Saturday, April 09, 2005

U.S. Seeks Access to Bank Records to Deter Terror

The New York Times
April 10, 2005
U.S. Seeks Access to Bank Records to Deter Terror

WASHINGTON, April 9 - The Bush administration is developing a plan to give the government access to possibly hundreds of millions of international banking records in an effort to trace and deter terrorist financing, even as many bankers say they already feel besieged by government antiterrorism rules that they consider overly burdensome.

The initiative, as conceived by a working group within the Treasury Department, would vastly expand the government's database of financial transactions by gaining access to logs of international wire transfers into and out of American banks. Such overseas transactions were used by the Sept. 11 hijackers to wire more than $130,000, officials said, and are still believed to be vulnerable to terrorist financiers.

Government officials said in interviews that the effort, which grew out of a brief, little-noticed provision in the intelligence reform bill passed by Congress in December, would give them the tools to track leads on specific suspects and, more broadly, to analyze patterns in terrorist financing and other financial crimes. They said they were mindful of privacy concerns that such a system is likely to provoke and wanted to include safeguards to prevent misuse of what would amount to an enormous cache of financial records.

The provision authorized the Treasury Department to pursue regulations requiring financial institutions to turn over "certain cross-border electronic transmittals of funds" that may be needed in combating money laundering and terrorist financing.

The plan for tracking overseas wire transfers is likely to intensify pressure on banks and other financial institutions to comply with the expanding base of provisions to fight money laundering, industry and government officials agreed. The aggressive tactics since the attacks of Sept. 11, 2001, have already caused something of a backlash among banking compliance officers - and even some federal officials, who say the effort has gone too far in penalizing the financial sector for lapses and has effectively criminalized what were once seen as technical violations.

The initiative, still in its preliminary stages, reflects heightened concerns by administration and Congressional officials about the government's ability to track and disrupt financing for terrorist operations by Al Qaeda and other groups - an effort identified by President Bush as a top priority in the campaign against terrorism.

Terrorist money has been difficult to identify, much less seize, in part because terror operations are conducted on relative shoestring budgets. Planning and operations for the attacks on Sept. 11, 2001, were believed to have cost Al Qaeda $400,000 to $500,000, with no unusual transactions found, according to the 9/11 commission, and the 1998 embassy bombings in East Africa cost only $10,000.

While counterterrorism officials have made some inroads in tracking terrorist money, clear successes have been few and sporadic, experts say, and a number of recent reports have pointed up concerns about the government's ability to deter and disrupt such financing.

"I don't think we really have a full grasp of how to deal with the problem yet," said Dennis M. Lormel, the former head of the Federal Bureau of Investigation's terrorism-financing unit, who is now in the private sector. "The framework is certainly getting better, but in general, we don't have the full capability yet to get at the money."

The federal government has taken a number of aggressive steps since the Sept. 11 attacks to disrupt terrorist financing. It has expanded its list of terrorist-related groups banned from financial dealings with the United States, it has set up new investigative offices to track terrorist financing, and it has required more financial data and tighter compliance from financial industries as part of the antiterrorism law known as the USA Patriot Act and other measures.

Senior officials throughout the administration have emphasized repeatedly that they want the financial sector to be a full partner in the stepped-up efforts to deter terrorist financing.

But in a letter in January to Treasury Department officials, 52 banking associations around the country said that a "lack of clarity" by the government in explaining what is expected of them in complying with regulations to deter terrorist financing and money laundering has "complicated, and in some cases undermined" those efforts.

The result, banking officials say, is that many banks, now in a defensive mode, are sending the government far more reports than ever before on "suspicious activities" by their customers - and potentially clogging the system with irrelevant data - for fear of being penalized if they fail to file the reports as required.

Some smaller community banks have sold out to larger companies for fear of increased liability, banking officials say, and banks have dropped some money-transmittal businesses that do significant business overseas because of the risk. Some executives, meanwhile, are steering away from serving on bank boards, concerned that they will be hit with punitive measures, banking industry officials say.

"It seems like the rules keep changing on us, and there's a lot of confusion and anxiety in the industry about what constitutes a proper compliance program," said John Byrne, who oversees compliance issues for the American Bankers Association.

Of particular concern to industry officials are five criminal enforcement actions in the last several years against banks for failing to comply with laws to combat money laundering. None of the cases involved terrorist financing, but prosecutors say most centered on egregious lapses by banks in turning a blind eye toward possible money laundering, for instance, by accepting duffel bags from drug dealers with hundreds of thousands of dollars in cash.

Tensions over the issue broke into public display last month in Hollywood, Fla., at a conference sponsored by Money Laundering Alert, an industry newsletter, as even some federal officials expressed sympathy for the bankers and criticism of what they characterized as overly aggressive tactics by the Justice Department.

By sharply increasing prosecutions against banks over compliance failures, "law enforcement is shooting the messenger," said Herbert A. Bierne, a senior enforcement official with the Federal Reserve System's board of governors. "You shoot the messenger, you stop getting the messages."

The Federal Reserve System has begun meeting with Justice Department officials to resolve internal friction over the enforcement actions, and it is seeking changes that would require such prosecutions to be overseen by Justice Department officials at headquarters in Washington, rather than at the discretion of federal prosecutors in the field, officials said.

Lester Joseph, a Justice Department official who oversees money-laundering cases, told the conference that the department, despite its keen interest in tracking terrorist financing, has no interest in singling out banks for technical violations and has begun no concerted crackdown.

But he added, "When we detect evidence of what we perceive as a crime, we're going to pursue that."

The Treasury Department's Financial Crimes Enforcement Network, or Fincen, which is leading the effort to gain access to international wire transfers, has created a working group with about 20 employees, begun meetings with the Federal Bureau of Investigation, the Department of Homeland Security and other agencies, and developed a general concept for how to proceed. Officials also have begun looking at similar models in Canada and Australia.

A final plan is not expected until the end of the year, and a senior official at Fincen, speaking on the condition of anonymity because the plan is still in development, acknowledged in an interview that numerous logistical and legal issues must still be worked out.

For instance, although some rough estimates cited by Fincen suggest that there are at least a half-billion international wire transfers a year totaling trillions of dollars, officials want to develop clearer data. The financial data demanded by Fincen is likely to total several hundred million records, and the agency wants to minimize the logistical and financial disruption to banks, officials said.

Officials are looking at whether to give higher priority to wire transfers from the Middle East or other regions considered high risk, but they said they want to avoid provoking a public outcry over charges of ethnic profiling or driving terrorist financiers out of banks and into underground markets.

Advocates see the international transfers as a vital tool in tracking terrorist financing.

"The idea is for the government to make it more difficult and more risky for terrorists to move money, and right now international wire transfers provide the fastest, cheapest and most reliable way for the terrorists to do that," said John Roth, a former staff member for the Sept. 11 commission and a co-author of its terrorist financing report.

But some within the financial industry are skeptical.

"This strikes me as a fruitless exercise, an impossible task," said Charles A. Intriago, a former federal prosecutor who runs Money Laundering Alert. "This risks further burdening the industry, and it's tough to see how it will produce much if any useful data for the government in tracking terrorist financing."