The omission is glaring. Western Union, MoneyGram, and dozens of smaller outfits handle $41 billion of international payments a year. The two dominate the business, and maintain well-kept databases of customers and transactions. Controls at the smaller outfits aren't necessarily so tight, investigators say.HOT SOURCE. Although all money transfer shops are required to report transactions over $3,000, they are exempt from a host of money-tracking requirements that banks must follow, and they're not subject to the regulatory equivalent of a Federal Reserve or Office of the Comptroller of the Currency. "No one was looking toward a Western Union as a hot source of money laundering," says H. Rodgin Cohen, CEO of Manhattan law firm Sullivan & Cromwell and an expert on money-laundering issues. "Unfortunately, that's not the case" with terrorism funds, he says. Already, Western Union has been linked to two transactions involving an FBI suspect in the September 11 disaster. A Western Union spokesman said that the company is "cooperating fully" with law enforcement.
A transfer agency's appeal to terrorists is obvious. There's no need to set up a bank account or apply for a credit card. Identification requirements are minimal: In most cases, a photo ID will do. Many agency outlets consist of a computer terminal in a supermarket, check-casher, or drugstore, staffed by the store employees. It takes less than 15 minutes to send money around the world. Most banks take days.
New regulations aren't going to close the loophole anytime soon. Legislation proposed before September 11 requires money-transfer agents to register with the Treasury Dept. by Dec. 31, but they'll have up to nine months to comply with most new regulations. "This is the first effort to get a sense of who they are," says a spokeswoman for the Treasury's Financial Crimes Enforcement Network (FINCEN), which tracks terrorist funds. After regulators imposed similar registration rules on bureaux de change in the Netherlands, a third of them shut down.
For their part, the big shops say they're eager to help. MoneyGram used a list of September 11 terrorist suspects published by CNN to check its customer database even before it was approached by the FBI. Both MoneyGram and Western Union have been filing Suspicious Activity Reports voluntarily since 1996. Transfer shops have uncovered money laundering rings based in Nigeria and Columbia, says FINCEN.
Still, the agencies are not yet being included in closed-door meetings between bankers and regulators. They clearly need to be--and fast. Timmons covers banking from New York.