While the White Paper provides an excellent overview of the history of the Bank Secrecy Act and properly questions the efficacy of the general approach of using anti-money laundering regulation to combat terrorism, it is also important to look more specifically at Title III of the USA PATRIOT Act and to challenge some specific assumptions underlying Title III. If these assumptions do not survive close scrutiny, then the wisdom of enacting Title III is open to serious challenge.
A primary failure of Title III will inevitably result from its assumption that foreign financial systems either share the commitment of the United States to combat specific terrorist organizations or, through imposition of U.S. sanctions, can be made to do so. In fact the likelihood of success of Title III in this regard is remote and will fail in a tide of evasion both deliberate and unintentional. The cost to the United States economy, in the meantime, will be enormous. Title III empowers the federal government to cut off an entire country's access to the U.S. financial system if it fails to assist the United States in investigations of terrorist financial flows. Leaving aside the question of how to define or prove "fail to assist," it is highly unlikely that the federal government is going to determine that, for instance, all of the financial institutions in Saudi Arabia, Pakistan, Egypt, India, or Russia (just to name a few larger economies) can no longer can do business with any U.S. financial institution because of the country's apparent non-cooperation with the United States. So, at best, the enforcement of Title III will be selective and more likely terrorists will be able to operate out of financial institutions in one or more countries that give lip-service to U.S. concerns while ignoring or even promoting terrorist financial havens. But, assuming that the U.S. is going to enforce Title III even selectively, the costs will be monumental, moving trillions of dollars outside of the U.S. financial system into other less stringent systems without really resulting in any significant barriers to terrorism. Barring financial transactions between U.S. financial institutions and institutions in a country which is not cooperating sufficiently with U.S. authorities will merely shift international financial and capital flows to banks headquartered in other developed countries, such as Britain, France, Germany, and Switzerland. American financial institutions and the U.S. economy will lose significant amounts of business without materially impeding the financing of terrorist activities in the United States.
An even greater shortcoming of Title III is the myth that, by proclaiming the strengthening of the Bank Secrecy Act, a primary tool has been devised to combat terrorism using the U.S. banking system as the main line of defense. Proponents of Title III have claimed that it closes loopholes in the Bank Secrecy Act. This assertion is based on the naive assumption that there are only a finite number of loopholes in the Bank Secrecy Act and that all Congress has to do is close the loopholes to make the Act more effective. In fact, as has been repeatedly demonstrated in the war against drugs, banks are not a substitute for effective law enforcement since the information derived from banks is too voluminous and non-specific to be of predictive value. In effect, a complex law like the Bank Secrecy Act merely tells one what not to do in order to avoid getting caught, thereby suggesting ways to proceed so that one does not get caught. And, lowering the bar for reporting "suspicious" activities results in intrusion on the rights and privacy of every American citizen without providing any improved likelihood of terrorist detection.
Title III purportedly will starve terrorists of financial means and catch them while they are still planning their next attack. This premise is based on the assumption that terrorists need large amounts of money to finance their heinous activities. In fact, terrorists need very little money to conduct their evil deeds (the FBI has estimated that the nineteen September 11 terrorists spent just $500,000 preparing for their attack). With minimal effort, future terrorists will be able to accumulate the amounts they need by engaging in transactions small and ordinary looking enough to escape detection through Currency Transaction Reports and Suspicious Activity Reports. It will be much harder to starve future terrorists financially than drug entrepreneurs because terrorists can operate on so little.
Title III supposedly cleared away important impediments to inter-agency cooperation among law enforcement and regulatory agencies. Presumably, had these impediments not existed before September 11th, the federal police and intelligence agencies could have detected and blocked the September 11th evildoers before they struck. In fact, these impediments reflect longstanding difficulties in coordinating law enforcement agencies which are institutional not legal in nature; Title III does not eliminate these difficulties.
While we applaud any effort that will indeed assist in the anticipation of a terrorist attack and staunch the evil before it takes place, Title III is, in our view, an ineffective tool that will have little or no effect in combating terrorism. The weapons against terrorism rest in good intelligence and law enforcement, not in monitoring billions of ordinary transactions in the banking system. To focus the war against terrorism in the banking system will certainly result in the ability of law enforcement to blame the banks following the next terrorist attack but it will not lead to any meaningful predictive or preventative means of avoiding such attacks.