1

Jeremy Norvell
CST300 Writing Lab
June 3rd, 2024

Transaction Monitoring and Privacy

Issue

Over the course of American history our nation came to embrace many of the changes

that arose across the industrialized world. Notable in these changes have been the

implementation of unified financial standards such as a move to a central currency and federal

backing and standards for the banking systems. While these changes were ostensibly made to

improve consumer confidence and avoid the loss of assets during times of recession, they also

had the effect of comingling criminal financial activity along with everyday consumer

transactions. From the revolutionary era to the roaring twenties, criminal financial activities were

regularly given less focus than violent crime. This can be expected as in financial crime there is

often no direct loss to any party. Unlike fraud or theft, money is not taken from a victim. Instead,

criminals use the financial system to transfer, conceal, and store money accumulated through

criminal activity.

Following the successful prosecution of prohibition-era criminals using financial records,

our lawmakers have developed further legal tools to assist state and federal investigators in

identifying crime and prosecuting the offenders. This has been an area of periodic growth, with

new acts and packages of laws offered every few decades to respond to emerging and changing

criminal activities (FinCEN). Enumerating the specifics of each law would be quite protracted;

however, they can be generalized as providing a series of regulations which govern several

specific aspects of banking. First, banking cannot be anonymous; all transactions must be tied to

one or more individuals who conduct or benefit from the transaction. Second, significant

movements of funds are specifically communicated from the financial institution to the federal
 2

government. This includes both deposits and withdrawals, regardless of the type of transaction.

Lastly, the bank must institute a credible program to identify money laundering and report it to

the federal government for further investigation. The process and algorithms which drive this

identification program are commonly referred to as transaction monitoring within the industry.

Following ongoing analysis of resulting cases, modern experts consider money

laundering as having three primary stages (Financial Crime Academy, 2024). The first of these

stages is known as placement. Placement represents the introduction of criminal proceeds into

the financial system. There is no strict definition as to how this must occur, and new forms of

introducing funds continue to be pioneered by creative money launderers to this day. Modern

money launderers often obscure the introduction of funds by splitting large deposits over

multiple days, accounts, or institutions, using cash to purchase a cashier’s check or money order

payable to a third party, or merging these criminal proceeds with legitimate funds from any cash

intensive businesses. The second stage of money laundering is termed as layering. Layering is an

act of transferring or otherwise moving funds to obfuscate their source following placement. The

movement of funds often crosses financial institutions, transaction types, and even currencies.

Continuing our examples above, many small deposits across seemingly unrelated accounts can

each be transferred to a single party over a series of transactions. Alternatively, cryptocurrencies

or securities can be purchased and transferred to a new holding party. Each of these activities can

be done multiple times, with varying transaction amounts to further disassociate each transaction

from its predecessor. The final stage is called integration, and it represents the purchase of

valuable goods that appear legitimate. Once integrated, funds appear to be lawful and are no

longer easily connected to their criminal origin. At this stage, a money launderer will use funds
 3

to purchase homes, vehicles, art, or other items of real value and be able to interact within the

established financial system with seemingly genuine funds.

Banks cannot receive a charter to operate in the United States without completion of

annual compliance exams focusing on these laws. Since the investigators at the bank are not law

enforcement, they are not required to establish probable cause or solicit a search warrant before

analyzing financial records. Furthermore, once the financial institution supplies any report to the

Financial Crimes Enforcement Network (FinCEN), the information becomes owned by FinCEN.

Rules governing who can access these reports are defined by legislation and generally give law

enforcement broad access to learn more about any observed financial activity. If a further

investigation is launched, established legal practices such as subpoenas for the investigator or

additional banking records govern the next steps.

Stakeholder Analysis

Stakeholder 1: United States Government and Law Enforcement

Values: The current arrangement has been legislated by the United States government

with input from both federal and state law enforcement agencies. These are a mixture of elected

officials and professionals who value order and structure for the citizens of the United States. As

these groups observe and react to criminal activity, they work together design and suggest

changes to these laws to maintain the existing institutions of the United States.

Position: Elected officials have been selected by citizens to bring order and make the

country safe. Following the terrorist attacks of September 11th, 2001, the United States Congress

established the 9-11 commission to investigate and recommend policy changes that could

prevent future attacks. The 9-11 commission concluded that for the security of the institutions

and citizens of the United States to persist, we must evolve and adapt to identify criminal activity
 4

with every opportunity. The commission determined that placement of funding into the U.S.

financial institutions played a significant part in the planning leading up to the attacks, but the

existing tools for detecting financial crimes were inadequate to detect this activity (9-11

Commission, 2004). As a result, a series of new regulations were made part of the USA

PATRIOT act and made law shortly after. Their investigation hints that if these tools were

available before the attacks, they could have been prevented.

Claim: This premise is offered as a claim of cause; if each of us are willing to share

innocuous information with trusted officials, our institutions will use this information to protect

our society from criminal activity. Furthermore, incremental changes to our existing regulations

are rooted in claims of policy. We have had an established set of anti-money laundering

regulations for decades. Each incremental change simply builds on those policies rather than

requiring a new public discussion. Additional enhancements are seen as honoring the original

intention of the existing policy.

We must act and become part of the solution, these protections extend beyond terrorism

and improve the overall confidence in our financial system (U.S. Department of State). Together,

we can make crime unprofitable and reduce organized crime, political corruption, and

trafficking. Furthermore, by reducing the presence of illegal funds in our financial system we

reduce the international influence of countries without such controls.

Stakeholder 2: Citizens Concerned with Privacy

Values: American citizens have been granted privacy as a Constitutional right by the

founding fathers of our country. The right to privacy and the protections granted by the fourth

amendment ensure that we are not subject to unreasonable search and seizure (United States,

1789). Across our nation, American children are taught the values our country was founded on.
 5

Privacy been a core American value since the revolutionary era and the danger of government

overreach is frequently discussed as a motivating factor for the earliest United States leaders.

Position: Concerned Americans object to the current regulations. Our laws have grown to

a point of dissonance with the fourth amendment. Our government has utilized private industry

to effectively search indiscriminately and gather vast quantities of information on private

citizens. Furthermore, this activity does not make any effort to honor the distinction of

reasonable and unreasonable searches under law that has previously been differentiated by

judicial grant of a subpoena or warrant. Instead, all financial activity of every citizen is

continually subject to review.

Claim: These concerns arise based on a claim of value. American citizens have been

taught the value of privacy from a young age. Our forefathers enshrined privacy into our laws to

protect citizens from the political and religious persecution they saw in their era. These values

are still relevant today and we must protect them for future generations.

Argument Question

Does current transaction monitoring offer a fair tradeoff of privacy for security?

Arguments

Stakeholders in favor: U.S. Government along with federal and local law enforcement

Our current laws have evolved in response to a changing criminal behavior and threats to

our way of life. These laws were written by elected officials who considered the overall public

sentiment at the time of writing. Our legislative process descends from a utilitarian framework

which considers how to achieve the greatest benefit to its citizens.

The concept of defining ethics using the utilitarian framework arose in England during

the industrial revolution and is attributed to the writings of Jeremy Bentham (Markkula Center
 6

for Applied Ethics, 2014). The core calculation can be distilled down to providing the greatest

benefit to the most people. This concept has been widely accepted and enhanced in the ensuing

years as others find ways to measure and quantify the good and harm weighed in each decision,

particularly when these measures can be more abstract.

Through the process of election, our citizens choose their elected officials. While these

officials are in office, citizens can communicate their priorities and values through both verbal

and written communication. This process gives our lawmakers an understanding of the most

common concerns across their entire constituency. This information informs their law making

and is inherently utilitarian: each lawmaker represents the most common desires of their voters,

and all lawmakers collaborate to reach consensus on the optimal way to benefit their citizens.

Thus, the laws that exist today reflect the will of the people at the time of writing.

The current slate of laws arose as lawmakers listened to the concerns of the people and

are firmly part of the law-and-order structure of the country. Without this framework, law

enforcement would be deprived of needed tools to identify criminal activity in its planning

stages. Voters have been horrified by high-profile crimes over the years and these tools offer a

simple way to identify and prevent crimes, often before they occur. The current laws reflect the

desires of the people to maintain security and must remain potent enough to achieve these ends.

Stakeholders opposing: United Staes Citizens concerned with privacy

Privacy is a core tenet that our country was founded on. While we all desire security and

safety, to give up our privacy in pursuit of it would contradict our cultural values. As such these

objections to this are rooted in ethical relativism.

Ethical relativism as a concept was first recognized by Herodotus in ancient Greece and

its theory has been refined by a host of other philosophers over recent centuries (Rachels, 2023).
 7

Ethical relativism holds that there are few or no absolutes in when defining ethics. Instead, our

society decides what is acceptable and what is not, with social acceptance forming the basis of

ethics. Under this framework, what is ethically correct in one culture may not be in another.

From its inception America has been defined as a nation of individuals who all possess

equal rights. This principle of equality led to the enshrinement of a series of concepts to protect

the rights of each citizen. This differs from many countries that existed throughout history in

which a monarch or ruling class was given greater power and rights than common citizens. By

first granting equality and later explicitly defining the freedom from unreasonable search and

seizure our nation has framed its ethics quite clearly: our government and its formal institutions

are not to treat its citizenry as subjects. Instead, we must be afforded every protection described

in our Constitution. By requiring banks to monitor financial activity and report it to the federal

government, the current law sidesteps the reasonability clause of the constitution and treats all

citizens as potential criminals.

By overturning this law in its current state, Americans regain the freedom that our

forefathers built this country on. The current law is at odds with our constitution and we the

people of this country deserve the protections our fourth amendment grants us. Specifically, that

any search or intrusion of privacy must be premised on a reasonable cause. Only when this is

honored are the people of our country protected from potential persecution under the values our

country has defined.

Student Position

Transaction monitoring in its current state violates both the spirit and the letter of the

fourth amendment. The enhancement of anti-money laundering laws that were passed as part of

the USA PATRIOT act is too broad to be congruous with American values. The fourth
 8

amendment establishes protection from search and seizure except in cases of reasonable

suspicion. Our courts have previously required law enforcement to obtain judicial consent as a

manner of ensuring that a third party has a chance to scrutinize the search and determine if it is

reasonable. Under current legislation, this process has been bypassed by requiring financial

institutions to monitor all activity and determine what is reasonable and unreasonable in federal

reporting. This cannot be reasonably seen as anything other than an attempt to circumvent the

amendment.

Both parties in this argument provide reasonable points. Americans collectively requested

protection and security following the events of September 11th, 2001, and the resulting laws

asked citizens to trade a small amount of privacy to achieve such goals (Pasley, 2002). However,

in the years that have passed since those events, these laws are seen as infringing on fourth

amendment rights. Without adhering to the values our country was founded on we risk losing out

on the core values our forefathers intended and ultimately altering our ethical relativism.

Americans should ask what rights they will be asked to sacrifice when further tragedy occurs.

I believe that both utilitarianism and relativism can guide us to a compromise that honors

the concerns of all stakeholders. Legislation should be passed which is transparent and clearly

defines what constitutes a reasonable search. Such searches should be performed consistently

with as much automation as possible. When manual action is required, it should be performed

within a defined scope of actions that courts, legislators, and the people have approved. We must

cherish our constitutional rights as part of our cultural identity and craft laws that work in concert

with them rather than attempting to circumvent them.

References
 9

9-11 Commission. (2004, August 21). Monograph on terrorist financing. National Commision

on Terrorist Attacks. https://9-11commission.gov/staff_statements/911_TerrFin_Ch1.pdf

Financial Crime Academy. (2024, March 11). The three stages of money laundering and how

money laundering works. Financial Crime Academy.

https://financialcrimeacademy.org/the-three-stages-of-money-laundering/

FinCEN. (n.d.). History of anti-money laundering laws. Financial Crimes Enforcement Network.

https://www.fincen.gov/history-anti-money-laundering-laws

Markkula Center for Applied Ethics. (2014, August 1). Calculating consequences: the utilitarian

approach to ethics. Markkula Center for Applied Ethics.

https://www.scu.edu/ethics/ethics-resources/ethical-decision-making/calculating-

consequences-the-utilitarian-approach/

Pasley, R. S. (2002). Privacy rights v. anti-money laundering enforcement. UNC School of Law.

https://scholarship.law.unc.edu/cgi/viewcontent.cgi?

referer=&httpsredir=1&article=1156&context=ncbi

Rachels, J. (2023, June 8). Ethical relativism. Britannica.

https://www.britannica.com/topic/ethical-relativism

U.S. Department of State. (n.d.). Anti-money laundering and countering the financing of

terrorism . U.S. Department of State. https://www.state.gov/anti-money-laundering-and-

countering-the-financing-of-terrorism/

United States. (1789). Bill of rights. Library of Congress. https://www.loc.gov/item/2021667570/