Bankers and regulators at a recent Bankers' Association for Finance and Trade (BAFT) conference debated the strategic issues facing the industry in the new regulatory and economic environment for global financial institutions.
The result: in the ongoing war on terrorism, banks and their technology providers can best serve the government by acting as a tripwire for criminals attempting to infiltrate the world financial system.
"The ultimate endgame is creating an overall picture-a mosaic-of the terrorist financing that exists," said Deputy Assistant Secretary of the Treasury Juan Zarate.
The anti-terrorist crackdown has resulted in the seizure of $8 million in bulk cash and the freezing of over $80 million in suspected terrorist funds.
So far, 140 countries have cooperated in the effort to shut down terrorist financing. "An international anti-money laundering regime is only as strong as its weakest link," said Rep. Michael Oxley, chairman of the House Committee on Financial Services. "Our challenge is to get other nations to match our commitment to stopping dirty money."
For its part, the Treasury has increased its ability to act upon the suspicious activity reports, or SARs, that banks have long been required to file. Now that broker-dealers and the approximately 150,000 money services businesses in the U.S. also must file SARs, streamlining the filing process has become an early and important priority. "We are desperately trying to move from the paper-filing world to the Internet environment," said William Baity, deputy director of FinCEN, a division of the U.S. Treasury that supports the financial aspects of law enforcement investigations.
Since FinCEN collects information from several law enforcement agencies both at home and abroad, merging and scrubbing lists of suspected criminals poses an additional technology challenge. "There are more lists out there than you can imagine," said Baity. "There's been some effort to make sure that they are the ones that law enforcement's after."
However, even a well-targeted list of suspects can cause problems for banks. "Law enforcement is giving banks information which they may use to deny credit or close out deposit relationships," said Jeri Davis, senior vice president and assistant general counsel at Wachovia, Charlotte, N.C., "Mere suspicion should not be enough for this." Davis noted that she was expressing her own opinion, not necessarily that of the bank.
Along with getting more solid information on their customers' known criminal activities, banks require a decision from FinCEN on whether or not to continue doing business with individuals or companies for whom SARs are filed. "We are often asked to maintain the accounts open," said Davis. "That's law enforcement's best means of finding out what's going on."
But that's not a costless request, especially if funds in the account are eventually frozen. "When the account is an individual account where there are not third parties involved, there is less stress on the institution to do that," said Davis. "Where it's a clearing account, or many wire transfers are going through, this is a difficult call for many financial institutions."
The USA PATRIOT Act has already increased the financial burden involved with simply managing all correspondent accounts, let alone those under suspicion. "For each of our foreign bank customers...we not only have to know the ownership of that institution, but know all of their customers and look at their due diligence, and/or conduct it ourselves," said Richard A. Small, director of global anti-money laundering at Citigroup.
Furthermore, turning down a client based on enhanced due diligence puts banks at a potential competitive disadvantage. "If we say no, that bank might become the client of some other bank," said Savario Mirarchi, director of global compliance at Bank of New York. "We don't have anything in place to prevent that."
"It could ultimately endanger the U.S. position as the leading financial center," he added.
Some are questioning how effective the USA PATRIOT Act will be in stopping the flow of terrorist money. "Because these people are fairly sophisticated, they can employ alternate remittance systems," said George Morton, senior vice president and head of the international division at Arab Banking Corp., citing smuggling of cash, arts, antiques; over/under-invoicing schemes; and the hawala underground banking system. "In hawala there are no remittance slips. There are no SARs."
The Treasury Department has launched a number of initiatives to identify, disrupt, and dismantle terrorist financial networks.
Testifying before Congress, Under Secretary for Enforcement Jimmy Gurule said, "This is truly a global effort-196 nations have expressed support to disrupt terrorist financing and 149 nations can block terrorist assets."