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Terrorism taxes IT planning


By Patrick Thibodeau and Lucas Mearian

(IDG) -- Antiterrorism legislation recently signed by President George W. Bush appears likely to force financial services firms to invest in new technology and upgrade older systems. The law is designed to make it easier for law enforcers to combat money laundering and track down and freeze terrorists' assets.

The legislation calls for regulations to be drafted within a year that will set standards for customer verification and financial records production. And the government has nine months to develop a secure network to be used by firms to share information with federal authorities.

The financial services component of the antiterror law is primarily aimed at detecting money laundering. Banks that now track deposits of more than $10,000 may be required to examine lesser amounts and pull together records quickly for investigators.

One challenge for banks, said Mark Loewenthal, chief privacy officer at Providian Financial Corp. in San Francisco, will be tracking international deposits, which currently get far less scrutiny than domestic transactions. Bank transaction systems may have to be reprogrammed to collect data when a wire transfer to an offshore account is executed, he said.

"We may have to increase retention of those types of transactions," said Loewenthal. "If we have to track all transactions overseas, that will become even more cumbersome." INFOCENTER
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Until the regulations are drafted, it's impossible to know exactly what will be required of companies. But based on the law's open-ended language, the extent to which systems will need to be upgraded could be substantial, according to analysts, corporate executives and industry groups.

Costly due diligence

"The new law is going to put more emphasis on upfront, know-your-customer, due-diligence activities, and that's got a huge cost," said Breffni McGuire, an analyst at Needham, Mass.-based TowerGroup.

One provision in the law calls for a federally mandated minimum standard for verifying a customer's identity. It might not be enough anymore for a bank employee to take a quick look at a driver's license before opening a customer account. Real-time verification of the license against public records may be required, along with the ability to scan and save copies of customer identity documents. Biometric requirements are also possible.

"Biometrics is a slow-moving train, but a train nonetheless. This may accelerate it," said Peter Browne, former head of information security at Charlotte, N.C.-based First Union Corp., who now is the head of New York-based Predictive Systems Inc.'s security practice.

Regardless, Browne warned that background checks and real-time communications are "going to add cost and time."

The law gives regulators a lot of latitude. But IT managers, such as Richard Snipes, vice president of technical services at Washington Mutual Inc. in Seattle, the nation's ninth-largest bank, can do nothing now but wait for guidance. "The business unit will eventually make a decision on what's needed to meet that obligation," Snipes said.

Companies usually have a much better idea of what to expect from regulators. If not for the current crisis, this law would have likely taken years to pass, not weeks, and it would have been fully vetted at hearings and forums.

Industry support

Despite the uncertainty about the law's ultimate impact, it has won support from trade groups representing financial services firms. Industry groups expect to work closely with regulators, who as part of the rule-making process are required to seek input from companies affected by the law.

"While this is going to add some new regulatory requirements, we are willing to take on those requirements because we share the goal ... of eradicating money laundering," said Lisa McGreevy, director of government and public affairs at The Financial Services Roundtable in Washington. That group represents the top 100 financial services firms.


• Providian Financial
• Predictive Systems
• The Financial Services Roundtable

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