Boutique to Wall Street: Feds monitor books

In his small storefront check-cashing service in a working-class Jersey City neighborhood, Turkish-born Hakim Moussa suddenly looks astonished. He's hearing for the first time that he's not in compliance with a new federal law designed to make it harder for terrorists to transfer money around the globe.

Fortunately for him, he has a 90-day grace period to put a plan in place to report suspicious money transactions to authorities. He even has to designate a federal-compliance officer.

But for now, he has no plan – and no officer. "What we do is just cash checks, pay some utility bills, and send a few MoneyGrams," says the owner of the Sphinx Trading Company. "If I need [a plan], I'll put it into place."

Sphinx is one of thousands of businesses trying to adjust to new requirements that everyone from storefront boutiques to big brokers like Merrill Lynch report suspicious movements of money.

It is Uncle Sam's latest offensive against Terror Inc., and it represents one of the most far-reaching attempts to regulate financial transactions in modern US history.

Unlike earlier endeavors to shut down the flow of illegal money, the latest law is gradually being applied to parts of America, such as mom-and-pop jewelry stores, that have probably never considered themselves conduits for illegal funds.

It brings the financial war on terrorism deep into Americans' wallets, raising fundamental issues of privacy. The move is based on the theory that if just about every financial transaction in the US – from mutual-fund investments to jewelry purchases – is scrutinized, terrorists won't be able to move the money needed to fund their terrible acts.

"These new regulations are a dramatic step forward: They start to envelop a growing number of businesses that handle money," says Charles Intriago, director of Moneylaundering.com, an industry website.

Already, officials have busted up Al Barakaat, a Somalia-based money-transfer network that allegedly helped fund terrorism. And they've cracked down on "shell banks" – shadowy offshore firms that funnel money into the US. They even claim they've stopped up to $20 million from reaching the Al Qaeda terror network.

Yet critics say this approach simply makes the proverbial haystack bigger – and the needle harder to find.

They say authorities will be overwhelmed. "There is the assumption that more information means better intelligence," says J. Bradley Jansen of the conservative Free Congress Foundation in Washington. "We need to make the haystack smaller instead of bigger."

Already, 10,000 to 12,000 "Suspicious Activity Reports" (SARs) are filed by banks and other financial institutions every month. A bank would generate an SAR, for instance, if one of its customers had been depositing roughly $5,000 a month for several years – and then suddenly began depositing $9,000 a day for several weeks.

When SARs are filed, they arrive at a tiny government agency called FinCEN (Financial Crimes Enforcement Network), which is situated in a suburban Washington office park. Sitting in florescent-lit cubicles, FinCEN analysts track SARs and use them to warn financial institutions about criminals' methods.

They recently warned, for instance, that ATMs were being used in money-laundering schemes. They've also warned that transactions from Nigeria and Burma should be scrutinized.

The huge SAR database is also available to scores of government agencies – including the CIA – that use it to investigate individual cases.

The fact that all this information could be available to a number of agencies is raising privacy concerns. It's possible, for example, that retirement funds and gambling wins could now be reported to authorities. "Not only does it destroy what's left of law-abiding Americans' financial privacy," says Veronique De Rugy of the Washington-based Cato Institute, "but it's also going to put a huge burden on banks and shopkeepers."

Indeed, getting companies to faithfully warn authorities about suspicious activity could be a challenge. Besides filing SARs, people like Hakim Moussa can also call a new Treasury Department hotline to voice their suspicions.

Treasury officials say they're relying on the "good graces" of upstanding firms to help in the war on terrorism. Furthermore, they figure most businesses don't want to be exposed in the media as having knowingly or unknowingly aided terrorists.

In fact, the government has a big weapon to further cooperation: If a company doesn't comply with the new rules, managers can be charged with a felony and face 20 years in prison. "We call it the atomic bomb," says Mr. Intriago. "Most institutions have no idea that the atomic bomb awaits them."

One indication of how intently the government plans to pursue the cases is a trial now taking place in a wood-paneled federal courtroom in Boston.

Sitting quietly in a sand-colored suit, Mohamed Hussein stares straight ahead during his trial on two charges of transmitting money to foreign countries without a license. The maximum punishment Mr. Hussein could receive is five years in prison.

Federal officials say he was involved in a scheme that helped finance terrorism – and possibly Osama bin Laden's Al Qaeda group. Mr. Hussein and his brother, Liban Hussein, were charged after federal agents raided their Boston office of Barakaat North America, part of the Al Barakaat network.

Yet the indictment itself does not mention Al Qaeda or suggest any link between the brothers and terrorism. And Hussein's lawyer argues his client was merely a bystander in the office who didn't know about the functions of the firm.

Whatever the outcome, it's apparent that authorities intend to clamp down on risky transactions – and prod companies to report suspicious activity.

Not all businesses are ignorant of the new requirements. Back in Jersey City, a few blocks away from Sphinx, Steve Sosa at Mail Plus Services is ready for the new guidelines. On his desk at the check-cashing service and money transmitter is a Western Union guide to reporting money laundering.

"It's easier to comply," he says, "than to be caught."

• Staff writer Seth Stern contributed to this report from Boston.