In "Identity Theft" last week, the feature article investigated this fast-growing cybercrime. This week's Feature Article we describe one measure taken by the US government to help control false identities used in terrorist financing. News Highlights review events from around the world, from marking the third anniversary of the Palestinian intifada to the latest moves in the Zacarias Moussaoui case as well as new reports on the arms trade and cyber-threats.

CONTENTS:

NEWS HIGHLIGHTS OF THE WEEK:

1. World
2. Africa
3. Americas
4. Asia Pacific
5. Europe
6. Middle East
7. South Asia
8. Cyberterrorism and Information Warfare
9. Finance
10 Human Rights
11. Law and Legal Issues
12.Transporation
13. Weapons of Mass Destruction
14. Recently Published

FEATURE ARTICLE:
Identity Verification and the USA Patriot Act

NEWS HIGHLIGHTS OF THE WEEK

1. World

The International Peace Academy http://www.ipacademy.org/ hosted a conference on the root causes of terrorism. Held just before the opening session of the UN General Assembly, UN Secretary General Kofi Annan spoke of using reason, not emotion in defeating terrorism. He said, "Terrorism will only be defeated if we act to solve the political disputes and long-standing conflicts which generate support for it. If we do not, we shall find ourselves acting as a recruiting sergeant for the very terrorists we seek to suppress". He emphasized the need to articulate "not only that we are fighting terrorists, but also that we are standing, indeed fighting, for something -- for peace, for resolution of conflict, for human rights and development". And that "Upholding human rights is not at odds with battling terrorism: on the contrary, the moral vision of human rights -- the deep respect for the dignity of each person -- is among our most powerful weapons against it".
http://www.un.org/apps/sg/sgstats.asp?nid=511

These themes were further pursued at the opening of the General Assembly. Opening speeches highlighted counter-terrorism, multilateralism, poverty and reform of the UN. Mr. Annan delivered a warning that preemptive military intervention could lead to lawlessness and fundamentally threaten world peace and stability. He emphasized the UN's unique role and the need for the world to come together to determine how best to deter acts of terrorism and the threat from weapons of mass destruction.

This speech came shortly after another bombing against UN headquarters in Iraq. As a result, the UN presence has been further reduced. Mr. Annan is unwilling to threaten the lives of UN humanitarian workers while the UN has no defined role or influence.

US President Bush also addressed the UN, asking for money and troops and insisting on international obligations to Iraq but offered no concessions. As Peter Slevin suggests in the Washington Post of September 28, President Bush wanted both control and international help and since he can't have both has chosen control. See "Reluctance to Share Control in Iraq Leaves U.S. on Its Own"
http://www.washingtonpost.com/ac2/wp-dyn/A10285-2003Sep27.html

The largest protests since before the war took place on Saturday, protesting the US-led occupation of Iraq and the continued occupation of the Gaza Strip and West Bank. There were 20,000 marchers in London, as well as thousands in Madrid, Seoul, Istanbul and Ankara, Paris, Vienna and Athens.

North Korea dismissed calls from the International Atomic Energy Agency (IAEA) to abandon its nuclear program, expressed anger over the regional US military build-up, and called US Defense Secretary Rumsfeld a "dictatorial psychopath".

The Convention against Transnational Organized Crime enters into force on Monday, September 29. The treaty obligates countries to cooperate on crimes that cross national borders such as money laundering and corruption.

2. Africa

Algerian government troops and militiamen have completed a 2-week operation against the Islamic rebel Salafist Group for Preaching and Combat (GSPC), killing approximately 150.

Burundi rebels of the National Liberation Front (FNL) opened fire in a restaurant, killing nine. The government has now reopened both independent radio stations that were briefly closed a week ago.

Democratic Republic of Congo leaders met with their Rwandan and Ugandan neighbors and agreed to stop interference in each others internal affairs, including ending arms shipments to eastern DRC where fighting has persisted. The International Criminal Court is investigating whether international businesses operating in DRC contributed to war crimes or crimes against humanity.

Eritrea has rejected Ethiopian calls for a new border ruling. The continuing dispute presents a serious risk for peace between the two countries.

In Ethiopia, a bomb planted on a train exploded, killing two and injuring nine. Responsibility is unknown, but several rebel groups operate in the area.

Ivory Coast rebels in the power-sharing coalition government have suspended participation while accusing President Laurent Gbagbo of not respecting the peace process. Government forces have shut down the main road connecting the rebel-held north from the southern part of the country.

In Liberia, rebel groups have been subjecting civilians to forced labor and thousands continue to flee continued security threats. The main rebel group, Liberians United for Reconciliation and Democracy (LURD) has announced an end to hostilities. (The Movement for Democracy in Liberia [MODEL] had signed a peace agreement in August.)

South African President Thabo Mbeki has launched a storm of protest at his contention that he doesn't know anyone that has been infected or died of aids. South Africa has more cases of HIV/AIDS than anywhere else in the world, with a prevalence rate of one in ten, and some 600 dying every day.

A state inquiry into farm attacks in South Africa that killed 1,500 dead over the last decade says the attacks were motivated by gain, not racism.

The government of Sudan and the Sudan People's Liberation Army (SPLA) have reached agreement on security arrangements and the UN is preparing to implement the peace accord.

Uganda's Karamojong warriors attacked an internally displaced persons camp, killing 30 people while conducting a cattle raid. The Ugandan army conducted operations against the Lord's Resistance Army (LRA) that killed 24 rebels and freed 149 abducted children. LRA rebels attacked a marketplace, killing ten and in another attack struck another town and killed 20, including ten members of a newly formed civilian militia force.

3. Americas

Bolivian peasants have continued their protests against government plans to export national resources rather than supplying the nation, that remains the region's poorest.

In Colombia, a bomb packed on a motorcycle was remotely detonated in front of a nightclub in a crowded social district. Ten were killed and more than 30 injured. Officials blamed the Revolutionary Armed Forces of Colombia (FARC). A British tourist kidnapped by suspected rebels of the National Liberation Front (ELN) has escaped and been returned to the UK. Seven other tourists remain hostages. Colombia has proposed a new law to ban ransom payments.

The US is conducting a broad security investigation at the US naval base at Guantanamo Bay, Cuba. An army chaplain and an air force translator are suspected of espionage. Officials have suggested there is a link to Syria, a charge strongly rejected by the Syrian government.

A US Congressional report claims that there were serious failures in the intelligence leading up to the war in Iraq. The CIA has rejected the charges. In the meantime, controversy over intelligence, the lack of postwar planning, the reconstruction bidding process, and transparency in the spending plan have all had an impact on discussions underway in Congress as it reviews President Bush's request for $87 million, mostly for military operations in Iraq. These concerns have also contributed to the President's fall in popularity ratings to below 50 percent. Congress has eliminated all spending for the Pentagon's Information Awareness Office.

4. Asia Pacific

Australia's Security Inspector-General has investigated intelligence regarding the Bali bombings and has found there was no warning of the attack.

Burmese democracy leader Aung San Suu Kyi has left hospital after a brief operation and rather than returning to prison has now been sent home, under house arrest.

Hong Kong is featured in a Financial Times Special Report http://www.ft.com/hongkong2003

Indonesian officials continue their hunt for militants. They have arrested a number of suspected Jemaah Islamiah suspects and are preparing security in advance of the anniversary of the Bali bomb attacks last year. Indonesian Prime Minister Megawarti Soekarnoputri spoke out against US policies in Iraq and the Middle East that are increasing the risk of terrorism and inciting moderate Muslims.

Malaysia's Prime Minister has announced he will retire on October 31. Asia's longest-running democratically elected leader, he has served for 22 years. Suspected Malaysian militants, already detained without trial for two years under the Internal Security Act, will continue to be held for another two years.

An intriguing article by Kate McGeown described being "On holiday in North Korea" BBC News, September 17
http://news.bbc.co.uk/2/hi/asia-pacific/3113352.stm

South Korean President Roh has said that troops would be sent to Iraq only if progress was made towards a peaceful settlement with the North.

For an update on Islamic militants in Uzbekistan, see Peter Baker's article "Renewed Militancy Seen in Uzbekistan" in the Washington Post, September 27
http://www.washingtonpost.com/ac2/wp-dyn/A7400-2003Sep26.html

Thailand has issued arrest warrants for fifteen people accused of providing arms to Sri Lankan Tamil Tiger rebels.

5. Europe

Bosnia's Serb, Croat and Muslim ethnic groups have agreed to establish a unified military command, a major step in defense reform that will help the country eventually join NATO.

Russia and the US are at odds over Iran's nuclear reactor. President Putin will continue developing the program but has expressed his belief that Iran must cooperate with the IAEA.

International and domestic criticism of Russia's Chechen policy has increased. Russian industry baron Boris Berezovsky faces extradition proceedings in the UK he claims are politically motivated. He and other associates formed the Foundation for Civil Liberties and have launched a campaign highlighting human rights abuses in Russia. In Chechnya and neighboring Ingushetia, the refugee problem is growing increasingly dire, including cut offs of utilities and aid and abuses by Russian forces designed to apply pressure for the refugees to return to their homes.

In Spain's Basque region, the local prime minister has presented new proposals for increased autonomy that would provide for their own foreign policy and EU representation, dual citizenship with Spain, and a referendum on autonomy.

The Hutton Inquiry in the UK, investigating the death of weapons expert David Kelly, has heard final testimony and closing arguments. The investigation has expanded into a revelation of the inner workings of British intelligence and the BBC. Lord Hutton probably will release his report in December. In the meantime, speculation is rampant.

In Northern Ireland, efforts to revive the devolved Assembly have increased. As well as Irish and British discussions, the leaders of Sinn Fein and the Ulster Unionists have held talks.

6. Middle East

It is the third anniversary of the Palestinian intifada. Here is the death toll:
Israeli deaths: 794 (99 minors, 246 security forces)
Palestinian deaths: 2,201 (398 minors, 207 "targeted killings")
Suicide attackers: 129 Palestinians
Israel's prisoners: 5,278 Palestinians (528 "administrative detainees")
Source B/Tselem, reported by the BBC at
http://news.bbc.co.uk/2/hi/middle_east/3146256.stm
Most people would add the Middle East roadmap to the list, but the "Quartet" of the UN, US, EU and Russia has held discussions about reviving it.

Preeminent Palestinian scholar and musician Edward Said has died aged 67.
http://www.guardian.co.uk/print/0,3858,47,00.html

In the occupied Gaza Strip, an Israeli military operation killed a 3-year old refugee, four armed militants, and one soldier.

Iran has announced IAEA inspectors will arrive on Thursday for further talks. The trip had been delayed for a week, and follows the discovery of additional enriched uranium. Iran has demonstrated its new anti-ballistic missiles at a military parade where they were displayed replete with anti-US and anti-Israeli slogans. The Shehab-3 missiles have a range of over 800 miles, letting them reach Israel as well as US bases in the region.

27 Israeli reserve pilots have signed a petition saying they will not participate in "illegal and immoral" assassination strikes in Gaza and the West Bank that sometimes kill Palestinian civilians. The pilots have been grounded.

A Jewish settlement in the West Bank was attacked at the by a Palestinian gunman at the start of the Rosh Hashanah celebration. He killed a baby and two other people. Israeli guards killed the attacker.

The last US troops in Saudi Arabia have left and the Prince Sultan Air Bas has been closed. Saudis continue their crackdown against armed militants. This week a shootout with suspected al Qaeda militants three and two others were arrested. One security official was also killed.

Syria denies US accusations that it has engaged in a weapons of mass destruction program and further denies any role in an alleged espionage ring at Guantanamo Bay prison camp.

In the West Bank, Israeli troops killed two Islamic Jihad gunmen and wounded a third.
Palestinian leader Yasser Arafat has put together a new cabinet, dominated by his supporters.

7. South Asia

In Afghanistan, Taliban attacks continued throughout the week, climaxing with an attack against the governor of Helmand that killed seven of his bodyguards. Despite the dire security situation, the constitutional commission has delivered the first draft.

Bangladeshi opposition Awami League Party held a general strike to protest price increases and government corruption. Businesses around the country came to a halt for one day.

The Maldives national assembly has backed President Maumoon Abdul Gayoom, in power for 25 years, for another term. Meanwhile, unprecedented riots and arrests have rocked the country.

Nepal's Maoist rebels announced a nine-day truce during the Hindu festival of Dashain.

Pakistan's Prime Minister Pervez Musharraf is the subject of a new al Qaeda tape that calls for his overthrow.

8. Cyberterrorism and Information Warfare

The US State Department was unable to process visa checks for nine hours after being infected with the Welchia virus. This aggressive infection infects Microsoft Windows machines by exploiting the RPC flaw, as the Blaster worm used.

The Computer and Communications Industry Association (CCIA) has published "CyberInsecurity: The Cost of Monopoly: How the Dominance of Microsoft's Products Poses a Risk to Security". The authors claim that "Because the federal government is so reliant on Microsoft Windows... the rising number of flaws in Windows represents an increasing national security risk. Just as farmers diversify their crops or investors diversify their stocks to mitigate risk, so too should the federal government diversify the software it uses.... The report is available online at
http://www.ccianet.org/papers/cyberinsecurity.pdf

More banks have been targeted by phisher frauds in which false emails threaten account closure unless personal data is provided. The recipient is then directed to a false duplicate website. Barclays was targeted last week and now Lloyds TSB has been similarly targeted.

Thomas Michael Whitehead was found guilty in US court for violating the Digital Millennium Copyright Act (DMCA) in connection with selling decryption and descrambling hardware to pirate DirecTV broadcasts.

The US Department of Homeland Security and the Federal Trade Commission have launched inquiries into the release of personal passenger data by JetBlue. The airline had provided data to defense contractor Torch Concepts. JetBlue has apologized, is developing better privacy and data protection standards, and has announced it will no longer provide passenger data to third parties and will not participate in testing of the Computer Assisted Passenger Profiling System (CAPPS II) or to the Transportation Security Administration.

The state of California has implemented a tough anti-spam law that prohibits any unsolicited bulk email.

9. Finance

Six South Koreans, including prominent officials, have been found guilty of illegally sending $100 million to North Korea as a bribe to convince them to attend the North-South summit in 2000. The sentences have been suspended.

The following six individuals linked to al Qaeda were designated by the US Treasury as Specially Designated Global Terrorists (SDGTs) under Executive Order 13224, freezing US assets and prohibiting transactions with US nationals: Abu Musa'ab Al-Zarqawi, Mohamed Abu Dhess, Shadi Abdalla, Aschraf Al-Dagma, Ismail Shalabi and Djamel Moustfa.

The British Charity Commission has cleared the Palestinian Relief and Development Fund (Interpal) of alleged links to Hamas.

The US froze Interpal funds in August.The International Criminal Court plan to investigate companies dealing in blood diamonds originating in the Democratic Republic of Congo and used to finance regional wars. The "Other Facets" newsletter reports on a new list of Kimberley Process members to represent those countries meeting the membership criteria. For details of this and other information in the September issue, see http://www.pacweb.org

10. Human Rights

Colombian President Alvaro Uribe has proposed legislation that would provide impunity for right-wing militiamen in the Self-Defense Forces of Colombia (AUC) provided they surrender arms. AUC is known for right-wing death squads whose extra-judicial killings include mass murder of villages, assassinations, and other crimes, largely financed by drugs trafficking. US President Bush supports the legislation. Colombia has also signed an agreement to exempt US citizens arrested in Colombia from prosecution before the International Criminal Court. This frees $130 million in additional military aid.

Amina Lawal's sentence of death by stoning for adultery, has been overturned by a Shariah court in Nigeria.

Belgium's high court has dismissed war crimes charges against former US President Bush and the current US Secretary of State Colin Powell for their actions in the 1991 Gulf War. Charges against Ariel Sharon for his actions in the 1982 massacres at the Sabra and Chatilla refugee camps were also dismissed. Belgium has modified its war crimes law to replace universal jurisdiction, instead limiting complaints to those in which the victim or suspect was a Belgian citizen or long-term resident at the time of the crime.

11. Law and Legal Issues

Serzhik Avasappian was arrested in Florida, US, on charges of attempting to smuggle aircraft parts to Iran. This was part of a Bureau of Immigration and Customs Enforcement sting operation.

Rusman Gunawan, younger brother of Indonesian Jemaah Islamiah suspect Hambali, has been arrested in Pakistan along with 15 Malaysian and Indonesian students also suspected of terrorist activities.

Shabir Hussain and Mohammed Shabir were convicted of conspiracy to convert firearms in British court and have been sentenced to 11 years in prison. They had converted blank-firing guns to fire ball bearings and sold them to criminals.
Masoud Ahmad Khan, Seifullah Chapman, Hammad Abdur-Raheem, Caliph Barsha Ibn Abdur-Raheem, Sabri Benkhala, Randall Todd Toyer, Ibrahim Ahmed al-Hamdi, and an unnamed co-conspirator were previously accused in US court of conspiracy to join Laskar-e- Tayyaba as part of a Virginia-based terrorist cell. They now face additional charges of conspiracy to levy war against the US and contribute services to al Qaeda and the Taliban.

Iman and Sanaa Laghrisse, 14-year-old twin sisters, and their friend Hakima Rejlane, are on trial in Morocco on charges connected with planning a suicide attack following the May Casablanca bombings.

Amina Lawal's sentence of death by stoning for adultery, has been overturned by a Shariah court in Nigeria.

Yasi Malik, leader of the Jammu Kashmir Liberation Front (JKLF), has been released from charges of terrorist financing. An Indian court ruled there was no case against him.

Abdelbaset Al Megrahi, convicted of the 1988 Lockerbie bombing, has launched a new appeal to the Scottish Criminal Cases Review Commission, citing fresh evidence.

Former Yugoslav President Slobodan Milosevic has been indicted by a Serbian special prosecutor for ordering the murder of Ivan Stambolic and attempted murder of Vuk Draskovic, both political opponents. The indictment follows information uncovered during the investigation of the Zoran Djindjic assassination.

US prosecutors in the Zacarias Moussaoui ("20th hijacker") case have announced they are willing for federal judge Brinkema to dismiss the case rather than permit access to mitigating testimony from al Qaeda captives held by the US. This move would more quickly move the case to an appeals court.

Abdelouhab Rabil and Hamid Slimani have been convicted in Moroccan court of preparing terrorist attacks, murder, and weapons theft, and have been sentenced to death. Eleven others have been sentenced to jail terms.

Dara Singh has been sentenced to death for the murder of an Australian missionary and his two children,. His twelve accomplices were sentenced to life in prison. The deaths four years ago were part of a series of Hindu attacks against Christian conversions.

Per Olof Svensson, prime suspect in the murder of Swedish foreign minister Anna Lindh, has been released and is no longer a suspect. Another person has been arrested.

12. Transportation

Airline JetBlue, already under pressure regarding their disclosure of personal passenger data to a third party military contractor, has now declined to provide data to the Transportation Security Administration (TSA) for testing the Computer Assisted Passenger Profiling System (CAPPS II). TSA is looking for alternatives.

JetBlue is not the only group withholding data. European airlines and the European Commission are still working on an arrangement that would support security while complying with existing European privacy laws.

The TSA is also the subject of a report by the US General Accounting Office (GAO), "Airport Passenger Screening: Preliminary Observations on Progress Made and Challenges Remaining". The report finds that training and evaluation of screeners is inconsistent and limited by inadequate technology, allowing weapons to still get past screeners. http://www.gao.gov/cgi-bin/getrpt?GAO-03-1173 It is possible that GAO's preliminary findings can be in part explained by the reductions in the TSA budget.

The US Department of Homeland Security is also attempting to build a system to manage travel of foreign nationals. The GAO reports in "Homeland Security: Risks Facing Key Border and Transportation Security Program Need to Be Addressed" that there are ten factors that collectively make the US-VISIT program "a very risk endeavor":
* Mission is critical
* Scope is large and complex
* Milestones are challenging
* Potential cost is significant
* Existing systems have known problems
* Governance structure is not established
* Program management capability is not implemented
* Operational context is unsettled
* Near-term facilities solutions pose challenges
* Mission value of first increment is currently unknown
http://www.gao.gov/cgi-bin/getrpt?GAO-03-1083

13. Weapons of Mass Destruction

The UN Advisory Board on Disarmament Matters reports military expenditures and arms sales have been increasing, after a post-Cold-War decline. They "agreed that the rise in military expenditures in general had a negative impact on overall global security and diverted precious resources from social and economic development needs, especially in developing countries". And further that "military means were in general not the most effective options in resolving conflicts or in combating international terrorism". The Board recommended increased efforts to stop circulation of weapons, enhance disarmament, and prevent conflicts from recurring.
http://www.un.org/Docs/journal/asp/ws.asp?m=A/58/316

The US Congressional Research Service has provided the "Conventional Arms Transfers to Developing Nations 1995-2002" report to Congress, showing that the US remains the leader in global arms sales ($13.3 billion, 45.5 percent), with Russia second ($5 billion) and France third ($1 billion).

Another useful report just out is the "Small Arms Survey" http://www.smallarmssurvey.org that finds fewer small arms in sub-Sahara Africa than previously estimated.

A report on the work of "The European Commission's Task Force on Bioterrorism" by Anders Tegnell et. al. has been published in Emerging Infectious Diseases, October 2003 http://www.cdc.gov/eid. This issue also contains interesting articles on biological surveillance.

14. Recently Published

Daniel Bergner "In the Land of Magic Soldiers: A Story of White and Black in West Africa" Farrar, Straus and Giroux

Teresa Carpenter "The Miss Stone Affair: America's First Modern Hostage Crisis" Simon and Schuster

Todd Gitlin, "Letters to a Young Activist" Basic Books

Michael McGerr, "A Fierce Discontent: Rise and Fall of the Progressive Movement in America, 1870-1920" Free press

John Newhouse, "Imperial America: The Bush Assault on the World Order" Knopf

Peter Stothard "Thirty Days: Tony Blair and the Test of History" Harper Collins

FEATURE ARTICLE: Identity Verification and the USA Patriot Act

Early in the investigation of the September 11 hijackings, it was obvious that abuse of Social Security Numbers (SSNs) and other national identification systems represent a massive flaw in national and international security.

The 19 hijackers used stolen and false Social Security numbers (SSNs) that allowed them to obtain motor vehicle identification cards from Florida, New Jersey and Virginia. These documents were used to verify identity rather than passports identifying them as foreign nationals. Using these false identities, they opened 35 bank accounts in the US. The SSNs used to open the accounts were simply random numbers, never subject to any validation process.

The USA Patriot Act was signed into law on October 26, 2001 in the immediate aftermath of the September 11 attacks. It greatly expanded the ability of law enforcement and foreign intelligence officials to monitor and intercept communications, changed immigration laws, and created new crimes and penalties. It also vested the Secretary of the Treasury regulatory powers to combat the use of financial institutions for money laundering and terrorist financing.

This coming Wednesday, October 1, is the deadline for compliance with Section 326 of the USA Patriot Act, the provision that requires financial institutions to implement a customer identification program. The Patriot Act also requires other measures to combat money laundering measures, for the identification and reporting of suspicious activities, and for staff training and oversight.

The final regulations implementing Section 326 were published on September 18. The Fact Sheet published by the Treasury summarizes the requirements as follows:

"Collecting information:
As part of a Customer Identification Program (CIP), financial institutions will be required to develop procedures to collect relevant identifying information including a customer’s name, address, date of birth, and a taxpayer identification number – for individuals, this will likely be a Social Security number. Foreign nationals without a U.S. taxpayer identification number could provide a similar government-issued identification number, such as a passport number.

"Verifying identity:
A CIP is also required to include procedures to verify the identity of customers opening accounts. Most financial institutions will use traditional documentation such as a driver’s license or passport. However, the final rule recognizes that in some instances institutions cannot readily verify identity through more traditional means, and allows them the flexibility to utilize alternate methods to effectively verify the identity of customers.

"Maintaining records:
As part of a CIP, financial institutions must maintain records including customer information and methods taken to verify the customer’s identity.

"Checking terrorist lists:
Institutions must also implement procedures to check customers against lists of suspected terrorists and terrorist organizations when Treasury identifies such lists in consultation with the federal functional regulators.

"Reliance on other financial institutions:
The final rule also contains a provision that permits a financial institution to rely on another regulated U.S. financial institution to perform any part of the financial institution’s CIP. For example, in the securities industry it is common to have an introducing broker – who has opened an account for a customer -- conduct securities trades on behalf of the customer through a clearing broker. Under this regulation, the introducing broker is required to identify and verify the identity of their customers and the clearing broker can rely on that information without having to conduct a second redundant verification, provided certain criteria are met.

"The following financial institutions are covered under the rule:
* Banks and trust companies
* Savings associations
* Credit unions
* Securities brokers and dealers
* Mutual funds
* Futures commission merchants and futures introducing brokers"

These requirements represent a small step towards increased security and a major headache for industry.

This week, Celent Communications published a new report on Section 326 solutions. They began with a description of the scale of the problem: " Over the past decade, the triple threats of fraud, terrorism and money laundering have increased operational and regulatory pressure on financial institutions to develop effective methods for managing customer risk. In 2002, over US$850 billion in illicit funds were passed worldwide through financial institutions, and fraud and identity theft cost financial institutions more than US$3 billion".

The report continues with a description of the regulatory environment and major business drivers that have compelled financial institutions to begin making these investments. They estimate that " Between 2002 and 2005, US financial institutions will spend US$10.9 billion on compliance with the USA PATRIOT Act, including fully loaded IT, audit, training, and personnel."
Although the focus of the report is to describe available compliance solutions, Celent also points out some of the major challenges to industry, including these examples:

"Although 95 percent of banks have watch list filtering (customer compliance) solutions, many will feel the need for more enhanced customer screening solutions in order to be confident about their level of compliance.

"Approximately 25 percent of securities firms have AML and/or customer screening solutions. However, securities firms are relatively vulnerable because in some ways they act like a bank but have not yet had to comply like banks. There is therefore strong motivation for brokerages to implement robust screening tools, particularly since they tend to have more non-US customers.

" Despite being in the business of juggling risk, relatively few insurance companies have specific know-your-customer or AML compliance solutions. Although some will implement specific transaction monitoring and watch list filtering solutions, many will continue to rely on existing fraud detection systems for the bulk of their compliance needs."

The above examples illustrate some of the impact of Section 326 on financial institutions. Consumers should also be aware of how it will affect them. For example,
* Banks are allowed to close bank accounts, cancel credit cards, or refuse transactions at their discretion. In some cases, an individual at one end or the other of a transaction has been identified on a government list of terrorists but who are simply unfortunate enough to have the same name. There are also private lists, of names that may be purely speculative. It is extraordinarily difficult to identify the source or correct these errors.
* Privacy and reporting requirements of the Gramm-Leach-Bliley Act and the Fair Credit Reporting Act need to be rationalized so they are uniform across the nation. There are a large number of state initiatives that can also alter how such rules are implemented. Already, consumer credit reporting agencies demonstrate divergence in their outcomes. Standards and consistency of information collection and reporting are extremely important both for consumer protection and for the industry competitiveness. Consumers may want to apply pressure to industry and government representatives to increase consistency and accuracy of records, and to make the identification and correction of errors much easier.
* Related to this, consumers should be careful to implement the steps to protect identity described in last week's Feature Article. If your identity is stolen, the new regulations will make the negative impacts even more serious.

Additional Resources: