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
for transactions, but it may read off your name, as when it says, "Thank you,
Jow Blowup, for allowing me to serve you." The second track contains up to 40
numerical figures, of which the first 19 are reserved for your PAN, which is
followed by the expiration date and other information. The third track will
hold 107 numerical digits [isn't this redundant?], starting again with your
PAN, and perhaps information related to your PAN (personal identification
number, or "secret password"), along with other information, all of which
potentially gets rewritten every time the track is used.
    The ATM machine into which you insert your card is itself a computer. The
ATM typically has both hard and floppy drives, a PC motherboard that contains
the microprocessor, and a power supply -- as well as drawers for deposits,
cash and swallowed cards. If the ATM is "on-line" (i.e., connected to a
distant central bank computer, which makes all the real decisions), then it
also has a modem to communicate over phone lines with the central computer.
When you make a request for cash, the ATM machine compares your password to
the one you entered. If they are the same, it then takes your request and
your PAN, encrypts the information, and sends it on to the central computer.
The central computer decrypts the message, looks at your account information,
and sends an encrypted message back to the ATM, telling it to dispense money,
refuse the transaction, or eat your card.
    Somewhere between the ATM and the authorizing bank, there is usually a
"controller", which services several ATMs. The controller monitors the
transaction, and routes the message to the correct authorization processor
(bank computer). Some transactions, for example, will involve banks in
different ATM networks, and the transaction will have to be transferred to a
different network for approval. The controller would also generally monitor
the status of the different physical devices in the ATM -- to see that they
are operating properly and that the machine is not being burglarized.
    Consider some of the security problems in this framework. The first duty
of the local ATM is to verify you've entered the correct PIN. A typical way
of doing this is to recreate your PIN from your card information and ocmpare
it to the one you entered.
    Here is a general example of how PINs are created (there are many
variations). The bank first chooses a secret 16-digit "PIN key" (PKEY). This
key will be stored in the ATM's hardware. The PKEY is then used as a DES
encryption key to encrypt 16 digits of your account number, which the ATM
reads off your card. The result of the encryption is a 16-digit hexadecimal
number. Hexadecimal numbers use the digits 0 to 9 and also the letters A to F
(the latter standing for the decimal numbers 10 to 15). Next, a table is used
to turn the 16-digit hexadecimal number back into a 16-digit decimal number.
(23) The first four digits of the resulting 16-digit number are the "natural
PIN". (If you are allowed to choose your own PIN, a four-digit "offset"
number is created, and stored on the third track of your ATM card. This
offset will be added to the natural PIN before it is compared to the one you
entered at the ATM keyboard.)
    Since this comparison between the natural and entered PIN is done locally
in the ATM hardware, the customer's PIN is not transmitted over phone lines.
This makes the process relatively more secure, assuming noone knows the PKEY.
But if an evil programmer knows the PKEY, he can create a valid PIN from any
customer's account number. (Customer account numbers can be found by the
hundreds on discarded transaction slips in the trash bin.) He can easily and
quickly loot the ATM of its cash contents.
    The security problems worsen when the ATM gets a "foreign" card. A foreign
card is essentially any card from any bank other than the one that runs the
ATM. The local ATM does not know the PKEYs of these other banks, so the PIN
that is entered at the ATM must be passed on to a bank that can authorize the
transaction. In this process, the account number and PIN will be encrypted
with a communication key (COMKEY), and then passed from the ATM to the ATM
controller. Next, the account number and PIN willl be decrypted at the
controller, and then re-encrypted with a network key (NETKEY) and sent on to
the proper bank.
    Foreign PINs give the evil programmer three additional possibilities for
defeating security. The first way is to get hold of the COMKEY. He then taps
the line between the ATM and the controller, and siphons off account
number/PIN pairs. A second possibility is to get access to the controller,
because the account number/PIN pairs may be temporarily in the clear between
encryptions. The third possibility is to obtain the NETKEY, and tap the line
between the controller and the foreign network. (24)
    The COMKEY and NETKEY are generally transmitted over phone lines, so the
chances of acquiring them are pretty good. These two encryption keys are
themselves usually transmitted in an encrypted form, BUT THE KEYS USED TO
ENCRYPT THEM ARE SOMETIMES SENT IN THE CLEAR. Thus, while banks are generally
somewhat careful with their own customers, they are often quite helpful in
giving rip-off artists access to the customers of other banks. The evil
programmer simply reads off the encryption keys and uses them to decrypt the
COMKEY and NETKEY, which are in turn used to decrypt account numbers and PINs.
    The way to solve these security problems is to use smart cards and public
key cryptography. That way, banks could transmit their public keys in the
open without worrying about evil wire-tapping programmers. Customer messages
encrpyted with a bank's public key could only be decrypted with the bank's
private (secret) key. Digital cash issued by the bank could be signed with
the bank's private key, and anyone would be able to check that the cash is
authentic by using the bank's public key. In addition, the bank would not be
able to repudiate cash signed in this way, because only the bank had access
to its own secret key. Communications between ARM machines and bank computers
could also take polace with randomly-generated encryption keys that can be
determined by each of the two parties, but which could not be discovered by
someone who listens in on both sides of the traffic. (25)


                    ARE SMART CARDS THE MARK OF THE BEAST?


    Besides optical and magnetic stripe cards, there are two types of "chip"
cards. Chip cards are basically any cards with electronic circuits embedded in
the plastic. One type of chip card, called a memory (or "wired logic) card,
doesn't have a microprocessor and isn't any smarter than the cards we
discussed previously. Prepaid phone cards are of this type. They may have
about 1K of memory, and can execute a set of instructions, but can't be
reprogrammed.
    Then there are the truly smart cards, which have a microprocessor and
several kilobytes of rewriteable memory. Smart cards allow for greatly
increased security, since access to their data is controlled by the internal
microprocessor. And there can be built-in encryption algorithms. This
versatility has made smart cards controversial.
    The negative reputation arises from certain cases where smart cards were
imposed by force, as well as from smart-card storage of biometric data. The
use of smart cards became a prerequisite for Marines to receive paychecks at
Parris Island. Fingerprint-based smart card ID systems were implemented by the
Los Angeles Department of Public Social Services and the U.S. Immigration and
Naturalization Service. The "childhood immunization bill" introduced by Sen.
Ted Kennedy (D-Mass.) would have used smart cards to track vaccinations of all
children under six years of age, together with at least one parent, across
geographical areas. Access control at the U.S. Department of Energy Hanford
Site requires smart card badges that store the cardholder's hand geometry.
Security access through retinal scan patterns stored in smart card memory have
been tested at the Sandia National Laboratory.
    Visa recently announced plans for creating an "electronic purse". The
purse would be a reloadable spending card. You would charge the card up at an
ATM machine, where it would suck some cash value out of your account and store
it in memory. You would then use the card instead of cash to make small
purchases. Visa is attracted by the estimate that consumer cash transactions
in the U.S. are about five times the size of bank-assisted transactions (those
that use checks, credit cards and debit cards). Visa has been joined in this
endeavor by a consortium that invludes VeriFone, the leading supplier of
point-of-sale transaction systems, and Gemplus, the leading manufacturer of
smart cards.
    There may be increased security in the use of an electronic purse, but it
is not clear how replenishing one's card balance at an ATM is any more
convenient for the user than getting cash at an ATM. Since Visa is not
advertising the privacy aspects of electronic purse payments, one must assume
this feature was omitted in the planning. Hence a cynic could conclude that
the "electronic purse" is little more than a Rube Goldberg device which, by
substituting for cash, will create a better set of PROMIS-type transaction
records.
    These and other examples suggest possible uses of smart cards for more
general surveillance and social control. The truly paranoid envision the use
of a single smart card for every financial transaction, medical visit, and
telephone call. This information would be sent directly to a common
PROMIS-like database, which would constitute a record of all your activities.
In addition, they suggest, "your card could be programmed to transmit its
identification code whenever you use it. So you (or your card, anyway) could
be instantly located anywhere on earth via the satellite-based Global
Positioning System." (26)
    But smart cards don't have to be used this way. Recall that mainframe
computers once seemed destined to turn the average citizen into Organization
Man, a creature to be folded, spindled and mutilated in lieu of IBM's punched
cards. The advent of the personal computer, however, showed that the same
technology could be a tool of individual freedom and creativity.
    There is nothing intrinsically evil in storing a great deal of information
about ourselves, our finances, and our current and future plans. That is,
after all, exactly why some of us carry around portable computers. But in this
case the use of the computer is voluntary, and we ourselves control both
access to and the content of the information. The same may apply to smart
cards. It is smart cards more than any other aspect of banking technology, I
believe, that will allow for financial privacy through cryptology, for
anonymous and secure digital cash transactions. It's simply a matter of taking
control of the technology and using it to enhance personal freedom.


                   ELECTRONIC CASH, the Way It Ought to Be

    Suppose we had it our way. Suppose we sat down to create digital cash that
had all the right properties. What would these be? Think of the attractive
properties of currency -- physical cash. (27)

        1) Physical cash is a portable medium of exchange. You carry it
        in your pocket to give to people when you make purchases. The
        digital equivalent of this process could be provided by smart
        cards, which would actually improve on the mobility of physical
        cash: the weight of $1,000,000 in digital money is the same as
        the weight of $1.

        2) You would want the ability to make digital cash payments offline,
        just like you can with physical cash. A communication link between
        every store you shop at and your bank's authorization computer
        shouldn't be required. Moreover, if digital cash is to have all the
        desireable qualities of physical cash, you should be able to
        transfer it directly to another smart-card carrying individual.
        Smart cards that could connect directly to other smart cards would
        be ideal in this respect, and would represent an improvement over
        physical cash. Even if everyone observed two smart cards
        communicating, they would have no way of knowing whether the
        transaction involved $5 or $50,000. There would be no need to slide
        money under the table.

        3) Digital cash should be independent of physical location --
        available everywhere and capable of being transferred through
        computers and other telecommunications channels. So we want a
        smart card that can jack into the communications nodes of the
        global information network. One should be able to pop into a
        phone booth to make or receive payments.

        4) Got change for a dollar for the quarter slots in the pool table?
        Just as we "make change" or divide physical currency into subunits,
        so should electronic cash be divisible. Electronic calculators can
        perform an operation known as division, and so can third-graders. So
        smart cards ought to be able to handle this also, even if it presents
        a few difficulties for theoretical cryptology.

        5) To be secure against crooks and rip-off artists, digital cash
        should be designed in such a way that it can't be forged or reused.
        We wouldn't want people spending the same money twice, or acting as
        their own miniature Federal Reserve System, creating money from
        nothing. This cryptological problem is different between on-line
        and off-line cash systems. In on-line systems, the bank simply
        checks whether a piece of cash has been spent before.
           Proposed off-line systems rely on a framework developed by David
        Chaum. Chaum has been the preeminent cryptological researcher in
        the field of digital cash. (28) In his framework for off-line
        systems, one can double-spend the same piece of cash only by losing
        one's anonymity. This has considerable value, because the bank or
        person, knowing the identity of the devious double-spender, can send
        out a collection agent.
           But I consider this way of enforcing the "no double=spending"
        rule a serious flaw in Chaum's framework. Catching thieves and rip-
        off artists is not the comparative advantage of either banks or the
        average citizen. (Banks are usually only good at providing
        transaction services, and charging interest and fees.) Would you
        really want to see, say, the First Subterranean Bank of Anonymous
        Digital Cash merge with the Wackenhut Corporation? Luckily,
        however, there are alternative approaches that will prevent double-
        spending from ever taking place. (29)

        6) The most important requirement for individual freedom and privacy
        is that digital cash transactions should be untraceable, yet at the
        same time enable you to prove unequivocally whether you made a
        particular payment. Untraceable transactions would make impossible a
        PROMIS-type data-sorting og all your financial activities. In Joe
        Blowup's financial chronology discussed previously, you wouldn't be
        able to connect Joe Blowup's name to any of his purchases. Similarly,
        noone would know about the money you wired to Liechtenstein, your
        purchase of Scientology e-meters and the banned works of Maimonides,
        or your visits to the Mustang Ranch. Privacy-protected off-line cash
        systems can be made nearly as efficient as similar systems that don't
        offer privacy.


                            PARALLEL MONEY SYSTEMS

    To set up a digital cash service meeting these requirements, you would
need to buy the rights to use patents held by David Chaum and RSA, or
equivalent rights, and then set up a bank to issue accounts and smart cards in
a legal jurisdiction where the service won't run afoul of the local banking
and money laundering laws. Of course, in many other countries the money
laundering statutes will be quickly amended in an attempt to apply the same
reporting requirements to anonymous digital cash transactions. Such laws will
probably generate little compliance. (30) Since the transactions in question
are unconditionally untraceable, there won't be any evidence of wrongdoing.
    Anonymous digital cash will arise as a parallel system to the existing one
of ordinary money. Therefore, there will be a record of the initial entry into
the anonymous system. For example, you might write a $10,000 check drawn on
CitiBank to the First Subterranean Bank of Anonymous Digital Cash. This check
will be recorded, but no subsequent transactions will be traceable, unless you
make transfers back out into the ordinary banking worls. Over time, as more
people begin to use the anonymous cash system, some wages will be paid in
anonymous digital cash. This will enable all income transactions, as well as
expenditures, to take place entirely outside the ordinary monetary system.
    Since the anonymous cash system will exist parallel to the existing
system, a floating exchange rate will be created by market transactions
between ordinary money and anonymous money. Think, by analogy, of a currency
board. Such a board issues domestic currency through the purchase of foreign
"hard" currencies. In the same way, anonymous digital cash will be issued
through the purchase of ordinary cash or bank deposits. That is, when you make
a deposit at the First Subterranean Bank of Anonymous Digital Cash, First
Subterranean will issue you an anonymous digital cash account, and will in
turn acquire ownership of the ordinary money. The exchange ratio will not
necessarily be one-for-one: anonymous digital cash that does not meet some of
the ease-of-use requirements listed previously may exchange for less than one
ordinary dollar. On the other hand, digital cash that meets all those
requirements will trade at a premium, because anonymous digital cash has
enhanced privacy aspects. Money launderers, for example, currently get about
20% of the value of money that is made anonymous. That represents an exchange
rate of 1.25 "dirty" dollars for one "clean" dollar. The market will similarly
determine the exchange ratio between ordinary and anonymous digital money.
    In the 1960's, various tax and regulatory burdens and political risk
considerations gave rise to a new international money market, the Eurodollar
market, which was created specifically to get around these regulatory and
political roadblocks. (31) When a junior staff member of the Council of
Economic Advisors named Hendrik Houthakker discovered the Eurodollar market's
existence, he thought it was an important development, and recommended that
some discussion of it be included in the annual *Economic Report of the
President*. "No, we don't want to draw attention to it," he was told. When
Houthakker himself later became a member of the Council under Nixon, he made
sure the Report included a discussion of the Euromarkets. But it was only much
later, in the mid-70's, that the *Report* said, in a burst of honesty: "The
emergence and growth of the Eurodollar market may be viewed as a classic
example of free-market forces at work, overcoming obstacles created by
regulations, and responding to market incentives to accomodate various needs."
(32)
    In a similar way, some future report will say that "the emergence and
growth of anonymous digital cash may be viewed as a classic example of
free-market forces at work, overcoming obstacles created by surveillance
technologies and money laundering regulations, and responding to market
incentives to accomodate the public's need for financial privacy."


FOOTNOTES

1. Quoted in *Money Laundering Bulletin*, January 1995, p. 3.

2. Bryan Burrough, _Vendetta: American Express and the Smearing of Edmond
Safra_  (HarperCollins, 1992), pp. x, xi.

3. Sec. 1517 (c) states: "Any financial institution that makes a disclosure of
any possible violation of law or regulation or a disclosure pursuant to this
subsection or any other authority, and any director, officer, employee, or
agent of such institution, shall not be liable to any person under any law or
regulation of the United States or any constitution, law, or regulation of any
State or political subdivision thereof, for such disclosure or for any failure
to notify the person involved in the transaction or any other person of such
disclosure."

4. "A completely cashless economy *where all transactions were registered*
would create enormous problems for the money launderers" (emphasis added),
*Report of the Financial Action Task Force on Money Laundering*, February 7,
1990.

5. Kirk W. Munroe, "Money Laundering: The Latest Darling of the Prosecutor's
Nursery", law firm of Richey, Munrow & Rodriguez, P.A., Miami, Florida, 1994.

6. President's Commission on Organized Crime, *The Cash Connection: Organized
Crime, Financial Institutions, and Money Laundering* (U.S. Government Printing
Office, October 1984). This definition is certainly more coherent than Michael
Sindona's circular statement that "laundering money is to switch the black
money or dirty money...to clean money." The U.S. definition of money
laundering is found in 18 U.S.C. 1956, which was enacted in 1986, and
strengthened in 1988, 1990 and 1992. It sets out three categories of offenses:
transaction offenses, transportation offenses and "sting" offenses:

  *Transaction Offenses*: It is a money laundering transaction crime for any
person to conduct, or to attempt to conduct, a financial transaction which, in
fact, involves the proceeds of specified unlawful activity, knowing that the
property involved in the transaction represents the proceeds of some crime,
and, while engaging in the transaction, with either (a) the intent to promote
the carrying on of the specified unlawful activity, or (b) the intent to
commit certain tax crimes, or with the knowledge that the transaction is
designed at least in part (a) to conceal or disguise the nature, location,
source, ownership or control of the proceeds, or (b) to avoid a cash reporting
requirement.

  *Transportation Offenses*: It is a money laundering transportation crime for
any person to transport, transmit or transfer, or to attempt to transport,
transmit or transfer, a monetary instrument or funds into or out of the U.S.,
and, while engaging in the act, with either (a) the intent to promote the
carrying on of specified unlawful activity, or (b) the knowledge that the
monetary instrument or funds represent the proceeds of some crime, and the
knowledge that the transportation, etc., is designed, at least in part, (i) to
conceal or disguise the nature, location, source, ownership or control of the
proceeds, or (ii) to avoid a cash reporting requirement.

  *"Sting" Offenses*: It is a money laundering crime for any person to
conduct, or to attempt to conduct, a financial transaction which involves
property represented to be the proceeds of specified unlawful activity, or
property used to conduct or to facilitate specified unlawful activity, said
representation being made by a law enforcement officer or by another person at
the direction of, or with the approval of, a federal officer authorized to
investigate or to prosecute S.1956 crimes, and, while engaging in the
transaction, with the intent to (a) promote the carrying on of specified
unlawful activity, or (b) conceal or disguise the nature, location, source,
ownership or control of the property believed to be the proceeds of specified
unlawful activty, or (c) to avoid a cash reporting requirement.

7. See Samuel J. Rabin, Jr., "A Survey of the Statute and Case Law Pertaining
to 26 U.S.C. 60501 (Forms 8300)", in Fletcher N. Baldwin, Jr. and Robert J.
Munro, *Money Laundering, Asset Forfeiture and International Financial Crimes*
*Oceana Publications, 1994, three volumes).

8. Section 4702 of P.L. 100-690.

9. 31 C.F.R. 103.11(p) (1991).

10. "The means should, in fact, include access by Interpol to the
telecommunications system SWIFT," *Draft Explanatory Report on the Convention
on Laundering, Search, Seizure and Confication of the Proceeds from Crime*,
September 8, 1990.

11. *Money Laundering Bulletin*, March 1995, p. 3.

12. Curiously, however, some of the same set of characters were apparently
involved on all sides: in drug-running, money laundering and the theft and
modication of the PROMIS system. I will leave it to someone with more lawyers,
guns and money than I have to bring that part of the story to light.

13. U.S. Congress, Committee on the Judiciary, *The Inslaw Affair*, House
Report 102-857, September 10, 1992.

14. Memorandum to Judge Nicholas Bua from Elliot Richardson, p. 34. The NSA,
naturally, does not acknowledge the existence of such a chip, much less
provide technical information. But in order to avoid detection of the chip's
transmission signal by the organization being spied upon, the chip would be
designed so its broadcast would be masked by the general -- or some
characteristic -- electronic noise of the computer. This could imply a low
probability-of-interception digital spread spectrum (DSS) communication system
with a broad bandwidth, perhaps with a transmission frequency in the range of
1-10 gigahertz. As a related example of this technique, a "low level wideband
SS signal, can easily be hidden within the same spectrum as a high power
television signal where each signal appears to be noise to the other." Quoted
from "Spread Spectrum Techniques", in Geoff Lewis, *Newnes Communications
Technology Handbook* (Oxford, 1994). The broadcast power requirements of such
a chip would not be large, but rather similar to a walkie-talkie's. The
information broadcast by the chip could then either be monitored locally and
re-transmitted to satellite, or transmitted directly to a geosynchronous
signals-collection satellite such as Magnum. The Magnum and other U.S. spy
satellites are operated by the Air Force on behalf of the National
Reconnaissance Office, while NSA does the signal processing. (I am grateful to
John Pike, Director of Space Policy & CyberStrategy Projects, Federation of
American Scientists, for advice on the information in this footnote. He is not
responsible for any errors or the specific content of any statement.)

15. I have in mind an NSA operation. But recently, the CIA approached my own
former company (which sells banking software) and proposed that it provide
cover for their agents to enter foreign banks. The CIA also separately offered
to pay $100,000 for the customer list of a particular bank among the Swiss big
four.

16. Barry A.K. Rider, "Fei Ch-ien Laundries -- the Pursuit of Flying Money",
in *Money Laundering, Asset Forfeiture and International Finance Crimes*.

17. *Money Laundering Bulletin*, April 1995, p. 2.

18. Ibid, p. 4.

19. Details of the foreign exchange, Eurocurrency and Eurobond markets are
covered at length in J. Orlin Grabbe, *International Financial Markets* (Simon
and Schuster, 1995, third edition).

20. Eurobonds are *bearer* bonds. So if you have the bond in your pocket, you
own it, in the same way you own the dollar in your pocket. The same goes for
interest coupons -- they are to be paid to bearer. Most Eurobond-issuing
companies pay interest to Euroclear, which distributes the payments to the
owners of the bonds stored in its depository vaults. But the companies are
afraid that if the bonds are stolen, they will have to pay the same coupons
again. Hence they insist coupons be clipped and destroyed as they are paid.
When I visited Morgan Guaranty (which operates Euroclear) in Brussels in 1982,
there were 20 employees whose full-time job was clipping coupons.

21. John W. Moscow, "The Collapse of BCCI", in *Money Laundering, Asset
Forfeiture and International Financial Crimes*.

22. Details of the card size, layout, coding and recording are laid out in ISO
standards 7810 to 7813. The first track is sometimes called the International
Air Transport Association track, the second the American Bankers Association
track, and the third the Mutual Institutions National Transfer System track.

23. This may be as simple as assigning the numbers 0 to 5 to the letters A to
F. If this assignment is made, the probability is three-fourths that a digit
in the resulting decimal number is one of 0 to 5, while there is only one-
fourth probability that a digit is 6 to 9.

24. Computer logs are often kept for each part of a transaction. So the evil
programmer doesn't have to tap lines if he can get hold of the logs instead.

25. Public-key encryption is implemented in the Datakey smart card of the
National Institute of Standards and Technology. This card uses the Hitachi
H8/310 processor. Atmel and Phillips chips also include public-key encryption
hardware, and allow algorithms to be implemented by the card's application
designer. Smart and other chip card standards are laid out in ISO 7816. More
on smart cards can be found in Jose Luis Zoreda and Jose Manuel Oton, *Smart
Cards* (Artech House, 1994). The recent ANSI X9F standards include those for
using public key systems to secure financial transactions. The communication
link would involve two-way authentication using Diffie-Hellman key exchange.

26. From Clark Matthews, "Tomorrow's 'Smart Cards': Technical Marvels That
Give Government Fearful Power", reprinted from *The Spotlight*, undated.

27. Some of the following points were broached in a different way by T.
Okamoto and K. Ohta, "Universal Electronic Cash", *Advances in Cryptology --
Crypto '91* (Springer-Verlag, 1992.)

28. See David Chaum, "Achieving Electronic Privacy", *Scientific American*,
August 1992; "Blind Signatures for Untraceable Payments", in D. Chaum, R.L.
Rivest and A.T. Sherman (eds.), *Advances in Cryptology -- Crypto '82*
(Plenium, 1983); "Online Cash Checks", in J.J. Quisquater and J. Vandewalle
(eds.), *Advances in Cryptology -- Eurocrypt '89* (Springer-Verlag, 1990);
"Efficient Offline Electronic Checks", with B. den Boer, E. van Heyst, S.
Mjxksnes and A. Steenbeek, in *Advances in Cryptology -- Eurocrypt '89*;
"Crytographically Strong Undeniable Signatures, Unconditionally Secure for the
Signer" with E. van Heijst and B. Pfitzmann, in J. Feigenbaum (ed.), *Advances
in Cryptology -- Crypto '91* (Springer-Verlag, 1992); "Numbers Can Be a Better
Form of Cash than Paper", in D. Chaum, *Smart Card 2000* (North Holland,
1991); "Privacy Protected Payments: Unconditional Payer and/or Payee
Untraceability", in D. Chaum and I. Schaumuller-Bichl (eds.), *Smart Card
2000* (North Holland, 1989); "Security Without Identification: Transaction
Systems to Make Big Brother Obsolete", *Communications of the ACM* 28:10,
October 1985; "Smart Cash: A Practical Electronic Payment System", in J. Bos
and D. Chaum, *CWI-Report CS-R9035*, August 1990; "Untraceable Electronic
Cash", with A. Fiat and M. Naor, in S. Goldwasser (ed.), *Advances in
Cryptology -- Crypto '88* (Springer-Verlag, 1989).

29. "[P]rior restraint of double-spending can be achieved by using a tamper-
resistant computing device that is capable of merely performing a signature
scheme of the Fiat-Shamir type (of one's own choice), such as the Schnorr
signature scheme" (Stefan Brands, "Highly Efficient Electronic Cash Systems",
Mary 17, 1994.)

30. I highly recommend Henry David Thoreau's essay "Civil Disobedience".

31. These included the interest ceilings set by the Federal Reserve's
Regulation Q, Kennedy's Interest Equalization Tax, and the Foreign Credit
Restraint Program. See Grabbe, op. cit., chapter 1.

32. *Economic Report of the President*, 1975.

.end.