Government, business, and the response to terrorism.

• Author: Weidenbaum, Murray L.
• Position: Business & Finance

THE MULTIFACETED national response to the Sept. 11 terrorist attacks are altering the balance between the public and private sectors in the U.S. Threats to national security are always present. At the end of the Cold War in the late 1980s, defense planners knew that the nature of those threats were changing, particularly toward "unconventional" forms of warfare such as terrorism. Nevertheless, the rise of audacious international terrorism networks was not widely appreciated until the assaults on the Pentagon and the twin towers of the World Trade Center in lower Manhattan.

The struggle against international terrorism has become the mega priority among Federal government programs and activities. Issues closely related to terrorism have been elevated in terms of the attention and financial support given. International terrorism is an enduring phenomenon, and the issue is likely to remain an important spur to government activity.

The larger role for government is taking many forms: increased military spending, unprecedented emphasis on homeland security, special assistance to companies heavily affected, and a rapid expansion in the form and extent of government regulation of private activity, especially business. An impressive array of new or expanded government activities is designed to respond to terrorist threats.

The Office of Homeland Security has overall responsibility for developing government-wide policies on enhancing the nation's domestic safety. Operating responsibilities are assigned to a variety of departments and agencies, which deal with businesses on an individual basis.

Department of the Treasury. The first major antiterrorist action on the part of the Federal government in response to the Sept. 11 attack was a presidential executive order issued on Sept. 24, providing for a freeze on the bank accounts and other assets of specific terrorists and terrorist groups. The Department of the Treasury was given the basic assignment to carry out the order.

The impacts of the freeze on terrorists' funds were widespread, extending beyond banks to cover brokers, mutual funds, insurance companies, commodity traders, casinos, and money transferrers such as American Express and Western Union. The Treasury Department directed these private companies to do many things (at their own expense):

* To conduct more "due diligence" investigations of account holders, especially private banking clients, to make sure they were not terrorist groups

* To set up anti-money-laundering programs--or to expand their existing efforts--in order to prevent the conversion of illegal funds into legitimate financial accounts, with special focus to be given to private banking accounts, particularly those owned by foreign political figures

* To report "suspicious" activities to the Treasury Department

* To cease transactions with "shell banks" that have no physical presence in any country

* To gain more information about the foreign banks they do business with

* In the case of hedge funds, not to accept money from anonymous sources.

These new functions underscore the role of the Treasury Department as the second-largest law enforcement agency of the Federal government, after the Department of Justice. In addition to the activities of the Comptroller of the Currency and the Office of the Secretary of the Treasury, which are directly involved in dealing with financial institutions, the increased emphasis on antiterrorism work is expanding the role of the department's Bureau of Customs, which inspects goods coming into the U.S. from foreign sources.

Department of Transportation. The largest terrorist-induced expansion in civilian agencies is occurring in the Department of Transportation with the passage of the Aviation and Transportation Security Act of Nov. 19, 2001. That law established a new Transportation Security Agency and requires the Federal government to overhaul its security policies on all modes of transportation. With a target workforce exceeding 30,000, this new bureau has taken over from private companies the responsibility for examining baggage and...