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Legacy of the drug war: strict money-laundering statutes

A Pyrrhic victory is a nominal victory whose real results are so devastating that it is actually a defeat. The term comes from a Greek general who reportedly remarked that another victory over the Romans would be his ruin because of the great losses he had suffered.

The “war on drugs” launched by U.S. government authorities in the 80s has been full of Pyrrhic victories. It has filled prisons across the country with people convicted of low-level drug crimes who don’t really need to be there. Attorney General Eric Holder is finally trying to change course on such sentencing at the federal level.

And then there are the effects that the federal drug war has had on banks. The onerous currency reporting requirements put in place years ago recently resulted in a fine against a small New Jersey bank for money laundering.

The currency reporting requirements that banks must uphold do not only come from the Bank Secrecy Act. They also come from other laws that target money laundering. One of those other laws is the Omnibus Drug Act of 1986 – which was supposed to regulate large cash transactions by drug kingpins.

And so, a generation later, federal authorities remain focused on such transactions as so-called “casas de cambio” transactions. These are currency exchange transactions between American banks and customers who are south of the border – not only in Mexico, but also in the Dominican Republic.

Recently a federal investigation found that a small community bank in Bergen County had not monitored these transactions properly. Though prosecutors have not charged the bank with money laundering, a unit of the U.S. Treasury sought to impose a stiff civil fine.

The bank has agreed to settle that issue with an $8.2 million payment to the Treasury. Whether this could be considered a victory, Pyrrhic or otherwise, depends on one's perspective.

Source: Star-Ledger, "N.J. Bank fined $8.2 million over federal money-laundering violations," Ed Beeson, September 24, 2013

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