How authorities will be monitoring your money

Once subject of intense debate, money-laundering regulations now find broad support to help curb terror.

A new antiterrorist initiative about to be signed into law aims to give law enforcement powerful new tools to detect and thwart terrorists. But it could also bring government much closer to the daily lives of ordinary Americans, especially their conversations and financial transactions.

While such an assault on civil liberties would have set off pitched battles on Capitol Hill in the past, critics were few and far between in the wake of the Sept. 11 attacks. That silence was especially marked in the financial world, which has vigorously opposed stricter disclosure requirements on banks, and now faces the most rigorous money-laundering law in the world.

The new law requires banks to ask, seek out, and disclose more information about their customers than ever before, especially foreign-correspondent banks. Relying on what customers say when they open accounts is no longer enough, experts told a meeting of the American Bankers Association this week.

"It's no longer enough to know your customer. We're now at knowing your customer's customer," says Michael Zeldin, former head of the Justice Department's money-laundering section.

The new law also opens lines of cooperation between banks and the Central Intelligence Agency that were previously forbidden. The CIA and other federal intelligence agencies now will be able to access suspicious activity reports, including movements to or from accounts of American citizens.

"It's the first time the CIA has been invited to participate with open arms in domestic affairs," says Charles Intriago, publisher of Money Laundering Alert.

Much of this new legislation had been in the works before Sept. 11, to give law enforcement a better edge in fighting drug wars - especially a crackdown on foreign banks that use American banking services to launder money for their customers. The aim of a new law is to cut such banks - and the criminals that use them - out of the US financial system. The new law would:

• Require banks to collect more information about their foreign customers - and their customers' customers, including American citizens.

• Make it illegal to smuggle more than $10,000 in or out of the United States. Penalties include five years in prison and confiscation of the money.

• Give the Treasury secretary authority to prohibit correspondent accounts with foreign "shell" banks, if there is evidence that these banks exist primarily for money-laundering purposes. This could make it harder for individuals and businesses to use off-shore accounts for "legitimate tax avoidance," critics say.

• For the first time, securities brokers and dealers will also be required to submit suspicious activity reports.

When federal regulators tried to enact similar rules three years ago, it prompted more than 300,000 written complaints and a great opposition on Capitol Hill. Critics charged that the costs of regulation more than eclipsed the value of information to regulators. Filing all of the money-laundering reports required by the federal government cost industry about $10 billion a year and produced only 932 convictions in 1998, or about $10 million per conviction, according to the American Bankers Association.

But since the attacks on the World Trade Center and the Pentagon, the calculus of the value of convicting a terrorist has changed. While some Texas bankers still tried to derail this bill on the House side, other former critics, such as the ABA, worked behind the scenes to try to ease features of this bill.

"The regulatory burden [these proposals] would impose could be onerous at a time when the health of many actors in the financial sector calls for regulatory relief," says J. Bradley Jansen, of the Free Congress Foundation. "In addition, the tragedy at the World Trade Center took a disproportionately heavy toll on the human resources of many of the companies that would be affected."

Even with new powers, law enforcement may not be able to penetrate the terrorists' secret financial networks, experts say. At least one bank did flag the transfer of some $100,000 into the account of one of the hijackers, but no subsequent action was taken.

In addition, congressional investigators say that terrorists may have relied on traditional underground networks, or "hawala," for their money transfers. The new law requires hawalas to register with the federal government and report suspicious transactions, just like banks. But even congressional sponsors, like Sen. Evan Bayh (D) of Indiana, admit that will be difficult to enforce.

"It is unacceptable that a terrorist today can open the phone book in a number of American cities, find a hawala located in a legitimate business establishment, and walk out with thousands of dollars sent from Afghanistan - with no one to stop him and no record of the transaction," says Senator Bayh.

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