Terrorist Financing: Emerson & Lormel Testify - US, Libya, & Saudis - Bank Secrecy Act Changes

By Andrew Cochran

Steven Emerson and Dennis Lormel testified yesterday before the U.S. Senate Banking Committee (Acrobat files), chaired by Sen. Richard Shelby. At the hearing, Steve stated that "We are now behind the curve" in pursuing terrorist financing, and he described the current US government counterterrorism structure as a "massive 'Rube Goldberg' machine that works but could be 1,000 times better." He also discussed how several U.S. charities which funded terrorists overseas, and were shut down after the 9-11 attacks, have reconstituted themselves. He criticized the Saudi government's lack of diligence in halting terrorist funding. Dennis, who formed and directed the Terrorist Financing Operations Section of the FBI after the 9-11 attacks, said that he's confident that law enforcement is investigating certain reconstituted groups. Dennis also recommended that Congress amend the USA Patriot Act to include administrative subpoena authority and to allow the production of subpoenaed records inan electronic format. He also said that the FBI had not historically provided adequate feedback to banks on Bank Secrecy Act compliance.

Sen. Shelby cited the discovery of new American dollars during the investigation of the Madrid bombing and his personal experience as a witness to the aftermath of the London bombings.

He also discussed the Arab Bank, which is under DOJ investigation and agreed to a Consent Order for "its failure to exercise due diligence with regard to its customer base and for its failure to file Suspicious Activity Reports." He said that the case is evidence of "the failure of the federal regulator to adequately supervise that bank and for the bank itself to comply with U.S. regulations. The parallels to the Riggs Bank case are striking, and disturbing." (See Lee Wolosky's post on the Arab Bank case and my earlier post on the Riggs Bank case.) Sens. Hagel and Bunning had different views of the status of terrorist financing - they were concerned that banks, especially smaller institutions, have been overburdened and are filing SARs defensively without reason.

The senior U.S. Treasury Department official for anti-terrorist financing issues, Stuart Levey, said the U.S. continues to pressure the Saudis, Syria, and most recently Libya to halt terrorist financing from within their borders. He said that the Saudis - private donors and charities - remain a "significant source" of terrorist funds.

I posted on April 13 that the Justice Department was considering an important change in the protocols for bank prosecutions under the Bank Secrecy Act. Until recently, U.S. Attorneys could pursue prosecutions without clearing them through DOJ headquarters, a practice that was both inconsistent with established procedure under the Annunzio-Wylie Money Laundering Act of 1992 and very troubling to the industry, the Treasury Department, and the Federal Reserve System. The American Banker reports this week (paid suscription) that DOJ headquarters changed the protocols as predicted. Despite published denials by senior DOJ officials, the practical impact of the change will be to significantly lower the chances that banks will face criminal prosecution, as AmSouth Bank faced last year, for egregious Bank Secrecy Act violations.

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