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Sunday, April 21, 2002

By Pamela R. Winnick, Post-Gazette Staff Writer

In the days before Sept. 11, four of the terrorists involved in the World Trade Center attack wired nearly $15,000 in "excess" cash -- all in increments of $3,000 and $4,000 -- to an associate of Osama Bin Laden in the United Arab Emirates. Had the law been different at the time, those transactions along with the wire transfer of funds that helped finance the attack would have been reported to federal authorities and the terrorists might have been stopped in their tracks.

A law passed by Congress in the wake of Sept. 11 adds sweeping new provisions to money laundering laws that were first put in place in 1970, when the goal was to detect drug dealers and tax evaders. So-called money transmitters such as Western Union now must report cash transactions that aggregate $10,000 or more. So must pawn brokers, travel agents, insurance companies and automobile dealers. Banks, which have long been required to report "suspicious activities," now are subject to new restrictions and requirements.

"The law is a watershed for banks, brokers and other businesses," said Mike Kelsey, chief compliance officer for retail banking and corporate anti-money laundering compliance officer at PNC Financial Services Group. "Businesses have an obligation that they didn't have before."

"The law is geared to the old injunction: 'follow the money,' " said Jim Bauerle, director of legal and business services at DKW Law Group, a Downtown law firm. "The money trail is an essential part of combating any illegal activity."

Senate hearings in 1999 revealed cracks in the banking system, including the promise of privacy that banks make to wealthy clients. These clients have included drug dealers and corrupt foreign government officials who used a New York bank to cipher money from their own countries into the United States.

"Private bankers specialize in secrecy," said Sen. Carl Levin, D-Mich., during the hearings. "Even if a client doesn't ask for secrecy, a private banker often encourages it."

Another crack was the use of "shell" banks in jurisdictions such as Panama and the Cayman Islands where anyone with a post office box and a wad of cash can buy a bank and use it to transfer huge amounts of money in and out of the United States. Yet another was the use of "front" corporations used to hide the real identity of criminals.

Under the new law, financial institutions can no longer do business with shell banks and must monitor transactions with banks in certain foreign countries. They also must adopt "know your customer" policies in which they ask affluent clients how they acquired their wealth.

Many in the Pittsburgh financial community declined to speak publicly about the new law for fear, they said, that prospective terrorists will learn about cracks in the system.

Others said their institutions always have had policies in place designed to prevent illegal activities.

"PNC has always taken its obligations seriously," said Kelsey. "Because we know our customers, compliance is easier."

National City Bank has "procedures in place that will avoid abuses that come with money laundering," spokesman William Eiler said.

But while sophisticated financial institutions can afford lawyers, compliance officers and expensive software, other businesses affected by the law are not even aware of its existence.

Among them is Mike Broff, part owner of Broff's Diamond Loan & Finance Association, a Downtown pawn broker. Since his store doesn't sell to the general public -- it sells confiscated collateral only to jewelry dealers who pay by check -- he didn't see a problem.

Though they also didn't know about the law, travel agents likewise see no problem since they, too, only deal with checks and credit cards.

"I can't think of a moment when anyone's given us that much cash," said William Katz, manager of Atlas Travel Services, a Downtown travel agency.

Given the events of Sept. 11 and the phenomenal growth of the money transmitting business -- about $40 billion a year is transferred annually by these firms, which do not include banks -- companies that provide money orders and wire transfer services are obvious targets of the law. Among them is Western Union. With offices in Columbia, Peru and the Dominican Republic -- set up primarily to allow immigrants to send money home to their families -- Western Union long has been of concern to regulators looking for drug dealers who could easily transfer money into the United States in a matter of minutes.

None of the five money transmitters listed in the Pittsburgh Yellow Pages would discuss the law, which requires them to report all cash transactions of $10,000 or more in the aggregate and obtain identification from a customer for any cash transaction of $3,000 or more. Whether the latter requirement would prevent another Sept. 11 remains unclear, given the ease of obtaining phony drivers' licenses and even passports.

It's this, along with the law's incursions on personal privacy, that incenses Stan Levenson, a Downtown criminal defense lawyer who says the law goes both too far and not far enough.

Levenson says sophisticated criminals easily can evade the law by purchasing what's known as "shelf" corporations, businesses in locations such as the Cayman Islands that exist for the sole purpose of "fronting" illegal activity. The law does not forbid banks from doing business with such corporations.

"There's no question that there are ways around the law," Levenson said. "I'm very cynical based on 35 years as a criminal defense attorney."

Lawyers, like accountants, have long been subject to laws that require them to tell on clients who pay them more than $10,000 in cash. The Internal Revenue Service conducts audits on lawyers, Levenson said, going through books and records that should be confidential. It's that invasion of privacy that he believes goes too far.

"That's an incursion on the attorney-client privilege," he said. "We should never be in a position of having to provide information about our clients."

Though bankers won't say it, they too could find themselves in a similar position: The law does not allow them to tell a customer that they've reported him to the government.

Speaking on condition of anonymity, a high-ranking Pittsburgh banker admits the law could go against a bank's financial interest -- private banking generates huge fees -- but insists the bank has always turned away any prospective client who appears suspicious and the bank carefully checks references for clients starting accounts drawn from foreign banks.

But, she said, "You can never be 100 percent sure of anything."