...

      I just want to share with the world how much fun I am having committing no crimes, to the best of my knowledge. Wow, it's amazing how great things can be when you don't commit crime. I feel fully righteous about all my actions and don't feel guilty at all. I would never want to commit crime. I really enjoy having an innocent mind.

      5 votes