Show Us Your Money

The USA PATRIOT Act lets the feds spy on your finances. But does it help catch terrorists?

John Berlau from the November 2003 issue

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Fears that the BSA would swamp law enforcement with data were expressed from the beginning. The federal court decision striking down the law's reporting requirement (issued, coincidentally, on September 11, 1972) called the BSA a "far-fetched" way to catch criminals and warned that it could be counterproductive. The court quoted an IRS commissioner as saying that "the creation of a mass of paper beyond our capacity to utilize could have the effect of submerging and making unobtainable information of special interest to us."

Despite such concerns, financial surveillance has been massively expanded during the last 30 years, while other intelligence-gathering techniques, such as the use of informants, have been sharply restricted. The Treasury Department's BSA regulations required banks, subject to some exemptions, to file a currency transaction report on every cash transfer of $10,000 or more. In the 1990s, the department established FinCEN, which expanded the regulations to require that banks file "suspicious activity reports" on all transactions of $5,000 or more if they have "no apparent lawful purpose or are not the sort in which the particular customer would normally be expected to engage." Banks are forbidden to notify customers about the reports. "In effect, bankers have been drafted as spies and snitches," wrote banking industry consultant Bert Ely in a 2002 paper for the conservative Free Congress Foundation.

"Know Your Customer" rules, proposed by FinCEN and the Federal Reserve in 1998, would have required banks to profile every customer's "normal and expected transactions" and report the slightest deviation to the feds. The rules were withdrawn after the Libertarian Party, the ACLU, and other groups helped generate 300,000 public comments in opposition.

But according to Wired magazine, as of 1999 more than 88 percent of U.S. banks already had "Know Your Customer" policies in place to satisfy regulators who looked at their suspicious activity reports. And after the September 11 attacks, regulators began openly using the phrase again. At an American Bankers Association conference in October 2001, Federal Reserve Bank of Atlanta Vice President Suzanna Costello told the audience her agency was "looking for...effective Know Your Customer" programs at the banks it regulates. "A year ago, I wouldn't have even said 'Know Your Customer,'" she said. "But I see that it's back."

The Citizen-Soldier Burden

Customer surveillance is not just at banks anymore. In his dissent in the California Bankers Association case, Justice Douglas made a sarcastic suggestion that turned out to be prophetic:

"It would be highly useful to government espionage to have reports from all our bookstores, all our hardware and retail stores, all our drugstores....What one buys at the hardware and retail stores may furnish clues to potential uses of wires, soap powders, and the like used by criminals."

Even before 9/11, FinCEN had put out a rule applying the "suspicious activity" reporting requirement to any establishment that processed money orders or sold smart cards, including convenience stores. The PATRIOT Act extended the requirement to many more businesses. FinCEN, pursuant to the act, recently put the "suspicious activity" reporting rules into effect for brokerage houses, and real estate transactions are next on the list. The law also specifically covers casinos, credit card agencies, and life insurers. In the next few months, the Broward Daily Business Review reports, "the Treasury Department will decide whether the act covers travel agents, automobile dealers, mutual funds and dealers in precious metals and stones." And under the law, virtually all businesses, including the "hardware and retail stores" mentioned by Douglas, now have to report to the government any cash purchases over $10,000.

Treasury Department General Counsel David Aufhauser explained the new reporting requirements this way in a 2002 interview with The Washington Post: "The Patriot Act is imposing a citizen-soldier burden on the gatekeepers of financial institutions." He justified this burden by arguing that "they are in the best position to police attempts by people who would do ill to us in the U.S. to penetrate the financial system."

Few politicians, even among those who have criticized other parts of the PATRIOT Act, are willing to challenge the proposition that businesses should be deputized to spy on their customers. The late Justices Douglas, Brennan, and Marshall might be shocked that liberal Democrats in Congress such as Sens. Carl Levin of Michigan and Paul Sarbanes of Maryland have been the biggest proponents of expanding the Bank Secrecy Act. They see it as a way of targeting wealthy people who pay less than their "fair share" in taxes by moving some of their investments overseas. The only member of Congress who has gone on record in support of repealing the BSA entirely is Rep. Ron Paul (R-Texas).

Yet given the BSA's track record, experts say there's no reason to believe the new financial surveillance measures will stop the next attack. They could simply swamp law enforcement with even more useless data. The critics say reporting mandates have flooded the government with massive volumes of irrelevant information, such as reports on the "suspicious activities" of law-abiding customers withdrawing large amounts of money for medical treatment or depositing thousands of dollars in casino winnings, and have not been effective in either attacking the drug trade or preventing terrorist attacks.

J. Michael Waller, vice president of the Center for Security Policy, a hawkish D.C. think tank, is usually not in sync with the ACLU. He fully supports Attorney General John Ashcroft's detention of Arab visitors and advocates targeted ethnic profiling. But he calls the BSA's routine mass surveillance measures "really, really dumb."

"To me, it's just a well-intentioned thing with no cojones behind it," says Waller, who is also a professor of international communications at the Institute of World Politics in Washington. "It's a huge burden on the banks. It could mean that every time somebody trades in some stock and just buys other stock with the same money, it's got to be reported to FinCEN. [FinCEN bureaucrats] are giving themselves millions of times more information than they can possibly handle or analyze....What if you get a $25,000 or $50,000 book advance? 'Oh, that's an anomaly; let's look at this guy.' Think of the probably millions of anomalies occurring every day. It's really stupid."

Hawala Bungle

Although it was not one of the agencies covered in the 9/11 report, FinCEN had its own intelligence failures, and they cast light on how effective the expanded financial reporting mandates might be. In the months prior to 9/11, FinCEN appeared to be choking on the flood of bank reports it received. In the March 25, 2002, issue of Insight, Jamie Dettmer reported that "Treasury sources say there is a two-year backlog of SARs [suspicious activity reports] still waiting to be entered into the agency's computers." In addition, several banking compliance officers told him "they were unaware of any SARs they'd filed being followed up by federal investigators."