Commentary

Banks and the FBI: The Latest Attack on Financial Privacy

There is nothing like government failures to enhance the power of the government. The Sept. 11 terrorist attacks confirm that. For example, financial transactions in the United States have been monitored for years to combat crime. But that monitoring didn’t detect the nine SunTrust bank accounts used by the terrorists. So what does law enforcement plan to do? It wants to use banks to do more of the same thing that didn’t work in the past.

Leading U.S. financial firms and federal police agencies are approaching an agreement that will give the police extensive powers to trace terrorists’ cash. The idea is to use the computerized national financial system to continually check up on groups and individuals with suspected or known connections to terrorist networks. If matches are found, banks will send their records to the government.

Data-sharing agreements might sound appealing — we all want to root out terrorists. But these agreements should be aimed at terrorists rather than at innocent people.

Behind the government’s hunger for information is the idea that financial privacy is an obstacle to law enforcement and protects terrorists. Yet that assumption ignores the fact that law enforcement officials already have the right to obtain financial records if there is sufficient reason to suspect someone of a crime. From the beginning, US officials have equated their hunt to track down terrorists’ money to their efforts to combat money laundering. But the reality is that these laws have not worked.

For example, under the current Bank Secrecy Act, about 85 percent of banks engage in some sort of customer profiling, filing Suspicious Activity Reports (SAR) with agencies like the FBI, the Secret Service, and the Customs Service. All U.S. attorneys and 59 law enforcement agencies can search the SAR database without probable cause. Yet none of them saw the $100,000 received by Mohamed Atta weeks before Sept. 11, even though that transaction was in the database and Atta’s name was on the FBI’s list of “most wanted” terrorists.

Part of the problem is that money-laundering laws create an ocean of data that law enforcement cannot hope to navigate. The chief economic advisor to the president, Larry Lindsey, reported that between 1987 and 1995, banks entered 77 million transactions into the SAR database. Only 3,000 money-laundering investigations were initiated, and they resulted in only 580 convictions. The government got one conviction per 133,000 transactions. Those numbers show that law enforcement is overwhelmed by the size of the data they must examine, and they don’t see what they need to see.

If laws targeting money laundering are ineffective against the drug trade, they have no hope of thwarting terrorism. According to the International Monetary Fund, drug dealers launder gargantuan sums of money - $1.5 trillion per year. In contrast, U.S. officials believe that it cost terrorists a mere $500,000 to create the terror of Sept. 11. With $1.2 trillion passing through foreign markets every day, tracking down $500,000 is unrealistic. In addition, most terrorist groups reportedly use an underground paperless bank system that will remain unaffected if an agreement is reached between U.S. banks and law enforcement.

Finally, this project carries the risk of destroying what is left of our financial privacy. What would happen to innocent people with the same name as suspected terrorists? Will information be destroyed once a person has been cleared of all charges? Shouldn’t we be uneasy about the fact that law enforcement is trying to circumvent the Supreme Court by seeking financial records without showing probable cause?

Important constitutional issues are at stake. In particular, the Fourth Amendment to the Constitution protects our privacy against the power of abusive governments. Regrettably, history shows that the government does not observe safeguards intended to prevent the abuse of the power to collect information.

For example, during World War II census data were used to identify Japanese Americans and place them in internment camps. In 1995, over 500 IRS agents were caught illegally snooping through tax records of thousands of Americans, including personal friends and celebrities. In 1997, hundreds of agents were caught prying again. Those examples give us more reasons to oppose a system giving agencies access to more information.

Instead of rushing to adopt agreements copying failed policies, and allowing law enforcement to get financial information without a warrant, the government should relieve financial institutions from the burden of spying on everyone. Intelligence agencies should focus their attention on infiltrating and undermining terrorist organizations, and prosecuting terrorists. Destroying our financial privacy through these new agreements will not stop terrorism.

Veronique de Rugy is a policy analyst at the Cato Institute.