FBI may have access to records of all BSA “financial institutions”

12/01/2003
A little-publicized counter-terrorism measure may soon allow the Federal Bureau of Investigation to demand the financial records of non-bank “financial institutions” without a court order.

A little-publicized counter-terrorism measure may soon allow the Federal Bureau of Investigation to demand the financial records of non-bank “financial institutions” without a court order.

The measure was approved by the House and Senate and by the Congressional negotiators who unified the two houses’ original wording. It is now awaiting final Congressional approval.

The FBI has for years been able to use “administrative subpoenas” to circumvent the judicial system when demanding the financial records of banks and credit unions in terrorism and espionage investigations, but until now non-bank “financial institutions,” as defined in the Bank Secrecy Act, have been exempt.

The measure was included in the 2004 authorization bill for intelligence agencies and would allow the FBI access to the financial records of travel agencies, money services businesses, pawnbrokers, car dealerships, insurance companies and other businesses that engage in cash transactions. Or, in the language of the bill, which is identical to that of the Bank Secrecy Act, a business is fair game if its transactions have “a high degree of usefulness in criminal, tax or regulatory matters.”

If the bill gets final approval from Congress, it will then require the signature of President George W. Bush before becoming law. He is expected to give his approval.

More extensive than 314(a)

Under Section 314(a) of the USA Patriot Act, the FBI. and other law enforcement agencies already have the power to demand limited financial information from all financial institutions.

That controversial section of the landmark law allows U.S. agents to request customer account and transaction information from financial institutions without subpoenas, which normally require the approval of federal prosecutors. The idea was to streamline laundering and terrorist financing investigations.

Under regulations issued on November 4, 2002, U.S. agencies could request the information by simply filing a “Subject Information Form (Form A)” with the U.S. Financial Crimes Enforcement Network (FinCEN). These regulations now form part of the BSA regulations (31 CFR 103.90, .100 & .110), although Congress did not codify Sec. 314 in the BSA, probably by oversight.

On the form the agency lists its name, indicates what it is investigating and attests that credible evidence exists to believe the subject may be involved in terrorist or money laundering activity. Upon receiving the form, FinCEN transmits the demand for customer account information to whichever financial institutions or whichever geographic regions the agency wants canvassed.

However, Peter Djinis, a former top Treasury Department official who now specializes in federal AML regulations, said administrative subpoena authority is more exhaustive than 314(a) powers, which allow investigators only to request confirmations regarding the existence of accounts or transactions involving a given person’s name.

“All 314 really does is say ‘Look at your transactions and if you have a hit let us know,’” he said. “That’s not the same a demand for records. That requires a subpoena.”

Flood of requests

But even with the relatively limited power of 314(a), the usage of that power created an uproar in the financial community.

The convenience of the new procedures unleashed a flood of requests in November, as federal enforcement agencies demanded to know about accounts and transactions from banks, broker-dealers and other financial institutions required to maintain anti-money laundering programs.

Financial institutions protested loudly that the demands were vague, time-consuming and laborious to fulfill. On November 19, 2002 – just 15 days after they were first allowed — FinCEN ordered a moratorium on the requests. It was lifted in February and the requests resumed (MLA, Dec. 2002).

ACLU expresses doubt

Timothy Edgar, an American Civil Liberties Legislative counsel, said he is concerned that executive power to invade the privacy of individuals is getting out of hand.

“This proposal, like parts of the Patriot Act and similar post-9/11 security measures, operates under the premise that the White House should be able to supersede the Congress or the courts at will,” he said.

Edgar said that the practical effect of the expanded powers will be to authorize the FBI to force small businesses to invade clients’ privacy without any judicial recourse to fight unwarranted intrusions. He added that the bill stipulates that businesses cannot inform clients that their records have been seized.

FBI sees as necessary tool

Dennis Lormel, the chief of the FBI’s Financial Crimes Section, who oversees the multi-agency Terrorist Financing Operations Section, said he is sensitive to the concerns of the ACLU and others, but added that when fighting terror, time is critical in preventing catastrophes.

While the FBI already has the power to serve administrative subpoenas to banks, its inability to do so with “non-traditional” financial institutions is problematic, Lormel said.

“When it comes to moving money, terrorists are no different than fraudsters,” he said. “They will exploit vulnerabilities in the system wherever they can. If you look at the model of 9-11, terrorists used traditional bank accounts and they know we’ve scrutinized that, so they know they need to change their mode of operations. And as we get more vigilant in alternative financial institutions, you’ll see the flow come back to banks.”