1 July 2006

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Excerpted from: THE ONE PERCENT DOCTRINE: Deep Inside America's Pursuit of Its Enemies Since 9/11, Ron Suskind, 2006:

[At a meeting with FBI, CIA and Western Union at CIA headquarters.]

[FBI official] Lormel talked about what a good friend Western Union has been since 9/11. Nervous Phil [a CIA pseudonym] talked a bit about what might be done going forward. Western Union had twelve thousand offices across the globe, thirteen hundred in Pakistan alone. There was no country more important in battling the terrorists.

Everyone nodded, a show of consensus, until one of the Western Union executives had something to say.

He looked at Tenet. "Here's my concern," he said. "If it seems that Western Union is a global front for the CIA, we'll go out of business."

Tenet leaned forward in his chair and dropped his ace.

"I know we're asking a lot," he said. "But this country is in a fight for its survival. What I'm asking is that you and your company be patriots."

After that, it was all about logistics.

Captions by Associated Press
Christina Gold, President Western Union Financial Services, Inc. fills a money transfer form at the opening of their 21,000 agent location in Bombay, India, Thursday, April 7, 2005. U.S-based Western Union is one of the world's largest money transfer network with over 220,000 agent locations across the globe. In India Western Union has 21,000 agent locations in over 1,000 towns and cities. Others in the photo are unidentified. (AP Photo/Aijaz Rahi)	A Western Union location in Denver displays their 24 hour availability, Thursday, Jan. 26, 2006. Western Union, a global money transfer business with roots predating the Civil War, will be spun off this year as parent First Data Corp. moves to focus on its struggling financial card-issuing and business financial services units. First Data made the announcement Thursday about two months after it began exploring alternatives for its future, including a potential sale of its card-issuing business. (AP Photo/Jack Dempsey)
A Western Union sign hangs in the Old Havana neighborhood of Havana, Wednesday, July 7, 1999. The office, which closed decades ago after the United States imposed trade sanctions against communist Cuba at the height of the Cold War, is authorized to begin sending wire transfers to the island on Thursday. (AP Photo/Jose Goitia)	Professor Albert Einstein presses a telegraph key to open officially the greater Texas and Pan-American Exposition at Dallas, June 13, 1937. (AP Photo)

Wall Street Journal

PAGE ONE

Easy Money

Expanding in an Age of Terror, Western Union Faces Scrutiny As Fund-Transfer System Grows In Risky Parts of the World, U.S. Questions Oversight

How 9/11 Hijackers Got Paid

By GLENN R. SIMPSON

Staff Reporter of THE WALL STREET JOURNAL

October 20, 2004

In January 2002, the owner of a small shop in Burbank, Ill., just outside of Chicago contacted Western Union about becoming an agent in the firm's burgeoning money-transfer empire. Within two weeks, Khaled Raffai was in business, equipped with a Western Union wire-transfer machine and 800 blank money orders.

Trouble began less than a week later when the storekeeper and associates started zapping around thousands of dollars without taking in any cash to back up the transfers as company policy and federal laws require, according to records in Indiana federal court.

More than a year later, Western Union discovered that Mr. Raffai had been a poor choice as a gatekeeper in the global financial system: In 1995, he had been convicted on a federal felony charge of credit-card fraud and served four months in prison. Western Union says it didn't do a criminal-record check on Mr. Raffai, a Palestinian immigrant, or two of his associates who had become Western Union agents a year earlier. Before they were stopped, the three men had shipped hundreds of thousands of dollars to Turkey, Germany and the United Arab Emirates.

In a post-9/11 world, episodes like this have put Western Union under increased scrutiny. With the company's agents surfacing in cases of terrorism, fraud, drug dealing and other transnational crimes, law-enforcement agencies are concerned that the company is failing to screen its agents thoroughly. U.S. and Israeli officials suspect that some Western Union agents in the Middle East move money for Palestinian terrorists, according to current and former officials of both countries.

Now Western Union's primary regulator, the Treasury Department's Financial Crimes Enforcement Network, wants the firm to tighten its controls. "We have come to recognize that foreign affiliates and agents of money service businesses are an issue of serious concern," said William Fox, the network's director, in a statement. "Our concern is, do the money service businesses here really know who they are dealing with abroad, even though they are their agents? To the extent they don't, that provides a serious weakness."

Mr. Fox says he plans to push Western Union toward closer oversight of its agents through a regulatory process known as "industry guidance," which is due out shortly.

In Mr. Raffai's case, the transfers turned out to be part of a series of related frauds by the men. They used bogus wire transfers and forged Western Union money orders to make bulk cigarette purchases, among other deceptions, federal prosecutors say, eventually swindling more than $400,000 from businesses in Indiana and Illinois.

Investigators say they have no idea where the money ended up: One of the Western Union agents involved in the scheme is a fugitive, while Mr. Raffai and the third agent claim they don't know. The pair are now in federal prison, serving sentences of at least two years. Government authorities, who are still examining the case for possible ties to terrorism, aren't even certain of their real names. Charles Stewart, a lawyer for Mr. Raffai, said the government has acknowledged it doesn't have evidence the money was used to finance terrorism. Western Union says it cooperated fully with investigators and reported the wrongdoing as soon as it became aware of it.

No one expects Western Union to prevent every transaction by criminals and terrorists, but officials worry that the company may be expanding too rapidly and pushing into risky locales where its use of independent agents invites trouble. The number of agents has mushroomed, to more than 200,000 today from just 50,000 in 1998, with much of the growth coming overseas where it's difficult to vet the local operators. First Data Corp., Western Union's parent company, boasts on its Web site that Western Union and its Orlandi Valuta subsidiary have more than three times the number of agent locations as the combined total of McDonald's, Burger King, Wal-Mart, Kmart, Sears and Starbucks outlets world-wide.

Government officials know they must tread gingerly. A crackdown on Western Union risks prompting both criminals and ordinary folks to take their business underground. The disappearance of the paper trail maintained by Western Union could cost the U.S. priceless intelligence. The firm, officials add, is more helpful than most in aiding their efforts to track dirty money and build criminal cases.

Background Checks

Joseph Cachey, deputy compliance officer for Western Union Financial Services, vigorously disputes claims that the company has been lax in policing its agents. But he says it began checking criminal backgrounds of its U.S. agents for the first time only last year. Such checks are impossible abroad, he says, but the firm does investigate the backgrounds of potential partners in high-risk areas like the Middle East. Western Union says it sometimes uses Kroll Associates, a unit of Marsh & McLennan Cos., to investigate prospective agents. Mr. Cachey declines to discuss exactly what the requirements are to become an agent, citing competitive concerns.

"We don't want the bad money, and we don't need the bad money to make money," says Mr. Cachey.

Western Union has been at the nexus of communications and capitalism for more than a century. During the Civil War, its telegraph service provided news of battles from Washington to Wall Street. Later, it introduced the first stock ticker and in 1884 became one of the initial stocks in the original Dow Jones Average. Nearly wiped out by the telephone and then again by the fax machine, the company has reinvented itself a few times.

In its latest incarnation, Western Union has ridden a growing wave of economic migration over the past 20 years, serving as a bank for people without bank accounts by transferring money around the world to the tune of $20 billion a year. The vast bulk of those transfers consist of small sums earned by immigrant workers in wealthy countries sent home to assist their families in poor countries.

As Western Union expands into the Middle East, India and China, revenue is growing at a rate of about 20% annually. Yet First Data estimates that the unit has only penetrated some 15% to 20% of the $150 billion global money-transfer market. Based on this huge capacity for continued rapid growth, many Wall Street analysts strongly favor First Data's stock, which has more than doubled in four years.

The very factors that fuel Western Union's growth -- its ease of use and global reach -- also take it into some rough neighborhoods and attract the scourges of 21st-century life. In the Sept. 11 operation, Western Union was the financial agent of choice. An al Qaeda paymaster used various aliases to wire more than $20,000 to hijackers in the U.S. More recently, Italian authorities have discovered that one of the groups currently terrorizing Iraq, Ansar al Islam, used a Western Union agent in Milan to move funds to Turkey, Greece and Singapore. The biggest concern today involves funds moved from Syria and Lebanon into the West Bank and Gaza Strip, according to current and former officials of both countries.

For years, U.S. government authorities had few quarrels with Western Union because the company has long been very helpful, assisting federal agencies in the investigations of everything from human trafficking to drug-money laundering to Nigerian investment scams. Thanks to the way Western Union's computer system is set up, a record for each wire transfer passes through central servers in the U.S. Thus transaction data can be obtained by federal agencies with nothing more than a "National Security Letter" obliging Western Union to hand them over.

Today a central issue for regulators is the company's relationship with its agents. Neither franchisees nor partners of the company, the agents are independent contractors who are kept at arm's length and paid on a commission basis, often with incentives for increased volume. That keeps costs to a bare minimum and can help to reduce Western Union's legal liability in fraud cases. But it also limits Western Union's ability to police the agents. Two years ago, First Data began inserting a caveat into its filings with the Securities and Exchange Commission: "The company's money transfer network operates through independent agents in most countries, and the company's ability to directly control such agents' compliance activities is limited."

Since Sept. 11, 2001, Western Union has paid $11 million in fines to state and federal regulators for the failures of its U.S. agents to comply with money-laundering laws. The laws require banks and financial institutions to keep extensive records and report all potentially suspicious activity and large cash transactions to law enforcement. The California Department of Financial Institutions in August 2003 cited First Data for "shortcomings in oversight, training and supervision of its agents" to ensure they complied with the principal law, the Bank Secrecy Act.

Suspicious Activity

Western Union agents have been tied to suspicious activity in the past. Until he was arrested by the U.S. Immigration and Customs Enforcement agency in November 2002 on charges related to laundering narcotics proceeds, Queens, N.Y., merchant Varghese Varughese was issuing more than $3 million a month in money orders, Customs agents say. He denies the charges and is awaiting trial. In Philadelphia, Western Union agent Carlos Rivera wired nearly $300,000 of what federal prosecutors say he believed was drug money to the Dominican Republic, sending as much as $30,000 a day, until he was arrested by Customs in a sting operation in July 2000. He was convicted and is serving a 46-month prison sentence. Overseas, the company has done business with a Jordanian bank with longstanding alleged ties to Palestinian terrorist groups and partnered with a bank controlled by the government of Syria, which the State Department lists as a state sponsor of terrorism.

First Data won't disclose how much it spends on compliance but says it increased its spending by $18 million last year and has more than 150 staff members working on money-laundering compliance. "While other institutions may not be on everybody's radar screen, we're out there proactively trying to work with not only the U.S. government but governments around the world," Mr. Cachey says.

When a vegetable picker in California sends funds home to Mexico, Western Union collects the cash at one agent location, then promises it will make good in cash at the destination location. The relative in Mexico can pocket the cash within minutes. Later, the California agent's bank will wire the money to the Mexico agent's bank. Both agents and Western Union keep a small percentage of the sale as a commission.

Today, about 75% of Western Union's agents are outside the U.S., including more than 25,000 locations in India and China. The firm signed up some 2,000 new agents last year in its Middle East territory, most of them in Pakistan, a source of many millions of migrant workers but also a potential source of terrorist funding and heroin trafficking.

Some of this expansion worries regulators and terror-finance experts. Western Union has "grown exponentially the past few years, especially internationally and in areas of conflict, and there is really no effort to vet the local operators with whom they are partnering," says Matthew Levitt, senior fellow in terrorism at the Washington Institute for Near East Policy and a former Federal Bureau of Investigation analyst.

For instance, Western Union in 2003 set up operations with a state-controlled Syrian bank, in effect going into business with a government that the U.S. considers a state sponsor of terrorism. Western Union broke off the relationship two months ago after the Treasury Department blacklisted its partner for alleged involvement in terrorism and money laundering. Money laundering involves deliberately transferring and disguising the proceeds of a crime.

In Jordan and the Palestinian territories, one of Western Union's top agents is the Amman-based Arab Bank, which managed funds for the Palestine Liberation Organization while the group engaged in acts of terror in the 1980s. The bank is currently the subject of a lawsuit brought by American victims of Palestinian terrorism in the U.S. District Court for the Eastern District of New York alleging that it also funds terrorism by the Palestinian groups Hamas and Islamic Jihad.

The Israeli government has made similar allegations about Cairo-Amman Bank, also of Amman, which offers Western Union services at 21 branches in the Palestinian territories. Hundreds of pages of financial documents, which Israel seized and placed on the Internet, paint a vivid picture of how Palestinian groups allegedly use the two banks. Both banks deny wrongdoing.

Mr. Cachey said he was unaware of the Israeli allegations. "Nobody has contacted us from that government about those banks," he said. He added that there is no indication Western Union's facilities within Arab Bank or Cairo-Amman Bank have been used to support terrorism. The banks deny supporting terrorism.

--Alonso Soto contributed to this article.

Write to Glenn R. Simpson at glenn.simpson[at]wsj.com

Copyright © 2006 Dow Jones & Company, Inc. All Rights Reserved

Wall Street Journal

Treasury Tracks Financial Data In Secret Program

Since 9/11, U.S. Has Used Subpoenas to Access Records From Fund-Transfer System

By GLENN R. SIMPSON

June 23, 2006; Page A1

Since shortly after the Sept. 11, 2001 terrorist attacks, the U.S. Treasury Department has been secretly tracking suspected terrorist financing through a far-reaching program that gives it access to records from the network that handles nearly all international financial transfers.

The information comes from a Belgian firm known by its acronym, Swift, which manages much of the world's financial-message traffic. Under the program, U.S. counter-terrorism analysts query Swift's vast database of billions of financial transactions for information on activity by suspected terrorists. The program operates under a series of broad U.S. subpoenas.

U.S. officials say the Terrorist Finance Tracking Program has been highly successful both in leading to the apprehension of terrorism suspects and in thwarting terrorist operations. People familiar with the program said, for example, that it yielded useful information on the bombings last July 7 in London. The program "has helped to disrupt terrorist cells and operations and has helped save lives," Treasury said in a statement to The Wall Street Journal.

Still, disclosure of its existence may be controversial in Europe and other parts of the world and within the global banking industry, which has long worried about the privacy of transactions. U.S. officials said few American citizens would have financial data that fall under the program, because they are unlikely to engage in international money transfers.

Stuart Levey, Treasury's top counter-terrorism official, said the program was initiated after department lawyers determined they had the legal authority to subpoena Swift, which keeps its data in the U.S. To his knowledge, Mr. Levey said, such broad subpoenas of Swift data had not been attempted previously.

He said the subpoenas are based on a longstanding U.S. law dealing with economic sanctions, known as the International Emergency Economic Powers Act. Passed in 1977, it allows the president to impose economic sanctions when dealing with a national-security threat. The law has been used, among other things, to impose sanctions on rogue states.

The program is known to officials of the world's leading central banks, as well as key U.S. allies in the war on terror, with which the U.S. has shared data. Its existence also is known to Swift's board, which consists of representatives of the organization's member banks.

While U.S. officials had never discussed the tracking program publicly until yesterday, they have repeatedly discussed in broad terms their efforts to engage in surveillance of cross-border financial activity around the world and have widely publicized the fruits of such surveillance in efforts to blacklist corrupt financial institutions.

In a statement, Swift said, "In the aftermath of the September 11th attacks, Swift responded to compulsory subpoenas for limited sets of data. Our fundamental principle has been to preserve the confidentiality of our users' data while complying with the lawful obligations in countries where we operate....Through this process, Swift received significant protections and assurances as to the purpose, confidentiality, oversight and control of the limited sets of data produced under the subpoenas."

The government has a similar program through which it accesses data from Western Union, The Wall Street Journal reported last year.

Formed in 1973 by international banks, Swift is an industry cooperative that acts as an electronic gatekeeper for most of the world's major banks, brokerages, and investment managers to transmit funds across borders. Swift doesn't handle any funds, but processes some 11 million sets of transfer instructions and confirmations daily -- more than 2.5 billion a year.

Through Swift, banks and brokerages relay information to each other about financial transfers through a series of standardized forms that contain large amounts of information, including the identities of sender and recipients, the amount being transferred, the account numbers used and intermediate banks. These forms are transmitted through a secure computer network. The actual funds or securities are transferred later by banks or clearing and settlement companies.

Swift's board of directors is chosen by member banks; its legal regulator is the National Bank of Belgium. Since 1998, it also has been supervised by the world's major central banks, including the Federal Reserve, the Bank of England, the European Central Bank and the Bank of Japan. Formally called the Society for Worldwide Interbank Financial Telecommunications, Swift handles the vast bulk of world-wide cross-border wire traffic.

Swift's headquarters is a tightly guarded campus with long, well-manicured lawns in La Hulpe, a suburb of Brussels, the Belgian capital and headquarters of the European Union. The company is run by an American, Leonard Schrank, whose office is adorned with photos from a management seminar Swift held at the National Aeronautics and Space Administration.

Last night, in a statement, Treasury Secretary John W. Snow called the program an "essential tool" for fighting terror and said it had effective oversight and safeguards. "It is not 'data mining,' or trolling through the private financial records of Americans," he said. "It is not a 'fishing expedition,' but rather a sharp harpoon aimed at the heart of terrorist activity."

Mr. Levey said safeguards include regular outside audits. Intelligence analysts are allowed to search data only for specific individuals or groups suspected of terrorist involvement, he said, and the data isn't subjected to controversial data-mining techniques such as pattern-seeking algorithms. In addition to the probe of the London bombings, the data helped lead investigators to "a key facilitator of terrorism in Iraq," Mr. Levey said.

U.S. officials agreed to discuss the program after concluding that knowledge of its existence was emerging and public disclosure was inevitable. Aspects of it have recently been declassified. Mr. Snow called the disclosure "regrettable." Mr. Levey said he fears that "sophisticated terrorists will now stop using the system in ways we have access to, or will take extensive precautions to hide their identities, and that is really a loss."

For their part, American banks are more accustomed to providing information to government agencies than are some of their foreign counterparts. Under a series of U.S. laws, domestic banks are required to turn over large amounts of data to the government to fight money laundering and terrorism.

Write to Glenn R. Simpson at glenn.simpson[at]wsj.com

Wall Street Journal

U.S. Is Moving on Several Fronts To Police Financial Transactions

By GLENN R. SIMPSON

June 24, 2006; Page A4

The Treasury Department's newly disclosed program to track suspected terrorists by examining records of international financial transactions is just one component of an expanding effort by American security officials to more closely monitor suspect financial dealings.

U.S. officials also are privately asking the banking industry to change the ways that banks record international transactions so the data are more complete and more accurate, several executives and industry officials said. Regulators are concerned that banks in some cases aren't producing records that disclose all information about senders and recipients of wire transfers, prompting regulators from the Federal Reserve and other agencies to raise questions about record-keeping practices in recent examinations.

Treasury Secretary John Snow comments on the use of financial data to track and capture potential terrorism groups. Plus, video of Snow's Friday press conference. Read Snow's statement.

Officials are also weighing new regulations to make U.S. banks disclose details of all cross-border transfers to law-enforcement agencies. At the moment, American banks aren't required to report when they make financial transfers less than $3,000 between the U.S. and other countries.

These new steps come on the heels of a variety of new reporting requirements put into place by U.S. regulators shortly after the Sept. 11, 2001, terrorist attacks. While many are aimed at thwarting terrorists and their supporters, U.S. officials also have other goals. They aim to use cross-border transaction data to enforce U.S. economic sanctions and to apply U.S. tax laws to American citizens who move money offshore.

The initiatives rely on a patchwork of existing laws that allow the government to take these steps, and their legality generally isn't disputed. Still, the government's financial-surveillance activities may face new scrutiny following the disclosure this past week of the Treasury Department's secret Terrorist Finance Tracking Program. Using it on behalf of American intelligence and law-enforcement officials, the Treasury seeks information from a database of international wire transactions maintained by a Belgian firm known as Swift, an industry cooperative that serves as a clearinghouse for the majority of overseas transactions on behalf of banks and financial institutions. The Treasury program's existence was acknowledged on the record by U.S. officials for the first time on Thursday.

"I am particularly proud of our Terrorist Finance Tracking Program which, based on intelligence leads, carefully targets financial transactions of suspected foreign terrorists," Treasury Secretary John Snow said at a news conference Friday.

Some congressional Democrats and some civil-liberties activists criticized the program as a privacy threat, but most law-enforcement and banking-industry officials, and many political leaders, joined the Bush administration in defending it as appropriate. "Financial institutions are seeking to cooperate with law enforcement in this very critical fight against terrorist financing," said Lawrence Uhlick of the Institute for International Bankers. "I think this is a pretty clear case of the right kind of cooperation within the legal process." David Caruso, a former Secret Service agent and banking consultant, called the program "an aggressive but pretty wise use of power."

Swift, which stands for the Society for Worldwide Interbank Financial Telecommunication, processes the millions of electronic messages sent daily by banks and brokerages to coordinate international transactions. While law-enforcement officials have traditionally subpoenaed individual banks when seeking information, the newly disclosed program involves broad government subpoenas to Swift for data on specific terrorists.

While the reaction to disclosure of the program was generally muted, some banking executives say they still are concerned that the government's broader campaign to scoop up wire-transfer data from Swift and others could trigger a backlash. That might even weaken the dollar if institutions decide transactions made in dollars are more likely to attract the attention of American investigators.

For now, U.S. officials remain interested in extracting more detail on international transactions that could involve criminal activity or suspect individuals. Most cross-border wire transfers contain sets of instructions in one of two standard Swift formats, and officials are concerned that in some cases people and groups are using a format that allows them to improperly hide their identities, several people with direct knowledge of the matter said.

The issue arose after Treasury discovered that ABN Amro of the Netherlands improperly used a Swift form designed for large bank-to-bank transfers to deliberately hide transactions with Iran, a longtime target of U.S. economic sanctions.

Write to Glenn R. Simpson at glenn.simpson[at]wsj.com

Wall Street Journal

American Executive in Brussels Aided Terrorist-Tracking Program

By GLENN R. SIMPSON

June 24, 2006; Page A4

(See Corrections & Amplifications item below.)

The Treasury Department's secret terrorist-tracking program depended in part on the cooperation of Leonard "Lenny" Schrank, an American executive who heads the Belgium-based banking cooperative known as Swift.

A gregarious technology whiz who graduated from the Massachusetts Institute of Technology, the Brooklyn-born Mr. Schrank ended up working closely with U.S. intelligence officials on the project when Swift received subpoenas from the Treasury Department following the Sept. 11, 2001, attacks, people familiar with the program said.

Mr. Schrank, who described Swift's general operations in a meeting with a Wall Street Journal reporter last year, declined Friday to be interviewed regarding the terrorist-tracking program. Swift stands for the Society for Worldwide Interbank Financial Telecommunication. The firm, based in the Brussels suburb of La Hulpe, was founded in 1973 to promote "a common language for international financial transactions," according to the Swift Web site.

Within the banking industry, Mr. Schrank is credited with developing the financial-telecommunications cooperative into a vital if obscure cog in the globalization of financial services since becoming chief executive in 1992. An expert in information technology who has degrees in computer science and electrical engineering, Mr. Schrank has been involved in the technology business since founding a software company in the 1970s. At Swift, he implemented a reliable, secure and high-capacity messaging network that has enabled banks and brokerages to move money around the globe almost effortlessly.

Under Mr. Schrank, a fan of the U.S. space program, Swift adopted the Apollo mission motto, "Failure Is Not an Option." Last year, Swift brought Apollo 13 astronaut Alan Bean to speak at its headquarters to help promote its "culture of commitment to provide services of the highest security, reliability and resilience," according to Swift's most recent annual report.

Mr. Schrank is one of the best-known American businessmen in Brussels, where he also serves as president of the American Chamber of Commerce in Belgium. He is planning to retire next year.

Write to Glenn R. Simpson at glenn.simpson[at]wsj.com

Corrections & Amplifications:

Astronaut Alan Bean was aboard the Apollo 12 mission to the moon. This article incorrectly said Mr. Bean was on Apollo 13.