Financial Transparency Coalition

Since Edward Snowden leaked the details of the National Security Administration’s top secret mass surveillance programs, Americans have been talking a lot about the tradeoffs between liberty and security. There are, of course, varying perspectives on the issue. Some, like Senator Ron Wyden (D-OR) argue the government’s actions in this area threatens to “give us an always expanding, omnipresent surveillance state that—hour by hour—chips needlessly away at the liberties and freedoms our Founders established for us.” Others, such as NSA head General Keith Alexander argue the program has permitted the intelligence community to “better connect the dots and learn from mistakes,” which has allowed Americans to live in “relative safety and security” over the last decade.

Whether arguing that the NSA programs are warranted or not, both sides do acknowledge that this program represents a loss of liberty for Americans. As a natural result, both sides sometimes propose liberty-preserving (or at least liberty-conserving) alternatives to such programs. For example, some argue investigators should not actively hold the data—instead leaving them in the hands of phone companies—and only take data that are part of an investigation.

When examining alternatives to mass surveillance, the national discourse does not, however, focus much on banks and bank accounts. It should. Phones are one way to track terrorists, especially with those with ties to the United States, and to reveal their networks. But money is another.

The U.S. Patriot Act did a great deal more than establish the legal basis for wiretapping and mass surveillance.[1]  It also significantly altered anti-money laundering enforcement by officials in the United States.  Among other advances, the Patriot Act sought to prevent foreign shell banks from having access to the U.S. financial system; encouraged cooperation and information sharing among law enforcement, regulators, and financial institutions; and required financial institutions to establish anti-money laundering programs.

But terrorists have adapted, too, by learning to avoid traditional banking channels for moving funds. Terrorists use cheap, informal money-transfer methods like hawala swaps and couriers. And organizations like al Qeada, which once had a much stronger centralized core group in Pakistan, has reduced profit-sharing among affiliates in order to avoid detection. Stuart Levey, the former head of the Treasury’s Office of Terrorism and Financial Intelligence, explains “Illicit actors are now savvy to the fact that the formal financial system is quite well-monitored, so they look for other ways, and it’s hard to keep up with that. It’s a bit of a cat-and-mouse game.”

As Tom Cardamone, managing director of Global Financial Integrity, points out, it is still easy—even in the United States—to establish a company that funnels profits to people or entities where the beneficial owner does not have to be identified, even to law enforcement.  As he says, this is clearly “a huge hole in law enforcement’s ability to see where money goes.”

Increasing reporting requirements so that the beneficial ownership and control of companies, trusts and foundations is readily available on the public record would facilitate effective due diligence and help law enforcement officials identify and track terrorists. Explicitly requiring that financial institutions identify the ultimate beneficial owners or controllers of any company, trust or foundation seeking to open an account would likewise allow intelligence officials to track illegal activity and trace terrorist networks.

We should not only think about these rules in the context of their usefulness, but also about their alternatives. Ultimately, improving beneficial ownership rules is a much less intrusive way than mass surveillance and both are tools the United States and other nations might use to promote national and international security. This is not a substitute. Beneficial ownership rules wouldn’t replace mass surveillance (you wouldn’t be able to gather the same types and quantities of information this way), but it is a viable alternative among many. More importantly, it achieves similar benefits with a much lower cost to liberty.

We may not all agree about whether the benefits of mass surveillance exceed their costs. But we may all agree that terrorists shouldn’t be able to open bank accounts in the United States. And if they do, the U.S. government should know about it.