By PAUL O’DONOGHUE, Senior Correspondent
FOR weeks after the September 11 attacks, Guy Ficco scoured Ground Zero, searching for the remains of victims.
“There were so many people who hadn’t been found, so we were just hoping to find something for the families,” he says. “It was a search for closure.”
Working as a special agent at the time for IRS-CI (Criminal Investigation), Ficco had never dreamed of being thrust into the role of a first responder.
Born and raised in New York State, just 15 miles north of the city, the atrocity left a mark on him. Later rising to become the Chief of IRS-CI, Ficco knew first-hand the importance of stopping terrorist financing.
“If I saw a breakdown in coordination between state agencies… well, you saw what could happen if we didn’t work together,” he says.
“It [9/11] was the point of a compass across the last 25 years of my career.”
AML reforms post 9/11
After the attacks, preventing money laundering and terrorist financing became one of the top priorities for the U.S. government.
The attacks cost a surprisingly small amount to fund – an estimated $500,000 or so. What’s more, the terrorists opened and used U.S. bank accounts in their own names.
The 9/11 Commission later found that none of the lenders were to blame. The U.S. financial system pre-9/11 simply wasn’t set up in a way which would have ever flagged the transactions. Which made it clear that something had to change.
“9/11 turned the AML backwater into the AML industry,” says Jim Richards, the founder of RegTech Consulting.
“It professionalised it and created a massive sector. All of a sudden you had armies of consultants, compliance officers and regulators.”
This was due in large part to the Patriot Act, which introduced a slew of new AML regulations for banks. Among the most important were:
- Mandatory AML programmes. Possibly the single biggest change, which meant each lender had to tick four boxes. Those were: having formal AML policies, a designated compliance officer, employee training, and independent auditing.
- Minimum standards for verifying the identity of customers opening accounts
- Various measures to crack down on foreign shell banks
- New powers for the Treasury Department to impose restrictions on countries deemed ‘’high risk’
- The introduction of new mechanisms for sharing financial intelligence between banks and the government
At an individual level, almost all of these were changes for the better.
Exam manual
But over time, there was a shift. Especially once U.S. officials introduced an ‘Exam Manual’ in 2005. The aim was to standardize how regulators evaluated how companies complied with all the new Patriot Act measures.
But in practice, this meant that many companies designed their AML measures to tick boxes – not to catch criminals or stop terrorists.
“Everyone’s focus turned to building these massive [compliance] programmes. It created this huge industry of complying with these ever-building regulations,” says Richards.
“Consultants took this and said: ‘How can we monetise it? They didn’t have AML experts before 9/11, no one did. But they used this exam manual to their advantage to make programmes as big and complicated as possible.”
The Treasury estimates that U.S. banks now spend several billion dollars per year on compliance programmes.
Private sources put the number even higher – a 2018 study gave an estimate of $25 billion, while a 2024 report put the combined valuation for the U.S. and Canada as high as $61 billion.
Effectiveness
But for all the billions and billions poured into AML and compliance, are the programmes actually doing what they are meant to?
That is – stopping criminals and terrorists.
“We don’t really have a statistic we can point to,” says Ficco. “We could point to more prosecutions, but that doesn’t necessarily mean anything if they’re not yielding significant sentences.”
Those who have tried to evaluate levels of financial crime normally say that there has been a recent rise in many offenses, such as fraud. While one recent report has estimated that illicit financial activity is up 20% annually in recent years.
Despite this, most analysts say the reforms introduced after 9/11 have been worthwhile.
“I would argue that we’ve made it more expensive and more difficult for the bad guys to make use of their proceeds,” Richards says.
“If the private sector didn’t do anything, US banks could have a branch in Pyongyang, or bank Putin, or just let human traffickers do as they wanted. What kind of world would that be?”
Culture shift
Ficco agrees, having taken steps at IRS-CI to ensure that is actually stopping criminals.
“In IRS-CI, we tried to create feedback loops,” he says.
“We did annual readouts of BSA [Ban Secrecy Act] filings, how effective they were and the results they yielded. They were high-level, but they were effective in showing the overall importance and benefits of information sharing.”
This is particularly important as Ficco says the U.S. has a multitude of agencies with “overlapping authorities”.
“It creates gaps where information doesn’t get shared in a timely way with all partners, it’s a vulnerability.”
He also agrees with the assessment that the American compliance system became overly focused on complying with rules after 9/11, as companies knew “which boxes needed to get checked”.
Ultimately though, he feels that the changes brought in post 9/11 have made a positive impact.
“Nowadays if you mention terrorist financing, every agency will rear its head and focus on it. It’s a culture shift rather than hard statistics, but it is still positive.”
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