Money laundering made easier


Jay Bender

By Jay Bender

Money laundering had its origins with crime syndicates.  Former SLED chief Robert Stewart said that one of the dangers of South Carolina’s legalization of video poker was that it provided a state-wide network of money laundromats.

A video poker operator would report receipts for a poker machine, pay the taxes on the money received, and the money would be cleansed of any taint related to the source of funds.  Stewart said in some instances the receipts reported for a machine would have required feeding large denomination bills into the machine around the clock every day.

Where did the money being laundered come from?  Most likely from the drug trade or other criminal enterprises that dealt in cash.

Money laundering in South Carolina has not been limited to criminal enterprises.  In the late 1980s the Carolina Research and Development Foundation received $2 million from the sale of the Wade Hampton Hotel which was owned by the University of South Carolina.  The Foundation also received a $16 million grant from the federal government and almost $6 million in grants from the City of Columbia and Richland County.

The Foundation resisted requests to disclose how it was spending its money, arguing that it was a private corporation.  The Supreme Court of South Carolina, in a 1991 opinion disagreed, and said in essence, “Follow the money.”  Since the Foundation received public money, it was required under the Freedom of Information Act to disclose how the money was being spent.

Once the Foundation’s records were retrieved from the City of Columbia landfill where they had been “mistakenly” deposited, it became clear why the Foundation wanted its expenditures kept secret.  The Foundation was engaged in activities beneficial to the University of South Carolina, but its treasury was also serving as a slush fund to provide gifts and speaker fees to politicians—gifts and fees that might have been considered unethical or illegal even under our state’s lax standards for public officials. 

In other words, the money was being laundered.  Public money was being cleansed of its public origin and treated as private funds for purposes that would have been questionable if not illegal with public funds.

Is there laundering of public money today?  Probably, but organizations such as chambers of commerce receiving millions of dollars annually in accommodations tax revenue argue that they are private corporations not required to disclose how the tax money they receive is being spent.

The Supreme Court of South Carolina ruled Wednesday in a case brought against the Hilton Head Island-Bluffton Chamber of Commerce to force that organization to disclose how it spent tax money and a $1 million grant from the State of South Carolina. The Supreme Court ruled that the organization was not a public body subject to the Freedom of Information Act disclosure requirements.   The trial judge had ruled that the Chamber must disclose how the money is being spent.  The Bluffton-Hilton Head Chamber appealed, and its appeal was supported by the Greater Myrtle Beach Chamber of Commerce, another recipient of large sums of accommodations tax revenue.  The Supreme Court ruled in a divided opinion that the General Assembly had created an exception from the general disclosure requirements for private entities that received accommodations tax funds.

It is impossible to follow the money these organizations receive as the disclosure required by the governmental entities funneling the public money to the chambers is a sham.  For example, the Bluffton-Hilton Head Chamber reported in 2012 that it had an expenditure of public money in the amount of $263,792 for “Leisure Media & Promotions.”  Who got the money?  What was provided in return?  Nothing disclosed by the chamber provides an answer to these questions.

How would money laundering work in this environment?  The indictment of Sen. John Courson is instructive.  Courson is accused of making payments from his campaign account to a political consultant.  According to the indictment the consultant in turn kicked some of the money back to Courson.  If that is true, campaign money was laundered and became clean money for personal use by Courson.

How could it work with accommodations tax money?  The entity receiving the tax money could contract for some vague purpose, such as “Leisure Media & Promotions,” receive a “discount,” “rebate,” or “refund,” and the public money coming back would be cleansed for uses that would be illegal with public money, for example campaign contributions to candidates favored by the organization.

Does that happen?  We don’t know because we can’t follow the money, but the Supreme Court’s majority endorsed a scheme it said was created by the General Assembly to allow millions of dollars of tax money to go to private organizations subject only to the oversight of the officials who transferred the money in the first instance.  Oversight provided by the very folks who might be the recipients of donations from laundered funds.

Now, it is possible that the Supreme Court majority got it wrong, and the General Assembly did not intend to create a laundromat for public money generously transferred to private entities.  If members of the General Assembly believe as the FOIA says, that it is vital in a democratic society that public business be conducted in an open and public manner, including the business of spending public money to promote tourism, the fix is simple.  Amend the accommodations tax statute to state clearly that any organization receiving accommodations tax funds from a governmental body is a public body subject to the disclosure requirements of the FOIA.

If the General Assembly won’t take that step, we would be justified in believing that some of the laundered money is finding its way into the pockets of members of the General Assembly.

 

Jay Bender is a retired University of South Carolina professor and media lawyer who represents the S.C. Press Association and its newspapers.

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