Hastert, the Feds, and Theft by Any Other Name

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Former House Speaker J. Dennis Hastert’s indictment on charges relating to his banking practices and his subsequent interactions with FBI agents stunned even political observers who thought themselves shock-proof.

This rumpled teddy bear of a pol, a former Midwestern high school wrestling coach, came to power because powerful men around him were brought down by sexual improprieties. But Hastert was hiding a darker secret than any of them. His relationship with a male student was apparently so egregious that he agreed to pay the boy—now a man in his 40s or 50s—$3.5 million in hush money.

Since the idea was to keep things quiet, Hastert withdrew the money in cash, $1.7 million by the time the FBI snooped into his personal finances. As for the lying charge, even in the government’s telling that’s thin gruel. It wasn’t Hastert who said he withdrew money in smaller increments because he didn’t “trust” banks, as some reported: It was an FBI agent who proffered that explanation while interviewing Hastert. The 73-year-old former congressman, according to the government, merely acquiesced. “Yeah,” he said. “I kept the cash. That’s what I was doing.”

That’s a throwaway line, not an attempt to obstruct justice, and in the real world, not much of a crime. But once the FBI knocked on his door, Denny Hastert was no longer in the real world. He was in the maw of a criminal justice system that he and his colleagues in Congress helped create, where federal judges must give first-time drug offenders 10-year-prison terms instead of diversion programs, where asserting your innocence when confronted with wrongdoing is construed as a separate felony, and where the government can drain your bank account without telling you until after the fact.

The feds didn’t take Denny Hastert’s money, at least they haven’t yet, but using the same Kafka-esque rationale, the IRS and Justice Department have seized the funds of thousands of Americans  never even accused of a crime. The practice they used is called civil forfeiture. The evidence is called “structured withdrawals.” The upshot is injustice.

It started innocently enough, as abuses of power often do. A gang-banger drives across the Mexican border in a Cadillac filled with guns, cocaine, and cash. He’s charged with drug dealing and sent to prison, but who gets the money and the car? The legal theory is that these ill-gotten gains should go to the arresting jurisdiction as reimbursement for the cost of enforcing the law. Sounds right, but one needs laws to do that sort of thing and as Charles Dickens wrote in “Oliver Twist,” the law is an ass.

The donkey here is a 1970 federal statute with a deliciously Orwellian name: The Bank Secrecy Act. This law directed the U.S. Treasury Department to set up a database, to be shared with law enforcement, to track banking transactions involving more than $10,000 in cash.

The idea was tracking how drug dealers and racketeers launder money. A noble goal, but the overwhelming majority of Americans who handle cash transactions are not criminals—they are small-business people. Knowing this, local bankers chaffed at the paperwork requirements. Many resented being required by law to snitch on their best customers. Some told their customers the government was spying on them, warning of the $10,000 limit. It’s not illegal to make large cash deposits or withdrawals. But it invites scrutiny.

Presumably, criminals wised up faster than the law-biding public, so in 1986, the law was amended. Now, anyone depositing or withdrawing cash from a bank in amounts less than $10,000 are in the feds’ cross-hairs, too. That law criminalized the intent “to avoid a transaction reporting requirement under state or federal law.” It’s not a technical violation: The punishment is a fine of $500,000 or twice the value of the property involved and up to 20 years in prison—even if the money is unrelated to criminal activity. What’s the evidence of “intent”? Regular cash transactions under $10,000. Here’s a law proving Charles Dickens right: Transactions over $10,000? You get ratted out to the IRS, which makes you account for your own money. Transactions under $10,000?  Those are “structured withdrawals”—prima facie evidence of shady dealings. Heads the government wins, tails you lose.

In Hastert’s case, they left his money alone and went after his freedom. The original sin here makes Hastert an unsympathetic victim, but to understand why federal law enforcement officials consider “structured withdrawals” worse than extortion, which is what Hastert was being subjected to, contemplate the fate of Lloyd McLellan. He’s a law-abiding proprietor of a family-owned convenience store in rural Fairmont, N.C. Last July, federal agents showed up there, but they weren’t buying doughnuts. They were informing McLellan that they’d emptied his bank account of $107,703.

IRS agents had persuaded a gullible federal judge to authorize that action—theft by any other name—without bothering to even ask McClellan about his cash deposits, all of which came from the store. (He was trying to save bank tellers the hassle of paperwork.)

Evidence of malicious intent—on the part of the government, not the grocer—came after a lawyer had proved his innocence: The government still wouldn’t return his money. Worse, when details of his case were reported in the media, an assistant U.S. attorney sent McClellan’s attorney a threatening letter. Going public, the federal prosecutor said, “just ratchets up feelings in the agency.” He offered to return McClellan’s money at the rate of 50 cents on the dollar.

This kind of thing happens all the time. According to a report by the Institute for Justice, which took McClellan’s case, from 2005 to 2012 the IRS seized $242 million from 2,500 individuals accused of money laundering. More than 80 percent of those cases were civil forfeitures; in a third of them the only evidence was “structuring” deposits or withdrawals.

“Using civil forfeiture,” the institute reported, “the government is increasingly treating legitimate small-business owners like criminals just because they make frequent cash deposits.” Nearly half the money was ultimately returned, but rarely dollar-for-dollar, and only after those targeted incurred legal expenses.

This is not only immoral, but probably unconstitutional, and all three branches of government are complicit. Congress passed these odious laws, the executive branch stretches them beyond recognition, and the courts go along for the ride. In the wake of investigations by whistle-blowers ranging from the conservative IJ to the New York Times and the Washington Post, Justice Department officials claim they’ve instituted new “protections” against such abuses.

Here’s a better idea, one for Hastert’s old comrades on Capitol Hill. Amend these laws, or repeal them altogether. It’s not your money.

Carl M. Cannon is the Washington Bureau Chief for RealClearPolitics. Reach him on Twitter @CarlCannon.

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