K I W I   R E P O R T   0 0 5
(Keeping Individuals Well Informed):

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U.S. GOVERNMENT DECLARES WAR ON CASH:
"Whenever any form of government becomes destructive...
It is the right of the people to alter or abolish it."
[Declaration of Independence (1776)].

Using the "War on Drugs" as justification, the U.S.
Government is tightening the screws on cash transactions.
The fear is that the next step is a "cashless society,"
where surveillance is easy.

Government bureaucrats don't like cash transactions.
After all, cash is difficult, if not impossible, to trace.
Cash makes it easier to do business "off the books" without
paying taxes.  In short, cash is a private way of doing
business, and the United States Government doesn't like too
much privacy.

To fight cash, the United States Government has adopted
legislation to discourage its use.  The Bank Secrecy Act,
for example, requires banks and other financial institutions
to report cash transactions over $10,000 and any other
"suspicious cash transactions."  [Subsequently amended to
lower the threshold level of "suspicion" to cash
transactions over $3,000]  The Act also considers money
orders, cashier's checks and traveler's checks as "cash."

Amendments to this Act enlist ordinary businesses for
the war on cash.  The new cash reporting form for business,
Form 8300, even requires merchants to report "suspicious
transactions" by their customers.  No one is exempt, not
even your attorney!  The money you pay your defense attorney
can now serve as the "smoking gun" to convict you of a
crime.

Section 1957 of the Money Laundering Control Act states
that merchants who accept cash from customers they suspect
of committing a crime may themselves be entering into
criminal conspiracy.  But if you refuse to do business with
someone you suspect of a crime, you may be sued for
discrimination!

Forfeiture laws adopted in the 1980s give the federal
government the right to seize cash "tainted" by drugs.  Yet
analysis by the Drug Enforcement Administration's own labs
shows 90 percent of all cash in circulation is drug tainted.
Does this make cash illegal?  You be the judge!


NEW DIRT ON MONEY LAUNDERING
By definition, money laundering is any action you take
to disguise cash tied to an illegal activity.  Obviously,
income tax evasion is an illegal activity.  So, if you earn
cash that you fail to report on your tax return, you're not
just a tax evader, you're a money launderer.

Money laundering now includes the deposit and/or use of
cash on which taxes have not been paid, and violators are
threatened with prosecution.  And the maximum 20-year prison
term and $500,000 fine for money laundering is far harsher
than the maximum penalties for tax evasion.  Moreover,
convictions are far easier to obtain, since "money
laundering" and "drug crimes" are inexorably linked in the
minds of juries.

By far, the most insidious money laundering crime is
"structuring", defined as any act taken in order to avoid
filling out a currency transaction report (Form 4789 for
banks, Form 8300 for other types of businesses).  This might
seem a fairly trivial offense, but fines run up to $25,000
per violation, in addition to forfeiture of the funds
involved.

This statute, for all practical purposes, makes any
attempt to protect financial privacy from government
financial inquisitors unlawful.  And because the structuring
law is worded vaguely, not even Internal Revenue Service
agents are sure what it means.

It is clear from IRS regulations that a person
depositing $2,900 in cash into an account on two consecutive
days is "structuring" his transactions.  But six consecutive
$490 deposits may be considered structuring as well.  The
regulations don't address this specific possibility, or any
of an infinite number of other possibilities.

One of the first individuals prosecuted for structuring
was Charles Scanio, an ordinary citizen who attempted to pay
off a $13,000 loan in cash without filing a currency
transaction report.  The government never claimed that
Scanio had any criminal intent.  Even so, he was convicted
of the offense, and his money was FORFEITED TO THE IRS.


NEW CASH CRIMES
The latest salvos against cash come in the form of 13
proposed anti-money laundering bills introduced in the
current Congress.  The most comprehensive bill is HR-26, the
Money Laundering Enforcement Amendments.  If enacted, this
bill will:

     (1)  Prohibit banks from informing customers of an
investigation of their financial records by any government
agency;

     (2)  Permit the government to seize bank accounts or
cash whose origins or transaction records were suspicious,
without a trial;

     (3)  Greatly expand the definition of "structuring" by
making it illegal to arrange transactions to avoid IRS
reporting requirements for money transferred outside the
U.S.  Currently, structuring is illegal only when it
involves a U.S. financial institution; and

     (4)  Require the Treasury Department to recall all $50
and $100 bills, and to study proposals for a dual currency;
one to circulate inside the United States, another currency
for use outside the country.

     HR-950, the Money Laundering Control Act, duplicates
many of the provisions of HR-26, but would also:

     (1)  Permit customs officials to conduct body searches,
open mail, and inspect the private correspondence of anyone
entering or leaving the United States; and to seize cash or
monetary instruments it finds, all without a warrant; and

     (2)  Require the Treasury to study proposals for a
"more traceable" currency.

     HR-3326, the Drug Supply Reduction Act, contains the
most incredible provision of all.  It would permit the
government to confiscate your car or boat if it contains any
hidden compartments "not part of the normal vehicle
configuration".  Such compartments might conceivably be used
to hide drugs or "illegal cash", according to the Bill's
sponsors.  (Do you own some tools you don't want to leave in
the back of your pickup truck?  Don't construct a "hidden
compartment" to put them in, your truck might be seized!)


MAGNETIC MONEY
If the government can't end the use of cash overnight,
the next-best solution from a bureaucratic perspective might
be to require all citizens to use currency whose movements
can be tracked.

The first example of a new, "more traceable" currency,
the $100 bill, was introduced in 1991.  The new $100 bills
contain a microscopic line of print circling the portrait in
the center of the bill and a tiny thread running vertically
down the left side of the bill.  The bills also contain
magnetized ink.  New $20s and $50s were introduced in early
1992.

The polyester thread running down the left side of the
bill is interwoven with magnetic threads.  Moreover, these
threads are capable of being encoded with messages, a Social
Security number, for instance.  At least some U.S. banks are
said to be already equipped with machines capable of
"reading" the messages.

Now that the new money has been introduced, the next
step might be for an outright recall of the "old money".  In
1989, a suggestion for a currency recall came from former
Treasury Secretary Donald Regan, who recommended that all
$50 and $100 bills be recalled and replaced with a new
currency.  The changeover should occur in a ten-day period.
Regan proposed, and the old money would no longer remain
legal tender after that time.  Furthermore, Regan
recommended that anyone turning in more than $1,000 in old
bills be required to prove that all taxes on the cash had
been paid, and that the cash had not been generated through
illegal activity.  Otherwise, the funds would be impounded
by the IRS, and their former owner would face further
investigation.

Shortly after the Regan proposal was made public
Senator John Kerry (D-Mass) introduced an act that called
for machine-readable bar codes on all U.S. currency, so that
all $20s, $50s, and $100s would be "more traceable".  Kerry
recommended that serial numbers on these bills be tracked by
optical scanning devices such as those used in grocery store
checkout counters.  In this manner, perhaps in combination
with a national ID card, the identity of the individual
spending the currency could be ascertained.

Today, the tools are in place to put into effect
Regan's and Kerry's suggestions.  If a sudden currency
recall were to take place, it would presumably be justified
as part of the "war on drugs".  And once the old money had
been recalled, the Treasury could announce that money
laundering, for all intents and purposes, had been
eliminated.


A LICENSE TO PRINT MONEY
But the recall could have a much more sinister purpose:
the introduction of a two-tiered currency--a "domestic"
currency to circulate in the United States, and an
"international" currency to circulate abroad.  The two-
tiered system could also be justified as providing a
permanent end to the money laundering problem.  The real
reason for the changeover, however, would have nothing to do
with money laundering.  The real reason would be to
establish a two-tiered exchange rate for the dollar.

At first, the values of the domestic and international
dollars would be equal.  However, the use of a currency that
could not leave the country except under restricted
conditions would permit the Federal Reserve and the Treasury
to inflate away the government's gargantuan debts and
unfunded obligations, using the power of the printing press.
This would rapidly depreciate the value of the domestic
currency against the international currency.

A law on the books for nearly a decade makes this kind
of debasement completely legal--and the U.S. dollar has
already lost more than 90 percent of its value in relation
to gold in the past 60 years.  U.S. Public Law 96-221, the
Depository Institutions Deregulation and Monetary Control
Act of 1980 added "bills, notes, revenue bonds and warrants
with a maturity date not exceeding six months...by a foreign
government or agency thereof" to the list of items
constituting "legal monetary reserve" for the U.S. money
supply.

In other words, it is perfectly legal for the U.S.
government to simply buy or borrow a few trillion dollars'
worth of foreign bonds denominated in the Russian ruble,
Brazilian cruzeiro, or any other Third World currency.  It
could then use these "assets" as a "legal monetary reserve"
in order to print as much currency as is required to meet
the obligations for the welfare state.

Moreover, the Fed could allow the international dollar
to float in the international currency markets.  U.S.
Treasury securities issued for purchase by foreigners would
be denominated in this new currency, perhaps even backed by
gold.  This would have the effect of greatly increasing
foreign purchases of U.S. Treasury debt which have declined
from net purchases of $75 billion in 1988 to less than $5
billion in 1991.

Treasury securities held by U.S. citizens would be
denominated in the virtually worthless, non-gold-backed
domestic currency.  Only selected banks would be authorized
to exchange domestic dollars for international dollars, and
the amount of currency that could be exchanged at one time
could be made progressively smaller.  The domestic dollar
would become a "blocked" currency, no longer freely
exchangeable in world markets.

Currency recall could touch your life directly, even if
you don't think you have anything to hide.  Millions of
citizens have perfectly legitimate reasons to hold cash.
For instance, many people who experienced the Great
Depression firsthand recall that thousands of banks failed
during those years.  Anyone who lost money in a failed bank,
or fears that the government could someday violate current
deposit guarantees, might prefer to keep his or her money in
cash.

If you think that there would be massive opposition to
a new money conversion, opinion polls show otherwise.
Market Facts, a market research company, revealed enormous
public support for any currency exchange that was part of a
fight against counterfeiting or drug trafficking.
"Conservative" columnists such as William Safire have gone
on record as favoring currency recall to fight money
laundering.  And when former Treasury Secretary Regan
proposed his recall of all $50 and $100 bills, his
suggestion met with virtually no criticism outside the
alternative press.


THE  ULTIMATE  BUREAUCRATIC  GOAL
One way for bureaucrats to do away with cash is to make
possible substitutes very convenient.  Today, credit cards
and personal checks have eliminated most cash transactions.
And tomorrow, electronic "debit cards" promise to eliminate
the rest.

With a debit card, purchases are paid for with a card
read by a merchant's computer terminal.  Your bank account
is debited automatically for the amount of purchase and the
merchant's account is simultaneously credited the same
amount (minus a service charge).  The process is neat,
simple, and all the paperwork is done automatically.  A
paper trail on every item you purchase is created.  But if
you are making a purchase or contribution that you wish to
keep private, then you have a problem.

Debit cards are popular with merchants because they
provide an instant, foolproof credit that is applied to
their account.  Credit card chargebacks and bounced checks
are eliminated.  Debit cards also permit a merchant to
categorize his customers by what they purchase and how much
they spend, allowing the merchant to direct his marketing
efforts appropriately.

Banks like debit cards because they can deduct a
service charge for each transaction.  Banks are already
imposing service charges for use of automatic teller
machines (ATMs), which are nothing more than debit card
terminals.

Marketing firms like debit cards since the profile
created from individual purchases will create a much more
detailed picture of consumer spending patterns than is
currently available.  And government bureaucrats like debit
cards because they eliminate cash and permit much more
detailed financial surveillance.

Debit cards won't eliminate cash overnight.  But their
convenience will make them a hot product of the 1990s and
beyond.  A national debit card system is already in use in
France.  Canadian banks intend to launch a national debit
card system as well.  A recent agreement between a dozen of
the largest regional ATM networks would set up a national
debit card system that would allow consumers to instantly
deduct purchases from their checking accounts anywhere they
travel.  In the near future, you will hear much more about
debit cards.


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