Financial Counterintelligence: How Changes to the U.S. Anti-Money Laundering Regime can Assist U.S. Counterintelligence Efforts
The United States faces an onslaught of offensive foreign intelligence operations, with tactics ranging from Soviet era-style spies clandestinely inserted into its communities to modern-day economic espionage conducted by businesses on behalf of foreign powers. This article proposes a novel weapon to combat this rising threat: leverage the existing U.S. Anti-Money Laundering (AML) regime to assist counterintelligence efforts. The AML laws and regulations already require financial institutions to investigate clients’ backgrounds, monitor financial activity, and report suspicious transactions to federal law enforcement. If these financial institutions also were to report transactions that suggest foreign intelligence directly to U.S. counterintelligence elements, this country may be able to root out more easily those individuals and companies engaged in such operations. To implement this program, existing reporting requirements already imposed on financial institutions must be modified, financial transaction typologies that suggest foreign intelligence must be developed, and institutional changes must be made within the federal government to accommodate the intake of this new type of counterintelligence. Introduction Along with the proliferation of weapons of mass destruction and international terrorism, the threat posed by foreign intelligence has been identified as one of the top three national security concerns to the United States. There are four million people in the United States with access to classified government information, and they are increasingly targeted by foreign † Attorney, U.S. Department of Homeland Security, Office of the General Counsel; J.D. Case Western Reserve University; B.S. Cornell University. Any views or opinions presented in this article are solely those of the author and do not necessarily represent those of the Department of Homeland Security. 1 JAMES R. CLAPPER, DIRECTOR OF NATIONAL INTELLIGENCE, STATEMENT FOR THE RECORD ON THE WORLDWIDE THREAT ASSESSMENT OF THE U.S. INTELLIGENCE COMMUNITY FOR THE HOUSE PERMANENT SELECT COMMITTEE ON INTELLIGENCE (2011), available at http://www.dni.gov/testimonies/20110210_testimony_clapper.pdf. 2 intelligence services. Indeed, Russian intelligence operations in the United States have recently returned to levels seen only during the height of the Cold War. In 2010, ten “illegals”—spies clandestinely inserted into the United States by foreign intelligence services—were arrested by the Federal Bureau of Investigation (“FBI”) for conducting intelligence operations on behalf of Russia’s primary external intelligence service— the SVR. The illegals spent years, and in some cases decades, developing fake identities in the United States while attempting to collect intelligence for Russia and awaiting orders on future targets. While the arrests are certainly an accomplishment for U.S. counterintelligence officials, this one network of illegals pales in comparison to the pervasiveness of possible foreign intelligence operations ongoing in the United States. Sergei Tretyakov, the Russian intelligence officer responsible for SVR operations in New York City from 1995 to 2005, revealed that at one point he was in charge of sixty SVR officers in addition to “160 contacts made up of illegals, outright spies, and other people who knowingly or unknowingly could supply information useful to Russia.” These figures are troubling: they represent the activities of just one spy ring, from just one foreign intelligence service, in just one U.S. city. In 2000, the former Central Intelligence Agency (“CIA”) Associate Deputy Director of Operations for Counterintelligence informed the House Permanent Select Committee on Intelligence that the intelligence services of at least 41 countries are attempting to obtain classified U.S. government secrets. 2 TIME MAGAZINE, How to Catch a Spy, 21 Jun. 2005, available at http://www.time.com/time/magazine/article/0,9171,1074835,00.html. 3 Michelle Van Cleave, Strategic Counterintelligence: What Is It, and What Should We Do About it?, 51 STUDIES IN INTELLIGENCE 1, 4 (2007). 4 Walter Pincus, Fine Print: Despite Arrests, Russian ‘Illegals’ Won’t Go Away, WASHINGTON POST, 13 Jul. 2010, available at http://www.washingtonpost.com/wp-dyn/content/article/2010/07/12/AR2010071205341.html. 5 Ellen Barry, “Illegals” Spy Ring Famed in Lore of Russian Spying, NEW YORK TIMES, 29 Jun. 2010, available at http://www.nytimes.com/2010/06/30/world/europe/30sleepers.html. 6 Pincus, supra note 4. 7 Sharad S. Chauhan, Inside C.I.A.: Lessons in Intelligence 357 (APH Publishing Corp. 2004). 3 Another concern within the counterintelligence community is the growing threat of economic and industrial espionage. Foreign intelligence services are increasingly seeking out information about sensitive technologies beyond traditional military and government secrets. For example, the Chinese government has developed a “pervasive intelligence and security apparatus” that exploits the large number of Chinese nationals traveling to the United States seeking education and employment. The Deputy Director of the FBI for Counterintelligence recently noted that there are approximately 3,200 Chinese front companies in the United States operating for the sole purpose of gaining proprietary information and sensitive technologies. And China is not alone in this effort. The FBI has stated that at least 100 countries are attempting to purchase sensitive U.S. technologies, and 57 of those countries are actively “engaging in covert operations against U.S. corporations.” 12 Apart from China, the most aggressive offenders noted by the FBI include France, Israel, Russia, Iran, Cuba, the Netherlands, Belgium, Germany, Japan, Canada, India, and several Scandinavian countries. This paper proposes a novel weapon to combat the rising tide of foreign intelligence threats: expansion of the U.S. Anti-Money Laundering (“AML”) regime to uncover financial transactions related to foreign intelligence. Under current U.S. AML laws, all financial institutions must monitor the identities and financial transactions of their clients. Throughout this process, the institutions are required to create a “profile” for all clients, and monitor their 8 OFFICE OF THE NATIONAL COUNTERINTELLIGENCE EXECUTIVE, ANNUAL REPORT TO CONGRESS ON FOREIGN ECONOMIC COLLECTION AND INDUSTRIAL ESPIONAGE FY 2008, pg. iii, available at http://www.ncix.gov/publications/reports/fecie_all/fecie_2008/2008_FECIE_Blue.pdf (hereinafter [NCIX ANNUAL REPORT]). 9 Id. 10 Larry M. Wortzel, THE HERITAGE FOUNDATION, Risks and Opportunities of a Rising China 6, Jun. 2006, http://s3.amazonaws.com/thf_media/2006/pdf/hl948.pdf. 11 Id. 12 Hedieh Nasheri, Espionage and Industrial Spying 8 (Cambridge University Press 2005). 13 Id. 14 31 U.S.C. §5318(l); 31 C.F.R. §103.121; 31 C.F.R. §103.18(a)(2). 4 transactions to ensure that the transactions are considered normal for that individual’s profile. The financial institution must report any unusual activity, such as an unexplained cash deposit, to the federal government. This paper will argue that financial institutions could alter their AML programs to detect transactions that may suggest foreign intelligence activity. A U.S. government employee makes an unusual cash deposit in addition to his current wages. A foreign national opens a bank account with suspicious documentation and then receives regular wire transfers from his home country, or from his home country traced through an overseas third party. A corporation within the U.S. defense industry engages in a transaction with a foreign shell corporation for no apparent business purpose. Each of these isolated situations may never catch the attention of counterintelligence officials working in the United States. But they could trigger AML suspicion and be reported to the federal government by financial institutions. Although financial institutions may already identify some of these transactions as traditional money laundering or terrorism finance efforts and report them to the federal government under the current AML regime, there are three reasons why change is needed. First, the agency that receives reports of suspicious activity—the Financial Crimes Enforcement Network (“FinCEN”)—is woefully underfunded for the number of reports it already receives. As such, it has prioritized analysis of those reports that deal primarily with terrorism finance. Suspicious transactions suggesting foreign intelligence activity that would otherwise go 15 Id.; 31 U.S.C. §5318(l); 31 C.F.R. §103.121; 31 C.F.R. 16 31 C.F.R. §103.18(b). 17 FATF, SUMMARY OF THE THIRD MUTUAL EVALUATION REPORT ON ANTI-MONEY LAUNDERING AND COMBATING THE FINANCING OF TERRORISM: UNITED STATES OF AMERICA 3, available at http://www.treasury.gov/resourcecenter/international/standards-codes/Documents/mer-executive-summary.pdf (hereinafter [FATF U.S. EVALUATION REPORT]). 18 Id. 5 unnoticed could be forwarded immediately to counterintelligence elements of U.S. intelligence agencies for further investigation. Second, FinCEN has focused its resources on developing typologies specific to general money laundering activity and terrorism finance. A typology describes “typical tactics used by launderers or patterns that indicate a higher risk of laundering,” and are provided to financial institutions so that the institution actually understands what a suspicious transaction would look like. At the present time, no concerted effort has been made to develop typologies that would suggest foreign intelligence activity. Thus, financial institutions are unable to identify many transactions that could suggest such activity. Third, the pervasive threat that foreign intelligence operations pose to the United States warrants heightened scrutiny of those with access to classified information and sensitive technologies. Financial institutions should be required to expand their due diligence efforts of clients working withi