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Subject: FINCEN article from December Wired



WIRED Magazine 1.6



Big Brother Wants to Look Into Your Bank Account (Any Time It Pleases)

**********************************************************************



The US government is constructing a system to track all financial

transactions in real-time - ostensibly to catch drug traffickers,

terrorists, and financial criminals. Does that leave you with the warm

fuzzies - or scare you out of your wits?



By Anthony L. Kimery





There wasn't much to go on. The police salvaged the slip of paper that

a small-time East Coast drug dealer tried to eat before being

arrested, but on it they found scribbled only a telephone number and

what appeared to be the name "John." This frustrated the police. They

had anticipated more incriminating information on the man they

believed was the supplier not only to the dealer they'd just busted,

but also to dozens of other street corner crack peddlers. With two

slim leads, the police weren't technically equipped to do much more

than antiquated detective work that probably wouldn't yield evidence

they could use to indict John. So they turned to the quasi-secretive,

federal Financial Crimes Enforcement Network (FinCEN) for the digital

sleuthing they needed.



Less than 45 minutes after receiving the official police request for

help, FinCEN had retrieved enough evidence of criminal wrongdoing from

government databases that the district attorney prosecuting the case

was able to seek indictments against John on charges of money

laundering and conspiracy to traffic narcotics. The local police were

impressed.



Launched with a low-key champagne reception at the Treasury Department

in April 1990, FinCEN is the US government's (perhaps the world's)

most effective financial crime investigation unit. Even Russian

President Boris Yeltsin asked for its help in locating stolen

Communist Party funds. This state-of-the-art computer-snooping agency

is quietly tucked away under the auspices of the Treasury Department.

Its mission is to map the digital trails of dirty money, be it the

laundered profits from drug sales, stolen S&L loot, hidden political

slush funds, or the financing conduits of terrorists. It's the only

federal unit devoted solely to the systematic collation and

cross-analysis of law enforcement, intelligence, and public databases.



Until August 1993, FinCEN headquarters was an old Social Security

Administration building with a ceiling ravaged by asbestos abatement

crews, but that didn't seem to faze director Brian Bruh (he retired in

October). With 25 years of experience in law enforcement, Bruh is a

seasoned federal cop who has headed up criminal investigations at both

the IRS and the Pentagon. Prior to overseeing FinCEN, he was the chief

investigator for the Tower Commission, President Reagan's blue ribbon

probe into the Iran-Contra scandal. FinCEN was his crowning

achievement, and he took pride in directing visitors to FinCEN's

computer command center as he touted the agency's successes.



In private and in testimony to Congress, statistics roll off Bruh's

tongue. Last year FinCEN's computer operations center responded to

priority requests for tactical intelligence on nearly 12,000

individuals and entities, doubling the 1991 workload. The 1993 total

will be three times the 1991 sum. Longer-term strategic analytical

reports have been completed for 715 investigations involving 16,000

other individuals and entities.



Two of the government's biggest strikes against organized drug-money

laundering - operations Green Ice (a lengthy DEA operation that

resulted in the arrests of high-ranking Cali and Medellin cartel

financial officers and the seizure of US$54 million in cash and

assets) and Polar Cap V (a spinoff of Green Ice that culminated in

April 1990) - owe a great deal to FinCEN for having identified and

targeted money laundering activities via computer. In the Polar Cap

operation, FinCEN's computer tracking documented more than US$500

million in financial activity by 47 individuals who have since been

indicted on drug trafficking and money laundering charges.



Inside FinCEN's new digs on the second floor of a gleaming high-rise

office building down the road from the CIA in Vienna, Virginia

(otherwise known as "Spook City"), the talents of the IRS, FBI, DEA,

Secret Service, and other traditional federal cops such as customs

agents and postal inspectors are pooled. According to senior

intelligence officers, these investigative units can access the

resources of the CIA, the National Security Agency (which intercepts

data on electronic currency movements into and out of the United

States, some of which make their way into FinCEN's analyses), and the

Defense Intelligence Agency.



Bruh and other FinCEN officials openly acknowledge their association

with the CIA, but they refuse to discuss further any aspect of

FinCEN's dealings with it or any other intelligence agency. In

addition to the CIA, intelligence officials have admitted, off the

record, that the National Security Council and the State Department's

Bureau of Intelligence and Research (INR) have also joined FinCEN's

impressive intelligence crew. In short, FinCEN is a one-of-a-kind

cauldron containing all the available financial intelligence in the

United States.



"It's the first ever government-wide, multi-source intelligence and

analytical network brought together under one roof to combat financial

crimes," said Peter Djinis, director of the Treasury Department's

Office of Financial Enforcement and one of the few Treasury officials

close to FinCEN activities.



"FinCEN is absolutely necessary," said a senior General Accounting

Office (GAO) official involved in an audit of FinCEN required by new

anti-money-laundering laws passed last year. The agency's report

wasn't released by press time, but according to the GAO official, no

irregularities were uncovered. However, the GAO's scrutiny skirted

emerging concerns about privacy, civil rights, and the appropriate

role of the intelligence community.



FinCEN's mission requires the involvement of the intelligence

community, particularly in tracking the financial dealings of

terrorists and in conducting financial counterintelligence, although

few are willing to discuss the trend openly. Because these activities

cross into the world of cloaks and daggers, some watchdogs are

concerned that such endeavors will encroach on privacy and civil

rights. When you look at the power of FinCEN and its proposed

offspring, their fears seem justified.





How to Bust a John



The whiz kids at FinCEN are good. Very good. That's why state and

local police have come to depend on FinCEN to pull them out of the

electronic-sleuthing quicksand. The case of John the drug supplier is

a good example of one of their less-complex assignments, and it

illustrates the adeptness with which the government can collate

existing financial data.



Seated at a computer terminal inside FinCEN's former command post, a

FinCEN analyst began the hunt. He started by querying a database of

business phone numbers. He scored a hit with the number of a local

restaurant. Next he entered the Currency and Banking Database (CBDB),

an IRS database accessed through the Currency and Banking Retrieval

System. CBDB contains roughly 50 million Currency Transaction Reports

(CTRs), which document all financial transactions of more than

US$10,000. By law these transactions must be filed by banks, S&Ls,

credit unions, securities brokers, casinos, and other individuals and

businesses engaged in the exchange of large sums of money.



The analyst narrowed his quest by searching for CTRs filed for

transactions deemed "suspicious." Financial institutions must still

file a CTR, or IRS Form 4789, if a transaction under US$10,000 is

considered suspicious under the terms of an extensive federal

government list. There was  a hit. A series of "suspicious" CTRs

existed in the restaurant's ZIP code. Punching up images of the

identified CTRs on his terminal, the FinCEN analyst  noted that the

transactions were made by a person whose first name was John. The CTRs

were suspicious all right; they were submitted for a series of

transactions each in the amount of US$9,500, just below the CTR

threshold of US$10,000. This was hard evidence that John structured

the deposits to avoid filinga Form 4789, and that is a federal crime.



Selecting one of the CTRs for "an expanded review," the analyst got

John's full name, Social Security number, date of birth, home address,

driver license number, and other vital statistics, including bank

account numbers.



Plunging back into the IRS database, the analyst broadened his search

for all CTRs filed on behalf of the suspect, including non-suspicious

CTRs. Only 20 reports deemed suspicious popped up on the screen, but

more than 150 CTRs were filed in all. A review of the non-suspicious

ones revealed that on several, John listed his occupation as the owner

or manager of the restaurant identified by the telephone number on the

slip of paper taken from the arrested drug dealer. The connection

between the name and the phone number originally given to FinCEN was

secured.



The FinCEN analyst then tapped commercial and government databases,

and turned up business information on the restaurant showing that John

had reported an expected annual revenue for his eatery of

substantially less than the money he had been depositing, as indicated

by the CTRs. Fishing in a database of local tax assessment records,

the analyst discovered that John owned other properties and

businesses. With the names of these other companies, the analyst went

back into the CTR database and found that suspicious transaction

reports were filed on several of them as well.



As routine as such assignments as this case may be, the chumminess

between FinCEN and the intelligence community raises serious questions

about the privacy and security of the financial records of citizens

John and Jane Doe, considering the intelligence community's historic

penchant for illegal spying on non-criminals. Given the vast reach and

ease with which the government can now tap into an individual's or

business's financial records on a whim, these questions have received

far too little scrutiny.





Whose Privacy?



"There are legitimate concerns" regarding privacy, a ranking House

banking committee staffer conceded in an interview with WIRED. "Quite

frankly, there hasn't been much congressional oversight with respect

to the intelligence community's involvement with FinCEN. When you

start trying to look into this, you start running up against all kinds

of roadblocks." The GAO official involved in auditing FinCEN agreed

that questions regarding the intelligence community's involvement and

attendant privacy concerns haven't been addressed. If such issues have

been the subject of discussion behind the closed doors of the House

and Senate intelligence committees, no one is talking openly about it.

Meanwhile, the potential for abusive intrusion by government into the

financial affairs of private citizens and businesses is growing almost

unnoticed and unchecked.



Two of the latest electronic inroads into the financial records of

private citizens and businesses are "Operation Gateway," a FinCEN

initiative, and the proposed Deposit Tracking System, which other

intelligence agencies would like to see established. Both are

inherently prone to abuse and provide a disturbing indication of the

direction in which the government is moving.



Gateway is a pilot program launched in Texas this July that gives

state and local law enforcement officials direct access to the massive

federal Financial Database (FDB) through a designated FinCEN

coordinator. The FDB contains the records that financial institutions

have been filing under the Bank Secrecy Act for the last 23 years -

CTRs, suspicious transaction reports, International Transportation of

Currency or Monetary Instruments reports, and Foreign Bank and

Financial Accounts reports. In addition, Congress is expected to grant

FinCEN authority to tap into the database of Forms 8300, which are

reports of payments over US$10,000 received in a trade or business.

These documents principally contain information on deposits,

withdrawals, and the movement of large sums of currency. It is

FinCEN's intent to give all state governments individual access to the

FDB.



Under the Gateway proposal, results from all queries would be written

into a master audit file that will constantly be compared against

other requests and databases to track whether the subject of the

inquiry is of interest to another agency or has popped up in a record

somewhere else.



State coordinators designated by FinCEN will do the logging on, as

FinCEN is uncomfortable with giving 50,000 federal agents and 500,000

police officers direct electronic access to its database. "This is

very sensitive information," concedes Andy Flodin, special assistant

to the FinCEN director. "We'd have to have additional security

safeguards before we could open it up to every police agency."



But while the FDB contains only records on major money movements and

thus is not as much of a threat to individual privacy, the Deposit

Tracking System (DTS) is a potential menace. If implemented, the

estimated US$12.5 million computer system could be used to penetrate

the security of bank accounts belonging to you, me, and 388 million

other bank account holders in the US.



The government argues that such a system is necessary for two reasons:

first, to assess adequately the funding needed for federal deposit

insurance and second, to locate the assets of individuals ordered by

courts to make restitution for financial crimes - like the savings and

loan crooks. (It seems the government can't trace most of the money

they stole.)



The first reason stems from a requirement of the seemingly innocuous

Federal Deposit Insurance Corporation Improvement Act of 1991 - one of

Congress's legislative responses to the savings and loan debacle. The

Act requires the FDIC to study the costs, feasibility, and privacy

implications of tracking every bank deposit in the United States.



So far the DTS exists only on paper. The FDIC's completed feasibility

study is currently being examined by Congress, but it is unlikely to

act on it before late next year. For the time being, the US$12.5

million price tag seems to be the biggest drawback to its

implementation.



Concerns about the DTS have been widespread, although it has received

scant attention in the mainstream press. But according to Diane Casey,

executive director of the Independent Bankers Association of America,

the DTS "would fundamentally change the relationships among banks,

consumers, and the government in ways that have implications beyond

banking policy. Our open and democratic society would be changed

profoundly if any agency of the government maintained the scope of

information on private citizens described in this proposal. It raises

questions about our democracy that would have to be addressed by the

highest policy-making levels of government."



The American Bankers Association (ABA) voiced equally serious

concerns. The ABA doubts "whether there are any privacy safeguards

that would be adequate to effectively protect this database from use

by government agencies and, eventually, private parties," an ABA

spokesman explains. "It is inconceivable to the ABA that such a

database could be used only by the FDIC in deposit insurance coverage

functions. Such a database...would provide a wealth of information for

investigations being conducted by the FBI, the Drug Enforcement

Administration, and the IRS, to name but a few. Like the baseball

diamond in Field of Dreams, build this database and they will come.

Eventually, whether legally or illegally, they will gain access to

this database."



The FDIC forcefully argued against the DTS in the 234-page draft

report it submitted to Congress in June 1993, but it may not have the

bureaucratic clout necessary to kill the proposal. WIRED was told by

intelligence analysts and congressional sources dealing with oversight

of the intelligence community that federal law enforcement and

intelligence agencies are privately clamoring for the system,

apparently disregarding both the privacy issues and the system's

start-up cost (which does not include the additional US$20 million a

year the feasibility stud y said would be required for facilities, for

salaries and benefits, and for routine hardware and software

maintenance).



Further driving the intelligence agencies's desire for the DTS is the

much-hyped role of economic intelligence gathering, a key focus of the

Clinton administration's reform of the intelligence community.

Agencies like the CIA view the system as a boon to their ability to

monitor foreign financial dealings in the US, according to both

congressional and intelligence sources.





Adding Intelligence to the Equation



Regardless of the form it takes, the sources said, the DTS and any

other financial databases that come down the pike could be easily

interfaced to FinCEN's Artificial Intelligence/Massive Parallel

Processing (AI/MPP) program, a criminal targeting system that will go

online in a few years.



Because laundered money is moved undetected along with the millions of

legitimate computerized wire transfers that occur daily, FinCEN's

computer investigations naturally demand expert systems that can

single the dirty money out of the crowd. FinCEN's current Artificial

Intelligence capability allows it to search the Financial Database for

suspicious, preprogrammed patterns of monetary transactions. While not

very flexible, the system has successfully identified previously

unknown criminal organizations and activities.



But FinCEN has a hush-hush US$2.4 million contract with the US

Department of Energy's Los Alamos National Laboratory to develop what

Bruh and other FinCEN officials de-scribed as a powerful "money flow

model." Unlike FinCEN's current system, Los Alamos's AI software will

look for unexplained, atypical money flows. Coupled with a massively

parallel computer system, the AI/MPP could perform real-time

monitoring of the entire US electronic banking landscape.



FinCEN's AI capabilities currently exploit the Financial Database for

proactive targeting of criminal activity. The system automatically

monitors the entire FDB database, constantly identifying suspicious

financial activity in supercomputer-aided, rapid-response time. In

addition to the FDB, FinCEN is applying AI to the Criminal Referral

Forms that must be filed with FinCEN whenever banks, examiners, and

regulators uncover financial activities they suspect are illegal.



In the near future, all of these government databases will be

interfaced by way of AI/ MPP technology. "MPP is critical to FinCEN's

ability to analyze (banking) data to its full capacity," Bruh insists.



The pure power of such a "database of databases" terrifies critics.

Though FinCEN and other authorities discount the potential for abuse,

tell that to the CIA. Its charter forbids it from engaging in domestic

surveillance; nonetheless, it spied on Americans for seven consecutive

presidential administrations (it says it finally ceased its internal

spying in the mid-1970s).



FinCEN's AI operation has been employed legitimately with great

success. Perhaps its least-known project was assisting the CIA in

identifying and tracking the flow of money between Iran's

state-sponsored Islamic fundamentalist terrorist organizations and the

men linked to the bombing of the World Trade Center. According to a

Treasury official and confirmed by Anna Fotias, FinCEN's congressional

liaison, FinCEN identified suspicious transaction reports filed by a

bank in New Jersey on wire transfers from Germany to the accounts of

two of the men charged in the bombing. With the bank account in

Germany identified, further AI processing - utilizing intelligence

from the CIA's DESIST computer system, the world's most extensive

database on terrorists - identified a company as a front for an

Iranian terrorist group. Coupled with DESIST's data on the two men's

terrorist connections, FinCEN was able to identify a number of

previously unknown conduits of terrorist funding in the US and abroad.

Similarly, FinCEN was crucial in identifying Iraqi assets in the US

that were frozen in the wake of Iraq's invasion of Kuwait, according

to a Treasury official.



Still, given the CIA's less-than-spotless record, privacy advocates

are likely to find it disturbing that there are some within the walls

of CIA headquarters - apparently unbeknownst to anyone at FinCEN - who

want to mesh DESIST with FinCEN's eventual AI/MPP ability and with all

the databases FinCEN routinely surveys. The justification for creating

such a system is compelling: More likely than not it would identify

scores of previously unknown financial conduits to terrorists.



Advocates of a full-time DESIST/FinCEN system carry their argument one

step further: Hooked into the yet-to-be-authorized Deposit Tracking

System, the DESIST/FinCEN system would be able to identify terrorist

financial movements in real-time, thus providing early warning of

potentially imminent terrorist actions. Some within the intelligence

community take it still another step: They would have the system tied

into the private computers that hold credit card transactions "so that

we could have nearly instant time-tracking capability," according to

one source who works closely with the CIA's Counterterrorist Center.



Conversely, a CIA/FinCEN/DTS endeavor could monitor on a real-time

basis the financial activity of narcotics traffickers, since drug

dealing also is within the purview of the CIA. The agency's

Counternarcotics Center, or CNC, already works closely with FinCEN.



Before the CIA would be allowed to tap into a system as sensitive as

the proposed Deposit Tracking System, it would have to clear plenty of

civil liberties hurdles, not the least of which is the prohibition on

the CIA from gathering intelligence on US citizens. As long as the DTS

itself was shielded from direct access by the CIA, proponents could

argue that the operation was allowable under law. Opponents, on the

other hand, fear that the CIA would find a way to download, copy, or

otherwise secretly access the DTS.



"The risk of the CIA getting its hands on this is serious - we know

the kind of unscrupulous people who populate the spook world," said a

Washington-area private investigator who conducts many legitimate

financial investigations for a CIA-linked firm. "This kind of

financial data, when coupled with other information like a person's

credit history, could be used for blackmail, bribery, and extortion,"

said the investigator, who has a military intelligence background.



Bruce Hemmings is a veteran CIA clandestine-services officer who

retired in 1989. Prior to the DTS proposal, he told WIRED that the CIA

routinely digs for financial dirt on people from whom the agency wants

specific information. Typically they are foreign intelligence officers

working in the US under a diplomatic guise, and this financial

information is often used as leverage in getting them to talk. In less

civilized venues, this is called blackmail.



DTS could present an inviting mechanism for quieting unwanted dissent

or for defanging an unruly congressional leader bent on exposing some

questionable CIA operation. Although still in its embryonic stage and

in spite of the looming privacy obstacle it will inevitably confront,

FinCEN is seen by many in the government as the catalyst for a

powerful, all-seeing, all-knowing, global, financial-tracking

organization. In fact, FinCEN is al-ready working closely with

INTERPOL, and Bruh's deputy just resigned to head up INTERPOL's US

office.



As the privacy debate heats up, FinCEN's digital dirty-money trackers

go on about their work, hoping they don't have to choose sides if what

they do becomes a full-blown privacy invasion problem. As Bruh puts

it, "There's tons of crooks out there who are disguising their

criminal profits. FinCEN needs to computerize as much as possible to

be able to identify the really significant criminals and their

activities."



The question then becomes, at what point does it stop?



* * *



Anthony L. Kimery covers financial industry regulatory affairs as an

editor at American Banker Newsletters.





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