There Was a Federal Agency That Swallowed a Fly

Federal electronic surveillance of financial transactions are part of a large-scale effort to ensnare drug dealers and terrorists. But lots of everyday people get caught up in IRS and NSA webs as well.

Megan McArdle’s post “We’re All Flies in the IRS’s Widening Web,” discusses a NYT story about IRS seizing funds from people who deposit more or less than $10,000 in their bank accounts. After all, $10,000–more or less–is a lot of money and who but drug dealers are likely to have that much to deposit? The original law set federal electronic surveillance of deposits over $10,000 with banks forced to report who made deposits and when. Next the regulations were broadened to catch those who might make two or three smaller deposits in order to avoid the $10,000 trigger.

IRS regulations make it illegal to make these smaller deposits and further make it illegal for banks to advise customers that making smaller deposits is illegal and might lead the IRS to seize their accounts. The NYT article begins by explaining one such seizure

The Internal Revenue Service agents did not accuse Ms. Hinders of money laundering or cheating on her taxes — in fact, she has not been charged with any crime. Instead, the money was seized solely because she had deposited less than $10,000 at a time, which they viewed as an attempt to avoid triggering a required government report.

The NYT notes the IRS is not alone in monitoring and seizing bank deposits:

The I.R.S. is one of several federal agencies that pursue such cases and then refer them to the Justice Department. The Justice Department does not track the total number of cases pursued, the amount of money seized or how many of the cases were related to other crimes, said Peter Carr, a spokesman.

Money flowing in and out of bank accounts could also be linked to terrorist activities. Federal surveillance of money transfers, in search of possible terrorist connections occupies the time of some percentage of the 854,000 federal national security employees discussed in this Washington Post report, “A hidden world, growing beyond control.” (I thought I read the number of federal agencies or employees monitoring financial transactions looking for terrorist-related activity, but now can’t find the reference.)

Also monitoring private financial transactions is the new Consumer Financial Protection Bureau.  This PolitiFact Wisconsin article quotes Wisconsin Representative Sean Duffy:

“The CFPB is collecting financial information, monitoring financial information, of millions of Americans, and they have no clue that it’s going on. It’s again this NSA push of having more information on more Americans,” Duffy said.

Economists have described the widening gyre of federal regulations as interventionist dynamics. Each new regulations tries to plug the gaps and contain the unexpected consequences of the earlier regulation.

This is the expanding web of regulations that Megan McArdle refers to in her article, and notes role of civil asset forfeiture operations that the Institute for Justice fights against:

This is, of course, not the only area this happens. Civil asset forfeiture is just as scandalous, allowing police departments to seize cars, money, and other items that they suspect may be used in the commission of a crime. It is all-too-frequently used by police departments as a way of harvesting cash from the powerless. 

Both involve what you might call an acute case of alimentary fly infestation, a phenomenon I recently chronicled in Venezuela. The title harks back to the famous children’s song:

As every American who went to kindergarten will recall, the list of things she swallows to deal with the previous thing she swallowed goes on upward through dogs, goats, and eventually a horse. She died, of course. (Source: We’re All Flies in the IRS’s Widening Web)

Here is a Halloween fright video on civil asset forfeiture from the Institute for Justice: