Financial Cryptography

SWIFT breach - softly softly, catchee monkey?

As predicted, the politicians in Europe are responding, albeit mildly.

Meanwhile, Belgian Prime Minister Guy Verhofstadt issued a statement saying he has asked security officials to determine whether the U.S. program complied with Belgian laws.

In the same Toronto Star article:

New security powers aimed at fighting terrorism may be a "threat to privacy" and must be monitored, Canada's privacy commissioner said yesterday as she announced an inquiry into whether U.S. authorities accessed Canadian financial records.

Commissioner Jennifer Stoddart said she anticipates making the results of her inquiries public in coming weeks, after "examining whether Canadians' financial transactions are being improperly accessed by foreign authorities."

Fairly clearly, everyone in the financial community knew that SWIFT tracking was likely, and knew it was probably ineffective. They allegedly caught one guy, which makes it an inessential tool -- you don't take on those risks just to get one successful lead over 4-5 years. And, as we know:

In his new offering, "The 1 Percent Doctrine," author Ron Suskind says everyone in U.S. intelligence has known for years that al-Qaida and similar groups have jettisoned electronic banking for some time. These guys aren't fools. They also use untraceable cell phones. They now use bodies to carry the cash or hide it in other packages, so the 'use' of this spying is questionable.

The reason that terrorists aren't stupid is simple - the stupid ones get eliminated over time, an evolutionary feedback mechanism that seems unavailable in Washington D.C, no matter how desirable. Notwithstanding all that, the Bush administration chose to counter-attack the press for the 'leak':

President George W. Bush has condemned newspapers that carried initial reports on the program last week - including the New York Times, the Los Angeles Times and the Wall Street Journal - saying the disclosure made it "harder to win the war on terror."

The need for a message that can be explained in 25 simple words to the Republican support base is apparent, but this is verging on the ridiculous. Which raises the question -- aside from lack of evolutionary pressures -- why is Bush taking the New York Times to task on this?

You also can't count out the White House from being political on this. Attacking the messenger, in this case the New York Times, is "red meat" to some who dislike the media and may garner members of the current administration a few votes in November.

So, we are being asked to choose between the Republican base being too stupid to realise they are being conned again, or that they will wake up and call Bush's bluff. I don't want to go there. Also, what happens when there is a leak over an effective and agreeable tool? They'll have shot their wad. That's actually a fairly likely scenario, given the record of this administration to shoot first, think later.

But there might be more to this than mere stupidity and electoral panic. In considering what it means to threaten prosecution over the leak of an ineffective and controversial tool, keep in mind that terrorists aren't stupid. Therefore, they are not in this picture. So, if it is not about terrorists, everything else mentioned is likely as deceptive.

Let's consider the possibility of a deception plan. Why would Bush's team just not dampen down on it? Nobody knows who SWIFT is, and if we were to keep repeating "boring!" people would eventually get the message. The reason may have something to do with two factors:

1. International embarressment may actually force a debate on this, and could cause the tool to be modified, or at worst withdrawn. Is the Bush administration embarrassed and caught flat-footed in front of its erstwhile international peers? Or even the Democrats?

At a confirmation hearing Tuesday for Henry Paulson Jr., the nominee for Treasury secretary, Senator Max Baucus, Democrat of Montana, asked whether the monitoring might violate the Fourth Amendment's protection against unreasonable searches.

"I think you'll agree that we could fight terrorism properly and adequately without having a police state in America," Baucus said.

Paulson did not express an opinion on the propriety of the Swift monitoring but pledged to study it. "I am going to, if confirmed, be all over it, make sure I learn everything there is to learn, make sure I understand the law thoroughly," Paulson said.

Democrats said they hoped to get a clearer idea of the legal foundations for the program, how it was monitored, and how long it would be allowed to continue under the president's invocation of emergency powers.

I think it unlikely to be withdrawn, but it might earn some proper governance, especially if the Democrats keep embarrassing the international community into thinking about it. Which leads us to point 2:

2. There is massive support in US Treasury for this tool, if this embarrassing tidbit is anything to go by:

Democratic staff members said they had pressed Treasury officials in recent days for a fuller accounting of which members of Congress were briefed on the program and whether notification requirements under the International Economic Emergency Powers Act, invoked by Bush after Sept. 11, were met.

Treasury officials have told congressional staff members that they briefed the full intelligence committees of both houses about a month ago, after inquiries by The [New York] Times, according to one Democratic aide who spoke on condition of anonymity.

US Treasury possibly realise they now have the crown jewels in their grasp - the tool they need to chase their own subjects across the globe. Now is the time to roll out the long term strategy -- first migrate the SWIFT tracking across to drugs & ML (already started, as spotted earlier). Then on to own citizens.

Softly softly, catchee monkey. Is this going to happen? You might as well bet your bottom dollar, because it could be your last private bet:

A U.N. report on terrorist financing released in May 2002 noted that a "suspicious transaction report" had been filed with the U.S. government over a $69,985 wire transfer that Mohamed Atta, leader of the hijackers, received from the United Arab Emirates. The report noted that "this particular transaction was not noticed quickly enough because the report was just one of a very large number and was not distinguishable from those related to other financial crimes."
One of the key federal agencies vacuuming the financial information long has snubbed the terrorist threat. As of 2004, the Treasury Department's Office of Foreign Assets Control had 10 times more agents assigned to track violators of the U.S. embargo on Cuba as it had tracking Osama bin Laden's money. From 1994 to 2004, this Treasury bureau collected nearly 1,000 times as much in fines for trading with Cuba as for terrorism financing.

If you know anything about systems you can see where this going: individual queries on suspicions clarified through governance will give way to massive datamining in order to avoid the above embarrassing failures. Which leads to the earlier scenario of own citizen tracking, if we accept the principle that any (secret, ungoverned) system is eventually captured by those with the most interest.

Fear of embarrassment and consequent proper governance may explain why the administration is taking the line that this is "government at its best." In effect, daring detractors to call them; before you can put in proper governance, you have to present the Bush Administration as bad governance.

So watch to see how much resistance there is to proper governance and international oversight.

Relevance to wider currency matters? If the worst case scenario comes to pass and the SWIFT breach widens, then expect a couple of competitors to SWIFT to arise. One for the Muslim world and another for the Asian sphere.

Also, there are signs that the penny may have dropped for at least some FBI agents.

FBI Financial Crimes Section chief Dennis Lormel and his colleagues at other intelligence agencies eventually realized that the information supplied by the company could be used not only to locate and freeze the assets of terror groups, but also to track them in real time - in other words, to follow the money trail directly to the sources and destinations of the funds.

First Data subsidiary Western Union, with branches throughout the Arab world and a high volume of money transfers, was in a perfect position to help. American intelligence agents and company officials cooperated in tracking the data trail and in monitoring security cameras installed in Western Union branches in order to see who was picking up the funds.

According to the book, then Shin Bet head Avi Dichter, whom Suskind calls an agent of change in the U.S. war against terror, was briefed by Lormel on the new monitoring capabilities during one of his frequent visits to Washington.

In April 2003, Dichter called Lormel to ask for the FBI's help in this regard. Dichter told officials that the Shin Bet had information about a courier who was expected to be bringing money to Israel from Lebanon shortly. The source of the money was known, but not the identity of the person for whom its was destined.

In early April, 2003, an Islamic Jihad activist went to a Western Union office in Lebanon and ordered a money transfer to Hebron. The Justice Department authorized Western Union to release this information to the FBI and the CIA, and eventually to the Shin Bet. According to Suskind, all this took just minutes, enabling Israeli intelligence to track the person who collected the transfer in
Hebron and to uncover the terror cell.

According to the book, this method was used successfully many times over the next year and a half, until autumn 2004, when Palestinian operatives realized that their Western Union transfers were being used to trap them.

Top notch! There is potential value in the AML tool of money tracking for the anti-terrorism mission, notwithstanding the real fears of civil libertarians. But, the value is only present if the tool isn't destroyed beforehand. Seizing terrorist funds isn't likely to be effective, just as seizing drugs money isn't likely to be effective, as it just moves the committed into more committments, and gives them a good signal as to what not to do next time.

(If you don't follow the above, consider this: terrorists do not care about money, they've already crossed the rubicon of civil society. If they need more money they will just go and steal it. So seizures don't mean a thing to them, and the next terrorist attacks in USA are likely to be self-financing. Same with drugs dealers.)

But, as it has taken the champions of AML 20 years to work out that tracking is valuable, whereas seizures achieve nothing towards the fundamental stated goal, I wouldn't hold out much hope that Treasury will make a wise choice. They are after all a bureaucracy of many interests.

Posted by iang at July 3, 2006 03:29 PM | TrackBack