Electronic Commerce under the Patriot Act's eye

The recent electronic finance boom has reshaped the way we think about money. Now money is not only what we hold in our wallets and bank accounts; the equivalents of paper currencies are flying at a supersonic speed all over the internet. The development of internet commerce, online banking as well as electronic currencies and transfers gave a launch to a lot of success stories such as PayPal, Moneybookers or Webmoney, but it did create a lot of tension and controversy at national and international political arenas.

When the two planes hit the Twin Towers downtown Manhattan, I was not far to see the black smoke sucked into the sky and the collapse of the two most amazing buildings I have ever seen. Little did anyone know then that the collapse will change not only the skyline of Manhattan and the lives of families of those killed, but the American Freedoms which were fought for and built for centuries.

In the aftermath of September 11 the USA Patriot Act was introduced by the congress and rushed into a law by President Bush on October 26, 2001 without much debate and usual scrutiny. Since then  "Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001" has been the governing set of guidelines called to protects American freedoms while controversially taking some away.

With over 10 titles and hundreds of sections the act has empowered the government to interfere and control the US residents' communications, finances and foreign relations and transactions without due process, subpoenas and court rulings. While all of the titles are aimed at protecting the USA residents and the country borders, some of them push the development of electronic payments and financial commerce on a scale from easy to impossible to the far end.

While electronic finances dwell in an online world, the Patriot Act specifically targets electronic communications. Add to this the fact that basically any money deposit/withdrawal/transfer can be viewed as a possible money laundering operation or support to terrorist activities, the whole business with all of its private and personal information can be made transparent and placed on the palm of the government's hand. 

Title I.   Enhancing Domestic Security Against Terrorism

Trying to enhance the domestic security network, the expansion of National Electronic Crime Task Force Initiative took place. The existing electronic crimes working groups were staffed with more and better prepared specialists; many new groups were created. The main targets of these investigative efforts were illegal electronic operations which could provide a significant economic and community impact. This title of the Patriot Act called for creating task forces "for the purpose of preventing, detecting, and investigating various forms of electronic crimes, including potential terrorist attacks against critical infrastructure and financial payment systems".

In view of this founding section of the Act, any sophisticated or not electronic initiative could become a suspect. But how could a suspect be proven guilty? The Patriot Act provided for a number of enhanced surveillance procedures which became as easy as 1,2,3 to authorize - without due legal process.   

Title II. Enhanced Surveillance Procedures

Due to the nature of the process and its methods, electronic finances business is conducted in an online environment thus depending fully on the internet connection via phone or a cable line or linked wirelessly. With its multiple provisions the Patriot Act allows to intercept wire, oral and electronic communications relating to terrorism, computer fraud and abuse. In other words, pertaining to the electronic finance, the government received a green corridor to monitor and record any electronic communications and transactions that an average person conducts online. The government also received the authority for delaying notice of the execution of a warrant.  

With these new and enhanced procedures, the Forth Amendment that guarantees "The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated" sounds like a joke!

Let's say you are killing some time somewhere in a library or an internet café by doing some online grocery shopping, sending your grandma some cash to sweeten her retirement via a new, cheap and fantastically easy to use transmitter, chatting with your friends on a recent movie about terrorist camps in Afghanistan and reviewing your online bank account. No one can guarantee that you will not become the subject of the Patriot Act in action. You can both be suspected of terrorist recruitment and illegal money transfers/laundering. Even found innocent, all of the information collected on you and your internet activities will not be destroyed but placed in a data base just in case you really ever decide to do those imaginary offences, there is a track.

The problem is exacerbated when you realize that the privacy rights of a large numbers of an innocent people can be and are violated. When an intelligence target is suspected to use a certain facility, FBI can monitor all communications at the facility or transactions at, let's say, an online payments system.  It becomes more aggravating that a facility, for example a library, is prohibited from notifying the users about the monitoring in progress.

Title III  International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001

The act covers various financial institutions and international transactions which could be involved in money laundering. It prohibits United States correspondent accounts with foreign shell banks which do not have a physical presence in the USA. The Act also opens out the U.S. jurisdiction over non-U.S. residents and allows for a seizure and forfeiture of assets held in their US accounts. Along with the outlined in the act due diligence and record keepings regulations, the Secretary of the Treasury received the authority to assign, or simply put - to label, a non-U.S. jurisdiction, non-U.S. financial institution, or class of international transactions or accounts, as being of "primary money laundering concern." These measures will surely scare off any financial company operating either on-line or not from conducting any business on the USA territory, thus giving a definite advantage to the USA institutions.   

The appearance of digital gold currencies on the US territory caused a lot of controversy. The government was not ready to deal with any alternative currency, but took a strong position on not allowing any uncontrolled money flaws run within its jurisdiction. One of the pioneers of internet payment systems and DGCs, e-gold.com, did face multiple charges of money laundering. Doug Jackson, the founder of the company, was forced to submit customer records regardless of the fact that the user agreement did guarantee the clients that such records will not be submitted without a proper court order. The Patriot Act provisions allowed law enforcement agencies to access records of customers regardless of the fact of their guilt/innocence and monitor accounts activities without customers' knowledge.

Some other companies faced problems operating under new provisions within or out of the US jurisdiction as long as they served US citizens. Neteller, an electronic money and payments service regulated by the UK, had to pay settlement to the USA to reach an agreement of not providing gambling payment option to the US citizens. 

Even if the company is regulated by another country's laws, but some of the assets or records are stored on the US territory, the latter can be seized without the authorization or even knowledge of the company's owners and other stakeholders. Such provision is called "long-arm jurisdiction". Going back to the original of the Patriot Act, the title that talks about the forfeiture of fund in US interbank accounts, it is clear that even a foreign bank can not guarantee an ultimate security of the funds:  "Sec.319  (B) AUTHORITY TO SUSPEND- The Attorney General, in consultation with the Secretary of the Treasury, may suspend or terminate a forfeiture under this section if the Attorney General determines that a conflict of law exists between the laws of the jurisdiction in which the foreign bank is located and the laws of the United States with respect to liabilities arising from the restraint, seizure, or arrest of such funds, and that such suspension or termination would be in the interest of justice and would not harm the national interests of the United States."

The Patriot Act, in its Banks Secrecy Act Amendments and Related Improvements, specifically targeted money transfer businesses. It amended the previous US code by its Section 359 which talks about the necessity of reporting any suspicious activities by underground banking systems and included "any other person who engages as a business in the transmission of funds, including any person who engages as a business in an informal money transfer system or any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside of the conventional financial institutions system". This amendment obliged any company which is involved in any money transfers, including digital money and currencies transfers to comply with all the laws set for traditional banks and money wire services.

Under Sections 373 the Patriot Act specified what illegal money transmitting business is  "the term `money transmitting' includes transferring funds on behalf of the public by any and all means including but not limited to transfers within this country or to locations abroad by wire, check, draft, facsimile, or courier". It did not specifically address digital currencies and their transfers. This provision causes a lot of controversy as, for example, e-gold, which was charged with illegal unlicensed money transfer business, clams that they are not a money transmitter since the company doesn't accept cash from customers, only wire transfers for the sold precious metals which could be exchanged for goods and services.

Due to amended provision of extraterritorial jurisdiction, anyone within or outside the US jurisdiction, who undertakes a fraudulent action or conspires with that person to commit an illegal act against the USA, will be prosecuted to the extent of the law. Even though tools for the offence must be within the US jurisdiction, if the proceeds of such illegal activity were gained out of the US jurisdiction but are acquired by the US citizens, such actions will be prosecuted to the fullest. Take online gambling, for instance, which is illegal in the USA. If a US citizen gambles in a casino outside the US jurisdiction but uses the winnings domestically, these activities become illegal accordingly.

Without a Title

In the view of multiple restrictions on financial transactions and tightening the citizen rights and freedoms in the USA, many electronic finance businesses choose to avoid dealing with the US customers, leaving them little choice as to allocating, investing and managing their finances in an up-to-date more convenient electronic world. Having learnt from the mistakes of others, new digital currencies and transfer companies choose favorable and more lax jurisdictions for their entities and assets to provide customers more security of their funds and avoid governmental seizures. The United States designed the Patriot Act to protect its nation and its borders and make it more difficult for terrorists to conduct harmful activities. But it did rob Americans of some of their civil liberties. It did also scare off lots of legitimate businesses and possible revenue for the country, though it also forced Americans to keep their money within the National borders - smart!

                                                                                  Marianna, reporter of Ecommerce Journal