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President George W. Bush delivered on his promise last week to fight the war against terrorism on many fronts and with a variety of weapons. Ordering U.S. financial institutions to freeze any assets linked to 27 suspected terrorist groups and their financial backers, Bush went beyond steps taken by previous presidents. He not only targeted terrorist funds, but also threatened to punish foreign banks that fail to support U.S. efforts. The move signals that the Bush administration — previously skeptical of international efforts to fight money laundering — is prepared to crack down on foreign banking systems where loose laws allow tax evaders, drug traffickers, and possibly terrorists to hide their money. And now that Bush has dropped what one former Treasury official calls the “atomic bomb” of money laundering enforcement, proposals for tighter banking controls across the board are gaining momentum on Capitol Hill as well. “I think the president’s response was appropriate, but it underscores the need for a broader spectrum of tools to fight money laundering,” says Stuart Eizenstat, deputy secretary of the treasury during the Clinton administration. Last year, legislation aimed at fighting money laundering stalled over opposition from the banking industry, privacy advocates, and congressional Republicans. Riding on the coattails of Bush’s announcement, Senate Democrats have resurrected the proposals –including tougher regulations for offshore accounts — and are pushing for their inclusion in anti-terrorism legislation. With money laundering controls being framed as a weapon in the war against terrorism, it will be difficult for banks to fight proposed laws many view as burdensome and invasive of customers’ privacy. “We’ve had a bill in for the last three years and it didn’t go anywhere,” says Linda Gustitus, chief counsel to the Senate Permanent Subcommittee on Investigations, where Chairman Carl Levin, D-Mich., has made money laundering a priority. “It’s been very hard to get Congress’ attention.” Gustitus says she now has seen energetic support from both sides of the aisle. “I think the opposition has been somewhat muted.” Indeed, in a sign of the somber times, even Sen. Phil Gramm, R-Texas — former Banking, Housing, and Urban Affairs Committee chairman and a fierce defender of the banking industry — curbed his criticism of the get-tough approach. “The secretary of the treasury, in any money laundering bill, is given extraordinary power,” Gramm said during a Sept. 26 Senate hearing on money laundering. “I believe that that power is needed to take action, and I don’t want to do anything to impede the ability of the secretary to take action. But I think it is very important that in taking that action, that the rule of law be followed.” A NEW REALITY “It’s a different world than it was a few weeks ago,” says John Byrne, senior counsel of the American Banking Association. “If we had more time, I’d be offering up suggestions. This is not a normal time, and it is not a normal process.” Byrne emphasizes that his group supports a crackdown on money launderers, particularly as it relates to the administration’s fight against terrorism. But, he adds, many of the measures on the table may duplicate existing regulations. “From a practical standpoint, the issues raised are already part and parcel of bank compliance,” Byrne says. It remains unclear what specific money laundering provisions will be included in a final anti-terrorism package, but those senators who have pushed money laundering legislation for years hope to see portions of bills previously introduced by Levin and Sen. John Kerry, D-Mass. Both bills attempt to close loopholes related to off-shore banks, shell banks, and correspondent accounts, which allow foreign banks to move funds and carry out transactions in the United States. “Most of the money which law enforcement cares about passes through one or more of these entities,” says one former Treasury official who helped to draft the legislation. “If you care about money laundering, these are perfectly reasonable steps to take.” At last week’s Senate hearing, Levin demonstrated how terrorist Osama bin Laden once used a correspondent account with a U.S. bank to send money to an operative in Texas from an account at Shamal Bank in Sudan. “We have to ask how the Shamal Bank was able to open its correspondent accounts in the United States when U.S. banks are supposed to exercise due diligence about their customers,” Levin said. Under the Kerry bill — which mirrors proposals put forward last year by the Clinton administration — the Treasury Department would have broad authority to impose restrictions on the U.S. activities of foreign banks deemed to be money laundering threats. For instance, Treasury might insist that a U.S. bank turn over the names of all individuals with access to a bank’s correspondent accounts. But civil libertarians say such measures infringe on consumer privacy and are unlikely to deter terrorist activity. “It doesn’t cost much to buy a plane ticket or a ceramic knife,” says J. Bradley Jansen, a privacy advocate with the conservative Free Congress Foundation. “The truth is, if these bills had been in place, they would have given no additional intelligence to prevent the tragedies from happening.” Jansen, who speaks regularly with bank compliance officers on privacy issues, points out that many financial institutions are reeling from their own personal and financial losses as a result of the attacks. “This is the time for regulatory relief, not additional regulatory burden,” he says. Jansen says his contacts feel “gagged” by current events. “To look at these tragedies and start talking about them from a financial standpoint seems incredibly callous.” CHANGE OF DIRECTION Prior to Sept. 11, the administration appeared to be backing away from efforts made over the past decade to strengthen money laundering controls. Several actions by Treasury Secretary Paul O’Neill prompted outcries from Democratic lawmakers as well as the international financial community. First came an announcement that the United States would no longer support international efforts to sanction countries used as tax havens, calling it troublesome that any country “interfere in any other country’s decision about how to structure its own tax system.” Then O’Neill ordered an internal cost-benefit analysis of money laundering enforcement, fueling speculation that the department might even roll back existing programs, such as the requirement for banks to report transactions over $10,000. “I’ve never heard of anyone doing a cost-benefit on a law enforcement matter. It would be like doing a cost-benefit analysis on murder prosecutions,” says Gustitus, Levin’s counsel. “We took that as a signal that he was going to be really weak and might try to cut back money laundering protections.” At last week’s hearing Jimmy Gurul�, Treasury’s undersecretary for enforcement, told senators the department is currently at work on its own anti-money-laundering legislation. Gurul� stopped short, however, of supporting the Kerry or Levin proposal. The administration’s concerns seem to center on the broad authority given to the treasury secretary to restrict the ability of foreign banks or individuals to conduct business in the United States without first making a showing of due cause. One issue pushed to the front burner by last month’s attacks are lax rules for financial institutions other than banks, such as broker-dealers, casinos, and money service businesses like check cashers and sellers of money orders. Since the mid-1990s, these businesses have been required under the law to submit suspicious-activity reports to the Treasury Department, but implementation has been sluggish. Suggestions that individuals involved in planning the attacks might have used the stock market to profit have intensified concerns over loopholes. Following Bush’s announcement last week, the Securities and Exchange Commission requested all securities-related businesses, whether registered with the SEC or not, to voluntarily check their records for any transactions related to the terrorists. In a telling gesture from the Treasury, a deadline for registration of money services businesses, which would include agents of the informal Middle East banking network known as “hawala,” that was recently pushed back to June 2002, has now been moved up to December. “The thinking was that this additional time would give [Treasury] the time needed to really gear up for receiving the volume of reports that we think are going to be submitted under this regulation,” Gurul� explained. “That was prior to September 11th. The world is different, and as a result of the events of September 11th, we have decided to move the date back to the original date.”

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