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In war on terrorism, U.S. drafts shops to be on guard

Knight Ridder Newspapers | December 28 2004

SAN JOSE, Calif. — It may surprise some people to learn that one of the linchpins in this nation's war on terrorism is the Bin & Barrel Mini Mart in Fremont, Calif.

Manager Sonia Cheema certainly was when her dad bought the store in October.

Under federal rules still being fine-tuned, she discovered, the Bin & Barrel — like thousands of other businesses — must have a written plan for foiling money-laundering terrorists. It also must have a "compliance officer" to ensure the plan is heeded, train its employees to spot shady transactions and regularly audit its own performance.

That's not all.

While not widely known, the Bin & Barrel and every other U.S. business must steer clear of people on the government's 192-page list of "specially designated nationals," which has more than 5,000 names and is updated frequently. Otherwise, business people could face huge fines and a long stay in prison.

"Oh gosh! Imagine one person coming to cash a check and going through a list," said the 25-year-old Cheema, who has temporarily stopped cashing checks and processing money orders, at least until she understands the federal rules better. "It's going to be a lot of work. ... I don't think it's worth it."

Previously, banks were pretty much the only businesses that had to worry about money launderers. But that changed after the terrorist attacks on Sept. 11.

On Sept. 24, 2001, President Bush signed an executive order barring business dealings with anyone on the specially designated list, which includes the names and aliases of suspected terrorists, drug kingpins and their associates. Those failing to comply can be fined $10 million and jailed up to 10 years.

That was followed a month later by enactment of the USA Patriot Act, which forces "financial institutions"— broadly defined to include everything from liquor stores to pawn shops — to have detailed programs for combating money launderers. Under its enforcement provisions, business operators face potential $500,000 fines and 10-year prison terms.

The Patriot Act already is in effect for casinos, mutual funds, credit-card firms, banks and "money service businesses" like the Bin & Barrel, which offer such things as check cashing and money transfers.

Still others — jewelers, vehicle dealers, travel agents, loan companies, investment firms and people involved in real estate closings — are waiting for the government to issue their regulations under the act.

As word about the law spreads, many business people don't like what they are hearing.

"A lot of our members are just starting to wake up to all of the things they are required to do," said Karen Penafiel, assistant vice president for advocacy for the Building Owners & Managers Association International. When the group's executive committee held a briefing on the act in November, she said, "there was a sense that, ‘you've got to be kidding."‘

Expecting businesses — especially tiny ones — to keep track of terrorists strikes some people as silly.

"It's just lame," said Pat Kennedy, who owns Alpine Recreation, a Morgan Hill, Calif., RV dealership. "I'm trying to imagine any local terrorist picking up his motor home and doing a little camping."

Palo Alto, Calif., attorney Jonathan Axelrad has similar concerns about the law's potential application to venture capital funds. Forcing the funds' managers to monitor money laundering "would simply be an expensive, unnecessary burden," he said, because the risks and withdrawal limits of such investments would likely be unattractive to terrorists.

But terrorists are capable of using a wide range of businesses and purchases — including recreational vehicles — to hide their assets, according to federal officials, who insist the new rules already are paying off.

They note that from Feb. 18, 2003, through Nov. 9, 2004, they received tips from various financial institutions about suspicious activity in 129 terrorism-related cases. That resulted in 648 grand jury subpoenas, nine arrests and two indictments.

Even so, compliance with the act has been spotty so far.

William Fox, director of the U.S. Treasury Department's Financial Crimes Enforcement Network, told Congress in September that only 21,058 of the estimated 200,000 money service businesses nationwide had registered with his agency, as required under the Patriot Act.

Although firms that handle small transactions are exempt under the law, he testified, "we believe there are a significant number of money services business required to register that have failed to do so."

The reason for that isn't clear. But even among companies that have heard of the law, many remain perplexed about its provisions.

"There is mass confusion out in the business world on this," said Christopher Myers, an attorney who recently did an analysis of the laws' implications for real-estate companies.

Some critics blame the law's vague wording. Consider its decree that anyone involved in real estate closings have procedures for deterring money laundering. In addition to buyers and sellers, industry experts say, that wording could apply to mortgage lenders, appraisers, surveyors, title insurers, escrow agents, environmental consultants and city building inspectors.

Similar uncertainty surrounds Bush's order forbidding all 5.6 million of the nation's businesses from having dealings with anyone on the specially designated nationals list, which can be viewed at www.treas.gov/offices/enforcement/ofac/sdn/.

Because the list of 5,000-plus names is regularly updated, many companies are using sophisticated software to check it against their customers' names. But the cost of software can range from $1,000 to well over $100,000. And it's not foolproof.

"Inevitably, there will be many ‘false positives' with the use of this software," according to a notice published by the Treasury Department's Office of Foreign Assets Control, which oversees the list. So to clarify if a customer is really on the list, the notice advises, business operators may have to go to the additional trouble of contacting their software supplier or the Treasury Department.

In addition, depending on the type and size of the transactions involved, many businesses must fill out detailed "suspicious activity reports" and file them with the federal government within 30 days of discovering a customer is on the list.

The Office of Foreign Assets Control has made public the names of some large businesses that have gotten fines or other penalties for failing to ensure their customers weren't on the list. But Molly Millerwise refused to disclose the names of any small businesses punished for such violations.

"That's not available," she told the Mercury News. "It's nothing we have made public."

Nonetheless, she said, small-business owners could wind up in big trouble if they assume they won't be prosecuted, adding that, "everyone is responsible for compliance."
 
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