Hiding holes in financial war on terrorism

0 Comments | Insight on the News, March 25, 2002 | by Jamie Dettmer

Treasury Secretary Paul O'Neill lauded in February the close cooperation now under way between the United States and the European Union in efforts to cut off terrorists from their sources of funding. He cited as an example an order issued to U.S banks to block assets of 21 people identified as members of the Basque group ETA, which has mounted a violent separatist campaign in Spain since 1968.

The collaboration that gave rise to the information that led to the order "symbolizes a new and extremely important chapter in the financial war against terrorism," O'Neill said. The wire agencies and some newspapers dutifully carried the story, but failed to question whether the emperor is as fully suited as one would hope for a financial war against terror.

Immediately on the heels of the Sept. 11 attacks on the United States, Bush officials, including O'Neill, ear-marked the seizing of assets as a crucial element in any long-term operations to take down Osama bin Laden's al-Qaeda network and other major terrorist groups. President George W. Bush emphasized his determination to cut off the supply of money that funds terrorism.

But the blocking order to U.S. banks concerning ETA, which is battling to establish an independent state in Spain's northern Basque region, is not groundbreaking stuff, nor will it damage America's chief foe of the moment, al-Qaeda.

First, ETA hardly is a terrorist group of global reach, despite its "fraternal" ties with the Irish Republican Army and the Palestinian al-Fatah group. ETAs bombings and assassinations, appalling though they may be, generally have been confined to Spain, where the group has killed about 800 people during me fast three decades.

Second, it isn't clear that ETA will be affected one iota by the U.S. blocking order. The Treasury Department was unable to say whether any of the 21 individuals named have assets in the United States, but intelligence sources tell political notebook it is unlikely.

And third, it hardly is wondrous stuff that Spain shared information about the 21 with the United States. That kind of information has been exchanged routinely between America and Europe for years via Interpol and mutual legal-assistance pacts.

In short, O'Neill's announcement was window dressing that doesn't amount to a major development. It also diverted attention from what isn't going smoothly in the financial war on terrorism.

Some of the problems are here at home in the United States, say law-enforcement officials and private-sector experts. Encouraged by the White House, Congress in October dramatically expanded anti-money-laundering laws -- they were included in the USA PATRIOT Act -- but failed to think through some of the provisions and neglected to increase the resources available to law-enforcement agencies tasked with policing the new wide-ranging rules.

Even before 9/11 the federal apparatus for overseeing anti-money-laundering laws was creaking under the strain. At the center of it stands Treasury's Financial Crimes Enforcement Network (FinCen). As John Fowler, a former director, admitted at a major anti-money-laundering conference in February in Miami, FinCen has been allocated no new resources. And that despite the huge expansion of rules and regulations that now include not just the banks but insurers, securities brokers, real-estate agents, pawnbrokers and the vendors of high-cost goods such as yachts, luxury cars and gems.

All are required to have in place monitoring systems and personnel to pinpoint suspicious transactions that may involve ill-gotten money or funds destined possibly for criminal or terrorist purposes. And they have to file so-called suspicious-activity reports (SARs) to FinCen.

But even before the USA PATRIOT Act increased the number of financial institutions required to file SARs, FinCen was finding it impossible to cope with filings coming just from the banks. Treasury sources say there is a two-year backlog of SARs still waiting to be entered into the agency's computers. Several banking-compliance officers attending the Miami conference told political notebook that they were unaware of any SARs they'd filed being followed up by federal investigators. One said that he regularly copied his SARs to state banking regulators on the grounds that there would be more chance of some action.

Law-enforcement officials from other agencies, including the IRS, attending the same conference sponsored by Global Media Alert, publisher of the leading anti-money-laundering newsletter, said FinCen regularly failed to share SARs with them. "I can't get hold of copies for weeks and sometimes months," said a member of a multiagency task force. "By the time we get information from FinCen, whoever was doing whatever has long gone and the trail has gotten cold."

Treasury officials say things will improve in July when SARs can be filed electronically to FinCen instead of being sent by mail. But law-enforcement officials doubt that will lead to an increase in the sharing of information by FinCen. For that to happen the agency will have to undergo a major cultural transformation. "They just hoard data. That's the way they are -- a little bit like the CIA, which loathes to exchange any information," says an IRS agent.