The Treasury Department will soon publish new rules that would pave the way for tracking many electronic money transfers coming in and out of the U.S. As envisioned, the Treasury Department would take all that information, feed it into a giant database, analyze it, and then ferret out patterns associated with terrorism financing. Experts say it isn't clear it is going to work.
Juan Zarate, the first assistant secretary of the Treasury for terrorism financing in the Bush administration, said the new regulations, which would require banks and financial services companies — like Western Union — to automatically provide money-transfer data on all their transactions, are controversial.
"A big debate and an important debate was whether or not we should formulate a new system that allowed for capturing more data and doing it in a way that is more automated," he said. "This is part of an ongoing debate. It is a serious change that has implications for civil liberties as well as what kind of access the government can expect to this kind of financial data."
The Treasury has released the new rules for a yearlong public commentary period. Some critics — from financial executives to civil liberties advocates — are already crying foul. They say the Treasury Department is seeking the financial equivalent of data mining.
Data mining has become the third rail of intelligence surveillance. It gathers massive amounts of information and often perfectly innocent people are caught up in the sweeps. In the case of traditional data mining, this had to do with gathering up e-mails and telephone conversations and other personal information to find patterns that might reveal unknown terrorists.
The concern is that the new Treasury regulations will essentially do the same thing, but with money transfers and bank records. Right now, financial institutions are only required to report transactions that are more than $10,000 in cash — there are about 14 million of those a year. They also regularly file suspicious activity reports with the Treasury when they think something untoward might be happening. Adding every electronic transfer to that pool of information would vastly increase the data the Treasury would be collecting.
"Now you throw on top of it millions and millions of transfers that have no connection to any criminal activity at the start, and there is a real good question as to whether or not data will be held properly, will be protected and will be useful," Zarate said. "You have to ask whether you are adding more hay to the haystack as officials try to find needles in that haystack."
'A Mess Actually To Pursue It'
Marc Rotenberg, the executive director of the Electronic Privacy Information Center in Washington, says the new rules are a mistake and show just how scattershot U.S. terrorism investigations have become.
"When you gather information in this fashion, it generally suggests the government doesn't know quite what it is looking for," Rotenberg said. "So it gathers as much information as it can obtain and then makes a determination afterwards about where to pursue investigations, and I think we've learned this is not an effective strategy."
Rotenberg says European bankers and financial institutions are already complaining. They have resisted U.S. data requests in the past, saying they violate privacy laws in Europe. This proposal, Rotenberg says, makes an already strained relationship that much worse.
"It is quite a mess actually to pursue this," he said. "And I wonder if they might reconsider and withdraw it."
That said, the Treasury Department's proposal does have some supporters. One of them is Eric Lewis, partner at Baach Robinson & Lewis in Washington. His law firm specializes in terrorism financing and money laundering cases. He says criminals and terrorists make end runs against current regulations with such frequency the practices actually have nicknames.
"What you often see happening is a practice known as smurfing; that is where you have people sending money below the reporting threshold," he said. "Smurfing like the little blue character on the cartoon, but not nearly so cute."
Lewis says criminals will send funds to the U.S. in 10 $9,999 increments to avoid detection. The new proposals would help prevent that from happening because all the transfers would be reported regardless of their size.
The new rules would also allow the Treasury to cast a wider net over an informal remittance system that has been at the center of a number of terrorist plots in this country. It is called hawala and is particularly popular in South Asia and Somalia. It basically uses brokers in the U.S. and overseas who can move money with just a phone call. Someone can simply walk into a hawala shop and ask to have $1,000 sent to, for example, Karachi, Pakistan. For a fee, the broker calls someone in Pakistan who makes the money available for pickup on the other end. It is all perfectly legal, but the amounts they work in are generally small, so they haven’t been automatically tracked.
The would-be Times Square bomber financed his plot using small hawala money transfers. So did the Sept. 11 hijackers.
The Treasury is hoping its new rules will make that kind of terrorism financing harder and alert it to these transfers at the beginning of a plot instead of after the fact. Treasury officials expect there will be hearings and more discussion on the new rules they are proposing.