http://www.reason.com/links/links122804.shtml
Reason magazine
December 28, 2004
Clean Money, Dirty Conscience
Are some Americans guilty of banking while Muslim?
Jeff Taylor
The headline grabbing quirkiness of Yasser Arafat's investment in the
American bowling industry demonstrates that true global connectedness
remains a scary thing. Such financial scorekeeping-whose money, what money,
where-is a pointless exercise in an age when funds can circle the Earth in
a second and mutate several times along the trip.
The clean money, dirty money, blood money obsession would be quaint were
it not for the tremendous burden the pursuit of money laundering places on
innocent people just trying to enjoy the immense benefits of a modern
financial system. The PATRIOT Act's veil of secrecy is beginning to bite in
this regard without any evidence that the United States is made safer in
the bargain.
Some Middle Eastern-surnamed individuals in the U.S. now report an
unwillingness on the part of some banks to do business with them based on
government money laundering/anti-terror regulations. In fact, while other
parts of the PATRIOT Act initially drew fire, Section 314 glided by,
largely overlooked by everyone except the bankers. As it turns out,
Section 314 is a ticking time-bomb for anyone a buttoned-down banker might
consider suspicious.
This section requires banks and other federal regulated financial
institutions to comply with government requests for information on
customers. As with other parts of PATRIOT, Section 314 built upon other
long-standing federal bank regs, allowing PATRIOT boosters to use their
tired Officer Barbrady "this is nothing out of the unusual" defense of the
provision.
But Section 314 anticipated and sanctioned a much larger number of
information requests in a much shorter period of time, increasing the cost
of compliance to banks. Indeed, the initial crush of information requests
from the government in September 2002 was so great that the banks won a
temporary suspension of the requests. Banks thought they had a much firmer
grasp of what to do with Section 314 requests when they resumed in
February 2003.
However, the catch remained that banks are supposed to comply with Section
314 requests quickly and accurately, divulging no information to anyone
about them, and then promptly forget all about the requests. In particular,
if an information request for a Joe Terror comes in, and Podunk Bank has no
records of a Joe Terror as a customer, the law directs Podunk Bank to do
nothing.
This practice does avoid flooding the reporting system with replies that
say, "yes, we have no Joe Terror," but leaves Podunk Bank with the queasy
feeling that it responded to federal regulators by doing nothing. This is
not in the nature of bankers. If the feds dropped in, particularly a suit
from the criminal section of the Treasury Department, and suggested a
change in the color of the balloons in the lobby, there would not be a
whole lot of discussion as to why. Banks comply; that is why they are banks.
So rather than risk the wrath of regulators, banks very quickly hit upon
the idea of keeping names submitted on Section 314 requests on their
do-not-do-business-with lists. All banks have them and the lists are
perfectly legal. After all, some customers-bad credit risks, chronic check
bouncers-may just be more trouble than they are worth. Putting
314-requested names on the list would at least create a paper trail should
the feds someday request one and remove a troublesome class of customer
from bank rolls to boot.
This brings us to the question of the day: Has Section 314 made all
Muslim-surnamed customers, or even more broadly, those of Middle Eastern
descent in general, more trouble than they are worth to American banks?
The American Civil Liberties Union says it has dozens of complaints
involving financial institutions denying services to Muslims. A recent case
involves a Mississippi man who was suddenly told by his bank that his
account had been closed. No explanation was given for the action.
Interestingly, however, the bank, AmSouth, recently was fined $40 million
by the Treasury for failure to comply with reporting regulations involving
money laundering.
It is certainly true that the more Middle Eastern names a bank has on
record, the more likely it is to be forced to complete Section 314
information requests. The more requests you get, the more likely you are to
screw one up and get walloped with a fine. Why not lighten that load and
reduce that risk by cutting back on "trigger" names? The logic is
undeniable.
The banks, of course, would never admit to such a practice, and regulators
point to official directions not to use Section 314 requests as a guidepost
to a customer's desirability as a client. But this language simply ignores
reality, and the reality is that the law has set up a powerful incentive to
keep Muslims outside the mainstream financial services sector.
Maybe that outcome does not trouble the 44 percent of Americans who say
in a poll that they favor restrictions on the civil liberties of Muslims in
the U.S. However, it guarantees that some law-abiding Muslims will face
frustrating hurdles to living their lives as everyday Americans. And that
is troubling to anyone who values freedom and real, lasting security.
Jeff Taylor writes the weekly Reason Express.
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R. A. Hettinga