With a new president and Congress in Washington, many have argued that it’s time to reassess the counterterrorism financing measures that have been put in place since the September 11, 2001 terrorist attacks.
Uniquely qualified to lead that discussion are Dennis Lormel and Michael German, who will participate in “Point-Counterpoint: The Fight Against Terrorist Financing,” a panel at the 14th Annual International Money Laundering Conference in Hollywood, Florida later this month.
Lormel, currently a managing director at IPSA International, Inc., served for 28 years as an FBI special agent and chief of the bureau’s Financial Crimes Program, as well as directed the FBI’s counter-terrorism initiative after 9/11.
German is a sixteen-year veteran of the FBI, where he served as a Special Agent in domestic terrorism, bank fraud and public corruption investigations. At the FBI, German also served in undercover operations, helping to prevent several terrorist attacks. He now serves as Policy Counsel on National Security, Immigration and Privacy for the American Civil Liberties Union.
Both men spoke separately with moneylaundering.com and Fortent Inform Editor-in-Chief
Kieran Beer, answering nearly identical questions. Below is their very different takes on the current state of counterterrorism financing and the foundation of a larger, multi-dimensional debate.
Can you talk about one of the post-9/11 laws or regulations that have worked well?
Lormel: In general, the collective effect of Title 3 of the U.S. Patriot Act has had a positive impact. It’s the combination of sections in Title 3 that is responsible for the success we’ve had.
Specifically, there are a number of cases that were successfully pursued by the government involving the Bank Secrecy Act (BSA). The importance of Title 3 is magnified by the fact that finance is one of the most significant areas of vulnerability for terrorists. Provisions involving suspicious activity reports (SARs) are among the most important. Section 352 mandated the establishment of anti-money laundering (AML) programs and mandated the four components necessary for an AML program. SARs and the know-your-customer (KYC) provisions are very strong tools because terrorists have to use the financial system so that the sources and availability of funds are easily accessible.
And, as I mentioned, we’ve quietly achieved significant successes as a result of SARs and banks having to know their customers. For example, there was the mortgage fraud case out of Utah involving Shawqi Omar, his brothers and other extended family members. It turns out the brothers were sharing the proceeds from extensive fraud schemes—most notably mortgage fraud with Shawqi, who was an important lieutenant to [former Iraqi insurgency leader] Abu Musab al-Zarqawi. The success in this case—dismantling a terrorist financing cell—was driven by SARs and the data mining of SAR information.
German: As a trained investigator, I’m persuaded by the facts. Unfortunately, the evidence does not show that the expanded information collection permitted by the Patriot Act has produced results, quite the opposite. In fact, as the government increasingly uses these tools, the number of prosecutions continues to go down. The bottom line is that collecting information on innocent people doesn’t help you find criminals. The government seems intent on using these expanded tools to collect as much information as possible, regardless of its relevance, and then rely on mechanized operations, like data mining, profiling and pattern analysis to separate the innocent from the guilty. But all this does is divert resources away from logical investigations based on reasonable suspicion and probable cause. A recent study by the National Academy of Science shows that data mining is unlikely to prove effective in counterterrorism and it’s unnecessarily intrusive on the rights and privacy of innocent people.
Are there things that didn’t work?German: The Patriot Act itself is the most obvious example of what hasn’t worked, and it’s complex to talk about because it’s not one unified law but a number of amendments to over a dozen different laws. But overall it has vastly expanded the government’s power to secretly collect private information about Americans – including sensitive financial and credit information – even where the government does not suspect the person of any wrongdoing whatsoever. Basically, the Patriot Act allows our government to use tools originally created to conduct surveillance on the KGB against Americans in ways that go against the values this country was founded on.
Lormel: I would like to rephrase the question to ask: are there things that could have worked better? In my opinion, some provisions of the Patriot Act could have been better utilized, particularly section 314 (a) and 314 (b). Section 314 (a) allows law enforcement to request information from financial institutions. Section 314 (b) allows financial institutions to exchange and share information. I don’t believe it’s been used enough, nor do I think it’s understood very well. If we shared information more consistently, the BSA would be more effective. I don’t think bankers and investigator realize how much they can share information under 314 or how it could be used in terms of greater communication and cooperation. It’s a vehicle for sharing information that, given the privacy concerns, is a valuable mechanism to exchange information. There is a need here for better training so that bankers and investigators have a better understanding of what the provision is intended to do.
What changes would you like in how we use the financial system to prevent terrorism?Lormel: I’d like to see the government be able to provide limited intelligence information to banks to be scrubbed against their data systems. That would involve obtaining security clearances for select individuals within financial institutions so that they could receive and use intelligence information to identify terrorist financing. In the framework of how information is handled, it would be necessary to declassify some information so that banks could use it in their internal monitoring. One of the challenges would be to ensure that an unfair advantage was not given to any banks. This means that all or most banks would be able to access the intelligence information coming from the government. Another challenge would be to ensure privacy and civil rights issues were adequately addressed.
The other thing I’d like to see is for the government to put a feedback mechanism in place to provide financial institutions with feedback about how valuable SARs are and how they contributed directly to successful investigations.
We do need to be more proactive and less reactive and, at the same time, be sensitive to civil liberties and privacy issues, because there is a danger if the government oversteps its authority. We could lose some of our investigative tools for pursuing terrorists. For instance, I think it’s important that we follow the appropriate procedures for implementing innovative techniques and in obtaining records and BSA data through proper legal processes. This is imperative because we are dealing with an extremely adaptable enemy and, in that context, we must be as proactive as possible.
German: It’s time to take the burden of policing for terrorists off of financial institutions, charities and humanitarian organizations. Suspicious activity reporting and checking against watch lists puts a huge burden on these entities, but these efforts do little to help the government enforce money laundering laws or find terrorists. Impeding the work of charities and humanitarian organizations is particularly counterproductive to legitimate counterterrorism efforts. Charities should be free to focus on the charitable work that would actually help the U.S. win hearts and minds in conflict zones around the world.
It’s not reasonable to expect financial institutions and charities to police financial markets. Instead, we should be relying on law enforcement to pursue those that they have a reasonable suspicion about and a probable cause for pursuing. Those are the methods that have served the country well since its founding. Focusing resources on people doing nothing wrong is a violation of those principals.
Can you talk about one thing that has surprised you in the years that have unfolded since 9/11 (with regard, of course, to counter-terrorism)?German: I am surprised how much Congress abdicated its role to act as a reasonable check on executive power. Congress passed laws without any sense of holding the President accountable. I mean, Congress cannot even get information from the executive regarding how the laws it passed are being executed, let alone whether they are effective.
It’s crazy that the Bush administration deliberately violated the Foreign Intelligence Surveillance law and that Congress, rather than standing up as an independent branch of government, changed the law to suit the President. It’s not an issue of politics. The Republican Congress did the Republican president no favors by turning a blind eye to his excessive counterterrorism policies, and I don’t think the Democrats did anyone any favors by going along also with the executive when they won a majority in Congress in 2006. These abuses are what will be remembered as President Bush’s legacy and everyone would be better off if there was a different legacy that involved government working as it was designed to function, with each branch checking the excess of the others, instead of a government where one branch has unfettered power.
Lormel: The fact that it is eight years later and we still don’t adequately understand terrorist financing is alarming. Both the law enforcement community in general and the financial sector have limited insight into terrorist financing. What it comes down to is proper training in order to understand, and then have the ability to disrupt, terrorist financing. We look at terrorist financing from a generic standpoint. We need to drill down and look at terrorist financing in more terms. For example, who are we really dealing with? In what capacity and how are they using our financial institutions? How do we identify where our financial institutions are at risk for terrorist financing? We’re talking about different terrorist groups with some similar and some very different ways of using financial institutions: there are distinctions between al-Qaida, Hezbollah, Hamas and other terrorist groups, including domestic groups. One commonality is that they all have to use financial institutions some time, whether it’s using them for fundraising [through a charity] or to get funding to support an operation. And these involve different types of flows in and out of banks. Again, it comes down to training in order to understand and then to take the necessary steps to disrupt terrorist financing.
