I am not a reflexive foe of government. I believe in government and that it can and should serve individuals and communities by providing the kinds of services that can only be done collectively, and protect individuals from the power of bigger entities like corporations by creating and implementing regulations that protect workers, keep our water and air clean, and doing all the other things that only a government can do such as maintaining the necessary infrastructure. The Tea Partiers’ goal of eliminating government except for the police and military is something I vigorously oppose.
But some of the actions of the government recently are making it hard for me to support the concept of government as wholeheartedly as I used to and the abuse of civil asset forfeiture laws is one such case. I have written repeatedly about the abuse of these laws whereby state and local municipalities and police and justice systems use their power to seize the assets of people without even charging them with any crime. This has become a major source of revenue for these government entities, who do not seem to have any compunction that they are destroying the lives of many innocent people along the way.
Now comes along a story that the IRS and other federal agencies are also engaging in this terrible practice. What is providing cover for this abuse is the $10,000 rule that was invoked in the ‘war on drugs’. Banks are required to report to the federal authorities any deposits or transfers of $10,000 or more as it was thought that this might constitute drug money. Of course, it was not long before drug dealers figured this out and made sure that their deposits were less than that amount. So the government started requiring the banks to notify them of any pattern of sub-$10,000 deposits.
All this is fair enough. There is nothing wrong in trying to find patterns to detect crimes using the legal means at their disposal. But instead of using any suspect pattern to investigate further to see if there is actual criminal activity, the IRS and other federal agencies are using this database to comb through the records and seize the assets of people who fit the pattern without investigating further to see if they did so for perfectly innocent reasons.
For almost 40 years, Carole Hinders has dished out Mexican specialties at her modest cash-only restaurant. For just as long, she deposited the earnings at a small bank branch a block away — until last year, when two tax agents knocked on her door and informed her that they had seized her checking account, almost $33,000.
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.
“How can this happen?” Ms. Hinders said in a recent interview. “Who takes your money before they prove that you’ve done anything wrong with it?”
The federal government does.
There are often legitimate business reasons for keeping deposits below $10,000, said Larry Salzman, a lawyer with the Institute for Justice who is representing Ms. Hinders and the Long Island family pro bono. For example, he said, a grocery store owner in Fraser, Mich., had an insurance policy that covered only up to $10,000 cash. When he neared the limit, he would make a deposit.
Army Sgt. Jeff Cortazzo of Arlington, Va., began saving for his daughters’ college costs during the financial crisis, when many banks were failing. He stored cash first in his basement and then in a safe-deposit box. All of the money came from paychecks, he said, but he worried that when he deposited it in a bank, he would be forced to pay taxes on the money again. So he asked the bank teller what to do.
“She said: ‘Oh, that’s easy. You just have to deposit less than $10,000.’”
The government seized $66,000; settling cost Sergeant Cortazzo $21,000. As a result, the eldest of his three daughters had to delay college by a year.
What is significant is that the government seems to be not as zealous in going after the really wealthy who must be routinely transferring huge amounts of money around their various accounts. They are going after the kinds of people who would not have access to high-powered lawyers and friends in high places.
“They’re going after people who are really not criminals,” said David Smith, a former federal prosecutor who is now a forfeiture expert and lawyer in Virginia. “They’re middle-class citizens who have never had any trouble with the law.”
The government seems to be backtracking a bit.
On Thursday, in response to questions from The New York Times, the I.R.S. announced that it would curtail the practice, focusing instead on cases where the money is believed to have been acquired illegally or seizure is deemed justified by “exceptional circumstances.”
That policy should have been the norm all along. This is an astounding admission, that they were seizing money just because they could without bothering to see if it was the fruit of illegal activity.
One important role of government is to balance the scale of power, to protect the rights of the small and weak from being encroached upon by the big and strong. But what the government is doing by these actions is attacking the small and weak because they are easy prey. In doing so, they are acting like any other corrupt or criminal operation. When stories like this proliferate, is it any wonder that the anti-government zealots can find an audience for their efforts to demonize all government?