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Intelligence and the New War on Terrorism1

Bruce Berkowitz

After the September 11 terrorist strikes, many people wondered, was this anavoidable intelligence failure? The question is critical because, years from now, Osama

bin Laden may be seen less as a mere terrorist and more as a pioneer in the use of a new

kind of warfare. For want of a better label, call it "strategic terrorism." It has four key

features:

A global network consisting of small, semi-autonomous cells capable of operating

with little centralized control to achieve the strategic goals of the parentorganization;

The use of unconventional weapons of mass destruction (e.g., hijacked airliners) to

cause huge casualties and enormous physical damage and to attract as muchpublicity as possible;

• A synergetic alliance betw een the terrorist netwo rk and one or more authoritarian

nation-states (e.g., Afghanistan an d possibly Iraq) that provide the network with

logistics an d funding for its non-attributable army; and

• Information superiority, both in its "soft" form (an alluring ideological message to

recruit and m otivate foot soldiers) and its "hard" form (secure global communications

for logistics, financial support, an d command an d control).

To be sure, gov ernments, political organizations, social malcontents,

revolutionaries, and oppressed ethnic mino rities have em ployed terrorism in the past.

Some terrorist organizations have even carried out attacks over long distances (e.g., the

IRA bomb ed Lo ndo n in the 1980s, Chechens bombed M oscow in the mid-1990s). But

bin Laden was the first to use strategic terrorism in a successful large-scale military strike

against a superpower—and to devastating effect.

No o ther single-day attack on the A merican homeland has been so costly. A s of

this writing, approximately 3,300 peo ple have been reported missing or dead as a result

of the September 11 strike. By comparison, during the Civil War, 2,100 Union soldiers

were killed at the Battle of A ntietam (C onf ederate deaths totaled 1,550); the United

States lost 2,403 liv es in the Japanese attack on Pearl Harbor.^ The non-lethal damagedone on September 11 was equally vast.

1 First published in Orbis (Spring 2002), pp. 289-300, © Foreign Policy ResearchInstitute, 2002.

-For casualties at Antietam, see the National Park Service website at

<http://ww\v.nps.gov/anti/ casualty.htm>. F or Pearl Harbor, see Gordon W . Prange, At

Dawn W e Slept: The Untold Story of Pearl Harbor (New York: Viking , 1991). For the

Footnote continued on nex t page



Wired News: Banking with Big Brother Page 1 o f4

NewsHome , ©Technology j,@Culture ,1 ©Business I (£)Wired Mag '• \ Animation) Text Size: A A A A

Banking with Big Brother

Story location: http:/7wwvv.\vired.cora/news/politics/0,1283,16749,00.html

09:25 AM Dec. 10, 1998 PT

US banks m ust m onitor their customers and alert federal officials to

"suspicious" behavior und er a government p lan that has drawn fire as an

Orwellian intrusion into Am ericans' privacy.

A set of proposed regulations released M onday requires banks to review

every customer's "normal and expected transactions" and tip off the IRS and

federal law enforcem ent agencies if the behavior is unusual.

"It turns us into surveillance agents for the government," said John

Ehrensperger, compliance director fo r Atlanta-based Sun Trust Bank.

Ehrensperger stressed that he was not speaking on behalf of his em ployer.

Adopting so-called "Know Your Custom er" programs will stifle drug-related

m oney laundering, the Federal Reserve Board has claimed fo r years. "The

proposed regulations will reduce the likelihood that banks will becom e

unwitting participants in illicit activities," the proposed rules say.

"It's overly alarmist," said Bob M oore, a spokesm an for the Federal Reserve

Board. "W e're not going to invade anyone's privacy."

Unless regulators change their minds, banks will be required to com ply no

later than 1 April 2000. The Federal Reserve, the Office of Thrift

Supervision, the Office of the Comptroller of the Currency and the Federal

Deposit Insurance Coiporation have published identical requirements. As

written, the rules will no t apply to credit unions.

When a bank detects an y "suspicious activity," current regulations requirethat the company complete a five-page report that includes the customer's

name, address, Social Security numbe r, driver's license or passport number,

date of birth, and information about the transaction.

The banks are required to telephone law enforcem ent "in situations

involving violations requiring imm ediate attention."

http://www.wired.eom/news/print/0,1294,16749,00.html 12/8/2003



Federal Register/Vol. 64, No. 59/Monday, March 29, 1999/Proposed Rules 14845

explanation that his failure to registerwas neither knowing nor willful.[ F R Doc. 99-7416 Filed 3-26-99; 8:45 am ]

BILLING CODE 6325-01-P

FEDERAL DEPOSITINSURANCE

CORPORATION

12CFRPart326

RIN 3064-AC19

Minimum Security Devices and

Procedures and Bank Secrecy Act

Compliance

A G E N C Y : Federal Deposit Insurance

Corporation.

AC T I O N: Withdrawal of notice of

Proposed Rulemaking.

S UMMA RY : The Federal Deposit

Insurance Corporation (FDIC) published

a Notice of Proposed Rulemaking in the

Federal Registeron December 7, 1998.

The proposed regulation would have

required state nonmember banks to

develop and maintain "Know Your

Customer" programs. The FDIC received

254,394 comments from the public

during the comment period. The

overwhelming majority of the

commenters were strongly opposed to

the adoption of the proposed regulation.

After considering the issues raised by

the comments, and in view of the strong

opposition to the proposed regulation,

the FDIC is withdrawing the Noticeof

Proposed Rulemaking.

D A T E S : Proposed subpart C to part 326is withdrawn on March 29, 1999.

FO R FURTHER INFORMATION CONTA CT:

Carol A. Mesheske, Chief, Special

Activities Section, Division of

Supervision (202) 898-6750, or Karen L.

Main, Counsel, Legal Division (202)

898-8838.

SUPPLEMENTARY INFORMATION:

I. Background

On December 7, 1998, the FDIC

published a proposed amendment to

Part 326 of the FDIC's Rules and

Regulations, "Minimum Security

Devices and Procedures and Bank

Secrecy Act Compliance" (63 FR 67529,Dec. 7, 1998). The proposed amendment

was intended to provide guidance to

state nonmember banks to facilitate and

ensure their compliance with existing

federal reporting and recordkeeping

requirements, such as those found in the

Bank Secrecy Act. It was intended to

help protect the integrity and reputation

of the financial services industry and

assist the government in its efforts to

combat money laundering and other

illegal activities that might be occurring

through financial institutions.The proposed amendment required

each state nonmember bank to develop

a programto determine the identityof

its customers; determine its customers'

sources of funds; determine the normal

and expected transactions of its

customers; monitor account activity for

transactions that are inconsistent with

those normal and expected transactions;

and report any transactions of its

customers tha t are determined to be

suspicious, in accordance with the

FDIC's existing suspicious activity

reporting regulations.The FDIC's proposal was substantially

the same as the regulations proposed by

the Board of Governorsof the Federal

Reserve System, the Office of the

Comptrol ler o f the Currency, and the

Office of Thrift Supervision in

December 1998. The FDIC issued the

proposed amendment pursuant to its

authority under section 8(s)(l) of the

Federal Deposit Insurance Act (FDI Act)

(12 USC 1818(s)(l)), as amended by

section 2596(a)(2) of the Crime Control

Act of 1990 (Pub.L. 101-647), which

requires the FDIC to issue regulations

directing banks under its supervision to

establish and maintain internal

procedures reasonably designed to

ensure and monitor compliance with

the Bank Secrecy Act. The FDIC also

relied on its general rulemaking

authority under section 9(a) of the FDI

Act (12 USC 1819(a)).

II . Comments Received

Du r in g th e comment period, th e FDIC

received 254,394 comments from th epublic. Comments were received fromcommunity banks, multinational or

large regional banks, members ofCongress, trade and industry researchgroups, and regulatory bodies, as well as

th e general public. Only10 5commenters were in favor of theproposed regulation.

T he overwhelming m ajority ofcommenters were individual, privatecitizens who voiced very strongopposition to the proposal as an

invasion of personal privacy. Otherissues raised by these commentersincluded that th e FDIC lacked th e

authority to issue the proposal; the costof an y Know Y o u r Customer program

would be passed on to customers; andthe regulation would be ineffective in

preventing money laundering and otherillicit financial activities.

Banks, bank holding companies andother banking trade groups that

commented on the proposal uniformlyopposed the proposed amendment.

Their concerns included th e following;(1 ) th e regulation would be very costly

to implement, especially for smallbanks; (2) the Know Y o u r Customerprogram would invade customerprivacy; ( 3 ) commercial banks would beunfair ly disadvantaged and losecustomers if all segments of thef inanc ia l services industry are not

covered; (4) compliance with the

regulation would divert resources fromY 2K preparation; (5) the F D I C lacksauthority to adopt th e regulation;(6 )public confidence in the bankingindustry would be harmed by the

regulation; and (7) the regulation is both

unnecessary and redundant, as banksar e already familiar with theircustomers and have adequate

procedures in place.

III. Paperwork Reduction Act

T he FDIC submitted a collection ofinformation associated with the KnowY o u r Customer proposed rulemaking toth e Office of Management an d Budgetfor review. That request

fo rreview

iswithdrawn.

IV . Board Decision

The F D I C has carefully reviewedevery comment received during the 90-

da y comment period. Based upon thatreview, and in light of the

overwhelming objections raised by thepublic, th e F D I C ' s Board of Directorshas decided to withdraw the proposedregulation.

By Order of the Board of Directors.

Dated at Washington, D.C. this 23rd day of

March, 1999.

Federal Deposit Insurance Corporation

Robert E. Feldman,Executive Secretary.

[F R Doc. 99-7583Filed 3-26-99; 8:45 am]

BILLING CODE 6714-01-P

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12CFRPart563

[No. 99-12]

RIN 1550-AB15

Know YourCustomer

A G E N C Y : Office of Thr if t Supervision(OTS) , Treasury.

A C T I O N : Proposed rule; withdrawal.

S U M M A R Y : T he Office of Thr if tSupervision ("OTS") published a Noticeof Proposed Rulemaking in the Federal

Registeron December 7, 1998 that

would have required savingsassociations to develop and maintain

" K n o w Your Customer" programs. The

Board of Governors of the Federal



Order Code RS20185Updated February 28, 2003

CRS Report for CongressReceived through the CR S Web

Privacy Protection forCustomer Financial Information

M. Maureen M urphyLegislative Attorney

American Law Division

Summary

Title V of the Gram m-L each-Bliley Act of 1999 (P.L. 106-102, H.Rept. 106-434)requires financial institutions to provide their customers with notice of their privacypolicies. It prohibits finan cial institutions from sharing non public personally identifiablecustomer information with non-affiliated third parties without giving consumers anopportunity to opt out and prohibits financial institutions from providing accountnumbers to non-affiliated third parties for marketing purposes. It requires financialinstitutions to safeguard the security and confidentiality of customer information.Finally, it delegates rulemaking and enforcem ent authority to the federal banking andsecurity regulators, the Federal Trade Com mission, and state insurance regulators. Thelegislation includes prohibitions on "pretext calling," obtaining financial institutioncustomer inform ation by false pretenses. Legislation is expected to be offered in the

108 th Congress, as was the case in the 107 th Congress, to amend these provisions. Thisreport will be updated on the basis of floor action involving privacy protection forfinancial institution customer information. For further information see CRS ReportsRS21427, Financial Privacy Laws Affecting Sharing o f Cus tomer Information A m o n gAffiliated Insti tutions, an d RL31758, Financial Privacy: A n E cono mic Pe rspective.

Background. With modem technology's ability to gather an d retain d ata, financialservices businesses have increasingly found ways to take advantage of their largereservoirs of customer information. Not only ca n they serve their customers better bytailoring services an d communications to their preferences, bu t they can profit fromsharing that inform ation with others w illing to pay for customer lists or targeted m arketingcompilations.1 While some consumers are pleased with the wider access to informationabout available services that information sharing among financial services providers

offers, others have raised privacy concerns. Individuals are particularly interested in

1 This report addresses financial privacy issues. For more general info rma tion on privacy issuessee: CRS Report RL3067 1, Personal Privacy Protection: The Legislative Re sponse, by HaroldC. Relyea. Also see CRS Issue Brief IB98002, Med ical Records Confidentiality.

Congressional Research S ervice < » The Library of Congress



Order Code RL31730

Report for CongressReceived through the CRS Web

Privacy: Total Information AwarenessPrograms and Related Information Access,

Collection, and Protection Laws

Updated March 21, 2003

Gina Marie StevensLegislative Attorney

American Law Division

Congressional Research Service » t» The Library of Congress



Report to Congress regarding theTerrorism Information Awareness Program

In response to Consolidated Appropriations R esolution, 2003, P ub. L.

No. 108-7, Division M , § lll(b)

Executive Summary

May 20, 2003



10 Rocke fe l l e r Piaai, I 6 t H F l o o r , N ew Y o r k , N Y 10020-1903

Phone 212 .713 .760f t ' Fa x 2 1 2 . 7 f t 5 . % 9 0 www.hiar t ie .or i i

Task Force on

National Security

in the

Information Age

Z O E BAI RD, J AMES B ARK SDAL E

C H A I R M E N

M I C H A E L A . V A T I S

EX ECU TIV E D I R E C T OR

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