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TERRORISM AND BANKING SECURITY.
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Examines potential changes in banking practices.... More...
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Paper Abstract:
Examines potential changes in banking practices. Security-related changes caused by the current climate of terrorism. Discusses issues such as privacy and data pooling, and causes such as globalization and electronic data networks. Defines terrorism, and threats posed to security. Its effects on practice of banking; offshore banking; money laundering; virtual banking.
Paper Introduction:
TERRORISM AND BANKING SECURITY
Introduction
This research examines probable impacts on banking practices of security-related changes induced by the current climate of terrorism. One might believe that terrorism-related impacts would be limited to inconveniences brought about by the need for enhanced security. Some impacts may be little more than aggravations. Other impacts, however, will be far more fundamental for people accustomed to living in a free and open society (Donohue, 2001). These impacts also will affect the practice of banking in the United States (Berlau, 2001). This study examines the probable effects of terrorism on banking in relation to specific issues (e.g., privacy, data pooling, and so forth) and specific aggravating causes (e.g., globalization in banking, electron
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Technology is facilitating the globalization of financial services.Computer technology was introduced into the financial markets initially toperform number crunching activities associated primarily with recording andreporting market operations. Attacks on United Statescitizens and property until relatively recently have occurred abroad. Reich, W. What has not changed are(1) the motives for terror-to gain power or control, and (2) the effects onthe human mind of the fear induced by terror. Theuse of hijacked airliners to destroy the World Trade Center Twin Towers andto severely damage the Pentagon demonstrated how deadly effective terrorismcan be. Regulators rethinking how to enforcelaundering laws. References Beckett, P. Digital interactive television (DITV) is a new addition to theelectronic tools available to banking. Virtual banks promote the convenience of interacting with the bank forfinancial services from a wide variety of settings that simply cannot beprovided by traditional banks. These impacts also will affect the practice of banking in theUnited States. (2 1, November 19). Linkingterrorism to money laundering will intensify such difficulties for Americanbanks ("Shut Down the Launderers? Mackintosh, J. The introduction of new technology is one of themeans by which productivity may be increased. Big banks, U.S. Transparency of banking operations and data sharing (both amongbanking competitors and between banks and government) are new imperativeswith which American banks must come to terms. New technology tends tolower production costs and increase profitability over the long-term, andis, thus, indispensable in the context of growth. (2 1, October 24). Someimpacts may be little more than aggravations. The interface between thebank and customers, as an example, ceases to be brick and mortar andbecomes instead a computer monitor, an e-link cellular telephone, or asmart card (Coates & Bonorris, 1998). Harvard, Massachusetts: John F. BCSIA Discussion Paper 2 - 5EDSP Discussion Paper 2 - 1. The use of offshore banking for this purpose isgenerally associated with money laundering. The efforts by Americanenforcement officials to trace monies through foreign banks often involveattempts to cause United States law to supersede the laws of otherindependent countries. TheWorld Trade Center bombing and possibly the explosion of TWA Flight 8 demonstrated that foreign terrorists can strike at targets within theUnited States. Young, K. Greider, W. These impacts also will affect the practice ofbanking in the United States (Berlau, 2 1). Many American banks have improved their physical security. American banks, however, have used thesharing of information with subsidiaries and partners in strategies togenerate revenues and profits. Offshore banking isthe term applied to the conduct of commercial banking business in a countryother than the home country of the individual or organization conductingthe business. Enforcement, to a greatextent, relies on the compliance of banking institutions with the federalcurrency transactions reporting laws. One of the first important effects terrorism will have on the practiceof banking will be in relation to offshore banking. Television is more pervasive thancomputers and, for the average consumer who is an Internet novice, mucheasier to use than computers (Young, 1999). On a general level, as an example, up until a few yearsago millions of people around the world lived in fear of nuclear war. (2 1, August). (1995). Globalization of business activity has been closely followed by anincreasing globalization of financial markets. Globalization and computerization cause banking to be more vulnerableto terrorist attacks that was true just a few years ago. Further, virtual banks emphasize that "one-stop banking" is more than a slogan with them. For thesepotentials to become a widespread reality in the United States in the earlyyears of the twenty-first century, significant improvements in bankingelectronic security must occur. The virtual corporation is an organization that has havea continually changing interface within the firm and externally in relationto suppliers and customers. This formof banking is in its infancy in the United States. Within the context of geography, the virtual bank is limited only bythe reach of a telecommunications satellite. Simultaneously, American banks resistsharing information with government agencies in the absence of court ordersand resist sharing information with competitors even under the threat ofcourt orders. Offshore banking isthe term applied to the conduct of commercial banking business in a countryother than the home country of the individual or organization conductingthe business. Other impacts, however, willbe far more fundamental for people accustomed to living in a free and opensociety. Essentially, money laundering is aprocess whereby the source of funds may be concealed, while, at the sametime, making the funds freely available for use. (Ed.). Morais, R. Subsequent to 11 September2 1, however, offshore banking also has been associated with the transferof funds by terrorist networks (Eichenwald & Kahn, 2 1). The process of money laundering, when conducted on a large scale,inevitably involves the use of banking institutions located outside of thejurisdiction of the United States. Some researchers have claimed that inter-organizational informationtechnology (IT) systems using EDI create vertical information integrationbetween trading partners along the value chain. The newanti-terrorism laws and policies are changing this situation for Americanbanks (Garver, 2 1). There is nothing mysterious about either the conduct of suchbusiness, nor about the reasons for making use of offshore banking.Offshore banking often facilitates international operations. The process of money laundering is, in and of itself, an illegalactivity. In the ancient world, terror was the basis of tyranny. The new terrorism: Fanaticism and the arms of massdestruction. The increasingglobalization of business activities by American companies has increasedthe requirements of these firms for the availability of a wide variety offinancial services in an equally wide variety of geographical locationsaround the world. No way. (2 1, October 15). The problem in the contemporary period is that all of theseinnovations are susceptible to terrorist interdiction. In these instances, theillegally acquired funds are made to appear as if they were acquiredthrough legitimate activities, so that they may be freely used (Jacobson,2 1). London: Oxford University Press. These two factorstend to drive virtual organizations. European giants wake up to theInternet message: Electronic banking overview. U.S. Datacommunication networks are essential to the success of the application ofEDI technology. (1998, August). American banks must review their roles as correspondentbanks in the way of an environment defined increasingly by terrorism. In the United States, globalization, together with theconsolidate industry that arose with the relaxation on interstate banklaws, has created monolithic banking institutions that make enticingtargets for terrorists. Nation,273(15), 22-25. Where once upon a time a terrorist network mighthave had to attack 1 banks to severely damage the banking system, apresent day terrorist can attain the same outcome by crippling thetelecommunications and data networks of a single mega bank (Greider, 2 1). (2 1, October 2 ). The act of moneylaundering, a crime in itself in the United States, makes the control ofsome other forms of criminal activity more difficult (Jacobson, 2 1). Next, is the problem involving the banks and the bankers. (2 1, November 26). Forbes,8 . Examples are the Nazis in Germany in the193 s and 194 s, the Soviets throughout the reign of Joseph Stalin, andcountless smalltime dictators in countries around the world. Digital money: Electroniccash may make sense. While major Europeanbanks are beginning to enter the mobile Internet banking market, Internetbanking start-ups, such as Egg (a Prudential company) in the UK and the on-line German broker, Consors, have a head start (Mackintosh, 2 ). For the banks,enormous profits are also available through the handling of these monies;additionally, liquidity problems may also be eased by handling thesemonies. Major new expenditures will berequired to upgrade security in these areas. The same set-top box that will allow consumers toobtain banking services will allow them to use the Internet generally, sendand receive e-mail, and watch television programs. Garver, R. Increased transparency could either end orcurtail the lucrative private banking business in the United States. Banker, 149, 134-135. Globalization of banking and finance,however, has created vast communications networks that are vulnerable toterrorist attack. Over time,many political leaders have adopted terror as one of the tools used tomaintain power (Crenshaw, 1995). On the other hand, thepenalties provided for in the banking statutes for the conduct of moneylaundering activities are seen by many as being insufficient deterrents toeither banks or bankers tempted to participate in such activities. These commissions can easily equal or exceedthe annual legitimate incomes of individual bankers. The term "virtual," when used in conjunction with such concepts ascorporation or banking, means different things to different people andmeans different things depending upon the context of the use of the term.Generally, the virtual corporation is based on the concept of the virtualproduct or virtual service that is produced instantly in response tocustomer demand. "Money laundering" is a term which has entered the publicconsciousness relatively recently. American banks frequently experienced difficultiesas correspondent banks in relation to money laundering activities. American Banker, 167(2 4), 4-5. Offshore Banking One of the first important effects terrorism will have on the practiceof banking will be in relation to offshore banking. Private banking: R.I.P. Modern international terrorism threatens many targets-United Statesmilitary installations, executives of American multinational corporations,aircraft, and embassies and embassy staffs. Over time,the causes of terror have changed (Laquer, 1999). Shut down the launderers? In contemporary society, terror may be induced by the fear of attackby a serial killer, the fear of random shooting by gang members, the fearof the bombing of an airliner by a political group, the fear of a clinicbombing by an anti-abortion group in the United States, or a fear of stateterrorism, such as the indiscriminate bombing of villages by armed forcesstriking the people they can see, whether or not those persons areresponsible for the action which harmed the bombing country. Majornew expenditures will be required to upgrade security in these areas. K. Anti-tax group feeling touchy.National Journal, 33(4 ), 31 4. EDI has raised concerns in the United States among consumers becauseof perceived violations of privacy. Berlau, J. (2 1, October 6). Nevertheless, in the wake of the 11 September attacks on theUnited States, all American bankers must take a hard line against moneylaundering and other suspicious funds transfers. Donohue, K. When a banking institution or one ofits trusted employees is involved in a money laundering scheme ortransaction, the scheme or transaction may escape governmental notice for along period of time (Jacobson, 2 1). KennedySchool of Government, Harvard University. Origins of terror. The DITV banking services will include (1) the ability to view bankstatements, (2) transfer funds between accounts, (3) pay bills, (4) obtainquotes and approval decisions for personal loans, and (5) purchaseinsurance products. Someimpacts may be little more than aggravations. Terrorism and Banking Security Introduction This research examines probable impacts on banking practices ofsecurity-related changes induced by the current climate of terrorism. While these traditional banks maintain theirbrick and mortar approach to the delivery of financial services, they aresimultaneously actively seeking to serve customers who prefer theconvenience of virtual banking. These initial applications were valuable, andcontinue to be valuable. (2 1, November 12). Civil liberties, terrorism, and liberaldemocracy: Lessons from the United Kingdom. The introduction ofcomputer technology into the financial markets has facilitated a moreproductive utilization of available human capital. Both customer privacy andthe private banking business could become casualties of the War onTerrorism. C. New York Times, B1. Thisfear was not generated by a specific threat. Thevirtual character of the virtual corporation typically is supported by aninformation network that gathers data on markets, customer needs, thelatest product designs, and contemporary production methods, among otherthings. The reliance of banks oncomputers and data networks is not likely to end. The globalizationof banking and finance is not likely to end. Anti-terrorism legislation in the United States, however,will pressure American banks to share data as a means of identifyingpotential terrorists (Beckett, 2 1). In contemporary society, fear caused by terror ranges from the generalto the specific. Otherwiseinnocent banks in the United States interact in offshore banking activitiesas correspondent banks. Terrorism: Setting the Stage Terror is a specific belief that some evil event or action is going tooccur. (1998). Offshore banking, however, also provides an environment in which somebanking activities may escape the regulatory authority of nationalgovernments. The countries most often involved arethose which maintain strict, legislated banking secrecy, such as theBahamas, the Cayman Islands, and Switzerland. (1999). After 11September 2 1, almost anything reported by the mass media, credible ornot, appears to be capable of inducing mass fear. weigh pooling data onterror: Talks reflect major effort to uncover exploiters of the financialsystem. Rather, it was generated bythe existence of nuclear weapons, the knowledge of the effects of suchweapons, and a lack of confidence in the possessors of such weapons of adetermination not to use them. Two important advantages ofthe virtual bank concept are focus and specialization. Banks and suspicion: government-required surveillance provisions in the newly passed antiterrorism billscould force banks to rob their customers of both financial privacy andconvenience. By improving the accuracyand timeliness of information exchanged over manual methods, EDI isbelieved to significantly change how banking organizations conduct businesswith their associates and customers. Onemight believe that terrorism-related impacts would be limited toinconveniences brought about by the need for enhanced security. Some managerial decisions related to the use of EDI alsowill involve the practice of outsourcing. As mankind became more sophisticated,some individuals, groups, and nations learned that terror could be inducedin society through the manipulation of events and expectations (Crenshaw,1995). The enforcement of laws concerning money laundering, however, isdifficult for a number of legitimate reasons. Coates, V., & Bonorris, S. The contention is thatInternet banking is more economically efficient than is traditionalbanking. Futurist, 32, 4-9. What will end, however,is the simplistic approach to the security of electronic networks and datastorage facilities at American banks. Insight on the News, 17(43), 12-14. Summary and Conclusion This research examines probable impacts on banking practices ofsecurity-related changes induced by the current climate of terrorism. (Ed.). Interactive TV heralds age of greaterchoice. Business Week(3753), 95. Other impacts, however, willbe far more fundamental for people accustomed to living in a free and opensociety (Donohue, 2 1). In this context, offshore banking activities may frustrateboth national and international economic planning and goal attainment.Offshore banking, in some instances, also facilitates abuses of theinternational commercial banking systems. (2 , April 5). In thecontemporary period, however, electronic security is more important thanphysical security in banking. Jacobson, L. Within the virtual corporation, traditionaloffices, departments, and operating divisions will be continually reformingto meet the demands of a continually changing external environment. In the distant past, terror was associated with visitations fromsome all-powerful god, who controlled life and death in an almostindiscriminate manner (Reich, 1998). An increasing number of traditional banks are adopting elements of thevirtual banking concept. Major improvements insecurity are required if this form of banking is to continue to grow(Eichenwald & Kahn (2 1). Both foreign and domestic terrorists posea potential threat to the security of airports in the United States. SomeAmerican banks are ready to provide such services. Washington, D.C.: WoodrowWilson Center Press. EDI lowerssubstantially the cost and time associated with the transfer of informationbetween different functional elements within a banking organization, aswell as between an organization and outside associates and customers. Although the money laundering process may be (and is) used to concealthe sources of funds acquired through either legal or illegal means, theprocess is most often associated in the public mind with funds acquiredthrough the conduct of illegal activities. Mobile retail banking via the Internet is among the latest innovationsin electronic banking being introduced in Europe. Crenshaw, M. Onemight believe that terrorism-related impacts would be limited toinconveniences brought about by the need for enhanced security. Along with data sharing, Americanbanks are facing increased pressure to make all of their activitiestransparent (Morais, 2 1). Thereliance of banks on computers and data networks is not likely to end.What will end, however, is the simplistic approach to the security ofelectronic networks and data storage facilities at American banks. These corporate demands have placed American banks in aposition wherein they must be able to provide financial services on aglobal scale or lose valuable customers. Electronic Data Interchange A major innovation in electronic banking at the beginning of the 199 swas the introduction of electronic data interchange (EDI). Bankingofficers are able to earn "commissions" for handling monies acquiredthrough illegal activities. On a specific level, the residents of anIsraeli kibbutz can be sure that Palestinian terrorists will strike at somekibbutz in the country at some time, and residents of drug-infestedneighborhoods in Los Angeles can be sure that unprovoked violence willstrike one of those neighborhoods on a relatively regular basis. (2 1, November 12). No Way," 2 1. Eichenwald, K., & Kahn, J. The globalization of banking and finance is not likely to end. The Oklahoma City Federal Building bombing and the bombingat Olympic Park in Atlanta illustrated the work of domestic terrorists inthe contemporary United States. Laquer, W. (1999, October). Virtual Banking Virtual banking (or electronic banking, or Internet banking) is highlysusceptible to electronic or digital interdiction by terrorists. At times, itmay provide access to lower cost money than would otherwise be available. Innovations in banking related to the Internet and technologicaladvances in telecommunications are threatened by concerns over terrorism.For these innovations to survive, digital security must improve. Should Internet banking prove to beprofitable for these traditional banks who are testing the waters, theexisting virtual banks will find that they will be required to continuetheir evolution to remain competitive. State College,Pennsylvania: Penn State University Press. seeking a strongerrole for banks on terrorists' cash. This study examines theprobable effects of terrorism on banking in relation to specific issues(e.g., privacy, data pooling, and so forth) and specific aggravating causes(e.g., globalization in banking, electronic data networks, and so forth). Pro patria, pro mundus-It's time toask self-styled "borderless" corporations: Which side are you on? Financial Times, 7. Wall Street Journal, A2. Terrorism in context. Computer technology,is, in effect, assisting the financial markets to eliminate limits togrowth. It provides an environment inwhich the amount, source, ownership, and location of funds may be shieldedfrom official scrutiny. When the term "virtual" is applied to the concept of banking, theconcept of the virtual corporation tends to assume an extended meaning.All of the above factors describing the virtual corporation apply, however,additional implications also are applicable. Enforcement of laws concerning money laundering is made difficult bythe ways in which American banking statutes are written. Consistent withthe constitutional protection of legitimate civil liberties in the UnitedStates, American banking statutes often aid and abet the money launderers,by making it difficult for enforcement officers to gain access to recordswhich would indicate that a money laundering transaction might haveoccurred, and who might have been involved. Globalization One person or another finds a way to blame globalization for everyundesirable action that occurs. All that consumerswill require to access these services are (1) the set-top box, (2) atelephone, a television set, and either a cable or satellite connection(Young, 1999).
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