In my most recent blog entry, I described how the United States and other governments have quietly erected a network of technology and law to purportedly combat financial crime and terrorism.
However, this surveillance system has utterly failed at accomplishing its stated objective. What it has accomplished is to convert millions of innocent people into terrorist suspects.
In the United States—the country with the world's most advanced system of financial surveillance—when the FBI tried to design a profile of how terrorists might use bank accounts, it only came up with one main characteristic. That was large deposits with withdrawals of cash in a series of small amounts. Unfortunately for those FBI agents searching for terrorist needles in financial haystacks, this profile matches more than 25% of the customers of U.S. banks.
Nonetheless, U.S. financial institutions must file a "Suspicious Activities Report" (SAR) with the U.S. Treasury's financial intelligence unit, FinCEN, if you conduct a transaction that might be potentially linked to terrorism, or any other crime or regulatory violation. Financial institutions," incidentally, include not just banks, but securities brokers, insurance companies, futures and commodities brokers, money services, businesses, casinos, travel agencies, car dealers, and real estate brokers. Even the U.S. Postal Service is a "financial institution."
You might wonder how these businesses are supposed to determine what's suspicious. The law is amazingly vague. A suspicious transaction is one that exceeds US$5,000 and "has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the bank knows of no reasonable explanation for the transaction after examining the available facts." For some "financial institutions," the threshholds are even lower.
For instance, say that you have an average balance in your bank account of US$2,500. One day, you sell your vehicle for US$7,500 in cash and deposit the proceeds in your bank account. Is the transaction suspicious? It could be, according to the regulations: the transaction exceeds US$5,000 and it's "not the sort in which the particular customer would be expected to engage."
You'll be happy to learn that it's illegal for the company that files the SAR to inform you that it's done so. And, once filed, every U.S. Attorney's Office and dozens of law enforcement agencies can review it. They don't need a court order, warrant, subpoena, or even a written request to do so. Indeed, law enforcement agencies can, and do, "troll" through suspicious activities reports whenever they want.
As of December 31, 2007, FinCEN had received over 5.4 million SARs. Businesses throughout the United States add approximately 100,000 SARS each month to this total. And it's no wonder. The penalties for failing to file a SAR, when FinCEN determines, after the fact, that the transaction should have aroused suspicion are draconian. You can be fined up to US$250,000 or imprisoned up to five years for failure to file a SAR.
You might wonder how many terrorists or other criminals this intrepid system of pervasive surveillance has uncovered. It's not easy to find this information. None of the self-congratulatory publications from the Treasury's FInancial Crimes Enforcement Network (FinCEN) seem to think this statistic has any relevance. Indeed, the most recent data I could uncover dates from 2004, when FinCEN received "only" 700,000 SARs. Of those 700,000 forms, FinCEN passed on fewer than 900 of them to a law enforcement agency for follow-up. Another way of looking at this is that nearly 99.9% of SARs filed identified apparently innocent activity and never led to a criminal investigation.
But the collateral damage is huge. In one case, a mistaken report caused the accounts of 1,100 innocent depositors to be frozen. Allegations have also surfaced that SARs are being made available (illegally) to private investigators and others. In the meantime, FinCEN's budget continues to grow, and more than 100 other FIUs now exist around the world with a similar mandate.
If FinCEN and similar FIUs are useless for combating terrorism or financial crime, what's their actual purpose? I'll answer that question in my next blog entry. I'll also make some recommendations to protect yourself, and your assets, in this age of all-encompassing financial surveillance.
Copyright © 2008 by Mark Nestmann
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