IP: The Money Laundromat part 1 of 2

[Dave Farber <farber () central cis upenn edu>]

Please read from original sender   djf


From: frogfarm () yakko cs wmich edu (Damaged Justice)


[Note: I received this via e-mail from someone who prefers to remain
anonymous. Despite the obvious copyright violation, I have chosen to
post it to Usenet. If you enjoy this article, please go buy a copy of
Liberty, or even better, a subscription.]


from _Liberty_ magazine, November 1995 (Volume 9, #2): Expose, pp. 33-44
(not counting 8-page advertising supplement)


The Money Laundromat
by J. Orlin Grabbe


"Above ground or below, as paper or electrons, money will always find a way."




    It was bright lights and balmy action. Thomas Constantine, the head of the
U.S. Drug Enforcement Administration (DEA), claimed we've entered a "new world
order of law enforcement." (1) He was referring to the cooperation of British,
Italian and Spanish authorities in setting up a fake bank in anguilla, in the
Caribbean. It was a sting to trap money launderers.
    Like all pirate organizations, the group calculated success by the amount
of booty seized. And this cleverly code-named "Operation Dinero" added $52
million, nine tons of cocaine, and a number of paintings (including works by
Reynolds, Reuben and Picasso) to official coffers. There were also 88 arrests.
It was a great scam in classic DEA style: government officials got to keep the
goods, while taxpayers got to pay for the incarceration of up to 88 people.
    The British Foreign Office -- those wacky guys who, you will recall,
conveniently released a barrage of information about Nazis in Argentina at the
outbreak of the Falklands (Malvinas) war, and who also helped coordinate
Operation Dinero -- have since made a propaganda video about this official
foray into fraudulent banking. Among others it stars Tony Baldry, junior
minister.
    Be prepared for more of the same. The nine tons of coke should enable the
British Foreign Office and the nosy DEA to burn the midnight oil for months to
come, planning other booty-gathering raids and video thrillers. After all, the
Financial Action Task Force report of 1990 enccouraged international banking
stings like this one. But it isn't just the pseudo-bankers you should worry
about.




         THE BANKER AS SNITCH: The Brave New World of Law Enforcement


    In the world of money laundering, you pay your thankless banker to turn
you in to the government. In 1993, a federal judge in Providence, Rhode
Island, issued the longest sentence ever given for a nonviolent legal offense:
600 years in prison for money laundering. The launderer had been fingered by
his bankers, who then cooperated with federal agents in building a case
against him, even while the same bankers received fees for providing him
services.
    American Express was recently fined $7 million for failing to detect money
laundering, and agreed to forfeit to the U.S. Justice Department another $7
million. As part of the settlement, the bank will spend a further $3 million
in employee education, teaching them recommended procedures for spying on
customer transactions.
    In his book about banker Edmond Safra, author Bryan Burrough notes: "To
truly defeat money launderers, banks must know not only their own customers --
by no means an easy task -- but their customers' customers, and in many cases
their customers' customers' customers." And then, as part of an argument
clearing Safra's Republic National Bank of money-laundering charges, Burrough
recounts how he visited the office of the Financial Crimes Enforcement Network
(FinCEN) and talked with one of its top officials. The official said that
Republic had made "some solid suggestions about new ways the government could
track dirty money." (2)
    But most people still have not gotten the message that their banker is a
spy. They are still stuck in yesterday's world, where the Right to Financial
Privacy Act of 1978 allowed banks to monitor their own records and inform the
government when there were suspicious transactions in an account, but
prohibited them from telling the government the account number or account's
owner. The Privacy Act was effectively gutted by the Annunzio-Wylie Anti-Money
Laundering Act of 1992, which gives protection from civil liability to any
financial institution, director, officer or employee who makes a suspicious
transaction report under any federal, state or local law. (3)




                   MONEY LAUNDERING -- What Is It, Anyway?


    There's a specter haunting the international financial markets: the
specter of crime by nomenclature, by theological semantics. To be sure, the
faceless piece of transaction information that makes money "money" -- a useful
medium of exchange, whereby we exchange everything for it, thus avoiding the
ddirect bartering of wheelbarrows for oranges -- has been under attack before.
The 60's brought us "Euro"-dollars, and the 70's "petro"-dollars. Now we have
"narco"-dollars, "terror"-dollars and (who knows?) maybe "kiddie-porn"-dollars.
Today, some of the data bits stored in banks' computers comprise "clean" money
and others "dirty" money, the latter legalistically smitten with original sin.
    As Yogi Berra might say, it's digital voodoo all over again.
    Since the governmental powers-that-be can't do much about drug-dealing or
terrorism -- if only because they themselves are the chief drug dealers and
terrorists -- they have transferred these and other (often alleged) sins to
the money supply. And since every other dollar is a potential "narco"-dollar
or "terror"-dollar, they must track each one as best they can. (4) The fact
tha tmonetary monitoring has done nothing to diminish either drug-dealing or
terrorism is of no importance, because it's all part of a larger game. All the
players can easily see that this same financial tracking yields political side
benefits in the form of social control and government revenue-enhancement.
    The body of U.S. law about money laundering includes the Bank Secrecy Act
of 1970, the Comprehensive Crime Control Act of 1984, the Money Laundering
Control Act of 1986, the Anti-Drug Abuse Act of 1988, the Annunzio-Wylie
Anti-Money Laundering Act of 1992, and the Money Laundering Suppression Act of
1994. International efforts include the U.N. Convention Against Illicit
Traffic in Narcotic Drugs and Psychotropic Substances of 1988; the Basle
Committee on Banking Regulations and Supervisory Practices Statement of
Principles of December 1988; the Financial Action Task Force Report of April
1990 (with its 40 recommendations for action); the Council of Europe
Convention on Laundering, Search, Seizure and Confiscation of Proceeds of
Crime of September 8, 1990; the 61 reccomendations of the Caribbean Drug
Money Laundering Conference of June 1990; the agreement on EC legislation by
the European Community's Ministers for Economy and Finance of December 17,
1990; the Organization of American States Model Regulations on Crimes Related
to Laundering of Property and Proceeds Related to Drug Trafficking of March
1992; and a tangled bouillabaisse of Mutual Legal Assistance Treaties.
    Anyone who has studied the evolution of money-laundering statutes realizes
that the "crime" boils down to a single, basic prohibited act: DOING SOMETHING
AND NOT TELLING THE GOVERNMENT ABOUT IT. But since the real big-brotherly
motice is a Thing That Cannot Be Named, the laws are bogged down in prolix
circumlocution, forming a hodge-podge of lawyerly fingers inserted here and
there into the financial channels of the monetary system.
    "Most economically motivated criminals always have wanted to appear
legitimate," says attorney Kirk Munroe. "What is new is the criminalization of
money laundering. The process itself now is a crime separate from the crime
that produced the money." (5)
    The President's Commission on Organized Crime has defined money laundering
as the "process by which one conceals the *existence*, illegal source, or
illegal application of income, and then disguises that income to make it
appear legitiate" (emphasis added). (6) Now, apparently, simply concealing the
existence of income is money laundering.
    But whatever money laundering is, in practice U.S. law purports to detect
it through the mandatory reporting of cash transactions greater than or equal
to a threshold amount of U.S.$10,000. For countries in Europe the figure
ranges from ECU 7,200 to ECU 16,000.
    In the U.S., Section 5313 of the Banking Secrecy Act requires a Currency
Transaction Report of cash deposits or transactions of $10,000 or more.
Section 5316 of the Act requires a Currency or Monetary Instrument Report for
transport of $10,000 or more of currency in or out of the United States.
Section 5314(a) requires you to report any foreign bank or financial accounts
whose value exceeds $10,000 at any time during the preceding year. Section
60501 of the IRS Code requires the reporting of business transactions
involding more than $10,000 cash.
    Let's say you're an arms dealer in trouble and need a criminal lawyer.
(You've violated those pesky ITAR restrictions because you carried a copy of
Pretty Good Privacy in your portable computer when you drove over to Matamoros
from Brownsville for the day, and you forgot to fill out those custom forms,
and that girl you met said she just *had* to set up a secure channel to her
cousin who works in Washington, D.C., as an undocumented maid for a potential
Cabinet nominee...) The lawyer charges you a modest $200 an hour, so the first
month you pay him $7,000 in cash. The next month you pay him $4,000 in cash.
Under current U.S. law, the lawyer is required to report complete information
about you, including the $11,000 total cash payment, on IRS Form 8300, and
ship it off to the IRS Computing Center in Detroit within 15 days of receiving
the second payment (which put the total above the reporting threshold). Never
mind such matters as attorney-client privilege, the Sixth Amendment right to
counsel, or the Fifth Amendment right to be free from self-incrimination. If
your attorney does not make the report, and the IRS finds out about it and
prosecutes him, the courts will probably back up the IRS. (7)
    The scope and arrogance of the money laundering statutes knows no bounds.
The Kerry Amendment to the Anti-Drug Abuse Act of 1988 demands that *foreign
nations* must also require financial institutions to report deposits of U.S.
$10,000 or greater, and to make this information available to U.S. law
enforcement. Otherwise the president is directed to impose sanctions against
non-cooperative countries. (8)
    Having extended the concept of evil to cover a vaguely defined concept
called "money laundering", and having established a system to help detect it,
the laws have proceeded to make evasion of the monitoring system evil also.
This tertiary sin may be found in the practice of "smurfing" or "structuring",
which basically amounts to any method of spreading cash among accounts or
across time to avoid the $10,000 reporting threshold. Structuring is defined
in a 1991 amendment to the Bank Secrecy Act thusly: "Structure (structuring)..
[A] person structures a transaction if that person, acting alone, or in
conjunction with, or on behalf of other persons, conducts or attempts to
conduct one or more transactions in currency in any amount, at one or more
financial institutions, on one or more days in any manner, for the purpose of
evading the reporting requirements...'In any manner' includes, but is not
limited to, the breaking down of a single sum of currency exceeding $10,000
into smaller sums, including sums at or below $10,000, or the conduct of a
transaction or series of transactions, including transactions at or below
$10,000. The transaction or transactions need not exceed the $10,000 reporting
threshold at any single financial institution on any single day in order to
constitute structuring within the meaning of this definition." (9)
    And what does the government do with the information it collects? When
your lawyer's report reaches the IRS Computing Center in Detroit, it is
entered into the Treasury Financial Data Base (TFDB). Similarly, if you cross
a U.S. border with more than $10,000 in cash, you will fill out Customs Form
4790, which will be sent off to Customs' San Diego Dat aCenter, and it too
will eventually show up in TFDB. These and other forms will now be available
on-line in the Treasury Enforcement Communications System. The TFDB data will
also be processed through the FinCEN Artificial Intelligence System, which is
trained to identify suspicious transaction patterns.
    So when you deal in cash, expect to give a note to the government, a crumb
to the friendly FinCEN AI System. But the system has a voracious appetite, so
the reporting doesn't stop with cash. The heart of any modern monetary system
is the digital transfer of electronic money through the telecommunication
links among bank computers. Internationally, banks are connected by a computer
messaging system operated by the Society for Worldwide Interbank Financial
Telecommunications System (SWIFT). Domestically, banks within a country use
equivalents of the U.S. clearing systems operated by the Federal Reserve
(Fedwire) and the Clearing House Interbank Payments System (CHIPS). A Federal
Reserve Policy Statement of December 23, 1992 asks financial institutions to
include (if possible) complete information on the sender and recipient of
large payment orders sent through Fedwire, CHIPS, and SWIFT. "Historically,
law enforcement efforts to curtail money laundering activities have focused on
the identification and documentation of currency-based transactions; however,
recent investigations have focused on the use of funds transfer systems," the
statement notes.
    The focus on funds transfer brings in the resources of the National
Security Agency. The NSA has been monitoring civilian communications ever
since it installed IBM computers at Menwith Hill in the U.K. in the early 60's
to keep track of international telex messages. NSA tentacles are now ensconced
not only in transatlantic communications, but also in Pacific satellite
transmissions, the regional Bell System offices, the SWIFT messaging system,
the CHIPS clearing computers in Manhattan, and Fedwire. In addition, a
satellite surveillance system picks up the high-frequency transmissions of
specially constructed copmputer chips that are activated by certain types of
transactions-oriented financial software.
    U.S. agencies are not alone in financial monitoring: the Council of Europe
has even recommended Interpol be given access to SWIFT to assist in money
laundering detection. (10)




                              The PROMISed Land


    When most people hear the terms "money laundering", they think of Miami,
London, Hong Kong, or Panama City. But what about Arkansas? *Money Laundering
Bulletin* reports, in what it calls "The Greatest Story Never Told", that an
"archive of more than 2,000 documents...allege[s] that wesetern Arkansas was
a centre of international drug smuggling in the early 1980's -- perhaps even
the headquarters of the biggest drug trafficking operation of all time." (11)
Perhaps that is why it was in Arkansas that modifications were made to the
stolen PROMIS software system to enable it to spy on banking transactions.
For where there are drugs, there must be money laundering, or so one can
suppose. (12)
    The PROMIS software was created by the Washington, D.C.-based software
company Inslaw for a single purpose: to track people. It was initially
designed to be used by federal prosecutors. Want to know who the judge was on
a particular case? Ask PROMIS. Want to know all the similar cases that same
judge has heard? Ask PROMIS. How about all the accused money launderers a
particular attorney has defended? And so on. But after the Justice Department
acquired the PROMIS software by "trickery, deceit and fraud" (to quote a
federal bankruptcy judge who tried the case) and installed it in most of its
regional offices, the system was modified and sold to foreign intelligence
organizations, then modified again and sold to banks.
    To see the relationship among these apparently diverse uses, consider the
following items of information about Joe Blowup, who lives in Sacramento:


        Item 1: Money, June 3. MasterCard record of payment by Joe
         Blowup for lunch at the Cliff House in San Francisco.
        Item 2: Wednesday, June 5. Motor vehicle records show an
         automobile registered to Joe Blowup is involved in a minor
         accident in Barstow.
        Item 3: Saturday, June 8. Check for $3,000 made out to
         Pierre "C-4" Plastique is deposited in Pierre's account in
         Glendale Federal Savings, and clears against Joe Blowup's
         First Interstate account in Sacramento on Tuesday, June 11.


    Who might be interested in this computer sorted chronology?
    *Firstly*, anyone wanting to track Joe Blowup's movements. He was in San
Francisco on Monday and in Barstow on Wednesday. The sequence also generates
obvious questions for further investigation. Did he meet Pierre in Barstow
and give him the check there, or did he drive on to Los Angeles? What is the
check payment for? And who did Joe Blowup have lunch with in San Francisco?
In order to generate relevant questions like these, federal agents, spies and
other detectives all want a copy of this neat software.
    *Secondly*, banks and other financial institutions. Notice that, in fact,
most of the information is financial. That's because financial institutions
keep carefully detailed transaction records, and over the years they've
become increasingly sophisticated in doing so. There is nothing nefarious in
this per se. If I go to a bank to get a loan, tha bank has a right to make an
evaluation as to whether I will repay it. They are principally concerned with
1) ability to pay and 2) willingness to pay -- and to make this evaluation,
they rely on current and historical information. In the example here, none of
the items is of interest to banks, unless that accident in Barstow created a
financial liability that would affect Joe Blowup's ability to repay other
loans. But if the (modified) PROMIS software organizes banking transactions
in a nice way, banks too will want a copy of it.
    *Thirdly*, tax authorities. Do Joe Blowup's financial records indicate a
pattern of rather more income than he has been reporting? Or, in the cae of
doubt (and this is the fun part), is there a record of assets the IRS can
seize in the meantime? The IRS wants a copy of the software so it can better
understand Joe Blowup's -- and your -- spending patterns, even though present
IRS files already put private credit bureaus like TRW and Equifax to shame.
    In the 1980's, intelligence organizations around the world salivated over
PROMIS's ability to track terrorists, spies, political opponents, and
attractive models. Aside from distribution to almost all the three-letter
agencies in America, PROMIS was allegedly sold to intelligence organizations
in Canada, Isreal, Singapore, Iraq, Egypt and Jordan, among others. In
addition, the DEA, through its proprietary company, Eurame Trading Company
Ltd. in Nicosia, Cyprus, is said to have sold PROMIS software to drug warrior
agencies in Cyprus, Pakistan, Syria, Kuwait and Turkey. PROMIS was also
converted for use by the British Navy in connection with its nuclear
submarine intelligence database. (13)
    There's more here than Ed Meese and Hillary Clinton's cronies' simple
desire to make a fast buck. The sale itself was part of an intelligence
operation. As former attorney general Elliot Richardson noted, "One important
motive for the theft of Enhanced PROMIS may have been to use it as a means of
penetrating the intelligence and law enforcement agencies of other
governments. The first step in this scheme was the sale to the foreign
government of a computer into which had been inserted a microchip capable of
transmitting to a U.S. surveillance system the electronic signals emitted by
the computer when in use. Enhanced PROMIS has capabilities that make it
ideally suited to tracking the activities of a spy network. Several INSLAW
informants formerly affiliated with United States and Israeli intelligence
agancies claim that both the United States and Israel have relied on 'cutout'
companies to provide ongoing support for the PROMIS software." (14) Of
course, what can be done with foreign intelligence computers can also be done
with banking computers, and at least one of these "cutout companies" is a
major provider of banking software. (15)




                             THE GATHERING STORM


    All of these efforts -- the legal reporting mechanisms, the spying by
bankers, and the supplementary actions of such organizations as FinCEN, NSA
and Interpol -- fly in the face of a contrary technological and social
development: anonymous digital cash made possible by advances in cryptography.
    The principal opponent of any contemplated system of encrypted digital
cash is the Leviathan that feeds off money laundering laws. The edicts
against money laundering are attempts to make all financial transactions
visible, while the aim of anonymous digital cash is to keep financial
activities private. People-monitoring systems such as those utilizing PROMIS
track individuals by the electronic trails they leave throughout the
financial system. But anonymous digital cash is specifically designed to make
such tracks virtually invisible.
    Money launddering, as Barry A.K. Rider has frankly observed, "amounts to
a process which obscures the origin of money and its source." (16) On that
basis, the pursuit of anonymity in financial transactions *is* money
laundering.
    At the beginning of the '90's, money laundering was an offense in only
four of the (then) twelve members of the European Union. Now all twelve have
made it a crime. In a scramble to justify continued large budgets,
intelligence organizations have hopped on the anti-money laundering
bandwagon. The U.K. intelligence service MI5, in an attempt "to justify its
existence after reviewing its future in the light of a probable reduction in
counter-terrorist operations in Northern Ireland," has been "pressing for a
change in the law which would see it involved in countering drug-trafficking,
money laundering, computer hacking, nuclear proliferations and animal rights
groups -- a far cry, say police, from its original remit to 'protect national
security.'" (17)
    Even accountants are getting in on the act. Australia's Institute of
Chartered Accountants has issued "a set of guidelines on money laundering,
including a recommendation that client confidentiality take second place to
public interest if an accountant suspects laundering is occurring." (18)
    So the coming battle over financial footprints is inevitable, and perhaps
inevitably bloody. But in the end it is the money laundering regulations that
will have to go. For one thing, advances in the technology of anonymity are
putting financial privacy within the reach of everyone. For another, there is
a growing awareness that the existing laundering statutes have little or no
effect on terrorism or drug-dealing, but instead are related to an upswing in
government-sponsored harassment of targeted political groups.




                            ELECTRONIC FINANCE 101


    Many of the basic features of electronic cash -- variously referred to as
"e-cash", "digital cash", "digital money" and so on -- may sound novel to
those unfamiliar with the financial markets. But much of the financial system
is already on an electronic basis, and has been so for years.
    To see why, consider the foreign exchange market. (19) This is a largely
interbank market for trading the currency of one country for the currency of
another: dollars for pounds, dollars for yen, and so forth. But if I, as an
interbank trader, sell U.S. dollars for British pounds, what are the actual
logistics of the transfer? Consider the problems that would be imposed by a
cash-based market. The standard transaction size in the foreign exchange
market is an amount of currency equivalent to U.S.$1 million. A $20 bill
weighs about one gram. So, if transacted in cash, the $1,000,000 -- 50,000
bills -- would weigh 110 pounds. Imagine the cost of such a transaction: I'd
have to fill up a suitcase with $20 bills, lug the 110-pound suitcase to a
Manhattan taxi, take a long ride to Kennedy Airport, fill out a Currency or
Monetary Instrument Report, check my baggage, arrive at Heathrow seven hours
later, retrieve my baggage, go through customs, and catch a cab to the
appropriate British bank in central London. Once there, I would pick up the
equivalent in pounds sterling and reverse the whole process. Anyone trying to
change dollars into pounds will go to some other bank where he doesn't have
to pay for my plane tickets and cab fares, not to mention my courier salary
and that lunch I had at the Savoy before I headed back to New York.
    *Transaction costs* are too great for the market to be organized on a
cash basis.
    In the present markets for cocaine and heroin, the weight of the drugs is
less than the weight of the cash proceeds. In the early '80's, drug
transactions were often settled for cash. Paper money was actually loaded
into suitcases and moved around. To save time, however, the cash wasn't
counted. After a spot check of the bills for denomination and authenticity,
the suitcases were simply *weighed* to determine the total value. This
meansurement was accurate enough. But foreign exchange trading does not
suffer from the burdens of illegal drug trading, and has evolved to a more
efficient standard.
    To see how international money transfers actually work, consider the case
of a Greek immigrant who has opened a restaurant in Boston, has made a little
money, and wants to send some cash to the folks back home. In earlier days he
probably would have gone down to the Western Union office and handed the
attendant cash to "wire" to his mother in Athens. The Western Union office in
Boston would put the cash in its safe, or perhaps deposit it in a Boston
bank, and would meanwhile send a message to the Athens office: "Give
so-and-so X dollars" (or, more likely, "Y drachmas"). That is, the cash
received was not the same as the cash sent. All that was sent was a message.
But no one cared, because cash itself is *fungible*: the dollar that is taken
out is interchangeable with, but not the same as, the dollar that was pur in.
The bills are also *unregistered*: no particular name is associated with any
particular serial number.
    In this example, bills were put into the safe at one end of the
transaction, and different bills were taken out at the other. Consider now a
slight modification to this scenario: Eurobond trading. Eurobonds are
generally placed in the depository systems operated by Euroclear in Brussels
or Cedel in Luxembourg. Once bonds enter the vault, they generally stay there
because of transaction costs. If a trader in Frankfurt sells a GM Eurobond
with a coupon of 7 1/8% and marturing in 2012 to a trader in London, they
both send messages to Euroclear. Euroclear compares the two sets of
instructions, checks the cash balance of the London trader, then switches the
computer label of ownership of the bond to the London trader, and the
ownership of the requisite cash to the Frankfurt trader. Again, however, the
bionds are not registered, and are fungible within the parameters of a
particular issue. There may be several thousand GM Eurobonds with a coupon of
7 1/8% and maturing in 2012, and the London trader owns one of them, but his
ownership is not attached to a particular bond serial number. (20)
    This is pretty much the way the foreign exchange market works. If a New
York bank deals dollars for deutschmarks with a London bank, they send each
other confirmations through SWIFT. Then the New York bank will turn over a
dollar deposit in New York to the London bank, while the London bank will
turn over a deutschmark deposit from the London bank to thw New York bank.
The New York bank now owns X-number of fungible, unregistered (but completely
traceable) deutschmarks at the Frankfurt bank.
    "I remember my shock when I learned that the fastest way for two banks in
Hong Kong to settle a dollar transaction was to wire the money from Hong Kong
to New York and back again," said Manhattan Assistant District Attorney John
Moscow. (21) He was shocked because he didn't understand how the process
works. The "wired" dollars were sitting in New York all along as numbers in a
bank computer, originally labeled as owned by the first Hong Kong bank. After
the transaction is completed, they are still in the same place, but labeled
as owned by the second Hong Kong bank. There is nothing mysterious about this
at all.
    Now let's modify the basic scenario again: Yankee bond trading. Yankee
bonds are dollar-denominated bonds issued by non-U.S. citizens in the U.S.
bond market. Yankee bonds are registered. If you buy a bond, your name is
attached to a particular bond with a particular serial number. If someone
steals the bond, he will not be able to receive interest or principal,
because his name is not attached to the bond serial number. So when Yankee
bonds are traded, the seller's name is removed from the serial number of the
bond being sold, and the buyer's name is attached.
    To this point we have talked about things that potentially exist in
physical form. I can take a bond out of the vault, or I can cash in my
electronic deutschmarks for printed bills. The final modification to these
various scenarios is to get rid of the physical paper entirely. Such purely
electronic creatures already exist: U.S. Treasury Bills -- short-term debt
instruments issued by the U.S. government. You buy, for example, a $10,000
T-bill at a discount, and it pays $10,000 at maturity. But you don't buy a
T-bill certificate, because there isn't one. T-bills are electronic entries
in the books of the Federal Reserve System. You can trade your T-bill to
someone else by having the Fed change the name of the owner, but you can't
stuff one in your pocket. You can "wire" your T-bill from one bank to
another, because the "wire" is just a message that tells the Federal Reserve
bank to switch the name of the owner from one commercial bank to another.




                         SMART and Not-So-Smart Cards


    So most of the financial system is already electronic, and "wiring" money
doesn't correspond to the mental image of stuffing bills down a phone line.
To bring this story closer to home, let's consider how most of us use a
computer and a modem on a daily basis to make financial transactions. Even if
we don't own a modem. Or a computer. Let's talk about smart and dumb cards --
ATM cards, credit cards, phone cards, and the like.
    Some "smart cards" have microprocessors and are actually smart (and
relatively expensive). They're really computers, minus a keyboard, video
screen and power supply. Others, such as laser optical cards and magnetic
stripe cards, are chipless and only semi-smart.
    Laser optical cards are popular in Japan, and can hold up to four
megabytes of data -- enough for your tax and medical files and extensive
genealogical information besides. The cards are a sandwich, usually a highly
reflective layer on top of a nonreflective layer. A laser beam is used to
punch holes through the reflective layer, exposing the nonreflective layer
underneath. The presence or absence of holes represents bits of information.
A much weaker laser beam is then used to read the card data. You can later
mark a file of information as deleted, or turn it into gibberish, but you
can't reuse the area on the card.
    Magnetic stripe cards, popular everywhere, don't hold much information.
An ATM card is one example. Data is recorded on the magnetic stripe on the
back of the card similar to the way an audio tape is recorded. There are
three tracks, the first of which is reserved for airline ticketing. (22) This
track holds up to 79 alphanumeric characters, including your name and
personal account number (PAN). The ATM doesn't actually use the first track