For many people, your typical neighborhood banker is a far cry from the image of the brave and patriotic youth that most people envision when they think of soldiers. But the war on terrorism is unlike any other war, and its soldiers come in many forms.

Whether they like it or not.

The events of Sept. 11, coupled with the terrorist bombings in Madrid and London, have left the world reeling, determined to find newer and better ways to combat terrorism. Title 3 of the U.S Patriot Act and the new zeal with which regulators are reinforcing the Bank Secrecy Act of 1970, are two prime examples of the way the government is turning to financial institutions to help keep the nation safe from money-laundering activities.

In the midst of a global war on terrorism, and in a time of heightened fear and awareness over national security, the U.S. Treasury has begun to load more and more of the responsibility on the bankers and money transmitters, recognizing both the potential risks and the potential aid that financial institutions could pose in these challenging times.

The financial community is feeling the heat. According to Charles Grice, managing director for Kroll, a worldwide risk-consulting company, the often-overlooked victims of Sept. 11 and the Madrid and London bombings are the banks and their customers. Kroll helps financial institutions meet and sometimes exceed the changing regulations established to prevent money laundering and terrorist financing,

"Since 9/11, most financial institutions have been deputized to serve several new objectives — No. 1 being the detecting of possible terrorist financing," Grice said. "Bankers today are just coming to terms with this. This isn't why people became bankers. Now they're not just bankers; they're policemen. Maybe also a soldier in the war on terrorism. Also an INS agent. I don't know anyone who went into banking for this," he said.

Money laundering is the criminal practice of filtering "dirty" money through a maze or series of transactions, so that the funds are "cleaned" to look like proceeds from legal activities. Grice said that the more stringent anti-money-laundering regulations that have surfaced in response to recent terrorist events have hit the financial community particularly hard. Many banks and other types of financial institutions are now scrambling to ensure that they meet the new standards and are in compliance with the regulations set forth by both the Patriot Act and the revised Bank Secrecy Act.

Title 3 of the Patriot Act, also known as the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001, expands the authority of the secretary of the Treasury to regulate the activities of U.S. financial institutions, particularly in relation to foreign individuals and groups.

For example, it expands the types and numbers of businesses required to file Suspicious Activity Reports (SARS). In addition, the act establishes new, minimum customer-identification and record-keeping standards and recommends an effective means to verify the identity of foreign customers. The act also encourages financial institutions and law enforcement agencies to share information concerning suspected money laundering and terrorist activities, and requires financial institutions to maintain comprehensive anti-money-laundering programs.

As a result, any financial institution (such as banks or money-transmitter agencies) that fall under the Patriot Act are now subject to much stricter regulations, tougher penalties and a much more profound sense of responsibility than ever before to be sure they are in compliance with anti-money-laundering regulations.

"The way that we look at financial activity being conducted by businesses changed dramatically after 9/11," said Peter Dijinis, advisory board member for last fall's annual Money Laundering Enforcement Conference, sponsored by the American Bar Association and the American Bankers Association. According to Dijinis, the Patriot Act sets forth three main changes that affect financial institutions.

First, financial regulators are now supervising institutions more closely and more comprehensively to make sure they're in compliance. Second, the rate of civil and criminal enforcement actions against violators has risen dramatically. And, third, the amount of training and programs designed to determine whether businesses are secure, safe and in compliance has also risen dramatically.

"Sept. 11 and the Patriot Act have made it clear that Congress and the Treasury definitely have imposed a large share of the responsibility to prevent and detect money-laundering activity on businesses and financial institutions," Dijinis said.

And this responsibility is hitting a lot of businesses fast and hard. "There obviously is a great deal of concern from businesses now saddled with anti-money-laundering regulatory responsibilities," he said. "To do this job well requires time, new personnel and more resources. It's expensive. In most cases, it's not going to further the core business of the institution. It's not going to help sell cars or get more funds."

The new push toward transparency in business dealings marks a big shift in a field once devoted to privacy. The times of the infamous tax haven of the Cayman Islands and secret bank accounts in Switzerland are becoming past tense, as a post-Sept. 11 world begins to recognize that a firm alliance between the government and financial sectors can be a formidable weapon in the war on terrorism.

After Sept. 11, the Bank Secrecy Act (BSA) of 1970 was also revamped and reinforced to better suit the needs of government. The BSA, a tool used by the feds to fight drug trafficking, money laundering and other crimes, has been amended a number of times to enhance law enforcement effectiveness.

The Money Laundering Control Act of 1986 (MLCA) strengthened the government's ability to fight money laundering by making it a criminal activity. The Money Laundering Suppression Act of 1994 required regulators to develop enhanced examination procedures and increase examiner training to improve the identification of money-laundering schemes in financial institutions.

According to John Byrne, director of the American Bankers Association's Center for Regulatory Compliance, there has been a lot of misinformation about what has actually caused the regulatory burden on the banking community. "It's really not the Patriot Act. All that Title 3 did was put into statute obligations that had already been in place but not formalized," he said.

Byrne said that the now more heavily enforced BSA unleashed a fear and overreaction in the bank community on how they are going to be regulated, and what would happen to their businesses if they were found to not be in compliance. He pointed to the dramatic increase in the number of Suspicious Activity Reports filed as an example. "They begin to file SARs on anything. There was a clear over filing of SARs in an attempt to avoid criticism," he said. "Not because there was more criminal activity — simply more fear."

Regulators have widely reported concern over this new trend, pointing out that financial institutions are wrong to think that the key to avoiding regulatory and criminal scrutiny under the BSA is simply to file more reports.

All national banks are required to develop, administer and maintain an internal BSA compliance program that protects the bank against possible criminal and civil penalties. At a minimum, a bank's program must include the following: A system of internal controls to ensure continuing compliance, independent testing of compliance, daily coordination and monitoring of compliance by a designated person, and training for appropriate personnel.

Byrne said that the effects of these new regulations are far reaching and unexpected. He said that an area of concern for the banking community is that these new regulations seem to be encouraging banks to report immigration problems and file SARs if they suspect their clients to be illegal. In fact, Byrne estimated that about 1,000 of the SARs filed have been based on an individual's legal status.

And it doesn't seem quite right to Byrne that the government should be asking bankers to step into roles that shouldn't concern them. "We don't think it should be our concern to report on someone's legal status. We are not law enforcement. It's not our job to be investigators for law enforcement. The general premise that we ought to be reporting anything that moves is very troublesome," he said.

But he added that with the help of the Financial Crimes Enforcement Network (FinCEN), a new bureau in the Department of the Treasury and the largest collector of financial intelligence in the United States, the banking community is getting some much-needed deference back. "I think that FinCEN has been very clear about the notion that we have to have some sanity back," he said. FinCEN is responsible for collecting, analyzing and disseminating information collected under the Bank Secrecy Act (including the SARs).

Charles Grice, the managing director of Kroll, seemed to think that a rather large dose of sanity arrived in mid-2005 in the form of the first-ever Bank Secrecy Act/Anti-Money Laundering Examination Manual, a crucial step forward in the effort to ensure a more consistent application of the Bank Secrecy Act and other related regulations.

"For the first time, there's just one manual — a master bible — for all financial institutions. The good news is there's finally one consistent message. The bad news is, it's 330 pages long," Grice said.

And Grice could not seem to stress enough the significance of this manual. "The big, difficult, frightening fact is that this is going to change bank behavior more than every law," he said. "Now it's like the SAT has changed. Now everyone has to prepare differently for different subjects."

Grice said that the financial community is experiencing a very nerve-wracking time, filled with anxiety and fear over the new compliance regulations. "This thing has gotten out of control. What was once difficult in January 2001 became more difficult and now dangerous in October 2001," he said. "It's going to get much worse before it gets better."

For the first time, "nonbanks" are also feeling the pressure of complying with anti-money-laundering regulations. And Byrne said that this is something that the banking community has been advocating for a long time.

Under the BSA, certain nonbanking financial institutions were grouped together under the label of "money services businesses," commonly known as MSBs. This includes any businesses such as cashiers that issue, sell or redeem money orders or travelers' checks. Also any financial institution that acts as a money transmitter, check casher or currency exchanger — among other services — falls under the label of MSB.

However, because MSBs are considered to be "high risk" under the new regulations (since many specialize in sending money back to home countries), many banks are starting to close their accounts and turn their backs on these businesses — unwilling to take the risk in a financial environment where the policy of "better safe than sorry" is fast becoming the norm.

Philip Goddard, president of the Money Transmitter Regulators Association (MTRA), an association of state regulators of licensed money transmitters, said that he has been hearing rumors of a conspiracy among some federal regulators encouraging banks not to do business with money transmitters because of the serious risks of liability — the fear being that banks would do business with someone who later was determined to be laundering money or tied to terrorist financing.

"I think it's a concern for state regulators that banks refuse to have as customers people whom we as state regulators have seen fit to license," Goddard said. "To think that an honest business person who is running a money-transmitter service gets put out of business because they can't find a bank that will maintain their account is an unfair situation — something just doesn't seem right."

However, Goddard admitted that the fear was understandable on the part of the banking community — albeit unfounded since money transmitters are already subject to stringent licensing requirements by state regulators. "Banks can be forced to pay a penalty for doing business with the wrong people," he said. "We must maintain a balance of interest between the people that they're regulating and the people they're trying to protect."

Christopher Redmond, ABA liaison to the United Nations Commission on International Trade Law (UNCITRAL), the core legal body of the United Nations in the field of international trade law, and chair of the subcommittee on International Organizations in the ABA Section of Business Law, said that there is a pressing need for the world to present a united front against money-laundering and terrorist-financing crimes.

"One of the issues with anti-money-laundering regulations is that in order for them to be effective, there has to be a coordinated effort among countries around the world," Redmond said. "One country by itself, no matter how strong or influential it is, cannot succeed without help from other countries."

And there lies the crux. In spite of some notable advances, the lack of a uniform and comprehensive guideline when it comes to combating and regulating money laundering is a glaring reminder that there is still work to be done. "We are trying to identify areas of the world where there is no such structure and place pressure on those entities to join the world community and implement these kinds of procedures," he said.

Currently, the only real international guideline for combating the twin evils of money laundering and terrorist financing is the Financial Action Task Force (FATF) Forty Recommendations, a comprehensive framework that sets minimum standards for action for countries to implement according to their own particular circumstances and constitutions. The FATF is an inter-governmental body that sets standards as well as developing and promoting policies to combat money laundering and terrorist financing.

The original FATF Forty Recommendations were drawn up in 1990 as an initiative to fight money laundering by drug traffickers, but were expanded in October 2001 — after Sept. 11 — to deal with concerns of financing terrorism.

Dale Perez, general counsel with the Russell Investment Group Corporate Compliance Department, said that ensuring that they are in compliance with the BSA and Patriot Act has been a challenge in light of the multinational and multi-jurisdictional reach of the company. Perez said that one of the main challenges they face is working with foreign jurisdictions whose underlying bank secrecy laws differ from the United States (which has one of the toughest anti-money-laundering regulations in the world).

He gave the example of Australia, whose banking regulations are fairly strict but don't require security firms to conduct customer identification programs. "They have no duty or law that requires them to identify whom their customers are. It potentially places Russell at a commercial disadvantage if we require our Australian clients to abide by our American protocols," Perez said.

He said that the huge disconnect that continues to exist between nations in regard to laws requiring the monitoring or identification of customers is proving to be a major concern for his company. "We have not had any questions answered, nor received any clear legal guidance. We're trying to get our hands around this," he said. "We have some comfort in knowing that our base money-laundering regulations are sound — but we want to make sure that we're also in compliance with our foreign jurisdiction's regulations as well."

And to businesses, ensuring that they are in compliance with money-laundering regulations does not come cheap. "This is costing a substantial amount of money to comply. Any business is going to look at the bottom line," Perez said.

However, he added that many businesses now feel a heightened sense of duty to make sure that they have reasonable systems in place to be able to detect any money-laundering activities. "There's a real world risk if an industry is used as a conduit to launder money for terrorist activities or narcotics trafficking."

For Charles Johnston, of Caldwell & Berkowitz PC, banks have long had to subscribe to anti-money-laundering regulations. "Banks are not very hard hit by this. Their ability to show that they're exercising due diligence is not a stretch for them," Johnston said.

But even though it might not be too significant of a transition for Baker Donelson and similar firms, he agreed that there is a downside to these regulations from a business angle. "When you look at it from a business perspective — it's intrusive for a company trying to do business to sit there and say: 'before we sell you these products, we're going to have to ask the following questions.' That's not something that a customer is commonly asked," he said.

Johnston said that prospective clients will weigh these types of burdens when choosing whether to do business with a U.S. company. "It's making it so hard for Americans to do business internationally," he said.

But he added that there was hope. "The buzz word, the mantra, for business is predictability. Businesses will figure out how to live within a regulated environment as long as they understand what the rules are and as long as other people are also subject to these rules — then they can compete," he said.

It is clear that these new regulations are placing a heavy burden on the financial sector, not only hitting their pockets but also drawing bankers and other financial officers into roles they never bargained for. Whereas one might expect the quiet frustration to rise into a loud cry of objection from the financial community, Johnston doesn't see that kind of backlash happening anytime soon.

And with a few words, he sums up the why: "Obviously, we're in the midst of this war on terrorism. A lot of people who would otherwise object are buying into it philosophically," he said.

Charles Grice, of Kroll, agreed that it was crucial to see these regulations within the context of the times. He said the trend toward increasingly serious penalties and stronger enforcement only seems to be gathering momentum. He added that it was amazing to him that no one has made the argument of "enough is enough" yet.

"I can't imagine what will slow this down soon. Every terrorist bombing delays the arrival of this speech," Grice said. "In these times, who wants to give the speech in favor of less compliance?"