Financial Institutions, Government, and 'Mission Creep': Systematic Integrity in the Balance
| Author | Fletcher Baldwin and Daniel Ryan Koslosky |
| Profession | Professor |
| Pages | 71-109 |
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FINANCIAL INSTITUTIONS,
GOVERNMENT, AND
‘MISSION CREEP’:
Systematic Integrity in the Balance
Introduction
e collective emotional outrage following a terrorist attack is well-
documented.1 Americans will surely recall the collective panic, sorrow
and desire for vengeance in the aftermath of the September 11 attacks,
and to a lesser extent the Oklahoma City bombing. e same can
be said for the British people in the wake of the July 7 bombings and
violence relating to the conict in Northern Ireland. Indeed, there is a
general willingness to accept greater deprivations of civil liberties in the
name of security than otherwise would be the case.
e requisite government response to acts of politically-motivated
violence is a sweeping anti-terrorism legislation. However, the medium
and long-term consequences of the legislation are often not fully
comprehended. To what extent does broad, ‘catch-all’ legislation risk
sacricing the systemic integrity of both domestic and international
institutions of nance and government? Further, to what extent does
anti-terrorism legislation risk transforming the rule of law into a rule
by law? is chapter analyses the eects and consequences of anti-
terrorism legislation on the systemic integrity of nancial institutions.
One specic risk of anti-terrorism legislation on the systemic
integrity of nancial institutions is ‘mission creep’ – the application
RISKY BUSINESS: Perspectives on Corporate Misconduct
72
of anti-terrorism legislation, both its substantive and procedures, to
non-terrorist related oences and other activities not contemplated by
its original enactment.2 Much of the concern of nancial institutions,
civic groups, and private individuals should be focused on the uncanny
ability of anti-terrorism legislation to seep and morph into the general
criminal law and be utilised to prosecute crimes unrelated to terrorism.
Furthermore, anti-terrorism legislation has a self reinforcing eect
enabling it to perpetuate its own existence. e rationale is, if there
are subsequent terrorist attacks the legislation is needed; if there
are no attacks it is working and should remain. e Uniting And
Strengthening America By Providing Appropriate Tools Required To
Intercept And Obstruct Terrorism Act of 2001 – the USA PATRIOT
Act (the Patriot Act) – will also be examined particularly in relation to
its long-term implications.
Law, Regulation and Financial Institutions
Early Legislation: the Bank Secrecy Act and its Progeny
Bank customers worldwide have traditionally been aorded
an implicit common law right to nancial privacy.3 Yet, the federal
judiciary has not, however, recognised a legitimate expectation of
privacy with regard to nancial statements.4 American notions of
nancial privacy are markedly dierent from those of Europe. e
roots of European bank secrecy grew out of a much stronger notion of
necessity. Hyperination and political instability in Europe following
the First World War led individuals to hold assets in stable banking
systems and nancial markets outside of their home countries.5
Germany promulgated a 1933 law which stated that, under a penalty
of death, individuals were required to report all assets held outside
their jurisdiction of residence. As a result, Switzerland enacted the rst
modern codied bank secrecy legislation. e aftermath of the Second
World War – economic devastation, social uncertainty, and high tax
rates – obliged individuals again to seek foreign deposit locations.6
e rst modern American nancial privacy legislation was the
Bank Secrecy Act of 1970.7 e Bank Secrecy Act required nancial
institutions to keep records of their clients’ nancial activities.
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Financial Institutions, Government, and ‘Mission Creep’
Specically, nancial institutions were required to report every
transaction in excess of $10,000.8 Furthermore, the Bank Secrecy
Act required insured depository institutions to establish internal
compliance and monitoring procedures, designate an institutional
compliance ocer, and provide training for employees.9 e rationale
was that ‘such records and reports are of a high degree of usefulness in
criminal, tax, and other regulatory investigations.’10
Following a backlash to the intrusion into common law nancial
privacy of deposit holders,11 Congress enacted the Right to Financial
Privacy Act.12 e Financial Privacy Act prohibited the disclosure of an
account-holder’s records without their consent.13 Law enforcement and
investigative authorities could, however, obtain records without consent
pursuant to search warrants, administrative and judicial subpoenas, or
even on a mere written request.14 Customers were usually entitled to
notice that records are the subject of a law enforcement investigation,
the caveat being that such notice could be delayed by court order.15
Somewhat counter intuitively, ‘money laundering’ under both the
Bank Secrecy Act and the Financial Privacy Act were not statutory
crimes. Money laundering only became a criminal oence in 1986
under the Money Laundering Control Act.16 e Act made it a crime
to knowingly transfer,17 or conduct a nancial transaction with the
proceeds of an unlawful activity with the intent to continue the unlawful
activity,18 to evade taxation,19 to conceal the nature of the proceeds,20
or to avoid a reporting requirement.21 Interestingly, the Money
Laundering Control Act of 1986 also criminalised money spending.
To knowingly ‘engage in a monetary transaction in criminally derived
property of a value greater than $10,000’22 was punishable by up to
ten years incarceration.23 Yet, not since the 1978 Right to Financial
Privacy Act has the right to nancial privacy substantially been altered.
is, of course, changed after September 11, and with the change came
the standard for noncompliance: Willful Blindness. Most government
litigation has, however, taken its cue from .24
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