The al-Barakaat raid: License money-transfer companies

Seattle may now be implicated in the terrorists' web. The headlines over the past week have focused on the raid of various wire-transfer businesses in cities around the nation. Seattle was among the cities targeted.

The federal government has identified a financial network known as "al-Barakaat" with a presence in more than 40 countries. It is described as a network that financed the movement of arms, provided secure communications and transmitted intelligence among cells in the al-Qaida network. According to reports from law enforcement, the principle function of al-Barakaat was to raise funds for al-Qaida.

And what does this have to do with Seattle? One of the branches of al-Barakaat is right here at home. Although the owners of the Barakat Wire Transfer here may not have known it, part of the fees charged for wire transfers may have been "skimmed" and diverted for use by terrorist organizations.

The recent headlines about al-Barakaat and possible terrorist money-laundering operations have highlighted two major issues. First, the absence in Washington of any laws that would license and regulate money-transfer companies such as al-Barakaat makes it easier for such illegal activity to take place. Seattle does not want to be a haven for money laundering.

Second, money transmitters like al-Barakaat provide a vital link between immigrants and their home country. The headlines highlight the important role of such companies in providing financial services to Somalian immigrants in Seattle.

The solution to the money-laundering problem? License these companies at the state level. This will allow businesses to provide a necessary service but will allow regulators to screen out illegal businesses and to act quickly in the event of a problem.

Washington is one of a few states that do not have a state licensing law for money transmitters. These are businesses that wire funds for consumers, often from immigrant communities. These companies are not traditional banks, they do not accept deposits or make loans. They do, however, take money and send it for consumers

As early as 1994, Congress identified money transmitters as possible vehicles for money laundering. At that time, money transmitters were less regulated than banks. Congress called for the U.S. Treasury Department to create new registration and reporting requirements for so-called money-services businesses, including money transmitters.

In 1994, Congress also asked the states to enact uniform licensing laws for money transmitters. In response to this request, the National Conference of Commissioners on Uniform State Laws drafted the Uniform Money Services Act, a model state law that deals with the licensing and regulation of money transmitters, check cashers and currency exchangers.

After Sept. 11, Congress and Treasury are stepping up their efforts to implement federal anti-money-laundering requirements for money transmitters. States, however, have primary responsibility and direct oversight for money transmitters. Thus, Washington's lack of regulation for money transmitters is a glaring hole in the regulatory landscape.

Of course, money transmitters like the Western Unions of the world are longstanding reputable businesses. Al-Barakaat, however, may be a different story.

When a bank is opened, its founders must apply for a license and go through various background checks. Moreover, a banking regulator, either federal or state, has the ability to examine the books and records of the bank as needed.

Since there is no mechanism for screening money transmitters in Washington state, most of these companies are not on the radar screen of the attorney general or the Department of Financial Institutions. If I wanted to open up a wire-transfer service next week and to start accepting money from people, it would be pretty easy for me to do so.

Licensing helps to put money transmitters on the radar screen. It also serves as a deterrent for criminal actors who would have to go through background checks and reveal the source of their funds.

The newspapers have also revealed that Barakat Wire Transfer provided a much-needed service to Seattle's Somali community. This is very true. This community needs to send money home to their relatives in a war-torn country. Western Union has no shop in Somalia.

Why do immigrant communities need to use these special money-transmitter companies? Why not just go to a bank or to Western Union to send money? Some immigrants may have difficulty in opening bank accounts (e.g., in the case of migrant workers). Others may need to send money to countries with less-developed communications networks or banking systems. In Somalia, many people are living in refugee camps. They do not have access to traditional banks and often lack traditional forms of identification. Ethnic money transmitters are a life-saving link between immigrants and their relatives.

The U.S. government and state governments need to work with local immigrant communities to make sure they have continued access to money-transmissions services. We need to encourage other local businesspeople to provide such needed services, or to devise new and novel ways to ensure that the money gets overseas.

We also need to remember that the Somalian immigrants who were patrons of al-Barakaat are innocent. They had no knowledge of the possible illegal use to which their funds may be been used. We should not cast blame upon members of this community.

In order to protect consumers from being unwilling participants in criminal activity, and to protect against money laundering in our own community, we need to enact new legislation quickly.

Anita Ramasastry is an assistant professor of law and the associate director of the Shidler Center for Law, Commerce and Technology at the University of Washington School of Law. She was the lead reporter and academic adviser to the committee that drafted the Uniform Money Services Act.