The musings of one Andrew Langer - defender of liberty, passionate protector of individual rights, foodie. (Note: Said Musings of Andrew Langer are his own, and the views represented herein are likewise his views, and not the views of any other people, entities, foodstuffs, etc [unless otherwise specifically and explicitly noted].)

Tuesday, June 13, 2006

An Introductory Report on Colorado From John Caldara

I'm piecing together my thoughts on Colorado, but rather than completely reinvent the wheel, I thought I'd offer up what the Independence Institute's Jon Caldara had to say by way of introductory remarks:

Al Gore and Me:

You're not going to believe this one. For the last three days, I've been with Al and Tipper Gore at a mountain retreat here in Colorado. Before you disown both the Independence Institute and me, allow me to explain.

I was invited to be one of only 24 participants in a Left/Right dialogue entitled "Reuniting America." In a search for common ground on energy policy, organizers brought together political movers and shakers such as Grover Norquist of Americans for Tax Reform and Fred Smith of the Competitive Enterprise Institute to meet with others like Al Gore, Carl Pope, the head of the Sierra Club, and the founders of As you can imagine, it was pretty fiery.

The organizers of the event are promoting something they call "Transpartisanship." The idea is to improve the dialogue between the Left and Right on major issues. Did we make progress? Indeed we did. What kind of guy is Al Gore? On a personal level, he is incredibly engaging, very thoughtful and sincere. No, I didn't say he was right about his views on global warming, but I'll tell you, he strongly believes it. More about this interesting retreat later.
---end quoted material---

I'll add my two cents later on.

- Andrew Langer


Anonymous guile said...

nice, cozy place you got here :)..

June 14, 2006 3:40 AM

Anonymous Anonymous said...

"Hide and Seek" is actually two books: one takes a detailed look at the history and workings of America's Financial Crimes Enforcement Network and the other looks at trade and related phenomena in money laundering. The publication's full title is "Hide And Seek: Intelligence, Law Enforcement and the Stalled War on Terrorist Finance", by John Cassara (2006: Potomac Books, Washington, DC). FinCEN is the financial intelligence unit that looks at a small number of America's suspicious activity reports.

'FinCEN doesn't do systems'

A substantial portion of the book chronicles Cassara's tenure at FinCEN. Cassara joined the unit in the late 1990s, fresh from a stint at the US Customs office in Rome. In those days, that office's responsibilities reached as far as the Middle East.

At FinCEN, according to the book, Cassara's expertise on topics such as the use of gold to launder money and the relationship between smugglers and terrorist financiers fell on deaf and unappreciative ears. Cassara and a few colleagues realised that there was a whole world of "alternative remittance systems", such as hawala and the black market peso exchange, that moved vast sums of money. Their assertions were not theoretical conjectures: Cassara had worked on countless cases involving these schemes in locations ranging from Italy to Lebanon. FinCEN's policy, then as apparently now, can be summed up in one dictum: "FinCEN doesn't do systems". This phrase came straight out of the mouth of one of Cassara's superiors and refers to two main traits for which the task force is famous. First, FinCEN does not try to disrupt systems such as hawala or the BMPE. Secondly, it shies away from building up meaningful systems of its own.

Resolved to be irresolute, adamant for drift

FinCEN appears to work by deciding not to do things. Cassara's efforts to motivate FinCEN to do something about Middle Eastern alternative remittance/hawala "systems" went absolutely nowhere, even in the wake of the 9/11 attacks. At roughly the same time, it also decided not to participate in Operation Casablanca, the largest money laundering investigation of all time; so much for proactive disruption. FinCEN's other "no system" approach is evident from the story of how it allowed its own artificial intelligence system, designed to detect suspicious transactions, to wither and die. This system showed great promise and was the subject of several scholarly papers in the early 1990s; its bane was management disinterest.

FinCEN also undertook the expensive and ultimately pointless development of AAS, the Anomaly Analytic System. This project was built on Fortran software that was older than some of the FinCEN analysts who were supposed to use it. It seems to have "died" before it was ever deployed.

Analysis by hitting the 'print' button

When readers reach a certain stage in the book, they will realise that the task force is good for virtually nothing. It cannot handle computer systems; it will not demolish hawala systems; its officers have traded their pistols in for a quiet life. Surely, the reader must think, FinCEN is still doing at least something to justify its fabulous annual budget. What about the national and regional anti-money laundering surveys that seem to be its only product these days? Surely these represent FinCEN's true worth.

This subject, unfortunately, brings us back to FinCEN's database capabilities which are notoriously bad and have received mention far and wide. Cassara demystifies them by characterising their product as "analysis by the pound" and their operation as "analysis by hitting the print button". FinCEN does have access to many different databases, but it seems to conduct "analysis" by doing little more than dumping their contents in once place and binding them together. Little, if any, actual "analysis" is done. Instead of concise reports, FinCEN's "analytical product" has often consisted of boxes and boxes of printouts from databases that are already available to law enforcement agencies.

Cassara was often at odds with FinCEN's bosses over these and other issues. He spent the end of his career on secondment to the State Department and finally left the US public sector.

'Talk to my cousin in the bazaar, he will help you'

Even though his tales of FinCEN's misdeeds are amusing, the real value of Cassara's book lies in his discussion of trade. He had seen this with the gold trade; he describes a "gold cycle" involving bullion dealers, jewellers and others ranging from Switzerland to Italy to Lebanon.

Cassara realised that the BMPE, a money laundering scheme that started out using the exchange of manufactured goods such as farm equipment and refrigerators to circumvent currency exchange restrictions, was just one of many such "trade-based systems". Even though criminals still continue to carry briefcases full of cash, many are more comfortable placing orders for building materials.

Cassara points out that the peso exchange, hawala, the East Asian "chop system" and others make up a massive parallel economy. Sometimes it is off the books, sometimes it is out in the open, the preferred way of doing business. In either case, banks and other "traditional" financial institutions play at best a secondary role in the movement of money. Even though the majority of transactions conducted with these systems are legitimate, some are illegitimate. There is no doubt that these systems have been used to launder money and facilitate terrorist finance. Even though financial institutions are regulated to some extent or other almost everywhere, there is far less regulation of businesses, such as jewellers, that are capable of moving just as much money as a bank.

FinCEN is the repository for the SARs that banks make under the US Bank Secrecy Act; the majority of these reports involve transactions of $10,000 or more in cash. Cassara suggested that "gold reports" would help the authorities to track the movement of bullion in and out of the United States. Even though cases abound where gold played a significant role, such a report is not part of the US Bank Secrecy Act.

Practical man, practical book

This is by no means a technical book. Cassara is a gifted storyteller and draws not only on his own years of experience but also on those of his friends and colleagues to explain things. The book also makes sparing use of well-drawn diagrams to explain some of the trade-based laundry systems. Meanwhile, the FinCEN fiasco rumbles on. While American authorities lean heavily on the governments of small countries to upgrade their AML systems, America's federal FIU is still failing to read more than five per cent of the SARs it receives.

The US does not submit itself to AML inspections by the International Monetary Fund; it made that mistake in 2003 and had to suppress the resulting report, which is still gathering dust somewhere in a federal building. IMF reports are private matters between the IMF and the country its experts are assessing, so FinCEN was safe on that occasion. The organisation nonetheless lives in fear of the day when America's 7,000-odd banks realise how little it is doing.

June 29, 2006 10:06 PM


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