Stamping Out the Bad Guys

U.S. Postal Service uses data warehouse and analysis system to help track down money launderers

Most companies use business intelligence and customer relationship management software to identify customers and get them to spend more. Not the U.S. Postal Service. The USPS has spent $5 million over the last three years to develop a data warehouse that will allow it to identify some of its most active customers so they can be arrested and put behind bars.

Why so customer unfriendly? The customers the USPS is targeting are drug traffickers and other criminals who, according to U.S. Department of the Treasury estimates, buy money orders from post offices around the country in order to launder about $170 million in cash each year. By centralizing data collected at the money order point of sale and analyzing it, USPS and Treasury officials said they hope to track down the bad guys and recover millions in ill-gotten gains.

The project is a classic example of the opportunities and challenges of so-called e-government. While it demonstrates the USPS ability to improve efficiency through the use of advanced IT—including the Internet—it also shows how bureaucracy can get in the way. A changing regulatory environment, for example, contributed to a drawn-out rollout of the new systems first version. And, even now, not all of the federal agencies the USPS depends on for enforcement are able to easily use the information the system produces.

Still, the system represents a great leap from where the USPS was just a few years ago. Although regulations such as the 1970 Bank Secrecy Act require banks and other institutions to combat money laundering by recording and reporting large transactions—in excess of $10,000—the USPS was slow to comply, according to Al Gillum, anti- money-laundering acting program manager with the USPS, in Washington. Gillum said, as subsequent revisions of the law piled on more regulations—requiring institutions, for example, to track and report suspicious transactions and to designate anti- money-laundering compliance officers—the USPS fell further behind.

"We knew we were behind, and we werent ready to start reporting on suspicious transactions," Gillum said.

This played into the hands of drug traffickers looking for a way to launder dirty cash. Typically, law enforcement experts say, such criminals will engage in a practice known as "layering," in which they break up large sums of cash into smaller amounts. They then have runners convert those funds into financial instruments, such as money orders, which can be easily deposited into bank accounts without arousing suspicion. With 33,000 post offices and lax reporting practices, the USPS and its money orders became a favorite of drug traffickers, Gillum said.

Under increasingly intense pressure from agencies charged with enforcing the BSA—the Treasury Department, the State Department and the FBI—then-Postmaster General Marvin Runyon in 1996 approved new processes and a new system to fight money laundering.

Development of the data warehouse and analysis system—known inside the USPS as the BSA Compliance Monitoring and Anti-Money Laundering System—began in June of 1997. The first phase, which records and analyzes large and suspicious money order transactions, was deployed last June. The USPS is still working on enhancements to the system that will analyze the effectiveness of postal employees in spotting suspicious transactions.

Based on the Focus data warehouse and analytical tools from Information Builders Inc., of New York, the system pulls together money order transaction reports—about 4,700 a month in all—from post offices around the country. After postal clerks fill out paper reports on suspicious and large transactions, the information is keyed into the Focus database, running on a mainframe at the USPS St. Louis data center. That information is combined with banking system information compiled by the Federal Reserve Bank in St. Louis.

By combining that data and analyzing it, USPS investigators are more easily able to track down money launderers. With the banking data, for example, USPS officials can see which bank accounts receive large numbers of suspicious money order deposits.

With the help of such information, USPS investigators are now able to catch and arrest money launderers and force them to forfeit about $15 million a year in proceeds, Gillum said.

Postal officials acknowledged the system could have had a quicker impact had it been deployed sooner. But, they said, it took three years for a number of reasons: It took time to train postal workers to spot and report suspicious transactions, and BSA regulations kept changing, altering the requirements of the system. As of next year, for example, the regulations will change again, requiring institutions such as the USPS to report cash transactions of $3,000 or greater. And, according to press reports earlier this month, even more changes are to be proposed.

Even now, although the system allows the USPS to collect and report all information required by the BSA, other federal agencies are not able to use it. The Treasury Departments enforcement arm, the Financial Crimes Enforcement Network, for example, hasnt decided exactly what information it wants from the USPS or in what electronic format, Gillum said.

As USPS officials work with other agencies, they also have big plans for the new money-laundering detection system. Gillum said they are exploring adding Web access so postal clerks can file reports directly from their terminals. (The Focus products already permit this.) And postal officials are even considering a plan to sell the system commercially to other financial institutions, in cooperation with the FBI.

Although its taken awhile to roll out, the system is a landmark in the fight to stamp out money laundering, at least through the USPS, said Charles Intriago, publisher at Alert Global Media Inc., in Miami, which publishes the Money Laundering Alert newsletter. "The USPS is to be commended for coming up with a novel solution and moving away from manual processes."