29th Cambridge International Symposium on Economic Crime
Session XVI: Proportionality in legal and regulatory responses – 10th Sep. 2011
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Adam Smith's failing "invisible hand"
Do we really need, do we really want more of the same,
i.e. more regulation, more bureaucratic compliance, more Potemkin Villages?
Might not measures to enhance our sense for proportional individual responsibility
serve us all better?
Anton Keller, Secretary, Swiss Investors Protection Association  -  (url: www.solami.com/proportionality.htm)
inputs by: E.Delissy, H.Geiger, B.Kappeler, B.Lietaer, P.Martin, P.Masters, J.Mermoud, R.Rahn, E.Reyhl, A.Schweizer, G.Trepp, ao
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This is what you see all over the world. The rules are not for the elite. The elite are always living above the law.
Eva Joly in: "J'accuse - Investigating Iceland’s financiers", Financial Times (11/14/09)
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  This morning, we heard that of all places, Sharia councils effectively mean to provide for individual confidentiality and privacy. In startling contrast to that, three days ago I heard here a member of the powerful Board of Governors of the US Federal Reserve System saying repeatedly, unabashedly and with a straight face: "We, as an institution, are against privacy, we are against bank secrecy."  I invite you to reflect on the enormity of this latter assertion. And to ponder what the two statements, taken together, really mean for America and the rest of the world, for where we are heading.

  Tomorrow, the world will remember 9/11. Ten years of anti-terrorism - and no end in sight! How many key freedoms, rights & responsibilities have survived, how many are under siege? You probably also remember the fall of the Berlin Wall. If my memory is correct, it did fall in our direction of more freedom. But that's not the impression you get these days. I see the energizing Glasnost postulate of the transparent administration turned upside down. Instead of freer and strengthened citizens, I see ever more denuded and weakened working poor. I notice a finance system under artificial animation and in a state of impending collapse. It is a system which lost its mooring, purpose and orientation. It mutated into a self-serving cancerous casino preying on life-sustaining yet rapidly depleted fat of the real, the still producing economy. It ruined privacy and other essential freedoms, created monkey-money riches for the reckless, and undermined the social fabric, hassling mainly ordinary citizens.

   Discriminatory regulatory mayhem is created in particular by egocentric and out-of-control bureaucrats at the IRS, the EU, the OECD and elsewhere. Just think of the IRS' illegal Qualified Intermediary and its even worse monster, the surreptitiously enacted Foreign Account Tax Compliance Act (FATCA). And observe how the OECD - the once shining anti-pode to the ill-fated COMECON - was hijacked to become a bureaucratic anti-market, anti-liberty and anti-sovereignty machine. Whatever proportionality and balance there once was, and without questioning the market itself, it is as if Adam Smith's "invisible hand" was to favor myopic reckless self-promotion, self-serving and greed. That's the ugly big picture as I have come to understand it. Fortunately, the other side of this coin offers a more positive outlook - if you care, that is, to keep people on the job, particularly when the chips are down.

   But first, let me get to nuts and bolts. Let me turn to the evolving law enforcement practices of hunting tax cheats and asset seizures which many of you seem to cherish as a silver bullet.  I can understand why this is so. But for a moment I'd like you to change your hat. I'd like you to look at matters from the perspective of the ordinary citizen who - out of the blue - finds himself slammed with an asset freeze. I'm not talking of the mafia and similar criminals who - preposterously, as I've reported to you in previous years (2008, 2010) - can use the IRS' QI system for washing their ill-gotten billions below the radar of ordinary constraints. I'm concerned about you and me who - in a sea of growing storms and thus quite legitimately - seek to protect the fruits of our labors in a safe haven offering stability, reliability and privacy. Lex americana universalis has hurt US citizens and its export position. Not only Swiss banks have become infected with an all-pervasive anti-business compliance mentality. Many have been armtwisted into abandoning their proud and successful tradition of defending their clients against the ills of time. Being stampeded into becoming agents of foreign taxmen, even violating fiduciary duties and betraying some clients will cause intolerable harm, not least for Americans. We'll see whether, on this track, they still have much of a future worth talking about.

   The Wall Street Journal recently summarised the situation in the US under the heading "Federal Asset Seizures Rise, Netting Innocent With Guilty" (8/22/11). It reported on last year's 3700 criminal and 11,000 non-criminal forfeiture cases, with a total take topping $2.5 billion. Some consider this "a tool of 'critical' importance in taking away the ill-gotten gains of international criminal organizations". Others point out that the $500 millionthe federal government paid out in 2010 under its "equitable-sharing" program to cash-strapped law enforcement bodies actually gives "authorities an 'improper profit incentive' to seize assets". The Journal highlighted the some 400 federal statutes which allow asset seizure. True, in the Madoff case, "federal officials are in the process of recovering over $6.5 billion" in addition to the $650 million already distributed to victims - which amounts to some 10, respectively 1% of the total fraud. But here again, the system often favors the big guys, invites abuses and is rife with conflicts of interest. Not to mention the difficult-to-justify violations of the constitutional garantee that “No person shall be… deprived of life, liberty, or property, without due process of law.”

   Almost ten years ago to this day, Richard Rahn was among the few Americans who managed to attend this symposium despite 9/11. His and others' Philippika against various governmental intrusions solemnly warned against all sorts of privacy breaches. He spoke out in favor of solid police work but against shortcuts which are often disproportionate if not useless, costly and indeed harmful. And he specifically questioned suspicious activity reports, asset seizures and other modern forms of McCarthyisms.  Despite of the traumatic 9/11 experience, he and some 15 other former US lawmakers and administration officials set up a task force whose "Report on Financial Privacy, Law Enforcement and Terrorism" of May 2002 still makes worthwhile enlightening reading.

   Switzerland's Constitution reminds us that "only those who use their freedom remain free".  By withstanding the foreign pressures to underwrite the 900% of  GDP debt follies of some of Iceland's private bankers, the citizens of Iceland have successfully and exemplarily shown both the importance and the validity of that fundamental principle. Significantly, Bernard Lietaer, the former Belgian central banker and Euro co-founder, has come around to favor national currencies. He even says that the persistantly strong resistance of the Swiss economy to the globally observed economic contractions "is not at all because of Switzerland's bank secrecy, Swiss chocolate or Swiss quality". But that it is mainly due to an obscure 77-year old self-help system, i.e. the anti-cyclical and anti-depression cooperative WIR bank. To the tune of some CHF 2bn/y mind you, this time-tested system helps a quarter of Switzerland's small and medium enterprises to stay in business even in hard times. This complementary currency, the WIR franc, keeps people indeed on the job when the chips are down. Some observers think such a local-content currency might be helpful and possible even in -countries, such as Greece, France and Germany (in the US, Utah has already reintroduced de-fiscalised gold).

   In conclusion, Adam Smith's "invisible hand" is seen to offer only a one-dimensional rendering of the market mechanisms - as if the market were made up of ponzi-playing apprentice-sorcerers seeking quickies, e.g. ephemeral individual pleasures and gains (like those from high frequency casinos). In fact, there is no substitute for the real thing if one aims at mutually beneficial, real-world results, like making a child. And while in the latter case nature provides for a real penis, society's leaders cannot rely on mostly micro-economic laws to provide for the necessary common good Leitplanken (guidelines). Inspired by the Austrian school, I brought with me a work-in-progress paper (www.solami.com/porkbellies.htm) which looks at the multi-dimensional genesis of the still-evolving monetary crisis, and seeks to identify practical pathways for overcoming its adverse effects. Your contribution would be welcome.