WSJ - Money Laundering (fwd)
Justin J. Lister (ruf@osiris.cs.uow.edu.au)
Tue, 19 Sep 1995 01:12:19 +1000 (EST)
The Wall Street Journal, September 13, 1995, p. B2.
Software May Dry Up Money Laundering
By Margaret A. Jacobs
Can artificial intelligence be used to combat crime by
ferreting out money laundering?
Officials at law enforcement, defense and intelligence
agencies like to think so. They have suggested creating a
sophisticated computer program to screen records of the
more than 700,000 electronic money transfers involving U.S.
institutions each day and to flag suspicious ones for
further investigation. By using so-called artificial
intelligence, they hope to stop some of the $300 billion in
profits from drug deals and other illegal activities that
they estimate is laundered through financial institutions
world-wide each year.
But in a report issued yesterday, the congressional Office
of Technology Assessment says any such plan would face
considerable obstacles. Federal privacy laws generally
prevent banks and other financial institutions from sharing
with the government much of the information they have about
electronic money transfers, unless the government issues a
subpoena or obtains a search warrant, the report notes. The
report also cites technological limitations,, including the
difficulty of developing a profile of suspicious activity
that a computer could search for, and the high cost of such
a program, among other things.
Though Congress has yet to consider proposals to use
artificial intelligence to fight money laundering, the
Senate Government Affairs Committee -- at the urging of
defense contractor Mitre Corp. of Reston, Va., which has
expressed interest in supplying such a system -- had
requested that the OTA convene a panel of experts to study
the matter. The OTA advises Congress on technology issues,
but isn't expected to receive funding in the next fiscal
year.
Banks and other financial institutions are now required to
report to the government only cash deposits exceeding
$10,000. The institutions aren't required to report
electronic transfers, even though the OTA estimates that
the vast majority of money is laundered that way. Such
transactions typically involve dozens of transfers made
through banks in various countries, often in the names of
shell corporations, with the intent not to leave a trail.
An estimated one-tenth of one percent of all electronic
transfers involve funds being laundered.
By next spring, however, U.S. banks will be required by
Treasury Department regulations to retain more-detailed
records of each electronic transfer, including the identity
of the sender, and to report to the government suspicious
electronic transfers that come to their attention.
Artificial intelligence is "clearly where we have to be
headed," says Stanley E. Morris, director of the Financial
Crimes Enforcement Network, a Treasury Department agency
that oversees anti-money-laundering efforts.
But the OTA notes that giving the government access to the
records of individuals is impossible under current law,
unless the government issues a subpoena or obtains a search
warrant, much like it must do to tap telephones. To obtain
a search warrant and to enforce a contested subpoena in
court, the government has to convince a judge or magistrate
that there is a likelihood of criminal activity.
While the law doesn't give corporations as much protection,
most banks don't turn over corporate money-transfer records
without a subpoena or search warrant.
The OTA also notes that banks fear that allowing law
enforcement unrestricted access to electronic-transfer data
would make businesses in Europe and other industrialized
nations reluctant to use U.S. financial institutions. The
U.S. would "run the risk of the flight of legitimate
capital" from domestic banks, the OTA concludes.
"For any artificial-intelligence system to work we also
would need the same level of surveillance," carried by
other countries, says Joel Reidenberg, a law professor at
Fordham Law School and a privacy expert who advised OTA on
the report. "Most other countries generally have more, not
less privacy protections than we do," he adds, noting that
such protections are being strengthened in Europe.
Businesses are also concerned that if the government
requires financial institutions to retain more data on
electronic money transfers, the information will be
exploited by banks or revealed through litigation, possibly
giving competitors a look at their corporate planning,
stock strategies and vendor relationships.
"Once banks have this vast amount of information, there
will be tremendous pressure on them to use it," says Prof.
Reidenberg. A system without strict safeguards against
unauthorized disclosure would create a "surveillance state
that a democratic society just won't accept," he adds.
But even if privacy concerns could be overcome, the OTA and
electronic moneytransfer experts say it isn't likely that
the technology could deliver.
One big problem is deciding what types of transactions are
suspicious -- a key step in developing a computer-screening
system, says John Byrne, senior federal counsel with the
American Bankers Association. For example, the OTA notes
that a computer might look for five $3,000 transfers in a
single day on the assumption that the intent was to evade
cash-reporting requirements.
But without a more sophisticated profile, such a search
would target many legitimate transfers for investigation,
broadly intruding into the privacy of innocent companies
and individuals, according to the OTA and privacy experts.
The OTA recommends that the government more aggressively
use subpoenas and search warrants to expand its knowledge
of the way money launderers use electronic transfers before
embarking on anything more than a limited artificial-
intelligence project, among other things.
Meanwhile, some big banks are understood to be
experimenting with artificial intelligence on their own.
Systems used internally at banks aren't likely to raise
privacy concerns and may help fulfill federal requirements
to report suspicious activity to the authorities, as well
as reduce losses related to money laundering.
Last year, American Express Bank International, an American
Express Co. subsidiary, agreed to pay a $7 million fine as
part of a settlement with the Justice Department of a civil
money-laundering case. The department contended that the
bank failed to cooperate in the criminal prosecution of two
former employees who were convicted of aiding a Mexican
drug dealer in laundering about $30 million.
[End]
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| ____ ___ | Justin Lister ruf@cs.uow.edu.au |
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