Wolfsberg picks up where 'Know Your Customer' left off

The voluntary guidelines designed to combat money laundering in private banking operations are similar to those in the ''Know Your Customer'' proposal. And that worries privacy advocates who fear the guidelines eventually will be required of all banks.

By JEFF HARRINGTON

© St. Petersburg Times, published January 7, 2001

Remember the "Know your Customer" proposal?

Amid a barrage of negative publicity, federal regulators a year ago hastily withdrew the plan to make banks compile detailed reports on customers as a way of fighting money laundering.

Privacy advocates cheered the demise of a rule they said would have turned banks into government spies.

Turns out their celebration may have been premature. A consortium of top international banks in November agreed to follow 11 guidelines to combat money laundering in private banking operations. The voluntary guidelines, named the Wolfsburg Principles after the Swiss castle where they were negotiated, are remarkably similar to Know Your Customer.

The Wolfsberg Principles call for banks to find out the true identity of all accountholders, maintain profiles on customers and report suspicious financial activity to law enforcement.

To some extent, most big banks already keep customer dossiers, particularly on high net-worth accounts. But Wolfsberg institutionalizes the practice.

Citibank and Chase Manhattan were among U.S. banks signing the original agreement, and other domestic banks are expected to follow. "I think there's a tremendous amount of pressure that the core group is exerting on the banking industry," said David Vogt, an anti-money laundering official with the Treasury Department.

That's the fear of privacy advocates in Congress and the private sector. If Wolfsberg is adopted by a majority of banks, the government could deem it a generally accepted practice and not have to create a new regulation.

The American Civil Liberties Union said Wolfsberg will add to a government-controlled database of private information that already is out of control.

Every year, banks file about 12-million currency transaction reports for most transactions involving at least $10,000. Another 120,000 "suspicious activity reports" are filed whenever a bank is concerned that a customer may be involved in laundering money or another illegal behavior.

The database, processed in the Internal Revenue Service's computing center in Detroit, is accessed by state, local and federal law enforcement on a regular basis.

Greg Nojeim of the ACLU said the database gives authorities a way to go around a warrant to get private bank account information.

"When making an inquiry, they don't have to show anyone that they have evidence that the person whose sensitive financial information they are accessing has engaged in a crime," Nojeim said. "This is the opposite of the normal model for law enforcement investigations."

The Financial Crimes Enforcement Network, or FinCEN, is charged with protecting the database and insists information is protected zealously. Every state has a coordinator that controls access. For Florida, the gatekeeper is the Florida Department of Law Enforcement.

Investigators require a double password to get into the database. They can search by a person's name or Social Security number, but FinCEN said investigators must justify that an inquiry is legitimate and not just a fishing expedition.

FinCEN said it cannot pinpoint how many suspicious activity reports result in a criminal conviction, despite pressure from some in Congress to do so. As justification that the program works, though, the agency cites dozens of success stories.

One close to the Tampa Bay area was the highly publicized murder trial of Alan Blackthorne, charged with hiring a hit man to kill his ex-wife, Sheila Bellush, in her Sarasota home.

Investigators in Texas, where Blackthorne lived, used FinCEN's Gateway program to review financial records. They found 100 reports relating to Blackthorne, including five suspicious activity reports and 83 currency transaction reports.

Armed with that information, the investigators were granted subpoenas to receive more detailed bank records that were used to link Blackthorne to the murder. Two months ago, Blackthorne was sentenced to two life prison terms, fined $250,000 and ordered to pay $17,000 restitution.

High-profile cases aside, the ACLU's Nojeim said the issue isn't whether some financial records are useful to law enforcement.

"Every fisherman knows if you cast a big enough net enough times, you'll catch a fish on occasion," he said. "But the question is, 'What about all of the innocent financial transactions that the government is tracking?' They're none of its business."

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