Terror Money

Terror Money

The political tension of the current hour is between security and privacy. The good news is that at least on the money laundering bill that passed this week, Congress has tried to strike the right balance.

We bow to no one in our support for citizens who want to legally avoid onerous tax regimes. So "bank secrecy" is not the same as dirty money to us. The Cayman Islands isn't Iraq. But we're persuaded by the recent observation of Manhattan prosecutor Robert Morgenthau that, "It is a major security problem to have the huge amount of money we know is being hidden in this system and not know who controls it."

Mr. Morgenthau knows this firsthand, having prosecuted the gigantic BCCI fraud, which included an attempt to influence the U.S. political system. Add the urgency of pursuing hidden terror money and there's cause to put some legal force behind more financial transparency. In one useful provision, the bill curbs direct relations between U.S. banks and secretive overseas "shell corporations."

Above all, the bill may finally get Washington off the diplomatic dime. Last week a Treasury official got the runaround from Indonesia's central bank on why accounts of suspected bin Laden cohorts couldn't be frozen. Saudi Arabia and lesser Gulf entities so far refuse to cooperate in investigating terrorist acts carried out by their own nationals.

Congress this week isn't just threatening the bank secrecy laws of other countries. It's also sending a wake-up call to our own State Department, which raises objections whenever anyone threatens to upset its wobbly pushcart of "international relations." Ask Mr. Morgenthau who gave him the most trouble going after BCCI.

Ideally, much of this could be done without new laws. Though Al Capone was brought down by a tax-evasion investigation, it's not as if his 1040 led to the discovery that he was bootlegging. As the international crackdown since September 11 has shown, governments have a good idea who the usual suspects are. The problem isn't identifying the crooks but sharing information and then connecting the crooks to the banks and businesses that finance them.

Even the Clinton Administration managed to prod the community of nations to shut down Ariana Airlines, the Afghan national carrier that was Osama's personal FedEx. And the politics after September 11 allows the Bush Administration carte blanche to demand more such cooperation or else. Mr. Clinton's former money-laundering chief, William Wechsler, has gone so far as to suggest clandestine means ("information warfare") to crash banks that play handmaiden to terrorists.

The danger, especially after the current threat passes, is that law enforcement will abuse its new powers to seek endless information, useful or not. Even under present law banks file 250,000 "suspicious activity" reports a year, most of which are never even looked at. For some prosecutors and politicians, the real goal before and after September 11 is to multiply reporting burdens in order to discourage investors and businesses from legally minimizing their taxes.

Laws that target 100% of the population to control the behavior of 0.001% are also seldom productive, not least because they tell the 0.001% how not to get caught. The hawala network of private Islamic moneymen -- a key way that bin Laden associates shuffle cash -- might not exist if rules and regulations didn't discourage informal-economy participants from using the banking system. We would be in better shape today if terrorists made more use of banks; their money trails are some of the best intelligence we have on the al Qaeda network.

The bigger point is that passing new laws won't substitute for muscular foreign policy leadership. The new money-laundering statutes may prove to go too far, which is why we like the four-year sunset provision on the entire anti-terrorism package. But at the present moment Congress is sending the world and our own diplomats a useful message that they better start coughing up terrorist cash.