1. Richard Warner rwarner@kentlaw.edu USA Patriot Act: Money Laundering Provisions

2.  Law enforcement cannot achieve control alone. The cooperation of private business is required.  The reason: controlling white collar crime requires access to and analysis of vast amounts of information, information possessed partly by law enforcement and partly by private business. Controlling Money Laundering

3.  In addition, private businesses–such as credit card companies and banks–collect and analyze relevant information as part of their normal business operations.  To the extent they share this information with law enforcement agencies, those agencies avoid the cost of obtaining and analyzing the information themselves. Controlling Money Laundering

4.  The Act responds in a sensible way to money laundering.  It is an example of the modern law enforcement response to modern crime..  It raises serious privacy concerns. Three Points

5.  “Money laundering... provides the financial fuel that permits international criminals to conduct and expand their operations.” 301(a).  Minimizing money laundering strikes at the heart of organized crime and terrorism. The Money Laundering Problem

6.  The Act is typical of modern uses of technology to combat crime.  It is a reaction to the use of the Internet and modern communications infrastructure by criminals. The Patriot Act as an Example

7.  The Act establishes Information sharing requirements; Information recording requirements; Investigation requirements; And, a clearinghouse for sharing information (using the Internet to the maximum extent possible). What the Act Does

8. An Open Network  The Internet is an open network in two senses.  First, it is built on a common, non-proprietary protocol. Any one who connects to the Internet can count on being able to communicate with anyone else who is connected.  Second, you do not need anyone’s permission to connect to the Internet—unlike public roads, for example.

9. A Decentralized Network  In classical telephone networks operated by national organizations, intelligence and control were centrally located.  On the Internet intelligence and control is mostly at the periphery, where the users and services are.  The Internet backbone is optimized to transmit data as efficiently as possible. It does not analyze data.

10. backbone Regional feeder networks ISPs Users backbone Regional feeder networks ISPs Users Structure of the Internet

11.  The Act responds to decentralization by imposing a variety of requirements on financial institutions which constitute the relevant the periphery, but also...  By creating a centralized clearinghouse for information sharing, and using the Internet to communicate between this center and the periphery. Dealing With Decentralization

12.  The Act establishes Information sharing requirements; Information recording requirements; Investigation requirements; And, a clearinghouse for sharing information (using the Internet to the maximum extent possible). What The Act Does

13.  “Money launderers subvert legitimate financial mechanisms and banking relationships by using them as protective covering for the movement of criminal proceeds and the financing of crime and terrorism.” 302(a)(3)  To identify money laundering transactions governments, government agencies, and businesses must share information; otherwise, the “protective covering” is difficult to remove. Information Sharing

14.  The Act imposes cooperation requirements on the entities at the periphery because controlling money laundering requires cooperation Between governments (302(a)(9); Within governments, between agencies (358 (c)); Between government and business (314, 318(a)(1)). Requiring Cooperation

15.  You can only share information you have.  So, the Act empowers the Federal government to impose recording requirements on financial institutions (311(b), 358(d)). Customer identification (326) Correspondent and payable-through accounts (311(e), 312(a)(i)(1 - 3), 313(a)(2) Recording Requirements

16.  Financial institutions are not only required to record information, they are also required to actively obtain it.  The Act imposes investigation requirements. (312(b)) If the investigation reveals that a shell bank is seeking an account, the Act prohibits dealing with that bank. (313) Investigation Requirements

17.  To increase the effective administration of the Acts requirements, it prohibits unlicensed money transmission. (373(a – b))  “Money transmission” is defined very broadly. (373(b)(C)) This may affect many e-commerce sites.  In this way, the Act controls the kind of financial institution that can be on the periphery of the Internet. Licensed Money Transmission

18.  The Act identifies FinCEN as a central clearing house for coordinating the sharing of information. FinCEN is The Financial Crimes Enforcement Network, established in 1990.  “The Secretary of the Treasury shall establish and maintain operating procedures with respect to government-wide data access through... FinCen.” (310(c)) A Centralized Clearinghouse

19.  FinCEN brings intelligence and control from the periphery to a centralized clearinghouse.  The Act specifies that financial institutions and agencies should submit their “reports through the Internet or other secure network, whenever possible.” (310(c)(1)(A)) FinCEN’s Role

20.  No system is perfect. Errors will occur, imposing costs on subjects investigated, financial institutions, and the government. Given the broad powers the Act creates, it may well be that many investigations focus on people that turn out to be innocent. Errors

21.  Increasing governmental power always carries the inherent risk that the power will be abused.  Even if the power is used properly in the present, you must worry that it will be abused in the future.  The adage, “Power corrupts,” is true. Abuse

22.  The Act limits the use of information collected: for example, “Information received by a financial institution... Shall not be used for any purpose other than identifying and reporting on activities that may involve terrorist acts or money laundering activities.” (314(a)(5)) Slippery Slope

23.  We should worry that such limitations will eventually be ignored.  This is especially worrisome in the case of FinCEN. What guarantee—of genuine practical value—do we have that FinCEN’s databanks will not eventually be used for greatly expanded purposes? Slippery Slope

24.  The Act illustrates a general approach to security and control with regard to modern, decentralized, global networks.  The solution is to coordinate the periphery with a centralized clearinghouse.  What guarantee do we have that the system will not be abused? The Question Is Critical

25.  Democratic control of governmental power is matter of checks and balances.  What checks and balances do currently operate in systems of the sort illustrated by the Act?  What checks and balances should in such systems? Checks and Balances

26. Sliding Down: Three Levels of 4 th Amendment Protection  First level: Non-exigent searches and seizures typically require a warrant based on probable cause.  Second level: Some less invasive actions (stopped on the street by a police officer) are permissible on reasonable suspicion (specific, articulable facts that criminal activity is occurring).  Third level: Where the government seeks records from a third party, it can use a subpoena. This does not require reasonable suspicion, only a finding that the information sought is relevant to an investigation. The target of the subpoena can challenge it, before the records are handed over, on grounds of irrelevance or overbreadth. Examples: credit reports, financial and medical records.

27. Beyond the Three Levels  Delayed notice subpoena: requires danger that notice might frustrate the investigation; used to obtain financial records.  Ex parte subpoena: challengeable by the third party holding the records; used to obtain e-mail.  Relevance order: issued by a court on grounds of relevance; used to obtain phone records.

28. Beyond the Three Levels  Certification order: issued by a court based on a claim of relevance by the police; the court does not make an independent judgment of relevance. Used to intercepted transaction information about calls and e-mails.  Extrajudicial Certification: Issued by police based on police claim of relevance. Used to obtain federal public records and records related to terrorism.  No requirement: All other public records not protected by state laws.