Bringing Out the Big Guns: The USA Patriot Act, Money Laundering, and the War on Terrorism

Abstract

Although much has been said since September 11, 2001, about the need to attack terrorism through the international financial system, the effort appears bound to fail. The existing framework of money laundering regulation was designed to thwart the conversion of ill-gotten gains into apparently legitimate income; it was not designed to detect the conversion of apparently legitimate income into terrorist funding.

The challenge facing the money-laundering system becomes especially daunting when one considers the relatively low cost of terrorist acts and the innocuous ways in which the funding for those acts reaches the hands of the terrorists. When one also considers that terrorists frequently move funds through unconventional banking channels, using parties that appear absolutely legitimate, the low probability of intercepting terrorist funding becomes obvious. In light of these realities, the anti-money laundering provisions enacted by the USA PATRIOT Act seem bound to fail as a weapon against international terrorists. The international financial operations of terrorist networks are too varied and sophisticated for anti-money laundering laws to have much effect on the funding of terrorist actions.

The USA PATRIOT Act provisions will nevertheless serve at least two purposes. First, they play a role in the psychological war on terrorism by reassuring the American people that the government is taking decisive action to thwart future terrorist attacks. Second, they will assist in the prosecution of the usual group of sophisticated criminals who move large amounts of cash (i.e. organized crime and drug dealers). To the extent terrorists and organized criminals have interconnected operations, these new laws might help disrupt the criminal and/or terrorist activity. More likely, however, the new money laundering rules will merely be another tool provided to law enforcement in building cases against non-terrorist criminals.

Keywords: USA PATRIOT Act, money laundering, privacy

JEL Classification: K23