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| Thought Leaders: Policy |
Recurrent Suspicion
Ibrahim Warde
11/01/2007
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You might recall the time in 2004
when former presidential candidate Bob Dole learned that Riggs National Bank had
been filing suspicious activities reports (SARs) notifying the Financial Crimes
Enforcement Network, or FinCEN, a division of the Treasury Department, that he
had been making cash withdrawals averaging $12,000 a month from his account.
There was nothing nefarious about such transactions—Dole simply preferred cash
over credit cards or checks.
Frank Carlucci, chairman emeritus of the Carlyle Group, learned
three years ago that he, too, had been a victim of the banking sector’s newfound
zeal. "Having been the national security advisor, the deputy director of the CIA
and the secretary of defense, I am an unlikely prospect for helping terrorists,"
he remarked. "I just use a lot of cash, that’s all."
U.S. banks must secretly notify FinCEN of any cash transaction exceeding $10,000 or any transactions that do not fit a client’s profile
(deposit and withdrawal patterns consistent with one’s occupation). Just about
every country now has a FinCEN-like agency that operates behind a veil of
secrecy. Indeed, anyone inside a bank who informs the customers about such
filings is breaking the law.
When Congress enacted stringent bank reporting laws following
the Sept. 11 attacks, expanding greatly upon the provisions of the 1970 Bank
Secrecy Act, the Wall Street
Journal warned that "laws that target 100
percent of the population to control the behavior of 0.001 percent are also
seldom productive, not least because they tell the 0.001 percent how not to get
caught." It is estimated that more than 1 million SARs are now filed every year
in the United States at an annual cost of $8 billion to banks and $3 billion to
other industries. Most of the reports go unread and unprocessed. Furthermore,
there is no evidence that a single act of terror was foiled through information disclosed by those reports.
A Paper Bag Economy
Clearly, the system needs a major overhaul. To start, let’s
clear up the common confusion between money laundering and terrorist financing.
Money laundering, which is hiding the proceeds of crime in the financial system,
was criminalized in 1986 in the midst of the war on drugs. The anti-money
laundering arsenal grew exponentially, albeit with scant results. When George W.
Bush became president, most of his economic advisors were bent on dismantling
the anti-money laundering apparatus.
But after Sept. 11, the same advisors expanded it with the zeal
of new converts, uncritically transposing the money laundering template to the
fight against terror. A new acronym appeared—AML/CFT, for anti-money laundering
and combating the financing of terrorism—making the two nearly
indistinguishable.
In reality, terrorism is neither costly nor driven by financial
profit. The Sept. 11 terrorists needed only $300,000 to cause massive destruction; the London subway attacks of July 2005 cost less than $1,000.
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