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It was widely reported as an outrage, a use of the USA PATRIOT Act by the puritanical Attorney General John Ashcroft and his Justice Department to go after a crime that had nothing to do with terrorism.
FBI agents conceded using Title III, the section of the USA PATRIOT Act that covers money laundering, in Operation G-string – an investigation of corruption allegations against a strip-club owner in Las Vegas. The agents used Section 314 to seize the financial records of local elected officials the FBI thought might have taken money from the owner.
That section allows the government to conduct wide-ranging searches of “financial institutions” in cases involving suspected “terrorist acts or money laundering.” And the “or” apparently is the key word in this case.
Rep. Shelley Berkley, D-Nev., whose district includes Las Vegas, expressed anger about the use of these provisions in a case in which the FBI conceded terrorism was not involved. In a letter to Ashcroft, Berkley wrote, “In my opinion, the use of the PATRIOT Act in this context violates both the spirit and intent of this important legislation.” She asked Ashcroft for a “full explanation of your views on the scope of the PATRIOT Act and other investigative areas [in which] you foresee using the PATRIOT Act in the future.”
But other critics of the action say that, if Berkley really were concerned with the scope of the USA PATRIOT Act’s Title III, she’d be better off addressing questions to members of her party in the U.S. Senate who wrote the money-laundering provisions and who insisted they be attached to the final bill. Sen. Paul Sarbanes, D-Md., then chairman of the Senate Banking Committee, simply had tweaked a draconian money-laundering proposal already in the drawer before Sept 11.
After 9-11, Republican House leaders and the Bush administration wanted it considered only as separate legislation but, as confirmed by a LexisNexis database search of this period, Democrats were adamant that it be attached to the USA PATRIOT Act. To do otherwise is “just something we cannot accept,” then Senate majority leader Tom Daschle, D-S.D., was quoted as saying in October 2001 by The Hill newspaper.
Sen. John Kerry, D-Mass., now campaigning for president and vigorously criticizing the USA PATRIOT Act and Ashcroft, complained at the time that Republicans were trying to remove the money-laundering provisions “by fiat.” An October 2001 Associated Press article quoted Kerry as declaring, “This is not a moment for politics as usual to rear its ugly head in the Capitol.” The article noted that Kerry “underlined the political influence of Texas bankers.”
The senatorial offices of Daschle, Sarbanes and Kerry did not return Insight calls asking for their views about the nonterrorism uses of the USA PATRIOT Act provisions they championed, and neither did Kerry’s presidential campaign.
Newsmax.com reporter Wes Vernon has written that Daschle and Sarbanes did not answer his inquiries about their roles in creating this part of the act either.
“I don’t blame this on Ashcroft at all,” says David B. Smith, who serves on the Money Laundering Task Force of the National Association of Criminal Defense Lawyers, or NACDL. When it comes to their populist causes many Democrats, Smith says, “have no appreciation for civil liberties, and they consistently are on the side of the government, more so than the most conservative Republicans in the House and the Senate.” And money laundering, Smith and others note, is a populist issue that such Democrats use to bash business and “the rich.”
Yet, in comparison to other USA PATRIOT Act provisions, the money-laundering provisions may be the most intrusive and costly, say experts. These provisions encourage the Treasury Department to mandate broad “know-your-customer” surveillance requirements not just for banks but also auto dealers, jewelry stores, travel agents and other businesses that earlier statutes put under a broad definition of “financial institutions.”
The financial-services research firm Celent Communications estimates that for banks, securities dealers and insurance companies alone, compliance with the regulation will cost $10.9 billion by the end of 2005.
David Aufhauser, then general counsel of the Treasury Department, candidly admitted to the Washington Post in 2002 that “the PATRIOT Act is imposing a citizen-soldier burden on the gatekeepers of financial institutions.” But he defended the provisions, saying that, “in many respects, they are in the best position to police attempts by people who would do ill to us in the U.S. to penetrate the financial systems.”
But the costly mandates are not just being used for terrorism cases. Newsweek reporter Michael Isikoff found that two-thirds of the financial records obtained through the same Section 314 of the USA PATRIOT Act used in the strip-club cases “were in money-laundering cases with no apparent terror connection.” Among the government divisions making requests were the IRS, the U.S. Postal Service and the Agriculture Department in “a case that apparently involved food-stamp fraud,” he wrote.
Paul Rosenzweig, a former Justice Department official in the administrations of Ronald Reagan and George H.W. Bush and who now is an adjunct professor at George Mason University Law School and a senior legal research fellow at the conservative Heritage Foundation, has defended many USA PATRIOT Act provisions as necessary to combat terrorism. But he says the strip-club case and Isikoff’s statistics, if they are true, show that law enforcement is in danger of “mission creep” which could undermine public confidence and even jeopardize the war on terrorism.
“If that’s true, and it proves to be a long-term trend, it would be unfortunate,” Rosenzweig tells Insight. “If we’re using the new terrorism money-laundering laws to broaden our tax-cheat powers, that would be a mistake.”
Justice Department spokesman Mark Corallo says although the Ashcroft team didn’t ask for the anti-money-laundering powers, it will use them whenever feasible to fight crime.
“We don’t believe we ought to be tying our hands behind our backs and saying, ‘We can go after terrorists, but we can’t go after drug dealers or other criminals.’ That’s silly,” Corallo tells Insight. “If these provisions are good enough to go after terrorists, they’re good enough to go after drug dealers and child molesters.”
The Justice Department’s pro-USA PATRIOT Act website, lifeandliberty.gov, defends the Democrat-written Title III, and Corallo defends the specific provision that allows financial-record searches related to terrorism “or” money laundering.
“Money laundering is a federal crime,” he says.
But critics warn that some prosecutors are defining the term very broadly.
Radio commentator Rush Limbaugh, for instance, reportedly is being investigated by Palm Beach, Fla., authorities for “structuring” – that is, withdrawing money from his bank accounts just below the $10,000 threshold under which banks are required to report cash transactions to the government. There are provisions against “structuring” in both federal and Florida money-laundering laws.
“I was not laundering money,” Limbaugh said on his radio show in November, just after coming back from treatment for addiction to prescription pain pills. “I was withdrawing money, for crying out loud!”
That doesn’t matter, says Charles Intriago, publisher of the Money Laundering Alert newsletter, and it also doesn’t matter for what Limbaugh was withdrawing his money.
“He could have gone out and bought rosaries for Mother Teresa’s convent,” Intriago tells Insight. “It doesn’t matter what he was doing with the money; the crime is in the structuring.” Intriago, a former federal prosecutor, says if the allegations are true Limbaugh could and should be prosecuted for structuring.
“The United States government decided that it’s of extremely high value for the enforcement agencies of the United States to have reports that are filed reflecting the withdrawal or deposit of more than $10,000. … Therefore, the public policy of the United States as reflected in the law that President Reagan signed is that it should be made a crime for people to structure their transactions to avoid or evade the filing of that form.”
But Edwin Meese, who was attorney general in the mid-1980s when Reagan signed the Money Laundering Control Act of 1986 that made money laundering a federal crime, tells Insight the Limbaugh case appears to be just one more example of prosecutorial overreach with money-laundering laws. Meese, now director of the Center for Legal and Judicial Studies at the Heritage Foundation, says, “I think there have been instances in which money-laundering laws have been used in circumstances that are considerably different from the original intent of the law. When money-laundering statutes are used simply to pile on charges where major financial manipulation was not the intent nor was it related to syndicated crime, then I think the statutes would be misused.”
The laws, Meese says, were pushed to “specify a certain type of aiding and abetting” in drug and crime rings. And indeed they often are used to go after people whom many agree are genuine bad guys. But in those cases it’s usually one of several criminal charges filed.
In the indictment of American Muslim Council founder Abdurahman Alamoudi, who is alleged to have helped fund terrorism, a structuring charge is included with several others, including smuggling cash and violating sanctions by taking money from terrorist-sponsoring Libya.
But there also are increasing numbers of prosecutions in which a money-laundering charge appears to be added just to beef up cases where the underlying charges are minor, say critics. In a case to which Meese points that now is on appeal to the Supreme Court, money-laundering charges were added to the weak “environmental-crime” case of David McNab. The fisherman was charged in 2000 with violating the Lacey Act, which makes it a crime to “import fish or wildlife taken in violation … of any foreign law.”
The foreign law in question was a Honduran regulation that made it a crime to harvest lobsters with tails less than 5.5 inches long. While Honduran government officials testified that the law actually was null and void, and only about 3 percent of McNab’s lobsters had tails less than 5.5 inches, prosecutors somehow convinced the courts that McNab’s depositing of the proceeds of this “crime” in his bank account constituted money laundering.
Heritage’s Rosenzweig and civil-liberties groups, such as NACDL, have signed a letter urging the Supreme Court to hear the case and free McNab, who has spent the last four years in prison. (The Justice Department had no comment on McNab’s case.)
And, say critics, the USA PATRIOT Act’s Title III will catch more McNabs, while doing little to catch terrorists, by demanding that even more businesses defined as “financial institutions” act like police spies. Treasury’s Financial Crime Enforcement Network, which runs a database accessible to various domestic and foreign law-enforcement agencies, already has applied customer-monitoring requirements originally drafted for banks to “money-service businesses,” which include the Postal Service as well as small convenience stores that offer money orders and smart cards, and brokerage houses. It has put out drafts of rules for real-estate brokers, travel agents and car dealers.
Most contentious are proposed requirements that these businesses not only must report transactions above a certain dollar threshold, but also file “suspicious-activity reports” on customers who deviate from a certain pattern.
“One of the things I worry about is that sometimes people buying cars do a lot of odd things,” says Greg Lanker, president and co-owner of Acura of Modesto [Calif.]. “Most of the reason is they’re trying to get a good deal. They try all kinds of tricks and trades, and sometimes their behavior is quite strange. For us to interpret what is strange and what is criminal is sometimes a little difficult.”
Critics say businesses will have an incentive to overreport because of the criminal and civil penalties in the USA PATRIOT Act. In 2002 alone, more than 300,000 suspicious-activity reports were filed, in addition to the more than 12 million reports for currency transactions above the threshold.
Rachel Ehrenfeld, author of Funding Evil and other books on money laundering, says that criminals and terrorists launder money in a variety of ways and reports from a variety of businesses are crucial. While she says the Limbaugh case is “an abuse,” she maintains innocent people have little reason to worry about their transactions being reported to the government.
“We need all the information we can get” to stop the terrorists, she says. “It is our lives that we are talking about, and it’s time that the American people understand this. If you have legitimate money, you shouldn’t be concerned about the government knowing how much money you have. I’m not concerned.”
But Bruce Schneier, author of Beyond Fear and founder of Counterpane Security, a Silicon Valley-based technology-security consulting firm, says that even if the government were using the programs exclusively for fighting terrorism, the millions of reports would be incredibly difficult to sift through to sort out the real terrorists.
“A nation of spies will catch some bad guys but will also catch an enormous number of good guys,” he tells Insight. “Investigations from false alarms will be enormous, and the false-alarm rate will likely be overwhelming.”
And since criminals often are familiar with money-laundering laws and how to get around them, they likely will find ever more ingenious ways of hiding money. This could lead to even more businesses potentially caught in money-laundering schemes, and calls for more financial-reporting requirements from ever more types of business establishments, Schneier says. “You have to look at trade-offs, and broad surveillance measures just don’t give a good return,” he says.
What likely will give a better return is human intelligence, Schneier and others say.
“Take the millions you would have to spend to get these programs working and fund more FBI agents,” he says. After all, it was old-fashioned interrogations that finally led to the capture of Saddam Hussein in his hole.
Better targeting of money-laundering laws for serious crimes and reducing surveillance requirements for businesses dealing with customers not suspected of any crime likely would lead to law enforcement using resources more effectively, Rosenzweig says.
“Nobody at Heritage doubts the need for enhanced data information to track and trace terrorist funds,” he says. “But the problem is you don’t really need to get information from auto dealers to do that.”
John Berlau is a writer for Insight magazine.