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New Federal Patriot Act Turns Retailers into Spies against Customers

By Scott Bernard Nelson, The Boston Globe

Nov 20, 2001 2:18 AM

Nov. 18--Ordinary businesses, from bicycle shops to bookstores to bowling alleys, are being pressed into service on the home front in the war on terrorism.

Under the USA Patriot Act, signed into law by President Bush late last month, they soon will be required to monitor their customers and report "suspicious transactions" to the Treasury Department -- though most businesses may not be aware of this.

Buried in the more than 300 pages of the new law is a provision that "any person engaged in a trade or business" has to file a government report if a customer spends $10,000 or more in cash. The threshold is cumulative and applies to multiple purchases if they're somehow related -- three $4,000 pieces of furniture, for example, might trigger a filing.

Until now, only banks, thrifts, and credit unions have been required to report cash transactions to the Treasury Department's Financial Crimes Enforcement Network, under the Bank Secrecy Act of 1970. A handful of other businesses, including car dealers and pawnbrokers, have to file similar reports with the Internal Revenue Service.

"This is a big deal, and a big change, for the vast majority of American businesses," said Joe Rubin, chief lobbyist for the US Chamber of Commerce. "But I don't think anybody realizes it's happened."

The impact is less clear for consumers, although privacy advocates are uncomfortable with the thought of a massive database that could bring government scrutiny on innocent people. Immigrants and the working poor are the most likely to find themselves in the database, since they tend to use the traditional banking system the least.

"The scope of this thing is huge," said Bert Ely, a financial services consultant in Alexandria, Va. "It's going to affect literally millions of people."

The filing of so-called suspicious activity reports, though, is only the latest in a series of law enforcement moves the government has made in response to the Sept. 11 terrorist attacks on New York and Washington. And so far, the filing requirement has been overshadowed by debate over the other changes.

The Patriot Act signed into law Oct. 26, for example, gives the government a vast arsenal of surveillance tools, easier access to personal information, and increased authority to detain and deport noncitizens. House and Senate negotiators came to terms Thursday on a bill that would add 28,000 employees to the federal payroll in an effort to bolster airport security, and Attorney General John Ashcroft has said he is reorganizing the Justice Department and the FBI to focus on counterterrorism efforts.

As for the business-filing requirement, specifics about what companies have to do and when they have to do it still need to be worked out. The Treasury Department has until March 25 -- the date the Patriot Act becomes law -- to issue regulations about how to put the new rules into practice.

"The law itself doesn't go into any detail, because you'd presume that's what the Treasury regulations are for," said Victoria Fimea, senior counsel at the American Council of Life Insurers. "And the devil, of course, is in the details."

When he signed the legislation, President Bush said the new rules were designed to "put an end to financial counterfeiting, smuggling, and money laundering." The problem, he and others have said, was keeping tabs on the billions of dollars that flow outside the traditional banking system and across national borders each year.

Money launderers often disguise the source of their money by using cash to buy pricey things. Later, they can resell the products and move the money into a bank account -- at which point it has been laundered, or made to look legitimate, by the aboveboard sale.

Making a series of transactions just below the $10,000 filing threshold is also illegal under the new law if it's done to keep a business from contacting the government.

Financial services companies such as banks, insurers, and stock brokerages face a higher standard under the new law than other businesses. In addition to the filing requirements, they have to take steps such as naming a compliance officer and implementing a comprehensive program to train employees about how to spot money laundering.

Unlike other businesses, though, most financial services companies already have a process in place to deal with government regulation.

"Certainly for the bigger [insurance] companies, they most likely are already tooled up for this," said Fimea. "For other companies, this creates a whole new landscape."

James Rockett, a San Francisco lawyer who represents banks and insurance companies in disputes with regulators, said he's skeptical the authorities will get any useful information from reports filed by nonfinancial companies.

"You're trying to turn an untrained populace into the monitors of money laundering activity," Rockett said. "If you want to stop this, it's got to be done with police work, not tracking consumers' buying habits."

Voices opposing any of the new law-enforcement measures appear to be in the minority, however. For now, at least, few people and few companies want to be perceived as being terrorist sympathizers.

"In a political sense, it would have been very hard for us to go to Congress in this case and loudly argue that the legislation shouldn't include nonfinancial-services guys," said Rubin, of the US Chamber of Commerce. "Everybody wants to help and to stop money laundering right now."

Scott Bernard Nelson can be reached by e-mail at nelson@globe.com.

To see more of The Boston Globe, or to subscribe to the newspaper, go to http://www.boston.com/globe

(c) 2001, The Boston Globe. Distributed by Knight Ridder/Tribune Business News.

Copyright © iSyndicate Inc 2001

-- Anonymous, November 23, 2001

Answers

Making a series of transactions just below the $10,000 filing threshold is also illegal under the new law if it's done to keep a business from contacting the government.

And ignorance of the law is no excuse. I can see this bit being challenged. The threshold is cumulative and applies to multiple purchases if they're somehow related -- three $4,000 pieces of furniture, for example, might trigger a filing. And if one is in a situation similar to ours where one needs to replace multiple items, it would be easy to break this law. Appliances at one store, furniture at another, some more furniture at yet another store, carpeting at another, etc. Next thing you know the FBI is there inspecting the house and confiscating all the new stuff because you fit the profile. "For evidence in the investigation," they say.

Big Brother is becoming more obvious everyday.

-- Anonymous, November 23, 2001

I didn't have time to add this earlier: this is another twist on the "Know Your Customer" policy that was being pushed on the banks earlier this year.

I'm sure Ron Paul will have a lot to say about this new act.

How are we ever going to get this junk off the books?

-- Anonymous, November 23, 2001

So let me understand this...........we save for several years so we can pay cash for our truck purchase instead of finance and that will now constitute a suspicious activity and be reported to the government??? oh my goodness.

-- Anonymous, November 23, 2001

you got it, Diane.

You know, drug dealers use trucks to haul their goods in, after all.

-- Anonymous, November 23, 2001

Here's the deal, though. I suspect this reporting will only be selectively done. To go back to the auto sale example: what salesperson, especially one on commission, is going to take the time to report a huge cash sale? It's not going to happen often, unless there is money in it for them or they dislike a customer enough to want to cause him or her some trouble.

This "Patriot Act" is bad news, another set of laws that needs to be wiped off the books.

-- Anonymous, November 23, 2001

I had the impression that it would be automatic by the dealer.

-- Anonymous, November 23, 2001

Well gee, there goes my plan to export THC in nanny berries. Who would have thunk it??

-- Anonymous, November 23, 2001

How many people actually pay for $10,000-plus items in cash? Why would anyone do that, with all the muggers around? If it's saved money, how many people have it stuffed under the mattress, risking loss via burglary and fire? Generally speaking, those who have that kind of cash are involved in nefarious activities.

-- Anonymous, November 23, 2001

OG,

In this situation, wouldn't a check be considered cash?

-- Anonymous, November 23, 2001

Yeah, that was what I was thinking..........a check would be the same as cash. Like cash is NOT charge.

-- Anonymous, November 23, 2001

No, a check is not considered cash.

If you deposit $10k folding green money in any account, it will get reported. It won't if it's been deposited in check form from another account, yours or someone else's. If you have $15k or so, saved over a period of time, and you write a check for $10k on it, that's perfectly legal, no problem, no report.

-- Anonymous, November 23, 2001

Lots of people do work and don't report the income, so they get paid in cash which they save at home.

-- Anonymous, November 24, 2001

Yep. And, as noted above, "Generally speaking, those who have that kind of cash are involved in nefarious activities."

Remember, when people evade taxes like that it means you and I have to pay more.

-- Anonymous, November 24, 2001

Ah, I see.

That explains the rebate checks.

-- Anonymous, November 24, 2001

They would have been bigger if not for people who evade!

-- Anonymous, November 24, 2001