Citizen Snoops Forever: The intelligence reform bill will turn car dealers into spooks, permanently

As the House and Senate in this week’s "lame duck" session wrangle over differences on immigration and Pentagon authority in the intelligence overhaul bill, civil libertarians should be very concerned about another section of the bill that many members of both bodies seem to agree on. The intelligence bill seeks to end the "sunset" clause of what experts say is one of the most privacy-harming sections of the USA PATRIOT Act, allowing it to be extended permanently without congressional review. This is the section of the bill supposedly designed to fight money laundering by forcing businesses to conduct even more routine customer surveillance. And it does so even though the 9/11 Commission report casts heavy doubt on the effectiveness of know-your-customer type programs at fighting terrorism.

Title III of the PATRIOT Act required a broad category of businesses defined as "financial institutions" to set up anti-money laundering programs similar to those already in existence for banks. From the definitions of the PATRIOT Act and other statutes, These "financial institutions" specifically include auto dealers, jewelry stores, travel agencies, and financial service providers, as well as any other type of business the Treasury Department regulators deem to have a connection to money laundering (This speech given by a deputy assistant Treasury secretary to a jewelers’ trade association offers a useful synopsis of the change in the law) . Like the banks, these new businesses are being forced to report transactions that meet an arbitrary and secretive definition of "suspicious activity," which regulators have sometimes defined to mean anything that deviates from a customer’s normal transactions.

To assuage privacy concerns, the writers of the PATRIOT Act’s Title III put in a clause called section 303 that put the provisions up for congressional review "on and after" Jan. 1, 2005. While not as strong as the sunset clauses contained in other parts of the law up for review next year, it does create a procedure to repeal Title III if just one House or Senate member introduces a joint resolution. If introduced, the repeal legislation receives "expedited consideration," ensuring it will receive a vote and not be bottled up in committee.

But even this mild privacy safeguard will be killed if the intelligence bill in its current form passes. In the sections of the House intelligence bill added by the House Financial Services Committee, a clause states "Title III of Public Law 107-56 [the PATRIOT Act] is amended by striking section 303." The clause’s title makes its intentions clear. It is called "Repeal of Review," referring to the congressional review provisions of the money-laundering section of the PATRIOT Act.

A version of the Senate "compromise" on the table before Congress adjourned for Thanksgiving contained the House’s repeal of Congressional review (see attached version obtained by this writer.). While negotiators were hung up over other things, "differences over a number of financial provisions in the bill have been settled," reported Dow Jones Newswires. But they have not settled well with privacy advocates, who are fuming at the bill’s repeal of one of the few checks on the PATRIOT Act.

"These money laundering provisions are of concern to consumers who buy gold or jewelry or boats or even cars," notes James Plummer, director of the Privacy Group of the free-market National Consumer Coalition. "Now there’s going to be no chance to come back and revisit this next year, because if this passes next week, that chance will be gone."

Former Rep. Bob Barr (R-GA), who voted for the PATRIOT Act but was instrumental in getting many of the sunset clauses added, says he is angry that this sunset is being removed without the debate that should occur next year. "We were hoping that these would be looked at in 2005 and that hearing would be had so that we could very methodically go through and see how the administration had been using these provisions, whether or not they truly were as instrumental as the administration would have us believe in fighting terrorism, and whether or not adjustments needed to be made at the time," Barr says. "Now, if this provision goes through, we won’t have the opportunity to do that.

Barr, who is now a consultant on privacy to the American Conservative Union and the American Civil Liberties Union, adds: "When we provided for the sunset provisions in 2001, it was certainly my hope that they would be addressed openly and specifically rather than piecemeal in other legislation. Doing that defeats the intent of having the sunset provision in the first place."

Eroding privacy in the name of fighting money laundering, unfortunately, has bipartisan support. As Reason has previously pointed out, Title III was added to the PATRIOT Act by the then Democratic-controlled Senate and was championed by Massachusetts Sen. John Kerry. Despite the ACLU’s criticism of Title III, most recently in its report "The Surveillance-Industrial Complex," many Democrats seem all too willing to throw civil liberties out the window in supporting money-laundering laws that promise to go after customers of so-called "tax havens." Title III isn’t even addressed in the SAFE Act, the most prominent bipartisan bill designed to rein in the PATRIOT Act.

But there is a small but growing backlash among jewelers, gold dealers, and car dealers, and other owners of the loosely defined "financial institutions" who object to a law that forces them to be government snoops on their longtime customers. Trade groups such as the Jewelers Vigilance Committee and the American Council of Life Insurers are complaining publicly about the burdensome new rules. For traditional financial services alone, compliance with the PATRIOT anti-money laundering provisions is projected to cost $10.9 billion by the end of 2005, according to the research firm Celent Communications. No wonder that the champions of forced business spying didn’t want to present even this watered down procedure for congressional review, says banking industry consultant Bert Ely. "If I was on the other side, I’d want that damn thing out of there!" he says.

In a press release, Rep. Mike Oxley (R-OH), chairman of the House Financial Services Committee (which has not responded to requests for comment), cited the 9/11 Commission report as justification for the sunset repeal and other measures. But that report actually casts a skeptical eye on whether a broad-brush approach such as that contained in the PATRIOT Act would ever be able to find the terrorist money trail. For the 9/11 attacks, "Al Qaeda had many avenues of funding. If a particular funding source dried up, al Qaeda could have easily tapped a different of diverted funds from another project to fund an operation that cost $400,000 to $500,000 over nearly two years," the report notes in Chapter 5. And in a stunning statement in footnote 90 of Chapter 6, the Commission stated with regard to the reporting rules for wire transfer businesses that went into effect shortly after 9/11 and other anti-money laundering regulations, "It is an open question whether such legislative or regulatory initiatives would have significantly harmed al Qaeda, which generally made little use of the U.S. financial system to move or store its money."

This further adds to the case made by national security and privacy experts last year in Reason for a more targeted approach with human intelligence and targeted surveillance of the specific entities believed to be funding terrorism, rather than the current PATRIOT Act requirements that every U.S. bank, jewelry store, and car dealer profile their customers for "suspicious activity." But in the rush to "do something," the House and Senate have pushed through provisions that will further erode privacy and likely make it harder to fight terrorism. In addition to gutting Title III’s sunset, the bill gives the Treasury further authority to make banks report random "cross-border transactions." It also contains a slew of "technical corrections" to the PATRIOT Act that seem merely to replace words and correct grammar, but could result in some nasty surprises. All the better to wait until next year to weigh these provisions in full and open debate. The victims of 9/11 deserve no less.