NON‐CASH ALTERNATIVES AND MONEY LAUNDERING; AN AMERICAN MODEL FOR CANADIAN CONSUMERS’PROTECTION
| DOI | http://doi.org/10.1111/j.1744-1714.1992.tb00659.x |
| Published date | 01 September 1992 |
| Author | MARGARET SAMUEL |
| Date | 01 September 1992 |
NON-CASH ALTERNATIVES AND MONEY
LAUNDERING; AN AMERICAN MODEL FOR
CANADIAN CONSUMERS’ PROTECTION
*MARGARET SAMUEL
INTRODUCTION
The illegal drug trade, to which money laundering
is
closely tied,
generates billions of dollars each year,’ and the benefits
are
enjoyed,
not by the drug users, but by the people who profit from the
laundering of this money.2 Article
1
of the European Community
Directive
“on
prevention
of
the use of the financial system for the
purpose of money laundering” defines money laundering as
the
conversion
or
transfer
of
property, knowing that such property
is derived from criminal activity
or
from an act of participation in
such activity,
for
the purpose of concealing
or
disguising the illicit
origin
of
the property
or
of
assisting any person who
is
involved in
the commission
of
such an activity to evade the legal consequences
of
his action, the concealment
or
disguise of the true nature, source,
location, disposition, movement,
rights
with respect to,
or
ownership
of
property, knowing that such property
is
derived from criminal
activity
or
from an act of participation in such activity, the acqui-
sition, possession
or
use
of
property, knowing,
at
the time
of
receipt,
that such property was derived from criminal activity
or
from an
act
of
participation in such activity, participation in, association
to
commit, attempts
to
commit and aiding, abetting, facilitating and
*
Pacey. Deacon, Spears and Fedson. Toronto, Canada.
I
Sarah
N.
Welling,
Smurfs,
Money
Lau,wdering,
and the Federal Criminal
Laui:
Evan Thompson.
Dirty
money
in
Canada: our banks’ proactive stand,
97
CANADIAN
The
Crime
of
Stnuhring Transactions.
41
FLA.
L.
REV.
287, 292 (1989).
BANKER, Mar.-Apr.
1990
at
6.
7.
170
I
Vol.
30
I
American
Business
Law
Journal
counselling
the
commission
of
any
of
the
actions mentioned
in
the
foregoing paragraphs:
Indeed, money laundering is detrimental primarily because it permits
perpetrators of the underlying illegal acts to profit from their activ-
ities by concealing from law enforcement authorities the illicit source
of funds.
Thus the Financial Action Task Force? has made a series of recom-
mendations to combat money laundering. One of these is the encour-
agement of non-cash transactions. From the standpoint of payors and
payees,
as
well
as
from the standpoint of law enforcement, the debit
card seems to be the most attractive alternative to cash. However,
an analysis
of
the history of cash reveals the possibility that the
debit card is strikingly similar to the original form of paper money
and, therefore, may evolve into a form of cash, hence frustrating
attempts to trace payment transactions and to identify the illegal
sources of funds laundered.
Combatting money laundering may be the most significant contri-
bution that the financial community can make to the war against
illegal drug use and other crimes. However, the encouragement
of
non-cash transactions, in itself, is unlikely to have
a
significant long-
term effect in combatting the underlying illegal activities. Indeed,
given the lack of Canadian legislation governing debit cards, the
encouragement of non-cash transactions in effect may subject con-
sumers to undue manipulation by the more sophisticated and powerful
financial institutions that write contracts governing such transactions.
In order to avoid exploitation of the asymmetrical power between
such institutions and consumers, Canadian legislators must intervene
to define the rights and obligations of parties to debit card and other
payment transactions that
are
inadequately governed by existing
laws. If not, any effort to encourage non-cash transactions through
governmental intervention
or
otherwise may have the additional
inadvertent effect of permitting financial institutions to exploit con-
sumers. The Electronic Fund Transfer Acts of the United States
serves as a valuable model of legislation that protects the interests
Council Directive 91/308. 1991
O.J.
(L
166)
77,
78.
The multilateral Financial Action Task Force analyzed current and proposed
additional ways
to
combat money laundering internationally.
It
was
convened by the
G-7
as a result
of
concern about the magnitude
of
money laundering recognized at the
fifteenth annual Economic Summit in Paris in 1989. FINANCIAL ACTION TASK FORCE
ON
MONEY LAUNDERING, REPORT 1 (1990) [hereinafter FATF].
15
U.S.C.
§§
1693-1693(r) (1988).
1992
I
Money
Laundering
I171
of
consumers while attaining both economic efficiency and social
equity.
This article examines the steps taken by some countries to combat
money laundering.
It
also evaluates the recommendation by
the
Financial Action Task Force that non-cash transactions be encour-
aged. In addition, it analyzes the modern alternatives to cash
trans-
actions
-
checks, wire transfers, and payment cards, particularly
debit cards
-
in combatting money laundering. The article concludes
that if the Financial Action Task Force recommendation is followed,
and alternatives to cash are encouraged, debit cards
are
likely to fill
an important role as this alternative. However, money launderers
may begin to
treat
debit cards
as
cash, thus frustrating attempts to
trace payment transactions undertaken with debit cards. Regulation
such as the United States Electronic Fund Transfer Act6 will be
required to protect consumers from potential abuse and error with
respect to this payment mechanism.
MONEY
As
F.A. Mann states, “[mloney is
a
chattel per~onal.”~ Indeed, the
“payment of money in the discharge
of
a
debt is very much like
the
sale
of
a
chattel; it is a transfer of property for a price.”* However,
because it has currency, money is not an ordinary chattel? Currency
is the primary legal feature of money and is an exception to the
principle
nemo
dat
quod
non
habet:
Currency can be described
as
the transferability
of
money from
hand
to hand, in payment of debts,
free
from claims
to
it
on the
part of all persons, including prior owners
or
possessors.1o
Therefore, “in case of money stolen, the true owner cannot recover
it
after it has been paid away fairly and honestly upon a valuable
and bona fide consideration.”11 The transfer of money that has been
b:
Id.
FRITZ ALEXANDER MANN, THE LEGAL ASPECT
OF
MONEY 8 (4th ed. 1982).
Benjamin Geva,
From Commodity
to
Currency in Ancient Historyon Commerce.
Tyranny.
und
the
Modern
Law
of
Money,
25
OSGOODE
HALL
L.J.
115 at 117, 144
[hereinafter
From
Commodity].
9
Indeed, money
is
excluded from the definition
of
“goods” in Section l(h)
of
the
Sale
of
Goods Act
of
Alberta: “‘goods’ includes
. . .
all chattels personal other than
things in action
or
money
.
. .
.”
R.S.A. 1980, c.
S-2.
This exception
is
also found in
England, the United States, and Ontario.
I‘
From Commodity.
supra
note
8,
at 117. 144.
See
also
Margaret Samuel, “Money
May Not Stink But Cash Does: Alternatives to Cash Transactions in the Fight Against
Money Laundering,” 7
J.
INT’L
BANK
L.
274
(1992).
Miller v. Race, 1
Burr.
452, 97 Eng. Rep.
398
(1758).
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